Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 10832

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL

THIRD URBAN TRANSPORT PROJECT

Public Disclosure Authorized (LOAN 1965-BR)

RECIFE METROPOLITAN REGION DEVELOPMENT PROJECT (LOAN 2170-BR)

PARANA MARKET TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR)

NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 25n-BR) Public Disclosure Authorized

JUNE 26, 1992

0.331 , Type - ODD13 Report 1fl 110 / 7:073 / Public Disclosure Authorized

Operations Evaluation Department

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

AGLURB Urban Agglomerations Program BANESTADO Banco do Estado do Parana BNH National Housing Bank CEF Caixa Economica Federal CNDU National Urban Development Council CNPU National Ccmmission on Urban Policy and Metropolitan Regions CORABs State Housing Ccmpanies CUC Curado Urban Center DEAIN Department of International Affairs EBTU Brazilian Urban Transport Enterprise FAMEPAR Parana State Secretariat of Planning, Parana Municipal Assistance Foundation FIDEM Recife Metropolitan Region Development Foundation IBAM Brazilian Institute of Municipal Administration ICM Goods Circulation Tax MDU Ministry of Urban Development and Environment MEFP Ministry of Economy, Finance and Planning MINTER Ministry of the Interior PLANASA National Sanitation Plan PCR Project Completion Report PRAM The Parana Market Towns Improvement Project PPAR Project Performance Audit Report PROENE The Northeast Urban Flood Construction Project PROPAV Program for Low-Cost Paving in Low Income Areas RMRDP The Recife Metropolitan Region Development Project SAR Staff Appraisal Report SDU Undersecretariat of Urbaa Development SEPL Planning Secretariat SEPLAN Executive Secretariat Ministry of Planning SUDENE Superitendency for the Development of the Northeast UT-III The Third Urban Transport Project FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A.

Office of Drector-General Operstms Evalutiki

June 26, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Performance Audit Report on Brazil Third Urban Transport Project (Loan 1965-BR) Recife Metropolitan Region Development Project (Loan 2170-BR) Parana Market Towns Improvement Project (Loan 2343-BR) Northeast Urban Flood Reconstruction Project (Loan 264*-BR)

Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Brazil - "Third Urban Transport Project (Loan 1965- BR); Recife Metropolitan Region Development Project (Loan 2170-BR); Parana Market Towns Improvement Project (Loan 2343-BR); Northeast Urban Flood Reconstruction Project (Loan 2545-BR)" prepared by the Operations Evaluation Department.

Attachment

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

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL: EXPERIENCE WITH URBAN DEVELOPMENT

THIRD URBAN TRANSPORT PROJECT (LOAN 1965-BR) RECIFE METROPOLITAN REGION DEVELOPMENT IROJECT (LOAN 2170-BR) PARANA MARKET TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR) NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 25*S-BR)

TABLE OF CONTENTS

Page No.

Preface ...... i Basic Data Sheets ...... ii Evaluation Summary ...... x

1. BACKGROUND ...... 1

A. Introduction ...... 1 B. Bank Country and Sector Lending Strategies ...... 3 C. Sector Background ...... 3 D. Urban Policy ...... 4 E. The Evolving Institutional and Political Context ...... 4 F. The Macroeconomic Context ...... 6

II. THE PROJECTS ...... 7

A. Project Origins, Preparation, and Appraisal ...... 7 1. The Third Urban Transport Project (Ur-III) ...... 7 2. The Recife Project (RMRDP) ...... 9 3. The Parana Project (PRAM) ...... 13 4. The Northeast Urban Flood Reconstruction Project (PROENE) 15 B. Project Objectives and Description ...... 16 1. UT-III ...... 16 2. RMRDP ...... 18 3. PRAM ...... 22 4. PROENE ...... 25

III. PROJECT IMPLEMENTATION AND RESULTS ...... 27

A. Time Delays, Cost Variations, and Revisions ...... 27 1. UT-I ...... 27 2. RMRDP ...... 29 3. PRAM ...... 32 4. PROENE ...contents.ma .not.otherwis...... 33

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (continued)

Page No.

B. Project Results ...... 34 1. UT-III ...... 34 2. RMRDP ...... 36 3. PRAM ...... 38 4. PROENE ...... 40

IV. POINTS OF INTEREST ...... 40

A. Physical and Environmental Impact ...... 40 B. Poverty Impact ...... 41 C. Institutional Impact ...... 42 D. Financial Performance ...... 43 E. Sustainability ...... 44 F. Issues of Project Design ...... 46 G. The Importance of External Factors ...... 49

V. THE ROLE OF THE BANK ...... 49

A. Preparation and Appraisal ...... 49 B. Supervision ...... 50

VI. CONCLUSIONS AND LESSONS LEARNED ...... 52

A. Conclusions ...... 52 1. UT-III ...... 53 2. RMRDP ...... 53 3. PRAM ...... 54 4. PROENE ...... 55 B. Lessons Learned ...... 56

ANNEXES

1. Comments from Ministerio de Economia, Fazenda e Planejamento... 60 2. Comments from Companhia Paranaense de Saneamento ...... 65 3. Comments from Instituto Brasileiro de Administracao Municipal...... 66 4. Comments from Thereza Lobo (Consultant)...... 68 5. Comments from Arch. Jorge Guilherme Francisconi...... 70 PROJECT PERFORMANCE AUDIT REPORT

BRAZIL: EXPERIENCE WITH URBAN DEVELOPMENT

THIRD URBAN TRANSPORT PROJECT (LOAN 1965-BR) RECIFE METROPOLITAN REGION DEVELOPMENT PROJECT (LOAN 2170-BR) PARANA MARKdT TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR) NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 2545-BR)

PREFACE

1. This is a Project Performance Audit Report (PPAR) on four urban development operations in Brazil. The Third Urban Development Project was approved on March 31, 1981 and partially financed by Loan 1965-BR for US$ 90zO million. It was fully disbursed. The Recife Metropolitan Region Development Project was approved on June 3, 1982 and was financed by Loan 2170-BR for US$ 123.9 million, of which US$ 15.9 million was later cancelled. The Parana Market Towns Improvement Project was submitted to the Board on August 23, 1983 and was partially funded by Loan 2343-BR for US$ 52.7 million. An unused balance of US$ 773,000 was cancelled at the time of last disbursement. The North .st Urban Flood Reconstruction Project was approved on December 19, 1985 and was supported by Loan 2545-BR for US$ 100.0 million, of which US$ 1.4 million was cancelled.

2. The PPAR consists of an Evaluation Summary and a Project Performance Audit Report (PPAR) prepared by the Operations Evaluation Department Project Completion Reports (PCRs) prepared in all cases by the Infrastructure Optrations Division of Country Department I of the Latin American and the Caribbean Regional Office (LAlIN) were previously submitted to the Board on the following dates: Parana Market Towns Improvement Project (Report No. 9154) - November 30, 1990; Third Urban Transport Project (Report No. 9186) - December 7, 1990; Recife Metropolitan Region Development Project (Report No. 9490) - April 12, 1991; and Northeast Urban Flood Reconstruction Project (Report No. 9491) -April 12, 1991.

3. The PCRs provide accounts of project experiences and indicate their achievements and failures. To give a wider and comparative perspective, OED has provided additional Information about the history of the four operations, their aain implementation problems and outcomes, the issues raised, and the principal lessons learned. The PPAR is based on the aforementioned PCRs, the respective SARs, project files, legal documents, discussions at Board presentation, and other relevant materials. It also drew on interviews with Bank project staff, discussions with representatives of the Brazilian federal government and of several state and municipal governments, including all major coordinating agencies, and site visits carried out during an Audit mission in December 1991.

4. The Audit generally agrees with the findings of the PCRs and examines several of the key issues raised by the projects in further detail. Brazilian Government comments submitted by the Department of International Affairs of the Ministry of Economy, Finance, and Planning (MEFP/DEAIN), the Brazilian Institute of Municipal Administration (IBAM), and an independent consultant have been incorporated in -- and are annexed to -- the final version of this report. PROJECT PERFORMANCE AUDIT REPORT

BRAZIL

THIRD URBAN TRANSPORT PROJECT (LOAN 1965-BR)

BASIC DATA SHEET

KEY PROJECT DATA

Actual or Actual as Z Appraisal Current of Appraisal Item Expectation Estimate Estimate

Total Project Cost (US$ m) 257.0 200.7 78.0 Loan Amount (US$ m) 90.0 90.0 100.0 Economic Rate of Return n/a n/a n/a Institutional Performance: Good

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

Appraisal Estimate (US$M) 90.0 Actual (US$M) 90.0 Actual as Z of Appraisal (Z) 100.0 Date of Final Disbursement: August 18, 1987

PROJECT DATES

Orixinal Actual

Identification 08/79 Preparation 08/79 Appraisal 06/80 Negotiations 02/81 Board Approval 03/81 Loan Signature 06/81 Loan Effentiveness 10/81 Project Completion 12/88 Loan Closing 06/85 07/88 iii

STAFF IMPUTS (staffweeks)

FY82 FY83 FY84 FY& FY FY87 FY88

Estimated 19.0 59.6 85.7 90.0 - -- -- Actual - 7.6 16.4 25.5 36.5 88.3 90.0 Actual as % of Estimate 0% 13% 19% 28% 41% 98% 100%

MISSION DATA

Date No. of No. of Month/Year Days Persons

Identification Var./79 * * Preparation I 79/80 * * Preappraisal 03/80 - - Appraisal 06/80 10 7 Supervision I 09/81 10 2 Supervision II 01/82 2.5 1 Supervision III 03/82 10 4 Supervision IV 07/82 2.5 1 Supervision V 10/82 10 3 Supervision VI 02/83 5 1 Supervision VII 11/83 10 1 Supervision VIII 03/84 10 2 Supervision IX 10/84 5 1 Supervision X 12/84 5 1 Supervision XI 07/85 10 - Supervision XII 04/86 5 - Supervision XIII 12/86 5 - Supervision XIV 11/87 5 -

* Data not available.

OTHER PROJECT DATA

Borrower: Government of Brazil

Executing Agencies: Brazilian Urban Transport Companies (EBTU) and municipalities. iv

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL

RECIFE METROPOLITAN REGION DEVELOPMENT PROJECT (LOAN 2170-BR)

BASIC DATA SHEET

KEY PROJECT DATA

Actual or Actual as % Appraisal Current of Appraisal Item Expectation Estimate Estimate

Total Project Cost (US$ m) 347.8 215.6 62.0 Loan Amount (US$ m) 123.9 107.96 87.1 Economic Rate of Return 16-73% n/a n/a Institutional Performance: Varied

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

Appraisal Estimate (US$H) 123.9 Actual (US$M) 107.96 Actual as % of Appraisal (%) 87.1 Date of Final Disbursement: May 2, 1990

PROJECT DATES

Original Actual

Identification 08/78 08/78 Preparation 05/79 05/79 Appraisal !0/81 10/81 Negotiations 04/82 04/82 Board Approval 06/82 06/82 Loan Signature 06/82 06/82 Loan Effectiveness 11/82 11/82 Project Completion 06/88 06/89 Loan Closing 12/88 12/89 v

STAFF INPUTS (staffweeks)

Y I FY82 FY83 FY84 FYr5 FY86 FY87 FY88 FY89 FY90

PreappraisaL 45.8 28.4 Appraisal 72.6 Negotiations Supervision 27.0 23.8 9.6 4.0 0.4 1.2 6.6 1.8 Other TOTAL 45.8 101.0 27.0 23.8 9.6 4.0 0.4 1.2 6.6 1.8

MISSION DATA

Date No. of No. of Month/Year Day_ Persons

Identification 09/78 23 3 Preparation I 05/79 17 3 Preparation II 04/80 13 4 Preparation III 10/80 5 3 Appraisal 10/81 23 10 Preappraisal I 11/82 5 2 Post-Appraisal 02/83 3 2 Supervision I 03;83 2 1 Supervision II 06/83 10 3 Supervision III 12/83 8 3 Supervision IV 05/84 6 4 Supervision V 10/84 6 4 Supervision VI 12/84 4 1 Supervision VII 04/85 4 2 Supervision VIII 03/86 9 2 Supervision IX 10/86 3 1 Supervision X 05/87 2 1 Supervision XI 11/87 3 2 Supervision XII 07/88 2 1 Supervision XIII 06/89 8 2 Supervision XIV 02/90 7 3

OTHER PROJECT DATA

Borrower: Government of Brazil

Executing Agencies: Recife Metropolitan Region Development Foundation (FIDEM) and various federal, state, and municipal agencies. vi

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL

PARANA MARKET TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR)

BASIC DATA SHEET

KEY PROJECT DATA

Actual or Actual as % Appraisal Current of Appraisal Item Expectation Estimate Estimate

Total Project Cost (US$ m) 150.2 108.18 72.0 Loan Amount (US$ m) 52.7 51.93 98.5 Economic Rate of Return 26% n/a n/a Institutional Performance: Excellent

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

Appraisal Estimate (US$M) 52.7 Actual (US$M) 51.93 Actual as % of Appraisal (%) 98.5 Date of Final Disbursement: July 27, 1989

PROJECT DATES

Original Actual

Identification 07/81 Preparation 05/82 Pre-appraisal 08/82 08/82 Appraisal 10/82 11/82 Negotiations 03/83 04/83 Board Approval 05/83 08/83 Loan Signature 10/83 Loan Effectiveness 10/83 03/84 Project Completion 06/89 06/89 Loan Closing 12/87 12/88 vii

STAEF INPUTS (staffweeks)

Estimated 24.8 Appraisat 4.0 Supervision 10.6 PCR Preparation 3.6 Total 43.0

MISSION DATA

Date No. of No. of Month/Year Days Persons

Preparation I 05/82 12 4 Preparation II 08/82 12 4 Appraisal 11/82 12 6 Negotiations 04/83 5 4 Supervision I 10/83 3 1 Supervision II 07/84 5 1 Supervision III 12/84 5 1 Supervision IV 12/85 10 1 Supervision V 05/86 1 1 Supervision VI 10/86 4 1 Supervision VI 05/87 2 1 Supervision VIII 10/87 4 2 Supervision IX 06/88 5 1 Supervision X 12/88 5 2 PCR 12/89 5 2

OTHER PROJECT DATA

Borrower: Government of Brazil

Executing Agencies: Parana State Secretariat of Planning, Parana Municipal Assistance Foundation (FAMEPAR), Banco do Estada do Parana (BANESTADO), and municipalities. viii

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL

NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 2645-BR)

BASIC DATA SHEET

KEY PROJECT DATA

Actual or Actual as % Appraisal Current of Appraisal Item Expectation Estimate Estimate

Total Project Cost (US$ m) 208.6 165.81 79.5 Loan Amount US$ m) 100.0 98.6 98.6 Economic Rate of Re.;urn n/a n/a n/a Lustitutional Performance: Good

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

Appraisal Estimate (US$M) 100.0 Actual (US$M) 98.6 Actual as % of Appraisal (%) 98.6 Date of Final Disbursement: July 27, 1989

PROJECT DATES

Original Actual

Identification 04/85 Preparation 07/85 Appraisal 07/85 Negotiations 09/85 11/85 Board Approval 09/85 12/85 Loan Signature 04/86 Loan Effectiveness 02/86 09/86 Project Completion 06/87 06/89 ix

STAFF INPUTS (staffweeks) FY85-8

PreappraisaL 26.6 AppraisaL Negotiations 2.2 Supervision 5.4 TotaL 34.2

MISSION DATA

Date No. of No. of Month/Year Days Persons

Identification 04/85 12 4 Appraisal 07/85 17 5 Board Approval 07/86 8 1 thru Effectiveness 12/86 3 1 Supervision I 05/87 7 1 Supervision II 11/87 6 2 Supervision III 10/88 4 3

OTHER PROJECT DATA

Borrower: Government of Brazil

Executing Agencies: Superitendency for the Development of Northeast Brazil (SUDENE) and various state and municipal agencies. x

PROJECT PERFORMANCE AUDIT REPORT

BRAZIL: EXPERIENCE WITH URBAN DEVELOPMENT

THIRD URBAN TRANSPORT PROJECT (LOAN 1965-BR) RECIFE METROPOLITAN REGION DEVELOPMENT PROJECT (LOAN 1720-BR) PARANA MARKET TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR) NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 2545-BR)

EVALUATION SUMMARY

Introduction and measures to improve existing road networks in 10 medium-sized cities; 1. The operations assessed in this (ii) the "Program for Low-Cost Paving report represent four distinct in Low-Income Areas," or PROPAV) to approaches to urban development in upgrade 500 km of bus routes in poor Brazil. They all built on earlier neighborhoods in a much larger number Bank urban development experience in of towns and cities; and (iii) an the country and encountered similar institutional subproject aimed at execution difficulties due at least modifying EBTU's organization and in part to Brazil's deteriorating improving its management. Given economic and fiscal situation, EBTU's earlier experience in carrying redemocratization and political- out the first Urban Transport Project administrative decentralization, and (Loan 1563-BR), UT-III was structured substantial institutional flux in the as a hybrid between a sector loan and urban sector during the 1980s. a project loan. Total project costs (paras. 1.12-1.20) Some projects, were estimated at US$ 257.0 million. however, were far better able to deal (paras. 2.24-2.25) with these tendencies than others. 3. The Recife Metropolitan Region Obiectives and Description Development Project (hereafter the Recife project or RMRDP) was the 2. The objectives of the Third Bank's first attempt to support an Urban Transport Project (hereafter "integrated" urban development UT-III) were to bring about operation in a major metropolitan improvements in urban transport area in Latin America. Its basic infrastructure and services and objective was to promote both the enhance the operating efficiency of concept and effective implementation the Brazilian Urban Transport of metropolitan region development by Enterprise (EBTU). These goals were strengthening metropolitan planning to be achieved through three and management. Specific goals were complementary subprojects: (i) the to: (i) provide improvements to "Urban Agglomerations Program." or housing, urban infrastructure and AGLURB) consisting of low-cost services within the existing urban traffic management investments, fabric; (ii) provide metropolitan measures to improve bus operations, scale infrastructure and services xi aimed at supporting. complementing, Bank participation were to: (i) and inducing desired patterns of develop an alternative system of metropolitan growth; (iii) promote long-term borrowing and cost recovery income generation, especially for the for municipalities; (ii) introduce urban poor; and (iv) strengthen the systematic criteria for the selection institutions responsible for urban of subprojects and allocation of and metropolitan planning, investment resources to different administration, and financial sized towns and subregions; (iii) management. Overall coordination was promote, develop, and apply fiscal the responsibility of the Recife recovery of investment costs by Metropolitan Region Development recipient municipalities; and (iv) Foundation (FIDEM). RMRDP contained improve small town living conditions. four subprojects: (i) squatter Eligible subprojects included upgrading in 56 low-income physical infrastructure (street neighborhoods to benefit an estimated paving, town square improvements, 155,000 people; (ii) "metropolitan electrification, water supply, infrastructure" including major road sewerage, erosion control, etc.), improvements, a large low-income community facilities (kindergartens, housing estate, an industrial park, gymnasia, social centers, health two commercial-industrial and clinics, and so on), and the residential land developments, and acquisition of vehicles and equipment garbage collection and disposal; (particularly school buses and road (iii) income generation entailing maintenance equipment). Technical assistance to micro-enterprises, assistance would be provided by professional intermediation services, selected state government agencies. support to an existing fishing Coordination was initially the cooperative and small-scale shrimp responsibility of the state production, and a pilot project to Secretariat of Planning, but was improve tourist access to beaches and later transferred to a newly-created historical monuments; and (iv) Secretariat of Urban Development and institutional development to improve the Environment. Total project costs the efficiency of and coordination were estimated at US$ 150.2 million. among state and municipal agencies (paras. 2.31-2.34) responsible for metropolitan development. Total project costs 5. The Northeast Urban Flood were estimated at US$ 347.8 million. Construction Project (hereafter (paras. 2.26-2.30) PROENE) was part of a larger federal program to rebuild housing, 4. The Parana Market Towns infrastructure, and other facilities Improvement Project (hereafter the damaged by severe flooding in early Parana project or PRAM) was designed 1985. Objectives of the Bank loan to finance urban infrastructure and were to assist the physical and municipal services in 287 towns economic rehabilitation of flood- ranging in size from 2,500 to 50,000 afflicted urban areas and to inhabitants in the state of Parana. strengthen regional, state, and Funding was to come from two sources: municipal planning capacity for flood state fiscal revenues transferred as protection and control. The grants on the basis of municipal operation was expected to be urban population size and Bank implemented in 160 municipalities in resources to be on-lent to interested nine states and to contain five local governments able to carry the subprojects: (i) rehabilitation or debt service. Specific objectives of construction of some 127,000 low- xii

income housing units and installation 7. The loan for UT-III was closed of low-cost sanitation systems; (ii) eighteen months after the date set at improvement, repair, and extension of Board approval. Start-up took flood-damaged urban infrastructure considerably longer than expected due including wator supply and sewerage to delays in initiating the networks, streets and local drainage, institutional subproject, legal flood protection works, and larger questions concerning on-lending terms storm drainage works; (iii) repair for AGLURB cities, and EBTU's failure and reconstruction of community to process subprojects according to facilities (schools, health centers, the schedule set at appraisal which, etc.) and public buildings; (iv) a in retrospect, was clearly credit program for selected micro- unrealistic. Other factors affecting enterprises; and (v) technical project execution included: i assistance and studies for flood political-administrative changes at prevention. A coordination unit was the municipal, state, and federal set up in the Superintendency for the levels; (ii) senior management Development of the Northeast (SUDENE) changes in EBTU; (iii) counterpart and total project costs were funding delays; and (iv) government estimated at US$ 208.6 million. economic "packages" which led to the (paras. 2.35-2.38) withholding of federal resources. Actual project costs were 22 percent Implementation Experience lower on completion (US$ 200.8 million) than expected due to: (i) 6. All four operations suffered overestimation of costs at appraisal time delays, affecting both their because of the lack of final designs; physical execution and pace of (ii) elimination of major planned disbursements. Actual project costs investments from some AGLURB in US dollar terms were significantly subprojects; (iii) implementation of lower in all cases than expected at most PROA works by force account; appraisal. This was largely due to (iv) design improvements during rapid domestic inflation and execution; and (v) construction cost associated devaluation of the inflation lower than the overall rate Brazilian currency relative to the of domestic price increase. The dollar. All four projects also resulting unit cost savings permitted experienced counterpart funding an expansion of both the AGLURB and difficulties -- as did most other PROPAV subprojects. The Bank operations in Brazil at the time institutional subproject also -- inducing the Bank to raise its experienced alterations, including share of total project costs from an both expansion of technical average of 38 percent to nearly 50 assistance for transport planning and percent. All of the projects operations in AGLURB cities and likewise underwent some degree of modification of the proposed study revision. The Recife project was program. (paras. 3.03-3.06) reoriented, while the physical targets of UT-III and PRAM were 8. Implementation difficulties considerably expanded during faced by RMRDP were even greater. implementation and PROENE took on Not only did municipal and state much more of a flood prevention governments change hands a number of character than originally times, but several of these anticipated. transitions involved opposing political parties. RMRDPs execution also coincided with major xiii

institutional changes in the urban did not become effective until nearly sector, including shifts in nine months after Board approval. ministerial responsibility for urban largely because of senior management projects in the federal government. changes at SUDENE. This and As with UT-III, rising inflation, subsequent delays kept the operatin exchange rate devaluations, and from closing until July 1989. one federal stabilization measures also year later than expected. Actual hampered project execution. project costs on closing (US$ 165.8 Disbursements extended over 7.5 million) were 21 percent lower than years, leading to a one year anticipated. Once again, inflation extension in the closing date, while and counterpart funding shortages project costs on completion (US$ took a toll on project execution and 215.6 million) were 38 percent lower had an impact on project content. than anticipated. RMRDP underwent Due to the delay in loan signing, the revisions in early 1986, when, due to Bank was unable to participate in the persistent counterpart funding reconstruction of about 65,000 problems, the Bank's percentage of houses, requiring the reallocation of project costs was increased and funds from the shelter component to reimbursement procedures were the infrastructure subproject. The simplified, and again in 1988, when a share of project costs used for new state government extended project rebuilding community facilities and investments and technical assistance flood prevention studies also fell, to all of the municipalities in the while the micro-enterprise credit and metropolitan region. Some of the low-cost sanitation components were project's original investments (eg., dropped altogether. Because of these much of the garbage disposal changes, PROENE essentially became an component and parts of the urban storm drainage program. (paras. institutional subproject) were not 3.17-3.19) undertaken. (paras. 3.07-3.13) Results 9. The Parana project also suffered delays on account of state 11. UT-Ill exceeded its appraisal and municipal political- targets both in terms of the number administrative changes. This was the of AGLURB subprojects (14 insteAd of principal reason for PRAM's slow 10) and the extension of bus routes start and eventually led the Bank to paved under PROA (1,056 km instead extend the closing date for a year. of 500 km). Performance of the Aside from start-up delays, execution various AGLURB subprojects was uneven of PRAM went smoothly even though due to differences in the degree of some counterpart funding problems state and municipal political were experienced. Actual costs on support, the competence and completion, (US$ 108.2 million) were dedication of local project units, 28 percent lower than expected. Due and the quality and consistency of to unit cost savings and strong EBTU assistance. From an economic municipal demand for program perspective, both AGLURB and PROP resources, PRAM was aLle to finance a appear to have generated generally much larger number of subprojects positive results. As concerns than originally anticipated. (paras. institutional development, the 3.14-3.16) outcome was mixed. While a large number of bus operators and 10. Despite its "emergency" maintenance personnel were trained character, the Bank loan for PROENE and local transport agencies xiv

consolidated in AGLURB cities, political decentralization, achievement of institutional goals at undermined both metropolitan planning the federal level were ultimately and management processes and the frustrated because of the extinction strength and legitimacy of FIDEM. of EBTU in 1990. UT-III's positive (paras. 3.25-3.30) impact in terms of stimulating an urban transport planning mentality at 13. The Parana project exceeded the local level and the hands-on most of its physical targets and experience afforded to a large number achieved most of its institutional of professionals who continue to be and financial objectives. In active in the sector, however, should addition to providing subloans to 299 not be overlooked. (paras. 3.20-3.24) municipalities, compared with an appraisal estimate of 150, PRAM 12. Despite implementation delays improved subproject selection and and its reorientation, much of the resource allocation procedures. Recife project was eventually Municipal access to funds for a wide completed more or less as originally variety of urban investments intended in a physical sense. stimulated community participation However, excepting the upgradiag and reportedly made local authorities subproject, the highway improvements, more accountable to their the housing estate, and (in part) one constituents. Availability of long- of the land development schemes, term credit permitted municipal project results have been governments to finance projects whose disappointing. Beyond the failure to costs could be recovered, thus fully execute the solid waste and helping to enhance local revenues. institutional development While it is difficult to assess subprojects, RMRDP did not achieve project impact on local economic most of its income generation development, the operation clearly objectives, and, at least from a helped to improve the quality of life financial standpoint, most of the in small towns and cities throughout metropolitan infrastructure Parana. PRAM was also successful components have produced only limited from a financial standpoint as there returns. Even the comparatively were no reported cases of subloan successful upgrading component default or significant arrears. benefitted less than 40 percent of PRAM's success can be attributed to a its target population, while the number of factors: infrastructure investments intended to consolidate the metropolitan (i) it was based on an existing area's "second industrial-commercial local initiative that was able development pole" were clearly to maintain strong political premature. In retrospect, economic support even when control of feasibility of the spatial the state government shifted development strategy for the from one party to another; metropolitan area was not adequately assessed by either FIDEM or the Bank. (ii) most of its subprojects were The institutional subproject, small and of relatively simple finally, has produced few lasting design, thus facilitating their results. One major reason for this implementation; was the unstable institutional and economic-financial environment in (iii) it was administered by a which the project was carried out, competent and motivated team which, together with increasing and was able to utilize the xv

decentralized structure of the improvements under UT-III will be existing state municipal sustainable. Assuming that the assistance agency; AGLURB cities visited by the Audit mission are representative, the (iv) it was able to meet the quality of street maintenance and priority demands of a traffic control seems quite large number of reasonable, as does the on-going mun icipa 1 ities , performance of municipal transport providing it with agencies. Interviews with ex-project additional political staff, however, revealed a persisting support; need for federal support in the form of training and technical assistance, (v) as a multi-town program, an area in which EBTU played a key risks of delayed or non- role but where there is presently an execution were spread institutional vacuum. Sustainability over a large number of of many of the investmeats made in subborrowers; and, connection with RMIRDP is more doubtful. Maintenance of project (vi) its location in a state components has been mixed, while for having a tradition of some investments it is unulear g o o d p u b 1 i c whether there are any significant administration provided benefits to sustain. In any event, a p r o p i t i o u s continued large-scale investments at institutional setting the metropolitan level on the basis for project execution. of federal and state transfers are no (paras. 3.31-3.35) longer possible.

16. Given its positive cost 14. PROENE fell substantially short recovery performance and the of its appraisal target for housing comparatively good quality of local reconstruction, but exceeded that for public administration, it is likely urban infrastructure, especially that benefits from the Parana project flood protection works. It also will be sustained. Both failed to provide credit for flood- infrastructure and community damaged small businesses. There is facilities visited by the Audit already evidence, however, that new mission were well operated and storm drainage works supported under maintained. Two reasons for this is the project have averted flooding that these investments clearly fros heavy rainfall in parts of the responded to local needs and demand, region. On the other hand, of the while there is continuing community flood prevention studies which were pressure on municipal governments to to have been undertaken using ensure their upkeep. The satellite imagery in nine major river sustainability of benefit flows from basins, only one was completed and PROENE's investments also seems two others initiated. (paras. 3.36- likely unless participating 3.37) municipalities fail altogether to clean and otherwise maintain the Sustainability civil works installed under the project. Institutionally however, 15. It appears likely that most of there is nothing to sustain since the the benefits derived from local central project unit was disbanded transport and traffic management and there is little prospect of xvi continuing the regional flood eventually implemented, all but the prevetition program in the absence of highway and housing estate have federal support. (paras. 4.13-4.17) produced a much lower level of benefits than originally expected. Conclusions and Lessons The income generation component proved very difficult to implement 17. While only the Parana project and yielded disappointing results. successfully achieved all of its The institutional development objectives, on the whole, UT-III and subproject, finally, was only partly PROENE can be considered satisfactory executed and failed to strengthen operations, while the Recife project either the metropolitan planning can not. UT-ITI accomplished its function or FIDEM as a metropolitan declared objectives of improving development agency. urban transport infrastructure and services and enhancing the 19. RMRDF's unsatisfactory operational efficiency of EBTU. It performance can be attributed to a ultimately failed, however, through combination of overly ambitious no fault of its own, to achieve its design and external economic, underlying goal of preparing EBTU to political, and institutional factors carry out larger program loans for -- including, with redemocratization urban transport in Brazil. Despite of the country, the progressive its smaller than expected weakening of the metropolitan regions institutional impact, UT-III extended themselves -- that together created a Bank-assisted urban transport "disabling" environment for project improvements to a large set of implementation. In the final secondary cities, including several analysis, however, RMRDP, which was state capitals and the Federal considered highly innovative in the District, and implemented a popular Bank at the time of Board approval, and reportedly widely replicated bus was the victim of its own complexity, route pavement program in a much both in terms of the number and larger number of urban centers of variety of interventions it contained varying sizes. UT-III also helped to and the number and variety of create or consolidate various institutions involved in its municipal transport agencies. (paras. implementation. Being at the same 6.02-6.03) time place-specific and multi- institutional, it proved highly 18. RMRDP had four major vulnerable to administrative changes objectives: (i) to provide localized and local political rivalries. shelter improvements for the urban (paras. 4.19-4.20 and 6.04-6.06) poor; (ii) to support implementation of FIDEM's spatial development 20. The Parana project's goals were strategy for the metropolitan region; also fourfold: (i) to develop an (iii) to boost income generation; and alternative system of borrowing for (iv) to strengthen the institutions municipalities; (ii) to introduce responsible for metropolitan planning systematic subproject selection and and management. The project, as resource allocation criteria; (iii) executed, was partially successful to promote cost recovery; and (iv) to with respect to the first of these improve small town living conditions. goals, but it largely failed to All of these objectives were achieve the other three. While many substantially attained. Project of the physical works in support of implementation proceeded without FIDEM's spatial strategy were major problems despite an xvii

increasingly unstable macroeconomic investment project than an emergency environment at the national level. reconstruction loan. without having Even with several state and municipal been prepared or appraised as such. elections, political commitment to Had a more conventional approach been the project was maintained. The taken. the operation might have been strong institutional base in Parana successful in institutional, as well was also a relevant factor in its as physical, terms. Second, success. Nevertheless, at the end of emergency reconstruction loans often the project, a key executing agency, attempt to deal with a backlog of FAMEPAR, was reportedly in an long-term urban management problems. increasing state of deterioration, Such projects tend to rely too much contributing to delays in the on the hope that short-term preparation and early implementation strategies (i.e., high government of the follow-on project. (para. priority accompanied by quick 6.07) preparation and approval) will be sufficient to solve these problems. 21. PROENE's stated objectives were (paras. 6.08-6.10) to assist in the rehabilitation of flood-damaged urban areas and 23. The individual PCRs draw a strengthen public sector planning number of useful lessons, many of capacity for flood prevention and which apply to more than one of the control in the Northeast. The operations assessed. (para. 6.11) Government's emergency program, of The most significant among these are which the operation was a part, the following: substantially achieved the first goal. The second, however, went (i) Project Design and Preparation: largely unattained. On the whole, Project design should be kept the project can be considered as simple as possible, since satisfactory because its the inclusion of multiple implementation, once initiated, was components and institutions reasonably straightforward and greatly increases the risks to produced clearly identifiable the operation, and take into benefits which appear to be account the local electoral sustainable. calendar in order to ensure continuity. Project financing 22. The experience with PROENE requires a simple flow of funds nonetheless illustrates two frequent to minimize bureaucratic problems with "emergency" operations. delays, particularly when First, even though the project was several levels of public prepared quickly by the Brazilian administration are involved. Government and processed rapidly by Key financial aspects (i.e., the Bank, its execution suffered from on-lending terms, cost delays both in loan signing and recovery, etc.) should be effectiveness. As a result, one spelled out at appraisal and maj or activity (housing reflected in project design rehabilitation) was already rather than being left to substantially completed before Bank studies to be undertaken during funds could be disbursed, while much execution. of the planned infrastructure rebuilding program was also well- (ii) Project Implementation and advanced. In practice, PROENE took Management: Substantial on more the character of a regular completion of institutional xviii

reorganization, definitive status of project execution. operational manuals, and Insofar as fassible. participating or on-lending supervision mission should agreements between central and occur at flexible intervals in state or local governments accordance with project needs should be a condition of rather than in strict adherence project approval or to the Bank's bi-yearly effectiveness rather than being schedule. In complex projects left to be resolved during or rapidly processed emergency project implementation. operations, the Bank should Decentralization of execution routinely budget above average responsibilities, coupled with amounts of supervision time. technical assistance and training to the institutions 24. Beyond these recommendations, sharing responsibility for the Audit highlights several other project implementation general lessons. (paras. 6.12-6.14) decreases the risks associated Perhaps the most important of these with the concentration of is the need for the Bank to pay responsibilities in a single greater attention to the external agency. Additionally, the Bank environment in which its operations should stimulate the will be implemented. In addition to establishment an d/or economic and financial factors, consolidation of a permanent institutional and, above all, professional team in project political considerations need to be coordinating units so as to more explicitly taken into account in build up a strong institutional project design, appraisal, and base and avoid the problem of supervision. The operations examined discontinuity that frequently clearly illustrate both the disrupts project execution. importance of sustained political support for successful project (iii) Project Monitoring: A system implementation and outcomes and the to adequately monitor project serious difficulties which can arise implementation should be put in its absence. While political into place prior to start-up to factors will always have some effect assist project managers and on project performance, their facilitate subsequent potential adverse impact can be evaluation. reduced either by tailoring project In particular, operations that implementation periods to specific contain ambitious institutional goverment mandates or by designing objectives should include operations which are sufficiently clearly defined and measurable flexible to accommodate shifting indicators to permit the priorities resulting from periodic monitoring of progress toward administrative changes. the achievement of these goals. 25. A second lesson ref ers to the (iv) Project Supervision: Bank advantages of multi-place, subsector supervision should be improved or program type operations such as to ensure greater continuity UT-IIl, PRAM, and PROENE over largely and help project managers pre-defined. single place adequately address "integrated" projects such as RRDP. implementation problems, Among the advantages of the former regardless of the overall are (i)s their comparatively greater xix

flexibility in terms of accommodating changing local political conditione; (ii) their possibility of stimulating competition among different localities or subborrowers, with likely efficiency gains; (iii) the relatc-d possibility oi learning by doing collectively dua to the larger number of project participants; and (iv) their capacity to reduce the risks of poor performance by decentralizing implementation and spreading project resources over a larger number of participants. On the other hand, such projects must be careful not to disperse their resources so widely as to become ineffective.

26. A lesson which should be reemphasized, finally, is the need for the Bank to pay greater attention to project-related institution*. development and financial management, particularly cost recovery, during both preparation and appraisal and subsequent implementation. The experience of the operations reviewed reveals that these aspects of project performance, while often critical for the sustainability of their benefits, are frequently the weakest. Even though more recent urban operations in Brazil have clearly strengthened project design in this regard, it remains to be seen if the resources allocated for their supervision will be sufficient to permit the Bank to effectively monitor progress and respond rapidly to problems, if necessary, during implementation. PROJECT PERFORMANCE AUDIT REPORT

BRAZIL: EXPERIENCE WITH URBAN DEVELOPMENT

THIRD URBAN TRANSPORT PROJECT (LOAN 1965-BR) RECIFE METROPOLITAN REGION DEVELOPMENT PROJECT (LOAN 2170-BR) PARANA MARKET TOWNS IMPROVEMENT PROJECT (LOAN 2343-BR) NORTHEAST URBAN FLOOD RECONSTRUCTION PROJECT (LOAN 2645-BR)

I. BACKGROUND

A. Introduction

1.01 The operations assessed in this report, whose implementation overlapped to a significant degree, represent four distinct approaches to urban development in Brazil. In one way or another, they all built on earlier Bank urban development experience in the country. In addition, they faced similar execution difficulties due to Brazil's deteriorating economic situation and fiscal crisis, gradual redemocratization and related political-administrative decentralization, and substantial institutional change in the urban. sector during the 1980s. Some projects, however, were far better able to deal with these transformations than others. The main reasons for these differences and their implications for ongoing and future urban projects in Brazil will be explored throughout this report.

1.02 The projects reviewed were the Bank's fifth, sixth, eighth, and tenth urban development operations in Brazil in t ems of approval date. Earlier operations were the First and Second Urban lran3port Projects (Loans 1563 and 1839, approved in May 1978 and May 1980), the Sites and Services and Low-Income Housing Project (Loan 1654, January 1979), and the Medium-Sized Cities Project (Loan 1720, June 1979). All but the Second Urban Transport Project, which involved the installation of a suburban rail line in the Porto Alegre metropolitan area, were previously audited. ' The seventh urban project, Loan 2193-BR for Preparation of Metropolitan Development Programs for Fortaleza and Salvador (August 1982), was initially elaborated as part of the Recife operation, but was later processed separately (see para. 2.10 below) and has also been completed. 2 The ninth operation, the Santa Catarina Small Towns Improvement Project (Loan 2623, September 1985), was modelled directly on the Parana project examined in the present report, and is still under implementation.

1.03 The Third Urban Transport Project (hereafter UT-III), was approved on March 31, 1981 for a loan of US$ 90.0 million and closed on December 31, 1986, eighteen months behind schedule. It was executed by the Brazilian Urban Transport Enterprise (EBTU) and a large number of municipalities, particularly

See OED reports Nos. 6495 (November 1986), 7481 (December 1988). and 8302 (December 1989). The POCR for the Second Urban Transport Project was sent to the Board as OED Report No. 7069 (December 1987).

2 Its PCR was sent to the Board as OED Report No. 8400 (February 1990). 2

fourteen large secondary cities and urban agglomerations, many of which were state capitals. It adopted the same basic approach as the First Urban Transport Project, which financed transport improvements in five metropolitan areas (Belo Horizonte, Curitiba, Porto Alegre, Recife, and Salvador), and, in several cases, 3 was implemented in parallel to the Medium-Sized Cities Project. The loan for UT- III was fully disbursed. However, most of the loan for the follow-on Fourth Urban Transport Project (Loan 2822, approved May 1987), which again targeted metropolitan areas, was cancelled when the Brazilian Government abolished EBTU in March 1990 (see para. 1.14 below).

1.04 The Recife Metropolitan Region Development Project (hereafter the Recife project or RMRDP) was approved on June 3, 1982 and involved a loan of US$ 123.9 million, of which USS 15.9 million was later cancelled. It extended the multi-sector approach taken in the Medium-Sized Cities Project to a major metropolitan area. RMRDP was the Bank's first attempt to promote "integrated" urban development at the metropolitan level in Latin America and was followed by a similar project for the Salvador metropolitan area (Loan 2681, April 1986), which is still under implementation. ' The Recife operation closed on December 31, 1989, after a one year extension. Executed by a number of state and municipal entities and accompanied by the Superintendency for the Development of the Northeast (SUDENE) on behalf of the federal government, the coordinating agency was the Recife Metropolitan Region Development Foundation (FIDEM).

1.05 The Parana Market Towns Improvement Project (hereafter the Parana project or PRAM) was approved for a Bank loan of US$ 52.7 million on August 23, 1983. It was closed on December 31, 1988, one year behind schedule, at which time an unused loan balance of some US$ 773,000 was cancelled. This was the Bank's first attempt to promote municipal development in Brazil and the first urban project to support an existing state -- as opposed to federal -- government program. It was carried out by a large number of municipalities and coordinated by a project executing unit initially located in the state Secretariat of Planning (SEPL) and later in the Secretariat of Urban Development and the Environment (SEDU), in conjunction with the Parana Municipal Assistance Foundation (FAMEPAR) and the Parana State Bank (BANESTADO). It was followed by the Parana Municipal Development Project (PEDU), financed by Loan 3100-BR, approved in June 1989. s

1.06 Finally, the Northeast Urban Flood Reconstruction Project (hereafter PROENE), was approved on December 19, 1985 for a loan of US$ 100.0 million. It was processed rapidly by the Bank as an "emergency" operation in response to serious flooding in much of the Northeast in early 1985. This was the Bank's

Specifically, Natal, Florianopolis, Teresina, and Vitoria.

4 This operation, which was prcpared under Loan 2193-BR and underwent a substantial reformulation in 1990, is expected to close in December 1994.

s A similar project for the neighboring state of Rio Grande do Sul (Loan 3129-BR) was approved in October 1989. 3 first urban reconstruction loan to Brazil. 6 PROENE was executed by a large number of state and local agencies in all nine northeastern states, and was coordinated at the regional level by SUDENE. The loan closed on July 17, 1989, after a one year extension, and an unused balance of US$ 1.4 million war cancelled.

B. Lank Country and Sector Lending Strategies

1.07 The Bank's lending strategy for Brazil in the early 1980s was to support federal government efforts to increase the productivity and improve the living conditions of the poorest segments of the population, both in rural and urban areas, and to promote institutional development and policy reforms in order to rationalize resource allocation and enhance the coordination and control of public investments. Given the dimensions of the country, the scale and complexity of u.s urban problems, and the limited amount of resources available for investment in towns and cities, Bank strategy for the urban sector entailed the concentration of efforts in specific subsectors (ie. basic sanitation, transport, and low-cost shelter) and the channeling of resources through key intermediaries to improve their methods of analysis, increase their focus on urban poverty, and enhance inter-institutional -- including inter-governmental - - coordination. To accomplish these goals, Bank urban development operations sought to progressively transfer project preparation, appraisal, and supervision activities to the federal and state entities responsible for each operation.

C. Sector Background

1.08 Growth of the urban population in Brazil has been extremely rapid since 1950. As a result, roughly 80 million people -- or 68 percent of the total population -- resided in urban areas in 1980, as compared with 31 million (44 percent) in 1960. A large share of the urban total (nearly 36 million) lived in the nine metropolitan areas and the Federal District (Brasilia) in 1980, with metropolitan Sao Paulo and Rio de Janeiro alone accounting for close to 22 million. The fastest growing cities in the 1970s, however, were those having populations between 200,000 and 500,000 and a handful of non-metropolitan centers having over half a million inhabitants. Most of the large secondary cities were either state capitals or important industrial and agricultural service centers spread widely throughout the country.

1.09 Growth of metropolitan areas and secondary cities alike generated increasing demand for employment, housing, transport, and other basic urban services. Even though formal industrial and tertiary activities expanded significantly during the 1960s and 1970s, they were unable to absorb the burgeoning urban labor force; their performance during the 1980s was undoubtedly even less impressive. Similarly, municipal governments, relying heavily on federal and state government transfers, were largely incapable of meeting the needs of the growing urban population. Common results were increasing urban poverty, rising transport, sanitation, and social service deficiencies, growing illegal land occupations, the proliferation of slums and substandard housing, and

6 A second emergency loan (2975-BR) for urban flood reconstruction and rehabilitation was approved for Rio de Janeiro in June 1988. 4

the rapid expansion of informal enterprises and employment. This situation was relatively most serious in the impoverished Northeast -- particularly in metropolitan Recife, Salvador, and Fortaleza -- but even in more developed parts of the country, such as Sao Paulo and Parana, the problems associated with accelerating urbanization were significant.

D. Urban Policy

1.10 An explicit urban development policy was first outlined in the Second National Development Plan (II PND) for 1975-79. The basic objective was to contain the growth of Sao Paulo and Rio de Janeiro, rationalize and control the expansion of the other metropolitan areas, and promote the development of medium- sized and smaller cities so as to encourage greater "balance" in the national urban system. The Third National Development Plan (III PND) for 1980-85 advocated essentially the same strategy. It was hoped that this approach would contribute to greater efficiency in future urban development and enhance both spatial and interpersonal equity by diverting potential migrants from the largest metropolitan centers to smaller cities where urbanization costs were lower and by increasing employment opportunities and improving living conditions in the latter.

1.11 This strategy was appropriate given the emerging tendency for the spontaneous decentralization of population and economic activities from the two largest metropolitan areas. Bank urban operations implicitly endorsed this approach by seeking to support the development of urban centers other than Sao Paulo ' and Rio de Janeiro, including both less populous metropolitan regions and medium-sized and, in the case of Parana (and later also Santa Catarina and Rio Grande do Sul), small cities and towns. The focus of Bank urban lending, however, was as much intra-urban as it was inter-urban, both in terms of improving the efficiency of urban transport systems and service delivery and helping to alleviate urban poverty. The SAR for the Recife project observes, for example, (para. 1.01) that "Bank involvement in the urban sector in Brazil is based on the premise that attempts to change the spatial distribution of population, economic activity, and employment need to be complemented by well- designed programs that deal more directly with the problems of the urban poor."

E. The Evolving Institutional and Political Context

1.12 Formulation of the urbanization strategy briefly described above followed soon after establishment of the nine metropolitan regions in 1973-74 a and creation of the National Commission on Urban Policy and Metropolitan Regions

One component of the earlier Sites and Services and Low-Income Housing Project did include investments in metropolitan Sao Paulo; the other major beneficiaries of this project were Recife and Salvador. Bank loans for urban water supply and sewage treatment and for industrial pollution control have also been directed to Greater Sao Paulo.

a Each of the states which contained a metropolitan region subsequently set up a metropolitan planning and coordination agency. FIDEM, for example, was created by the state of Pernambuco in 1975. 5

(CNPU) in 1974. CNPU, whose Executive Secretariat was attached to the Ministry of Planning (SEPLAN), was given responsibility for elaborating national urban policy, administering initiatives such as the Medium-Sized Cities Program (created in 1976) and development projects for various metropolitan areas, and coordinating the various federal agencies operating in the urban sector. Foremost among these was the National Housing Bank (BNH), established in 1964 under the Ministry of the Interior (MINTER). A federal enterprise to promote urban transport improvements, EBTU, was set up in the Mi.istry of Transport in 1976.

1.13 With the change in federal administrations in March 1979, CNPU was transformed into the National Urban Development Council (CNDU) and its Executive Secretariat was transferred from SEPLAN to MINTER, where an Undersecretariat of Urban Development (SDU) was created in May 1979. The centralization of all the major agencies involved in urban development except EBTU within a single ministry was intended to result in improved coordination and control of federal investments in urban areas. However, because of its financial autonomy, BNH, which provided loans to state governments for investments in public housing (executed by state housing companies, or COHABs), slum upgrading and urban redevelopment, and basic sanitation (through the National Sanitation Plan, or PLANASA), continued to follow a course largely independent of CNDU.

1.14 The installation of a new federal government in March 1985 was accompanied by another round of institutional changes. A Ministry of Urban Development and Environment (MDU) was established, to which BNH, CNDU, and SDU were transferred. EBTU was shifted to MDU in January 1986. In November 1986, however, BNH was abolished and its functions and portfolio transferred to the Caixa Economica Federal (CEF). MDU, in turn, was transformed into the Ministry of Housing, Urbanism, and Environment (MHU) in October 1987, then into the Ministry of Housing and Social Welfare (MBES) in September 1988. MBES likewise was soon extinguished (February 1989) with federal coordination of urban projects returning to MINTER until March 1990, when it too was abolished, and responsibility for urban development was split between the newly created Ministries of Infrastructure (urban transport) and Social Action (housing and sanitation). EBTU, finally, was dissolved in March 1990 and its functions reassigned to other agencies linked to the Ministry of Infrastructure.

1.15 These institutional changes were directly related to the major political transformations that occurred in Brazil during the 1980s. At the federal level, an indirectly elected civilian assumed the Presidency in March 1985 after more than twenty years of military rule. He, in turn, was succeeded by a directly elected civilian in March 1990. Popular elections were also held for state Governors in late 1982, 1986, and 1990 and for Mayors in late 1982, 1985, and 1988, ' with the new administrations taking office early the following years. The various transitions in state and local administrations over this period, particularly when the winning candidates were from opposition parties -- as in Parana in 1982 and Pernambuco in 1985 (Mayors of Recife and

9 Previously, during most of the period after the military coup in 1964, Mayors of state capitals (such as Recife) and other key cities were appointed by state Governors, who were, themselves, indicated by the federal government. 6

other metropolitan municipalities) and 1986 (Governor) -- had a significant impact on the implsmentation of the urban projects under review.

1.16 Also of importance was the new Constitution, approved in October 1988, which, among other measures, transferred numerous functions and revenue sources from the federal to the state and municipal levels. '0 This further strengthened subnational governments, advancing the process of political- administrative decentralization that had begun with the direct state and local elections mentioned above. One result of this process was to greatly weaken the federal government's role with respect to urban development. This is particularly evident in the area of urban transport with the disappearance of EBTU, but holds true for the urban sector more generally. Several of the operations reviewed in this report, particularly the Recife project, were directly affected by these changes.

1.17 The present institutional and political context for urban development in Brazil, in short, is totally different from that which prevailed at the time the projects examined in this report were appraised by the Bank. The centralization of urban investment planning and financing in the 1970s and early 1980s has been followed by a progressive decline in federal funding and control of urban development activities. The diminishing role of, and associated institutional disarticulation within, the federal government with respect to urban development, " together with increasing financial problems at the federal level (see the next section) and the largely positive experience of the Parana project described below, have all contributed to the Bank's decision to pursue an essentially state by state approach in its recent urban lending to Brazil.

F. The Macroeconomic Context

1.18 Finally, as suggested above, the 1980s were a period of considerable economic and financial difficulties in Brazil. This had a significant effect on the implementation of virtually all of the projects examined, particularly those which were dependent on federal (including BNH) counterpart funds. Brazil's general macroeconomic performance during the period when these operations were carried out can be briefly summarized as follows.

1.19 Beginning in 1979 with the second petroleum price shock, rising foreign interest rates, and the downturn of the world economy, Brazil suffered increasing balance of payments problems, a rapid decline in GDP growth, and sharply rising inflation. GDP growth fell dramatically, to an average of -2.4 percent a year between 1981 and 1983, as compared with a very impressive 9 percent per annum between 1966 and 1980. Yearly inflation, in turn, rose from

10 For a muore detailed discussion, see Anwar Shah, The New Fiscal Federalism in Brazil, World Bank Discussion Paper No. 124, Washington, May 1991.

1 Significant institutional changes also occurred at the state level, as, for example, the creation of the Secretariat of Urban Development and Environment in Parana in 1987 and the state government's attempt to abolish FIDEM in Pernambuco in the late 1980s. 7

40 percent in 1977-78 to roughly 100 percent in 1980-82 and over 200 percent in 1983. While GDP growth picked up again, to an average of 7 percent in 1984-86, it subsequently fell to 2.1 percent between 1987-89 and a projected zero percent in 1990. 12 The inflation rate, however, which averaged 175 percent between 1984 and 1986, rose to more than 400 percent in 1987 and culminated at well over 1000 percent in 19891

1.20 Accelerating inflation was accompanied by frequent exchange rate devaluations and other policy responses. Starting with the "Cruzado Plan" in early 1986, high rates of inflation and other macroeconomic distortions, led the Government to put forward a series of (generally short-lived) stabilization programs which included severe cuts in federal expenditures among other measures. These economic "packages," together with the persistent domestic price increases during the 1980s, affected both the physical implementation and financial management of all of the projects evaluated below.

II. THE PROJECTS

A. Prolect Origins, Preparation, and Appraisal

1. The Third Urban Transport Project

2.01 UT-III was a natural outgrowth of the First Urban Transport and Medium-Sized Cities operations. It was prepared in parallel to implementation of the latter stages of UT-I and its emphasis on the institutional strengthening of EBTU reflected the Bank's concern with the organizational and procedural deficiencies detected in this agency during supervision of the first project. Beyond this, the Bank sought to extend the approach taken in UT-I, which combined transport infrastructure investments with a broad range of traffic management measures and gave particular attention to improving transport services for the urban poor, to a relatively limited number of cities and urban agglomerations 1 that were both smaller demographically and less complex from a transport planning standpoint than the metropolitan regions. 2 At the same time, it sought to help EBTU establish a new program for the paving of public transport routes in predominantly low-income neighborhoods for which a much larger number of towns

12 See Report No. 8371-BR, Brazil: Economic Stabilization with Structural Reforms, January 31, 1991. Chapter I, for a more detailed discussion of macroeconomic performance during the 1980s.

"Urban agglomerations" refer both to localities containing several urban centers, such as the Federal District and the Santos Lowlands (or "Baixada Santista") in Sao Paulo, and numerous state capitals whose urbanized areas had spread outward from the central municipality into neighboring jurisdictions and thus required a regional approach to urban transport management.

2 The Bank also felt that EBTU would be less subject to political pressures from smaller cities than it had been from some of the metropolitan areas in the implementation of UT-I. 8 and cities would be eligible. These two components were known as AGLURB (or Urban Agglomerations Program") and PROPAV (or "Program for Low-Cost Paving in Low-Income Areas"), respectively. Finally, UT-III was designed to help prepare EBTU to receive even larger program type loans from the Bank in the future. For this reason, the operation was "explicitly structured as a hybrid between a sector loan and a project loan."

2.02 Cognizant of the Government's desire to reduce petroleum imports, the project was seen by the Bank as a way "to improve the operational efficiency of existing transport infrastructure and to promote improvement in service levels of collective transport in the context of the need to minimize the use of imported fuels." To achieve this, UT-III would seek to "improve the capacity of local agencies to plan, appraise, execute, and operate urban transport projects and to improve EBTU's level of technical-economic evaluation and develop planning and appraisal procedures that are more appropriate for the needs of urban agglomerations and medium-sized cities." ' Consistent with this philosophy, the appraisal of all AGLURB subprojects would be carried out by EBTU, with Bank approval of the first three such appraisals (for the Federal District, the Santos Lowlands, and Sao Luis) serving as a central element in its own appraisal of the operation. Bank approval of all subsequent appraisals would be a condition of disbursement for the remaining AGLURB subprojects.

2.03 Among the issues identified by Bank staff during preparation were: (i) the larger sector policy context of the proposed operation, especially the Ministry of Transport's decision to develop costly suburban rail systems in seven metropolitan regions; (ii) the implementation capacity of EBTU as it was then structured and managed; and (iii) the associated risk that the agency would not be able to carry out the project in an adequate manner. In relation to the first of these issues, the Bank had been asked to consider financing the suburban rail investments as part of its urban transport program in Brazil. However, only the Porto Alegre project had been found to be clearly justified and was later funded by the Bank as UT-II; preliminary schemes for Belo Horizonte, Recife, and Salvador, on the other hand, were judged "infeasible." Accordingly, it was decided that UT-III would not contain any actions involving the other proposed metropolitan investments which were to be further analyzed as part of a Bank review to identify a possible fourth urban transport project.

2.04 As to the two latter issues, the Bank consciously elected to give the project an institutional development focus and to require EBTU to demonstrate its commitment to improved investment selection procedures through the elaboration and approval of a new project evaluation manual, among other measures, prior to going ahead with the operation. Bank appraisal took place in June-July 1980 at

3 In this context, the SAR for UT-III (para. 3.01) observed that "EBTU has progressed beyond the point at which detailed and continuous Bank involvement through a conventional project approach is required." As a hybrid, "the project [would) take advantage of EBTU's expertise and experience where it is most developed and work with EBTU to strengthen the weaker parts of its operation."

' Letter from the Bank's Division Chief for Urban Projects in Latin America to the Brazilian Minister of Transport, dated February 29, 1980. 9

which time EBTU's appraisals of the three initial AGLURB subprojects were found to be "generally satisfactory." Following the appraisal mission, an internal decision meeting reiterated the need for the SAR to highlight the project's institution building character and to stress that, from the Bank's perspective, its two physical works programs (ie., AGLURB and PROPAV) would serve primarily as "vehicles for evaluating the results of the institutional component." 5 The latter component would include significant organizational and operational changes and rely heavily on outside technical assistance and training.

2.05 The project, as appraised, finally, was expected to have a total cost of roughly US$ 400 million and to be partly financed by a Bank loan of US$ 140 million. Under this scenario, the AGLURB subproject would cover as many as 12 non-metropolitan cities. However, at the time of negotiations in February 1981, the Brazilian Government requested that the operation be substantially scaled back, to a total cost of US$ 257 million and a loan of US$ 90 million, with the AGLURB subproject being limited to 10 cities, while the proposed implementation period was shortened from 4.5 to 3.5 years. This reduction in scope was part of government efforts to curtail public expenditures and minimize loan commitment charges. Counterpart funds were to be provided in part by EBTU (US$ 87.5 million), which would be the borrower with the Government's guarantee, and in part by participating states and municipalities (US$ 79.5 million).

2. The Recife Proiect

2.06 What eventually became the RMRDP was first identified as an (unspecified) "integrated urban development project" that the Bank was seeking to develop with BNH for implementation in parallel to the Sites and Services and Low-Income Housing and Medium-Sized Cities Projects, which were both at an advanced stage of preparation at the time. To this end, the Bank initiated discussions in the spring of 1978 on a possible operation to finance a time slice of two existing BNH programs that combined the "planned provision of urban infrastructure and community facilities with measures designed to promote more rational urban land use and increase the planning capacity and fiscal resources of Brazilian municipalities." 6 However, this idea was dropped in early 1980 when BNH, after a change in senior management, indicated that it was unwilling to go along with Bank conditions for selection of the areas to be developed and evaluation of the proposed subprojects or with the Bank's proposed timing for processing the operation. ' In addition, BNH, whose investments were then on

5 Issues Paper dated August 12, 1980 and Decision Meeting memorandum dated August 27, 1980.

6 Back-to-Office Report dated January 11, 1979. More concretely, this project would have been a sectoral operation to support the 1980-82 investment program of a large urban renewal initiative known as CURA (or "accelerated community recuperation program") covering three or four metropolitan areas and from 10 to 15 medium-sized and smaller cities.

An internal memorandum of May 9, 1980 which described a meeting between a Bank mission and the Director of rURA held the previous month reported that the latter had affirmed that "there was no room for delays due to the Bank's 10

the order of US$ 2.4 billion a year, alleged that it did not need Bank support for the program.

2.07 Shortly after this frustrating episode with BNH, the Bank was approached by the Mayor of Recife with a proposal for an urban development project. "Projeto Recife," as it was called, consisted of eight programs in two priority areas of the city designed to provide services for the poor and create employment opportunities. 8 The Bank confirmed its interest in supporting poverty-oriented urban development operations in Brazil, particularly in the Northeast, and directed the Mayor to the federal agencies (ie., SEPLAN and CNDU) with which Bank activities in the sector were being coordinated. The Bank further indicated that the proposal "would be reviewed in the context of the overall development planning for Recife's metropolitan area" 9 and that a mission would be sent later in the year for further discussions.

2.08 The preparation mission which visited Recife in October 1980 returned with a project characterized as "the first attempt to work within the framework of a single metropolitan area in [Bank] urban operations in Latin America." 10 Although the central elements of "Projeto Recife" were maintained, in expanding the scope of the operation from the city of Recife to the metropolitan region, principal responsibility for project preparation passed from the municipality to FIDEM, which had already developed a number of plans for metropolitan development. The revised project proposal was subsequently described as having two main objectives -- "to promote, consolidate, and improve existing urban infrastructure and to support, complement, and induce the desired patterns of development for the metropolitan region" -- and four foci: (i) an integrated program to develop the area on the banks of the Capibaribe River; (ii)

'bureaucratic' requirements, no question of amending or supplementing the CURA manual, and certainly no question of having CURA projects reviewed by the Bank."

a This proposal was, in fact, elaborated by the same technical team that had prepared the integrated urban development project for Campina Grande in the neighboring state of Paraiba for the Medium-Sized Cities Project. The general orientation and composition of "Projeto Recife" thus, not surprisingly, closely resembled the type of urban interventions that the Bank was then supporting elsewhere in Brazil. The Mayor's project included several low-income housing investments (both COHAB and CURA) whose funding was already assured from BNH. The main new element was a plan to "revitalize" an extensive area previously subject to inundation on either side of the Capibaribe River which had recently been recovered as the result of federal flood control works.

9 Internal memorandum summarizing the results of the visit of the Mayor of Recife to the Bank on May 12, 1980.

10 Mission report dated December 23, 1980. This report also observed that "an effective response to the needs of this area requires a relatively complex operation involving a substantial number of components and agencies." The Bank, however, had already worked closely with several of these agencies in connecti.on with the Recife components of UT-I and the Sites and Services and Low-Income Housing Project. 11

the provision of basic urban services; (iii) the provision of urban infrastructure for the west and north development poles; " and (iv) the promotion of productive activities. More generally, the project would be "designed to produce balanced growth in the metropolitan region and a cost- effective spatial framework for the provision of infrastructure and services." 12

2.09 For the most part, project preparation proceeded smoothly, although several Bank staff members not directly involved with the operation insisted that some of the proposed infrastructure investments be financed under existing sanitation and power loans rather than as part of a new integrated urban project. One of these reviewers also commented that the proposed project design seemed "far too complex." 13 Issues raised by Bank project staff during preparation, in turn, included potential project coordination and execution difficulties, possible counterpart funding problems ("given the current economic and financial situation in Brazil"), land acquisition, the length of project implementation, and complementary investments to be funded under other (sectoral) programs. The timing of Bank appraisal was also raised as an issue in view of the forthcoming change in state and local government administrations in March 1983. 4 Appraisal occurred in October 1981, with Board presentation in June 1982, loan signing in Recife (admittedly for political reasons) later the same month, and effectiveness in November 1982, such that project implementation began at the time the new state and municipal administrations were preparing to take office.

2.10 One crucial aspect of project preparation and appraisal that deserves mention is the role of key federal agencies, particularly CNDU, SUDENE, SEPLAN, and BNH. Although elaborated essentially by FIDEM and the municipality of Recife, the project was viewed both by federal authorities and the Bank as part of CNDU's program for the metropolitan regions. CNDU, specifically, wanted the Recife project to be the first of a series of integrated operations for the metropolitan areas in the Northeast and North of Brazil and, thus, to contain funding for the preparation of similar investment programs and pilot projects in Salvador and Fortaleza. The Bank had agreed to start with Recife due to FIDEM's

1" The Integrated Development Plan for the Recife Metropolitan Region, published by FIDEM in 1976, proposed the consolidation of three development "poles," one each to the south, west, and north of the existing central agglomeration (ie., the city of Recife), in view of the expected continued rapid population growth of the metropolitan area. The western (or Curado) and northern (or Paulista-Tgarassu) "poles" were the two main areas where infrastructure investments would later be concentrated under RMRDP.

12 December 23, 1980 mission report, op. cit.

13 Internal memorandum dated January 13, 1981.

14 Specifically, the Project Brief dated April 15, 1981 indicated that, to "ensure political commitment" for the operation, execution should start no later than April-May 1982, implying appraisal no later than September 1981. It was acknowledged, however, that this proposed schedule meant that final designs for various components would not be ready prior to appraisal. 12 previous planning and coordination experience, the Mayor's initiative, and its own relatively much greater familiarity with urban problems and institutions in the Recife area. Following appraisal it was decided that project preparation and pilot investments in Salvador and Fortaleza should be processed as a separate engineering loan.

2.11 Brasilia-based CNDU did not play a direct oversight role either in project preparation or subsequent supervision. Instead, these functions were largely delegated to the small urban development staff at SUDENE, located in Recife. SUDENE, together with SEPLAN and (for financial transactions) the Central Bank, represented the federal government in project administration and became a party to the Project Agreement for the Bank loan. However, while SUDENE reportedly provided useful orientation to FIDEM and other local agencies during the preparation of RMRDP, its intervention would later contribute to execution delays, particularly in the processing of repayment requests for project expenditures, leading to its eventual removal from the project supervision process.

2.12 SEPLAN likewise did not play a direct role in project preparation. However, it was the federal agency ultimately responsible for approval of the operation within the Brazilian Government. Because it was not sufficiently consulted during the early stages of the project, it later "threatened to withhold approval on the grounds that Recife was already the beneficiary of excessive external aid," according to the PCR (para. 10). This reportedly led to a two month delay in project appraisal while sufficient political support was mobilized to convince SEPLAN to allow the operation to go ahead.

2.13 Finally, BNH too had little involvement in project preparation, but, under political pressure from the federal government, agreed at the time of appraisal to provide a significant share of project financing for construction of a large low-income housing scheme (Curado IV), whose funding had already been negotiated with the state government, and for part of the project's upgrading component (see para. 2.29(i) below). 16 The SAR reveals (para. 5.03) that BNH loans to Pernambuco and the municipalities of Recife and Jaboatao represented 30 percent of total project financing. According to the PCR (para. 10), however,

This and other inter-institutional problems in connection with the operation are further described in a recent Bank report entitled "Review of the Institutional Development Subproject of the Recife Metropolitan Development Project," (Fitz Ford, INURD, August 17, 1990, draft). According to this source, one reason for SEPLAN's animosity towards the Recife project was that responsibility for the definition of urban policy (and hence CNDU) had previously been transferred from the Planning Ministry to the Interior Ministry. As a result, "SEPLAN was not favorably disposed towards CNDU."

16 According to one of the former Superintendents of FIDEM interviewed by the Audit mission, BNH's participation was absolutely essential in order to complete the required local counterpart funding for RMRDP and thus reduce the potential short-term financial burden on the state and municipal governments. The Curado IV housing scheme, in short, was included in the operation basically to help constitute the Government's financial contribution to the project. 13

BNH "remained a reluctant partner to this venture, with little interest in relieving bureaucratic delays in funding that were to harm project implementation later on." BNH's severe financial difficulties during the mid-1980s would slow project execution even further.

3. The Parana Proiect

2.14 The Parana operation, like "Projeto Recife," was a local initiative about which the Bank was first approached by representatives of the state government. 17 The project that the Bank later agreed to finance was a modified version of an existing Municipal Capital Improvement Program, launched by the state government in 1981 to correct perceived "distortions" in the transfer of fiscal revenues to the municipalities. Even though it was not part of any federal program, CNDU was reportedly supportive of Bank participation because the proposed operation would "provide a unique opportunity for investigating and testing methods of investment planning, resource allocation procedures, the economic role of small cities, and the factors influencing migratory patterns." 18 Beyond this, the project complemented federal efforts to assist metropolitan areas and medium-sized cities in which the Bank was already involved.

2.15 As initially described inside the Bank, the primary objective of the operation would be to "provide resources to the smaller cities in the urban hierarchy to be invested in urban infrastructure and services." A secondary objective would be to "provide viable alternatives to larger cities in the urban hierarchy" for potential migrants in an attempt to reduce demographic pressures on the state capital, Curitiba, and key secondary cities such as Londrina, Maringa, and Cascavel in the northern and western parts of the state. '9 These pressures had been particularly severe in the 1970s due to major changes in rural land use in much of the state, as extensive areas previously occupied by small family-operated coffee and food producing farms were converted into large commercial ventures for soybean and wheat production. As a result, while Parana's rural population declined at an annual rate of 3.3 percent between 1970 and 1980, its urban population expanded at nearly 6 percent a year, raising the urban share of the state total from 36.1 to 58.6 percent.

2.16 The operation was prepared as a "sector loan" to finance a time slice of the investment program of the state Secretariat of Municipal Development, whose functions would later be absorbed by the Secretariat of Planning. Under this design, the Bank would agree with the state government on the criteria for allocating resources among regions and urban centers of different sizes and across the "menu" of subprojects to be financed. Annual investment programs

17 According to a former task manager for the operation, state officials took advantage of the stopover of a returning urban projects mission from Paraguay in the town of Foz de Iguacu in western Parana to initially present the project concept to the Bank. A formal request for Bank assistance was sent by the Governor of Parana in May 1981.

Project Brief dated June 18, 1982.

19 Ibid. 14

would be reviewed and approved by the Bank, while counterpart funds would be provided by the state and municipal governments with no federal participation.

2.17 The Bank considered Parana a particularly good place in which to attempt such a project since, as later stated in the PCR (para. 1). "it was one of the few states of Brazil that could sustain a certain level of direct investment with a low ratio of debt service to total revenues and limited dependence on federal transfers and credit operations." This comparative fiscal autonomy was due primarily to the strength and recent growth of the state's economic base, especially its agricultural export sector. Thus, while Parana contained less than 7 percent of Brazil's population and occupied just slightly more than 2 percent of its land area, by the early 1980s the state accounted for over 30 percent of the country's grain harvest and a quarter of its total exports. Parana's taxable income, additionally, more than tripled during the 1970s, as agricultural output expanded at nearly 10 percent a year and industrial and tertiary activity grew at annual rates exceeding 19 percent and 12 percent, respectively. This economic expansion and associated rapid urbanization, however, were accompanied by rising social tensions and growing demands for urban services that municipalities, especially smaller ones, were encountering increasing difficulties in meeting.

2.18 As in the case of UT-III, project preparation proceeded smoothly in Brazil. Within the Bank, however, non-project staff raised two basic issues in relation to the project's justification and design. On the one hand, it was argued that the impact of investments in small town infrastructure and municipal services in terms of deterring migration to larger urban areas was likely to be limited. As a result, it was suggested that project objectives be cast more in terms of rationalizing the flow of public resource transfers than of improving the attractiveness of small towns to prospective migrants. The second concern had to do with the project's cost recovery provisions and the need to improve municipal capacity to generate local revenues through the property tax, betterment levies, and other means. This led to greater emphasis on the operation's potential role in improving the fiscal and administrative structure of Parana's municipalities more generally.

2.19 Finally, the timing of the project in relation to scheduled state and municipal elections of November 1982 was also a subject of internal discussion, especially once it became clear that the state administration that would implement the project (ie., that taking office in March 1983) would be of a different political party than that which had originally requested Bank support and prepared the program. Loan negotiations in April 1983 nonetheless confirmed the appraisal mission's finding in October-November 1982 that there was "widespread support for the project among different factions of political opinion," as the new government readily agreed to carry out the operation. There was, however, reluctance within the federal government, which had agreed to be the borrower for the project, to grant final approval for Bank processing of the operation because the government of Parana had fallen into the hands of the

II I q i~-04 15

opposition. 20 This led to some delay in federal endorsement of the loan dncuments which were not presented to the Board until August 1983.

4. The Northeast Urban Flood Reconstruction Proiect

2.20 Preparation of PROENE differed significantly from that of the other projects under review because of its status as an emergency reconstruction operation. PROENE was part of a two-pronged Bank response to severe flooding in large parts of the Northeast following unusually heavy rainfall during the first three months of 1985. Occurring after a prolonged dry period (1978-84), the region was particularly vulnerable to flooding due to drought-related deterioration of local infrastructure and municipal finances and the fact that a large number of low-income families had migrated to flood plain areas in search of water. As of April 1985, roughly one-third of the Northeast had reportedly been affected by the flooding, forcing some 650,000 people to leave their homes and resulting in substantial damage to crops, dams, roads, and community and productive facilities.

2.21 In parallel to federal government relief efforts coordinated by SUDENE, the Bank and other aid institutions were requested to help finance regional reconstruction needs by redirecting resources from existing loans and/or preparing new projects. Several alternatives for the reallocation of previously approved Bank funds were considered, including drawing on both UT-III and the Recife project, as well as on the Medium-Sized Cities operation. However, it was eventually decided to utilize part of the undisbursed loan balance for the Northwest Region Highway Project (Loan 2062-BR) to finance the most pressing reconstruction works. 21 The new operation, in turn, was prepared between April and July 1985 by an interdisciplinary work group at SUDENE, supported by an inter-ministerial advisory council at the federal level, and based on inventories of local investment requirements put together by the Secretariats of Planning in each of the participating states.

2.22 Although the initial calamity primarily affected the northern and western parts of the region, particularly the states of Maranhao, Piaui, and Ceara, flooding later extended eastward and southward, inducing MINTER and SUDENE to expand the scope of PROENE to include all nine northeastern states. Based on the experience of the on-going Medium-Sized Cities operation, it was decided that a special unit should be established at SUDENE to coordinate project implementation. Bank appraisal took place in July 1985, at which time it was

20 According to an internal Bank memorandum dated June 2, 1983, the Interior Minister wanted to introduce a greater element of federal control over the flow of resources to Parana through the operation. The Planning Minister disagreed. SEPLAN eventually won and formally communicated federal approval of the project, as negotiated, to the Bank later that same month.

21 According to an internal memorandum dated April 28, 1985, "the diversion of funds from other loans already available to the Northeast, particularly the Recife Metropolitan Development Project, would cause serious political problems for the federal government and, implicitly, the Bank," presumably because this would mean no net increase in Bank resources for the region. 16

confirmed that flood damage had been mainly to low-lying housing, neighborhood infrastructure, roads, and some small industries, while community and other facilities (ie., bus terminals, markets, and storage facilities), which for the most part were located on higher ground, had been generally spared.

2.23 The resulting operation was divided into two overlapping stages, for the implementation of needed reconstruction investments in low-cost shelter and municipal infrastructure and for new flood prevention works and planning activities, respectively. Credit and technical assistance would also be granted to flood-damaged small enterprises. As an emergency operation, no SAR was prepared and the corresponding President's Report and Loan Agreement were presented to the Board in December 1985, just one month after negotiations. 2

B. Proiect Objectives and Description 23

1. UT-III

2.24 The two basic objectives of UT-IlI (SAR para. 3.02) were to bring about improvements in urban transport infrastructure and services and to enhance the operating efficiency of EBTU. These goals were to be achieved through implementation of three subprojects having the following basic features (and estimated total costs):

(i) AGLURB (US$ 168.7 million) - measures to improve transport infrastructure and operations in ten 24 medium-sized cities, especially conurbations; the emphasis would be on low-cost improvements that favored public transportation, particularly services utilized by the urban poor; a secondary feature would be the inclusion of elements designed to improve local planning and operation of transport infrastructure and services; three different types of intervention would be financed:

(a) low-cost traffic management measures to alleviate congestion and maximize the effective capacity and safety of the existing road network, improve vehicle operating conditions, and thus reduce journey times, operating costs, fuel consumption, and pollution;

22 Ironically, however, despite the rapid pre-approval processing of the project by both the Brazilian Government and the Bank, signing of the legal agreements was delayed until late April 1986 because of a change in SUDENE's top management and loan effectiveness did not occur until September 1986.

23 This section draws largely from the respective Staff Appraisal or (in the case of PROENE) President's Reports, where additional details can be found.

24 At the time of project approval, AGLURB subprojects for the Federal District, Baixada Santista, and Sao Luis had been appraised, EBTU had identified subprojects for Maceio, Goiania, Cuiaba, Florianopolis, and Natal, and two cities or agglomerations remained to be selected. 17

specific investments would include the provision of continuous road cross-sections, channelization of traffic, turn prohibitions, intersection improvements, and improved signals, signing, and marking;

(b) measures to improve bus services by giving priority to public transport (bus-only streets, bus lanes, etc.). new bus terminals, paving of existing and future bus routes in poor areas, and bus shelters, foot bridges, and street lighting; and,

(c) measures to improve the road network by widening existing roads or building new ones to serve developing areas or insert missing links in the network. 25

(ii) PROPAV (US$ 76.0 million) - pavement of 500 km of bus routes in low-income urban areas over a three year period, emphasizing minimal design standards and the use of low-cost local materials; EBTU would select the roads to be paved using procedures set out in a Bank-approved manual based on previous Brazilian experience under UT-I and other projects; the underlying objective was to produce a simple, semi- automatic program with clear guidelines and criteria that could be run efficiently by a small staff.

(iii) An institutional subproject (US$ 12.3 million) aimed at (a) modifying EBTU's organization and procedures to increase efficiency and (b) improving EBTU's management by decentralizing and clarifying management decision-making responsibility and increased accountability; through technical assistance and training, these measures were expected to reduce organizational and managerial constraints and permit consistent application of acceptable appraisal and supervision procedures.

2.25 The three components were characterized by the SAR (para. 3.03) as being "highly complementary" as the physical subprojects would "serve as a test- bed for monitoring and evaluating the institutional subproject." The ACLURB subprojects would test EBTU's appraisal and supervision capacity, while PROPAV would enable the agency to "demonstrate the efficiency of program operations and would serve as a prototype for the streamlining of other EBTU operations." The institutional subproject, in turn, would provide "structural, organizational, and procedural improvements" to facilitate "efficient execution" of the physical subprojects. The interconnected nature of the subprojects was expected to reduce

25 This latter set of interventions was considered particularly relevant for agglomerations "where jurisdictional problems frequently lead to neglect of inter-city links." However, new road construction was to take second priorit to traffic management and engineering measures to increase the effective capacity of existing road systems and the operating capacity of existing bus fleets. 18

the risk that "neessary institutional measures could be relegated to the status of complementary measures, receiving less attention than they deserve."

2. RMRDP

2.26 Observing that "the efficiency with which the RMR (Recife Metropolitan Region] functions depends on the level and quality of services and infrastructure available to its population, the spatial distribution and organization of population and activities, the strength of the economy, and the effectiveness with which interventions in the region are managed," the SAR (para. 1.04) affirmed that "the proposed project would attempt to promote both the concept and the effective implementation of metropolitan region development, principally by strengthening the process of metropolitan planning and management." This was to be achieved both through specific institutional development activities and "a coordinated set of physical investments" that would benefit the RMR's population while at the same time "reinforcing the role of the metropolitan region planning authority."

2.27 In presenting the project, the SAR (para. 1.06) deemed it necessary to justify the "integrated" approach taken. Among the arguments put forward were that: "a sectoral approach....suffers from the inadequacy of failing to deal with urban and regional problems as the problems of a single system;" that "separate sectoral programs.. .frequently lack the management impulse necessary to execute projects efficiently since there is no clear project promoter;" and that "sectoral programs, through lack of coordination and focus, can fail to achieve the synergistic effects of implementing projects in concert." In the case of RMRDP, moreover, it was observed that, "where adequate management and coordination capacity exist, as they do in Recife, there are important positive externalities from attacking urban and regional problems in an integrated manner." These externalities would include "reduced infrastructure costs, reduced transactions costs, and reduced implementation delays, together with improved levels of service provision."

2.28 Specific project objectives cited by the SAR were:

(i) provision of improvements to housing, urban infrastructure, and services within the existing urban fabric;

(ii) provision of metropolitan scale infrastructure and services aimed at supporting, complementing, and inducing desired patterns of metropolitan development (from a spatial standpoint];

(iii) generation and enhancement of income, especially for the urban poor; and,

(iv) strengthening of the institutions responsible for planning, administration, and financial management for urban and metropolitan region development.

2.29 To achieve these goals, the project contained four major subprojects, whose details were spelled out in a supplementary volume to the SAR. RMRDP's 19

estimated total cost was US$ 347.8 million. The general features (and estimated costs) of the subprojects were as follows:

(i) Upgrading Subproiect (US$ 125.4 million) - improvement of poor areas in the two largest municipalities in the RMR, Recife and Jaboatao; the neighborhoods to be upgraded were located either in very steep, hilly zones or in low-lying, swampy areas subject to frequent flooding; interventions would include legalization of tenure, landfill in low-lying areas, drainage, street paving, stairways in steep areas, water distribution, sanitation, loans for home improvements, and community facilities; in Recife, upgrading activities would be implemented in part by the municipality and in part by COHAB:

(a) the Municipality of Recife component (US$ 57.0 million) would prrvide for the upgrading of 20 low-income settlements, benefitting some 67,800 people;

(b) the Municipality of Jaboatao component (US$ 16.0 million) would upgrade 27 poor neighborhoods with a population of about 57,000;

(c) the COHAB component (US$ 27.9 mil.ion) would cover nine neighborhoods with a population of about 30,000; and,

(d) a complementary infrastructure component (US$ 24.5 million) to provide the improvements in trunk infrastructure (ie., drainage channels, water distribution networks, secondary roads, and community recreation areas) required to ensure the efficient operation of the upgrading measures.

(ii) Metropolitan Infrastructure Subproject (US$ 169.2 million) included components in the northern, western, and central nuclei or "poles" (see para. 2.08 above) of the RMR; 26 specific investments were:

(a) BR-101 Metropolitan Corridor (US$ 27.2 million) to upgrade the heavily travelled two-lane highway connecting the municipalities of Paulista and Igarassu

26 The SAR (para. 4.04) observes that, even though these projects were "spatially distinct and functionally independent," they were "integrally coordinated in the sense that each one supports the land-use plan and spatial structure proposed in the RMR development plan: the central nucleus should be consolidated through infilling on vacant land; the northern nucleus has received reasonable amounts of industrial infrastructure and housing, but requires an adequate transport spine to structure and provide a focus for development; the western nucleus already has some industry and housing, and needs to develop the commercial activities that will enable it to function as the RMR's secondary commercial center." 20

in the northern section of the RMR to a metropolitan transport axis with four lanes for mixed traffic, a separate right-of-way for buses, cycle paths, parking, and sidewalks.

(b) Curado Urban Center (CUC) (USS 14.9 million) to provide the urban infrastructure necessary for the development of the Curado area as the secondary urban center of the RMR; covering abc.ut 110 ha, the center would include areas for commercial development, small-scale industry, services, and warehousing, a park, and 2,000 dwelling units for lower-middle income groups. 2

(c) Curado IV Housing Project (US$ 45.5 million) to complete an existing low-income housing development, COHAB would construct 4,500 units to serve a population of about 22,500 persons; a main vehicular road would connect the new units with the three existing Curado housing estates and provide access to the CUC; community facilities would also be provided.

(d) Jaboatao Industrial Park (US$ 9.1 million) involving construction of 28 workshops in a mini-industrial estate.

(e) Capibaribe River Valley Development (US$ 34.1 million) to incorporate 236 ha of prime land near the center of the RMR (recently made available by flood control works) into the urban system for residential use and related facilities and services by providing infrastructure (ie., primary and secondary roads, pedestrian ways, cycle paths, street lighting, water, and sewerage networks) for 10,118 dwelling units for different income groups, including 3,036 units for families earning three minimum salaries or less; " nine park areas would be installed on low-lying land and four pedestrian bridges and one vehicular bridge would be built across the river.

27 The urbanized land would subsequently be sold to private developers and firms for construction of commercial buildings, factories, and warehouses and to the state middle-income housing company (INOCOOP) for housing construction.

28 The mix of units was reportedly (SAR, para. 4.09) defined in such a way as to provide the "maximum cross-subsidization of low-income units that is compatible with full cost recovery." Part of the units for the lowest-income group would be reserved for the resettlement of 1,320 squatter families already residing in the area. According to the SAR, the municipality of Recife had obtained commitments from COHAB and INOCOOP to buy the urbanized land for the planned housing developments. 21

(f) Garbage Collection and Disposal (US$ 38.5 million) to augment the fleet of collection vehicles and organize disposal on a metropolitan basis; 280 vehicles would be purchased; neighborhood collection stations with containers for depositing refuse would be included, as would equipment for street, land, and storm drain cleaning, and garages and maintenance shops in five municipalities; transfer stations would be provided in Olinda (north) and Recife (south) and two (at the time unidentified) disposal sites would be bought, equipped, and put into operation; 29 in the absence of a specific metropolitan level agency to deal with solid waste disposal, FIDEM would assume responsibility for execution and initial operation of this component.

(iii) IncoL.e Generation and Enhancement Subproject (US$ 21.3 million) 30 consisting of a number of programs targeted on small firms and independent workers, specifically:

(a) Assistance to Micro-enterprises - supervised access to credit, technical and managerial assistance, and training for micro-enterprises and the formation of 16 common service associations among enterprises pursuing similar activities; the municipality of Recife would establish two productivity centers, serving six neighborhoods, and the municipality of Jaboatao would set up one such facility, together benefitting 3,600 small businesses.

(b) Intermediation Services - provision of four central clearinghouses in different parts of Recife and Olinda for skilled tradesmen and referral services to vocational training facilities for unskilled workers by the state Secretariat of Labor; six intermediation centers with similar functions would also be established by the municipality in various neighborhoods in Reciie.

(c) Exploitation of Natural Resources including subcomponents to support the revitalization of an existing fishing cooperative in Recife, shrimp production (through support to small cultivators in the area), and tourism (a pilot project to improve access to beaches and historical monuments, among other actions).

29 The disposal sites were expected to be equipped to produce biogas for sale to nearby industries.

30 This cost is further broken down by the SAR into US$ 16.1 million for "income creation" and US$ 5.2 million for "tourism." 22

(iv) Institutional Development Subproiect (US$ 31.9 million) 3 to improve the efficiency of and coordination among RMR agencies and enhance community participation; specific elements were:

(a) The Improved Efficiency Component with project management and monitoring, management and planning information systems, and technical assistance and training subcomponents;

(b) The Coordination Component to improve articulation among 18 agencies involved in the provision of urbanization, recreation, and transport services and 15 agencies involved in environmental sanitation in the RMR;

(c) The Community Participation Component to increase local neighborhood involvement in urban service delivery;

(d) The Administration of the RMR Component - establishment of a group of specialists to investigate potential organizational systems for the administration and financial management of the metropolitan region, including the role of FIDEM; and,

(e) The Health Education Component in support of project upgrading activities.

2.30 As the above description suggests, this was an extremely complex and ambitious project involving a large number of components, subcomponents, and institutions. Its major concerns, including urban physical development, the provision of low-income shelter, support to income generation, and the improvement and increased poverty targeting of urban service delivery, better institutional coordination and local financial management, were also present in many other Bank-supported urban development operations approved in the late 1970s and early 1980s. However, RMRDP sought to simultaneously implement sizeable investments in all of these areas in a demographically sizeable (some 2,350,000 inhabitants in 1980) and predominantly poor metropolitan region. 32 As will be discussed below, the project's scale and substantive, institutional, and financial complexity, at a time of increasing national economic difficulties and political change, would later prove to be largely responsible for its very uneven implementation performance and only partially satisfactory results.

3' The SAR breaks down this cost only for "institutional development" (US$ 29.0 million) and "health education" (US$ 2.9 million).

32 It should be pointed out though that, while the territorial scope of the operation, as designed, theoretically embraced the entire metropolitan area, most its investments were concentrated in Recife and Jaboatao. A number of the people interviewed by the Audit mission have suggested that this was due at least as much to local political, as to demographic and economic, considerations. 23

3. PRAM

2.31 The Parana project (or PRAM as it was known locally) was designed to finance urban infrastructure and municipal services in 287 market towns ranging in size from less than 2,500 to 50,000 inhabitants. 3 Funding would be provided from two sources: state fiscal revenues would be transferred as grants on the basis of the relative size of municipal urban populations and their expected growth over the project period, while incremental resources provided by the Bank would be on-lent to those municipalities that were willing and able to carry the corresponding debt service. " Subproject proposals would be evaluated by Planning Secretariat (SEPL) staff following Bank-approved selection criteria. In the words of the SAR (para 3.03), building on past experience in Parana, the operation represented "Brazil's first attempt to plan infrastructure and service investments in small towns on -he basis of a comprehensive overview of the urban hierarchy at the state level." "

2.32 Bank participation was expected to help achieve the following goals: (i) to develop an alternative system of long-term borrowing and cost recovery for municipalities, as a first step towards emancipating the more viable communities from their present dependence on state and federal transfers;

(ii) to introduce systematic criteria for the selection of subprojects and the allocation of investment resources to different sized towns and subregions;

(iii) to promote, develop, and apply fiscal recovery of investment costs by recipient municipalities, rewarding local initiatives and intensified efforts in this respect; and,

3 The municipalities forming the Curitiba metropolitan region and nine medium-sized cities with populations over 50,000 were excluded, according to the SAR (para. 3.02), because they were "already covered by parallel federal and state supported programs."

34 Maturity of the subloans would be 10 years with a grace period sufficient to cover implementation of the works financed but not to exceed three years, while the interest rate and "monetary correction" (ie., indexing of the principal) would be consistent with those applied by BNH in its infrastructure loans to the larger municipalities in the state. Proceeds from the value added tax (ICM), which was collected by the state government and shared with the municipalities, would be used as collateral for the subloans.

3 It was also observed, however, that "because its scope is limited to the statutory functions of municipal governments, the project would not address structural issues of rural employment, land tenure, and agricultural transformation, which lie at the root of the population exodus from rural areas to large cities and other states." PRAM was nonetheless expected to contribute indirectly to "the alleviation of some concomitant causes (such as the shortage of urban support facilities) .... (and] to provide better access to public services for an estimated 4.9 million people." 24

(iv) to improve the living standards of the population in small towns through provision of urban infrastructure and services and enhancement of their economic growth potential.

2.33 Total project costs were estimated to be US$ 150.2 million, 95 percent of which would be used to finance municipal infrastructure and community facilities and the acquisition of vehicles and equipment and the remaining 5 percent to fund technical assistance to the municipalities. Eligible types of investment (and their approximate cost shares) were as follows:

(i) Infrastructure (US$ 97.0 million):" street paving, town square improvements, bridges and crossings, electrification, traffic signs, drinking water, sewerage, street furniture, rural roads rehabilitation, erosion control, site works, and other works;

(ii) Community Facilities (US$ 34.5 million): kindergartens, gymnasia, sports grounds, social centers, health centers, and other public buildings;

(iii) Vehicles and Equipment (US$ 10.5 million): particularly school buses and road maintenance equipment; and,

(iv) Technical Assistance (US$ 7.5 million) to be contracted to specialized agencies such as FAMEPAR and the state public works company to help cover the costs of: design, tendering, and supervision of works; preparation of town planning surveys, zoning and circulation plans; cadastral registration, real estate assessment and property tax administration; and improvement of accounting practices.

2.34 PRAM was organized along totally different lines from the Recife project and the AGLURB subproject of UT-III, for which specific investments were identified and appraised by the Bank and/or EBTU. Its spatial focus was also quite distinct, targeting a very large number of comparatively small urban areas in a single state, as opposed to a large metropolis (also in a single state) or a relatively small group of secondary cities spread throughout the country. Unlike UT-III, which was a subsector-specific operation, furthermore, PRAM covered a broad range of investment types. Unlike RMRDP, which was also a multi- sector operation but was centrally planned and involved .arge investments, the Parana project was designed to support many small interventions based on decentralized local demands which were not specifically identified in advance. Finally. PRAM consisted of an investment credit line cam transfers to municipal governments, which were directly responsible for implementing local public works programs, rather than a more traditional Bank urban project, such as RMRDP, which was executed largely through federal and state government agencies.

36 Of this total, the largest amounts were expected to be used for road- related investments including street paving (US$ 39.8 million), rural roads rehabilitation (US$ 12.8 million), and bridges and crossings (US$ 3.0 million). 25

4. PROENE

2.35 PROENE had two main objectives: to assist the physical and economic rehabilitation of urban areas damaged by flooding and to strengthen planning capacity at the regional, state, and municipal levels for flood protection and control in Northeast Brazil. The first was to be attained through reconstruction of essential public facilities, services, and shelter, and the provision of credit to flood-damaged micro-enterprises. The second would be achieved through technical assistance and studies designed to identify flood-prone areas and to develop appropriate land use and zoning plans at the municipal level. The President's Report (para. 40) also noted that "although the project by its nature does not aim directly at institutional development as such, an important by- product would be the strengthening of existing institutions, especially at the municipal level."

2.36 The operation was expected to be implemented in as many as 160 municipalities which, among the 458 municipalities that suffered damage from the flooding, had been identified by state and federal authorities as those most severely affected. Total project costs were estimated to be on the order of US$ 208.6 million. The subprojects (and their estimated costs) were:

(i) Shelter (US$ 53.8 million) 3 involving rehabilitation of about 63,000 housing units, in situ reconstruction of some 50,000 units, relocation and construction of another 4,000 units, installation of low-cost sanitation facilities, and design and supervision; except for the relocation housing, which would be built by state COHABs, all rehabilitation or construction would be undertaken using self-help labor supervised by municipal authorities; building materials would be supplied free of charge to beneficiaries earning less than one minimum salary (estimated at 86 percent of the total).

(ii) Urban Infrastructure (US$ 117.1 million) 38 entailing: (a) improvement, repair, and extension of water supply and distribution networks (including treatment plants and pumping stations) and sanitary sewage facilities in 150 municipalities; (b) repair and partial reconstruction of some 295 km of streets and local storm drainage in 160 municipalities; (c) flood protection works (dikes, retaining ualls, groins, and pumping stations) in 25 municipalities; and

3 Of this total, US$ 14.3 million would be for rehabilitation, US$ 34.7 million for reconstruction, and US$ 4.8 million for low-cost sanitation.

38 This was further broken down into US$ 14.8 million for water supply and sewerage, US$ 22.0 million for streets, US$ 27.5 million for flood protection works, and US$ 52.8 million for storm drainage. 26

(d) storm drainage works (canals and culverts) in low-lying residential areas in 85 municipalities.

(iii) Community Facilities and Public Buildings (US$ 26.6 million) 40 including the repair and reconstruction of schools, health posts, markets, and municipal and community buildings.

(iv) Micro-enterprise Support (US$ 10.0 million) - prov:'*ion of credit to industrial, commercial, and service micro- enterprises in flood-damaged municipalities to help them rebuild inventories and repair or replace machinery, equipment, buildings, and other civil works; some 2,000 loans were expected to be made following lending procedures similar to those of existing programs in the region, although credit terms would be "temporarily softer" given the "unusual situation" faced by flood-damaged firms.

(v) Technical Assistance and Studies (US$ 1.2 million), comprising: (a) assessment of the risk of flooding in nine major river basins using remote sensing techniques and ground surveys; (b) preparation of flood plain management plans for 25 municipalities; (c) technical assistance to 60 municipalities in the planning and management of reconstruction activities; and (d) an evaluation of the economic impact of reconstruction activities.

2.37 Overall coordination was to be vested in an Inter-ministerial Reconstruction Committee chaired by the Secretary General of MINTER. More detailed coordination and supervision would be carried out by a Project Unit at SUDENE, in articulation with the state Secretariats of Planning, and, at the municipal level, specially constituted Offices of Reconstruction. The project was expected to be completed within two years of the date of Board approval.

2.38 Despite its "emergency" nature, PROENE shared several of the key features of one or more of the other projects under review, particularly its focus on the urban poor and its mu-ti-sector character. Like PRAM, it was also targeted on a considerable number of (generally small or medium-sized) municipalities, although several of its larger individual investments would be made in state capitals such as Aracaju, Maceio, and Salvador. Like RMRDP, in turn, its main emphasis was on shelter improvement and the selective provision (in this case reconstruction) of urban infrastructure, although some support was also given to small businesses. Institutional development, however, was much less a concern in PROENE than in the other operations, especially UT-III and the Recife project.

3 The subproject also included the acquisition of 60 trucks and other vehicles for the removal of debris and road repair and reconstruction.

40 Broken down into US$ 9.5 million for schools, US$ 5.8 million for clinics. and US$ 11.3 million for municipal buildings. 27

III. PROJECT IMPLEMENTATION AND .dULTS

A. Time Delays, Cost Variations, and Revisions

3.01 All four operations assessed in this report suffered time delays, affecting both their physical execution and pace of disbursements. Actual project costs in US dollar terms in all cases were also significantly lower than expected at appraisal. This was largely due to rapid domestic inflation and associated devaluation of the Brazilian currency relative to the dollar. All four operations likewise experienced serious counterpart funding difficulties, requiring the Bank to raise its share of total project costs from an average of 38 percent 1 at the time of loan approval to nearly 50 percent at closing, with a corresponding decrease in local, especially federal government, participation.

3.02 In addition, all of the projects underwent some degree of revision or reformulation. The Recife project was substantially reoriented, while, due to cost savings, the physical targets of UT-III and PRAM were considerably expanded during implementation. Because of execution delays, finally, PROENE took on much more of a flood prevention (as opposed to reconstruction) character than originally anticipated. These time overruns, cost underruns, and programmatic changes were at least partly a result of the economic, political, and institutional factors mentioned in Chapter I.

1. UT-III

3.03 The loan for UT-III closed on December 31, 1986, eighteen months after the date set at the time of Board approval. Last disbursement, however, did not take place until mid-August 1987, while physical completion occurred nearly three years after the date initially anticipated (October 1987 rather than December 1984). Most of the Bank loan was not disbursed until the second half 2 of 1986, as total disbursements in June 1986 represented only about 40 percent of the amount originally projected.

3.04 There were various reasons for these delays. Project start-up took considerably longer than expected, due in part to delays in initiating the institutional subproject, which persiLted during much of project implementation. It was also partly the result of legal questions (which had not been resolved at

' The Bank's share was initially set at close to 35 percent for all of the projects except PROENE, for which r higher Bank participation of roughly 48% was authorized because of its "emergency" status.

2 The large share of total disbursements in late 1986 reflected substantial payments for completed works which EBTU had previously been unable to make because of the lack of federal funds.

A supervision mission report dated April 1, 1983, for example, observed that physical progress was "not fully satisfactory and not likely to improve until reorganization of EBTU is complete," also recording "implementation problems due to administrative changes and reorganization delays." 28

appraisal) concerning on-lending terms for project funds to cities participating in the AGLURB subproject and to what the PCR describes (para. 18) as "EBTU's failure to appraise and process projects in accordance with the exacting schedule agreed at appraisal."

3.05 Other factors adversely affecting project execution included: (i) political changes at the state and municipal levels in 1982/83 and 1986/87 and at the national level in 1985, which delayed the signing of annual agreements between EBTU and participating cities; (ii) senior management changes at EBTU in 1983 and, with the change in federal administrations, again in 1985; (iii) considerable delays in obtaining federal counterpart funds over much of the implementation period; 4 and (iv) federal government "economic packages," particularly the Cruzado Plan in early 1986, which resulted in extensive reviews and the withholding of federal resources. Counterpart funding pressures were only substantially alleviated after November 1985 when the Bank agreed to increase its share of project financing for civil works from 30 to 50 percent.

3.05 Actual project costs on completion were 22 percent lower than expected at appraisal, US$ 200.7 million as compared with US$ 257.0 million. Again, this was due to a number of factors, including: (i) overestimation of unit costs for both the AGLURB and PROPAV subprojects at the time of appraisal due to the lack of final designs; (ii) elimination of major planned investments from various AGLURB subprojects (particularly in Sao Luis, Florianopolis, and tae Federal District); s (iii) the decision to execute PROPAV works mainly by force account; (iv) improvements in project designs during implementation; and (v) construction cost inflation lower than the overall rate of domestic price increase, permitting a greater volume of civil works to be obtained per US dollar invested. 6

3.06 These cost savings made possible a substantial expansion of the project's physical targets, leading the Bank to agree in November 1984 to increase the number of AGLURB subprojects from ten to fourteen, ' expand the

4 As the PCR indicates (para. 30), "budget allocations were not made.. .by federal authorities until well into each financial year and then actual availability of funds was sometimes delayed further until the middle of the year." Supervision missions in October 1983 and July 1985 both identified counterpart funding delays as a serious problem.

5 Actual costs of all but one (Joao Pessoa) of the AGLURB subprojects were lower than expected. Savings were g:eatest in the first three subprojects to be appraised, where total costs on completion were just US$ 38.4 million, compared with an appraisal estimate of US$ 82.1 million.

6 The combined impact of these factors can be seen in relation to PROPAV, where, according to the PCR, actual costs turned out to be roughly US$ 40,000 per km instead of the appraisal estimate of US$ 150,000 per km.

The additional subprojects were for Aracaju, Teresina, Manaus, and Vitoria. The Vale do Aco (literally, "steel valley") in Minas Gerais and Joao Pessoa had previously been selected as the ninth and tenth AGLURB subprojects. 29

PROPAV target from 500 to 850 km of paved bus routes, 8 and extend the planned closing date from June 1985 to December 1986. The institutional subproject also experienced alterations, including both significant expansion of technical assistance and training activities in support of improved transport planning and operations in the AGLURB cities and substantial modification of the study program. 9 In synthesis, even though there were no changes in UT-III's basic objecti.ves, all three subprojects underwent revisions due to implementation problems that were at least partly a response to the evolving economic-financial and political-institutional environment in which it was being carried out.

2. RMRDP 10

3.07 Given its complex design, the implementation difficulties faced by the Recife project were even more serious than those encoun' red by UT-III. Not only did the municipal and state governments each change hands a number of times, but several of these transitions involved successions by opposing political parties. RMRDP's execution also coincided with the major institutional modifications in the urban sector mentioned in paras. 1.13-1.14 above, including both the multiple shifts in ministerial responsibility for urban projects within the federal government and the financial crisis and eventual demise (1986) of BNH. " As with UT-III, rising inflation, frequent exchange rate devaluations, and federal stabilization measures also hampered project implementation.

8 The latter figure would later be further increased to 1,056 km despite the Bank's initial reluctance to disburse against the additional 256 km.

9 More specifically: proposed studies on bus route planning, regulation, and control, bus operations, and vehicle operating costs were substituted by an effort to develop an urban transport information system; studies to determine the financial implications of on-lending to the AGLURBs and on infrastructure maintenance were delayed to the point that they had virtually no impact on project implementation; and a study on transport planning under energy constraints was eliminated altogether.

10 In addition to the Bank's PCR, the borrower prepared an eight volume completion report, dated June 1990, that discusses project implementation and results in detail. A recently completed study by researchers at the Joaquim Nabuco Foundation (Recife) also takes the RMRDP as its major case study. For a summary of the findings of this study, see Marcus Andre B.C. de Melo and Alexandrina S. de Moura, "Politicas Publicas Urbanas no Brazil: Uma Analise dos Projetos do Banco Mundial," Planejamento e Politicas Publicas, No. 4, December 1990, pp. 99-126.

1 A March 1986 supervision mission reported, for instance, that key federal agencies had "not assumed their supportive role to the project; SUDENE, because of lack of technical capacity and political will and MDU because of its recent creation and difficulty to assert technical and political leadership," further noting that MDU's lack of support was "partly responsible for the inadequate priority given to the project for counterpart funding." 30

3.08 The Bank loan was disbursed over a 7.5 year period, making necessary a one year extension of the closing date, until December 1989. As in UT-III, the actual disbursement profile was considerably lower than originally expected. 2 Despite the acceleration of disbursements during 1987 and again in 1989, roughly 13 percent (US$ 15.9 million) of the loan was eventually canceled. Actual project costs on completion, in turn, at US$ 215.6 million, were 38 percent below the amount anticipated at the time of Board presentation.

3.09 The impact of local and national politics on RMRDP's implementation performance is summarized by the PCR (paras. 15-17) as follows:

Throughout the project period, political events constantly impacted on federal-state relationships.....The political agenda was full, and each major event traumatized the project. Gubernatorial elections in 1982 lowered its priority and led in 1986 to a major re-examination of its precepts. For different reasons, both resulted in reprisals of federal government funding cutbacks: in 1984 for the state's support to the opposition (presidential] candidate, and in 1988 for the state's refusal to endorse the extension of the incumbent President's mandate to Cive years. Municipal elections of 1983 and 1985 brought to power Mayors opposed to the state Governor, and henc- created tense relations with the project.

3.10 The declining national economic situation and highly bureaucratized process of project financial management -- which, in view of SUDENE's intermediation at the regional level, ultimately involved four levels of government -- added other complications. According to the PCR (para. 16). by January 1986, "monthly inflation had already reached 15 percent...and that, combined with a slow processing of loan disbursements, caused significant losses in their real value to executing agencies." 13 These problems were further exacerbated by counterpart funding shortages, which, in February 1986, led the Bank to increase its disbursement rate to 68 percent and to simplify the reimbursement process, in part by eliminating SUDENE's involvement in the repayment cycle.

3.11 These revisions marked the first major turning point in project execution and strongly contributed to the acceleration of disbursements in 1987. A second major turning point occurred in 1988, when the state administration that had taken office the pravious March decided, with the Bank's approval, to refocus the operation by involving all of the municipalities in the metropolitan region and making it more responsive to their needs, both by expanding upgrading

12 In June 1986, for example, cumulative disbursements were only 29 percent of those anticipated for that date at the time of appraisal.

1 One FIDEM official interviewed by the Audit mission indicated that nearly a dozen steps, involving more than half a dozen state and federal agencies and frequently taking as long as five months, were required in order for an executor to be reimbursed for a project expenditure, at which point the resources in question were worth considerably less than their original value. 31 activities and by increasing technical assistance and training aimed at improving local administration and financial management. This effort also included an attempt to reorganize the institutional structure for planning and development in Pernambuco, nearly resulting in the extinction of FIDEM, which survived only because its continued existence was a condition of the Loan Agreement. 14

3.12 Despite the new state government's decision to "democratize" the project in 1988, most of its original investments were eventually completed. The two major exceptions were the garbage disposal component of the metropolitan infrastructure subproject and the institutional development subproject. 1 The solid waste component encountered considerable political resistance, particularly when FIDEM attempted to locate one of the proposed disposal sites in an opposition-controlled municipality, which was to receive no other major "benefit" from the project. In additiy, the site initially selected for this facility drew strong opposition from both local communities and national environmental groups as it threatened one of the few remaining areas of Atlantic rainforest ("Mata Atlantica") along the Pernambuco coast. Large parts of the institutional subproject, in turn, were either never effectively implemented or had little lasting impact on metropolitan planning and management.

3.13 Finally, the length of time over which the project was carried out was A factor in its uneven implementation. Between 1980, when preparation began in earnest, and 1989, when the operation closed, thore were six (including two transitional) Governors, at least five Mayors of Recife, as well as seven Superintendents of FIDEM, not to mention numerous Mayors of other metropolitan municipalities, various state and local Planning and Finance Secretaries, and many different heads of project executing agencies. Even though, in some instances, the same individual held several important positions during this period, 16 each transition, especially when different political parties were involved, tended to bring at least some changes in personnel, ' procedures, and/or priorities, affecting the pace and sometimes the direction of project execution.

14 The state administration that took office in March 1991 is currently in the process of revitalizing FIDEM. The present Governor was the Mayor of Recife during RMRDP's initial implementatio:n (1983-85) and again when the operation closed in 1989, the present state Secretary of Planning was the municipal Planning Secretary when "Projeto Recife" was presented to the Bank in 1980, and the present state Secreta:y of Finance was Mayor of Recife between 1980-82 (and thus the political father of "Projeto Recife"), the Lieutenant Governor between 1983 and 1986, and the Governor in 1986-87.

1 The INURD paper cited in footnote 15 of Chapter II provides a detailed discussion of these components.

16 One ex-Superix,tendent of FIDEM, for example, had previously been the Planning Secretary for kecife and later became the state Secretary of Planning.

17 Despite the multiple changes in political and administrative leadership, there was considerable continuity of technical staff in key project agencies such as FIDEM. 32

3. PRAM

3.14 The Parana project was also not immune to implementation delays due to political-administrative changes at the state and municipal levels. This, in fact, was the principal reason for PRAM's slow start, as loan effectiveness was postponed from October 1983 to March 1984. i8 These initial delays later required the Bank to extend the loan closing date for a year, from December 1987 to December 1988. Disbursements were particularly slow in 1984 and early 1985, but picked up rapidly thereafter. Like the other operations examined, total costs on completion were significantly lower than originally anticipated, US$ 108.2 million as compared with US$ 150.2 million, and counterpart funding difficulties induced the Bank to increase its share of project costs from 35 to 48 percent in February 1988. 19 An unused balance, corresponding to roughly 1.5% of the Bank loan, was eventually canceled.

3.15 Aside from the start-up delays, implementation of PRAM went very smoothly when compared with UT-III and RMRDP. The PCR (para. 11) reports only three "minimal variances" between planned and actual implementation: (i) the failure to differentiate the allocation of grant funds in regional terms, which proved "to be both technically and politically difficult to implement;" 20 (ii) occasional counterpart funding problems; and (iii) the lack of an institutional development program as part of the technical assistance component. Among the positive changes, an early Bank supervision mission (December 1984) convinced the state government to utilize a system of matching grants, helping to stimulate municipal demand for project subloans, while problems with procurement procedures for small subprojects were resolved following the visit of a delegation from Parana to the Bank in July 1985, having a beneficial impact on subsequent project execution. 2

18 According to the PCR (para. 10), the new state administration taking office in March 1983 "needed some time to become fully cognizant of the investment plans and priorities that had been formulated by the previous one. Also it took some time and effort to finalize the arrangements and the operation manuals for project implementation."

19 According to the PCR (para. 12), this was done in order "to make Bank perticipation in this project consistent with other Bank-financed projects in Brazil."

20 Despite this, the actual regional allocation of grant funds was not significantly different from that projected at appraisal, with the northern and western parts of the state receiving 72.0 percent of the actual total, as compared with a combined target of 70.5 percent. The actual distribution of project resources by general investment type (i.e., infrastructure, community facilities, etc.) was also similar to that specified at appraisal.

21 According to the PCR (para. 12), this was "very important for increasing the speed of project implementation and efficiency in the utilization of project funds, given the high rates of inflation throughout the implementation period." 33

3.16 Like UT-III, even though PRAM experienced no modification of its overall objectives, due to cost savings and strong municipal demand for program resources, it was able to finance a much larger number of subprojects and, in some cases, a much larger volume of physical works than anticipated at appraisal, ultimately benefitting nearly all the municipalities in the state. In the most dramatic case, the project financed more than 12.5 million square meters of street paving, compared with an appraisal estimate of less than 2.5 million square meters. The average cost in dollar terms of the individual subprojects also proved to be significantly lower than expected at appraisal.

4. PROENE

3.17 As indicated in the previous chapter, despite its rapid processing and "emergency" character, the Bank loan for PROENE did not become effective until September 1986, nearly nine months after Board approval. This and subsequent delays kept the operation from closing until mid-July 1989, one year later than originally anticipated. Actual project costs on closing were US$ 165.8 million, or some 21 percent lower than estimated at appraisal (US$ 208.6 million), while an undisbursed balance of US$ 1.4 million (or 1.4 percent) of the Bank loan was later canceled. As in the other operations examined, disbursements initially fell well behind schedule, as only 23 percent of the expected amount was actually disbursed in 1986. However, the pace of implementation picked up rapidly in 1987-88, such that, by June 1988, cumulative disbursements had reached almost 92 percent of the amount projected for this date. Acceleration of disbursements was facilitated by the Bank's decision in October 1987 to increase its share of civil works costs from 55 to 75 percent, caising its overall participation in project financing from 48 to nearly 60 percent.

3.18 Once again, inflation and counterpart funding shortages took a direct toll on project execution. 22 One effect was the temporary suspension of several of the larger flood protection works during 1987. As in the case of the other three operations under review, furthermore, administrative changes in key agencies also slowed implementation, starting with the previously mentioned delay in loan signing. 23 Inadequate project management and monitoring, especially poor accounting and reporting procedures, were also identified as a problem by one supervision mission.

3.19 These factors had a significant impact on project content. Due to the initial delay in loan signing, the Bank was unable to participate in the reconstruction of about 65,000 houses. As a result, funds had to be reallocated

2 More specifically, the PCR indicates (para. 9) that "during the entire implementation period 1986-89, the project along with all the other Bank loans suffered from the high rates of inflation. Although all the.. .construction contracts were indexed for inflation, unfortunately towards the end of the year, the counterpart funds for construction works were always a problem."

23 During the project period, there were three Ministers of the Interior (SUDENE's parent PZgncy), four Superintendents of SUDENE, and five heads of the project coordination unit within SUDENE. As in RMRDP, however, project technical staff remained largely the same, providing an important element of continuity. 34

from the shelter subproject, which ultimately absorbed only 6 percent (instead of an expected 26 percent) of the total, to the urban infrastructure subproject, whose participation increased from 56 to 86 percent. The share of project costs used for the reconstruction of community facilities and flood protection studies also diminished substantially, while the micro-enterprise credit component was dropped when the federal government failed to adopt agreed interest rate levels. The low-cost sanitation program was also eliminated due to what the PCR describes as "administrative/financial difficulties." Because of these changes, PROENE essentially became an urban storm drainage program, consisting mainly of new works to protect against future floods. Ironically, however, most of the planned flood prevention studies were not undertaken.

B. Project Results

1. UT-III

3.20 UT-III exceeded its appraisal targets both in terms of the number of AGLURB subprojects (14 instead of 10) and the extension of bus routes paved (1,056 km instead of 500 km) under the PROPAV subproject. As indicated in para. 3.06 above, this was due to various kinds of "cost savings." By the time of completion, a total of 146 urban areas of varying sizes had benefitted from the project. The scale and territorial dispersion of PROPAV operations, however, led to, in the PCR's words (para. 35), "some problems.. .of project control.. .and the danger of la] fragmentation of investments with limited return," inducing the Bank to encourage EBTU to concentrate its activities in larger cities and metropolitan areas, including metropolitan Sao Paulo, 25 during the latter stages of project execution.

3.21 Performance of the various AGLURB subprojects was uneven. Former EBTU staff interviewed by the Audit mission indicated that the subprojects in Cuiaba, Florianopolis, Goiania, Joao Pessoa, Manaus, Natal, and Vitoria did generally well both in physical and institutional terms, while those in Aracaju, the Santos Lowlands, and Vale do Aco performed well in physical terms, but were less successful institutionally, and those in the Federal District, Maceio, and, particularly, Sao Luis performed poorly. Subproject implementation in Sao

1 This component was to have been implemented by the new Ministry of Urban Development (MDU). However, MDU was unable to participate, so responsibility for the program was :ransferred to SUDENE, which also failed to carry it out.

2 A Back-to-Office report of December 18, 1985 affirmed that EBTU was "anxious" to use Government counterpart funds allocated to UT-III "to complete the Sao Paulo in-city beltway," further observing that the "Bank had no objection and no Bank approval was required" since all loan funds had already been committed and the counterpart funds in question were "not needed" due to the project's reduction in scope.

Former project staff interviewed by the Audit mission in Maceio, however, assessed the subproject more positively, pointing to its continued impact on local transport planning and operations to this day. 35

Luis was hampered by a variety of political, technical, and financial problems, 21 such that only 22 percent of the original investment target was met. According to ex-EBTU and local project staff, the main factors in the comparatively greater success of some AGLURB subprojects relative to others were: (i) strong state and local political support; (ii) the presence and continuity of well-motivated and competent local professional staff; and (iii) the quality and consistency of the technical and managerial assistance provided by EBTU.

3.22 As AGLURB covered over a dozen urban agglomerations throughout Brazil, the poor showing of one or several did not compromise the project's essentially positive overall outcome, and, in fact, points to one of the advantages of a multi-city operation from a performance standpoint. Another clear advantage of the project's multi-city character was the "competitive spirit" it engendered among many of the participating AGLURBs, as well as the possibility it created of one city's being able to learn from t.ae others' successes and failures. According to several project participants, periodic meetings and informal exchanges of information and experience between EBTU and local project staff, as well as between managers and professionals working in different AGLURB cities, were particularly important in this regard.

3.23 From an economic perspective, both the AGLURB and PROPAV subprojects appear to have generated largely positive results. Re-evaluation of a sample of major project-sponsored transport improvements in each of the AGLURB cities as part of the PCR exercise revealed acceptable economic rates of return (ERRs) in all but three cases. Over 90 percent of the PROPAV investments likewise registered ex-post ERRs of 11 percent or more. Among PROPAV's benefits were significant operation and maintenance cost savings due to reduced "wear and tear" on buses resulting from the pavement of roads and streets.

3.24 In terms of institutional development, finally, UT-III's results were more mixed. While a large number of bus operators and maintenance personnel were trained and local urban transport agencies were established or consolidated in most of the AGLURB cities, achievement of the project's institutional objectives at the federal government level were ultimately frustrated because of the extinction of EBTU in 1990. Given the 1988 Constitution's delegation of responsibility and financial resources for most transport matters to state and municipal governments, EBTU's disappearance may not have been altogether inappropriate. Specialists interviewed by the Audit mission in Brasilia and two of the participating AGLURB cities nonetheless indicated that there was a persisting need for federal guidance and institutional support with respect to urban transport management in Brazil. 28 UT-III's positive impact in terms of stimulating an "urban transport planning mentality" at the local level, as well

27 According to the PCR (para. 56), "the Sao Luis subproject was not effectively implemented due largely to political differences between the state and federal governments and consequently financial problems, low technical capacity, and constant political changes."

28 This need has been partially met through the recent (1990) establishment of the Forum of Municipal Transport Secretaries in conjunction with the National Public Transport Association, created in 1977. 36

as the hands-on experience afforded by the operation to a large number of professionals who continue to be active in the sector either in municipal transport agencies or private consulting firms (where many former EBTU staff are now employed) should also not be overlooked.

2. RMRDP

3.25 Despite the implementation delays and reorientation described above (paras. 3.07, 3.11), much of the Recife project was eventually completed more or less as originally intended in a physical sense. However, excepting the upgrading subproject, the BR-101 highway improvements, the Curado IV housing estate, and, in part, the Capibaribe valley development scheme, the results of these investments have been disappointing. The failure to fully execute the solid waste and institutional development components has already been mentioned (para. 3.12). Beyond this, RMRDP did not achieve most of its income generation objectives, the fishing cooperative proving to be a particularly frustrating experience, while only the intermediation service was identified by FIDEM staff as having been clearly successful. At least from a financial standpoint, the Curado Urban Center, Jaboatao Industrial Park, and Capibaribe valley components have produced only limited returns thus far. 9 More generally, as the PCR puts it (para. 18), "the spatial restructuring of the RMR did not take place, a strong metropolitan planning and development agency [did not emerge], the economy of the RMR is stagnating, and replicable methods (with cost recovery) for dealing with the housing and employment needs of the urban poor were not adequately developed."

3.26 Even the upgrading component, which is identified by the PCR as "one of the more successful of the project," ultimately benefitted less than 40 percent of its expected target population. Except for stairways in hilly areas, where actual project output was more than three times the appraisal estimate, none of the initial upgrading targets was attained. Performance was especially poor with respect to the installation of septic tanks, where only 950 new units were actually put in place, compared with an appraisal target of 16,920 units. Similarly, land tenure was awarded to less than 10,000 low-income beneficiaries rather than an appraisal projection of 25,000, while the total number of housing units built or improved under the operation totalled less than 11,500, compared with an appraisal target of more than 32,000. Here also, cost recovery has reportedly been very weak.

3.27 Among the metropolitan infrastructure subprojects, the Curado Urban Center (CUC) appears to have been the least successful. In retrospect, the infrastructure investments intended to consolidate the RMR's "second industrial- commercial development pole" were clearly premature, as the area that was to have been occupied by private industries, warehouses, shops, and housing remains largely vacant and has been only partially sold (reportedly mainly to state government agencies at a considerable subsidy). Even though the PCR (para. 22)

29 The PCR (para. 23) indicates, for example, that the Jaboatao Industrial Park was not fully implemented "owing to the reluctance of the local authority to accept full cost recovery from the beneficiaries of the industrial lots provided." 37

attributes this to "the decline of the RMR economy during the 1980s (which could not have been reasonably foreseen at appraisal)," clearly the economic, financial, and institutional feasibility of this and other project commercial and non-low-income residential components, particularly the Capibaribe valley and income generation schemes, were not sufficiently analyzed prior to Board approval. 30 More generally, economic feasibility of the proposed spatial development strategy for the metropolitan region, especially the western (or Curado) pole, was not adequately assessed by either FIDEM or the Bank.

3.28 Results of the income generation subproject have likewise been unimpressive. The PCR provides a telling thumbnail sketch:

Even though completed, cost recovery had not been put into practice for users of stalls in a Recife Productivity Center, in spite of the commercial nature of the businesses operated there. Tourism promotion... although executed, has left a series of minor under- utilized investments for which maintenance is wanting. The difficulties of the Fishing Cooperative were for different reasons, namely the opposition by the local community to its creation and its poor management. The result is an overscaled and poorly maintained facility. (T]he Prawn culture subproject was innovative, but later succumbed to the output of other producers with which it could not compete... .Most hoee for employment generation, however, had been vested in technical and financial assistance to micro-enterprises. While the FIDEM PCR gives inadequate credit as the reason for the failure of this subproject, another was the underestimation of the scale of the task of administering loans and technical assistance to 8,040 micro-enterprises in Recife and Jaboatao.

3.29 Experience under the Recife project, in short, was largely consistent with that of most other Bank urban development operations that have attempted to promote income and employment generation. Considerable Bank and borrower staff time has frequently gone into such components during project preparation and supervision, but their impact has generally been limited, in part because local public ager,cies normally have little prior experience with or political interest in such interventions. Several former FIDEM Superintendents and professional staff interviewed by the Audit mission confirmed that this component was one of the least successful elements of the project and argued that such activities were far less appropriate for external funding than "structuring" investments which required much larger amounts of capital.

3.30 The institutional subproject, finally, appears to have produced few lasting zesults. As in the case of UT-III, one major reason for this is that the

30 The Audit mission also questions the appropriateness of the location of the Integrated Transport Terminal, which the Curado Urban Center was intended to complement but was not itself part of RMRDP, whose considerable distance from downtown Recife (especially when compared to better situated locations in terms of the regional highway network that were reportedly available at the time the facility was built), is undoubtedly one of the main reasons for the subsequent failure to. develop the surrounding area. 38

political-institutional environment in which the project was carried out changed substantially over time, such that the mechanisms and processes of metropolitan planning and management, as well as the strength and legitimacy of its institutional base (i.e., FIDEM), also changed significantly over time. As also occurred with UT-III, however, a number of ex-Superintendents and current staff of FIDEM characterized preparation and implementation of the Recife project as an extremely rich learning experience that has continued to serve them in their more recent professional activities. RMRDP is likewise credited with increasing awareness at the state and municipal levels about the existence of metropolitan scale problems and the need to take a cross-jurisdictional approach in order to deal effectively with them.

3. PRAM

3.31 In sharp contrast to RMRDP, the Parana project exceeded most of its physical targets and achieved most of its institutional and financial objectives. As indicated in the PCR (paras. 13-16), in addition to providing subloans to 299 municipalities, compared with an appraisal estimate of 150, PRAM was "essential" for improving subproject selection and resource allocation procedures and "transforming the latter from a mechanism of ad hoc patronage to formula-based allocations." Municipal access to funds for a wide variety of urban investments also stimulated community participation and reportedly made local authorities more "accountable." Furthermore, the availability of long-term credit allowed municipalities to finance projects whose costs could be recovered, thereby permitting the introduction of cost recovery measures at the local level, particularly betterment levies, whose share of municipal revenues rose from less than 8 percent in 1983 to more than 13 percent in 1985.

3.32 Visits to participating municipalities during the Audit mission, 3 including interviews with Mayors and other local officials, confirmed both the broad range of investments financed -- although street paving clearly predominated -- and that PRAM was viewed with considerable nostalgia ("saudade"), since the follow-on program, PEDU, has significantly reduced the grant element in state transfers to municipal governments. The perceived importance of project-supported investments at the local level was also verified, reflecting the "demand-driven" nature of the subprojects involved. The only major area where project interventions appear to have been too timid was institutional strengthening, where municipal response was less enthusi stic.

3.33 While it is difficult to assess the impact of project investments on local economic development, particularly since data limitations impeded the PCR from estimating ex-post ERRs, it is nevertheless clear that they have helped improve the quality of life in small towns and cities throughout Parana. Particularly in the northern and western parts of the state, the rolling topography and predominantly clay soils made street paving a popular type of self-financing intervention which has generated significant environmental benefits at the neighborhood level. Other PRAM investments for which there was

3 Specifically, Campo Largo near Curitiba; Toledo, near Cascavel in the southwestern part of the state; and Cambe, Cornelio Procopio, and Ibipora. near Londrina in northwestern Parana. 39

also considerable local demand included sewerage systems, storm drainage, kindergartens, gymnasia, sports centers, health posts, erosion control, and public cemeteries.

3.34 PRAM has also been successful from a financial standpoint, as there are no reported cases of subloan default or significant arrears. Repayments of project subloans in recent years, moreover, have been channeled into a municipal development fund (FDU), which has been further capitalized by state government contributions and a second Bank loan (3100-BR for US$ 100 million approved in June 1989). According to the PCR (para. 19), successful execution of this second municipal project would leave FDU with sufficient capital to make additional external funding unnecessary.

3.35 PRAM's overall success can be attributed to a number of factors. First of all, it was based on an existing local initiative that was able to maintain strong political support even when control of the state government shifted from one political party to another. Second, most of the subprojects financed under the operation were small and of relatively simple design, thereby facilitating their physical execution. Third, it was administered by a competent and motivated team of specialists and was able to utilize the decentralized structure of the existing state municipal assistance agency (FAMEPAR, which had more than a dozen regional offices at the time the project was approved). Fourth, it was able to meet the priority demands (mainly street paving and related works) of a large number of municipalities, which provided it with additional political support. Fifth, as a multi-town program, the risks of delayed or non-implementation were spread over a large number of potential executors and subborrowers and, thus, minimized. Finally, its location in a state having a tradition of good public administration, provided a propitious local institutional environment for project implementation.

4. PROENE

3.36 As noted above (para. 3.19), PROENE fell substantially short of its appraisal target for housing reconstruction, but exceeded the target for urban infrastructure, especially flood protection works. In addition, it failed to provide credits to micro-enterprises as originally expected. There is already

Despite the concentration of project resources in these types of subprojects, one former Bank task manager for the operation identified the wide variety of individual investments funded under PRAM as one of its principal positive features. Among the less typical subprojects visited by the Audit mission were a combined municipal historical museum and cultural center in Cambe, a theater in Ibipora, and a garbage recycling plant in Cornelio Procopio. All of these facilities were designed locally.

3 Unlike Bank financing for PRAM, this loan was made directly to the state of Parana with a federal government guarantee and incorporates the state sanitation and housing companies, SANEPAR an! CORAPAR, as well as municipalities as potential subborrowers. Unlike PRAM, pote-atial subborrowers may only receive project funds after submitting an investment plan and financial program that demonstrates their ability to finance and sustain the proposed investments. 40

evidence, however, that some of the new storm drainage investments supported under the project have helped reduce damage and dislocation by averting flooding from heavy rainfall in parts of the region. The former project coordinating unit at SUDENE is reported by the PCR (para. 12) as having indicated that "with the hundreds of small, medium, and large scale flood protection works," more than 6 million persons were shielded from the effects of "violent torrential rains/floods" in 1988 and 1989, particularly in Alagoas, Sergipe, Bahia, and Piaui. PROENE is likewise credited (para. 15) with providing "direct assistance" to some 500,000 people displaced by the 1985 floods.

3.37 The largest works supported by the project included four major dike systems with pumping stations, the most important of which were for the cities of Teresina and Parnaiba in the Parnaiba River valley in Piaui, and "macro- drainage" works in Aracaju, Arapiraca (Alagoas), Maceio, and Salvador, the two latter of which were visited by the Audit mission. Of the flood prevention studies which were to have been undertaken using satellite imagery for nine major river basins in the region, however, only one (for the Parnaiba valley in Piaui- Maranhao) was fully carried out and just two ochers (for the Apodi and Piranhas valleys in Rio Grande do Norte) were effectively initiated on account of general implementation delays and counterpart funding shortages. Even though SUDENE prepared a request for an additional Bank loan to finance the remaining studies, together with the extension of some of the major flood control works implemented under PROENE, this proposal was denied federal priority for external funding. The PCR, in turn, observes (para. 18) that SUDENE asked the Bank to consider financing a municipal development program for the Northeast, but that this was not acted upon due to the "more immediate priorities" of the federal government during the final years of the Sarney administration.

VI. POINTS OF INTEREST

A. Physical and Environmental Impact

4.01 The operations examined in this report have had a variety of physical and environmental consequences, most of which have been positive. In terms of urban physical development, RMRDP has had the most significant impact on a single urban area, particularly as a result of the BR-101 highway improvements in the northern part of the metropolitan region. The partial relocation and widening of some 10.5 km of this important and formerly extremely congested corridor has brought benefits in terms of more efficient traffic flows, increased pedestrian safety, and local commercial and residential development, although this latter effect has not been systematically monitored and, thus, cannot be readily quantified. On the other hand, physical infrastructure investments in support of the Curado Urban Center have clearly not had the spatial development impact initially anticipated.

3 According to members of the former project unit at SUDENE, which was disbanded when federal authorities decided not to seek additional funding for PROENE, the Bank had informally indicated its interest in providing further resources fcr flood protection in the Northeast. 41

4.02 The environmental effects of the projects reviewed have been most significant at the neighborhood level. Street paving and associated local drainage works have been important from this standpoint both in connection with UT-III (particularly the PROPAV subproject) and the Parana project. PRAM also supported the expansion of sewer systems and erosion control works along local water courses in various parts of the state, as well as solid waste recycling plants in at least two municipalities. RMRDP, through its upgrading subproject, has introduced environmental improvements in both steep (drainage, retention walls, stairways) and low-lying (landfill, drainage, sewerage) poor residential areas, while garbage collection -- if not disposal -- was improved under the project throughout the metropolitan atea.

4.03 PROENE also had a substantially positive environmental impact, particularly as a result of the new flood protection investments in large urban areas including Salvador, Maceio, and Teresina. Its failure to undercake most of the planned studies, however, greatly limited its potential contribution to longer-run flood prevention efforts in the region. In the absence of PhOENE, it is nonetheless likely that many of the localities benefitted under the operation would still be highly vulnerable to periodic flooding.

B. Poverty Impact

4.04 All of the operations but PRAM were explicitly intended either to help alleviate urban poverty (RMRDP) or to improve services (UT-III) and/or environmental conditions (PROENE) in low-income neighborhoods. ' For the most part, these objectives were achieved, although in the case of the Recife project, the actual number of low-income beneficiaries was considerably lower than the initial target. In general, most of the benefits of the urban infrastructure and service delivery improvements introduced through the projects under review were, in fact, perceived by the urban poor, although the exact number of beneficiaries is difficult to determine.

1 The PCR (para. 28) concludes that RMRDP's environmental impact was "mixed." On the one hand, "the upgrading of 47 low-income areas.. .has improved the environmental health of the local populations. On the other hand, the failure of the original concept of the solid waste component and the option for inadequate ad hoc solutions for disposal, especially in Recife itself, can lead to environmental problems unless adequate treatment is introduced soon."

2 At appraisal, it was estimated that roughly 75 percent of the benefits of UT-III would be captured by low-income groups, mainly as the result of PROPAV (which was restricted to poor areas) and improved bus services in peripheral neighborhoods of AGLURB conurbations. Similarly, it was affirmed that the vast majority of PROENE's beneficiaries wouil be low-income families due to their relatively greater tendency to locate in flood-prone areas. 42

4.05 One area where these operations were clearly not successful, however, was in terms of employment generation. PROENE's micro-enterprise credit subproject never got off the ground, while the income generation components of the Recife project have apparently had only a limited impact. The PCR (Part III, Table 6) for RMRDP reveals that, instead of the more than 2,300 small businesses that the project had hoped to help set up, just 15 new micro-enterprises were actually started, and of the estimated 8,470 permanent jobs that were to have been generated though the productive infrastructure subproject, only 170 were actually created.

4.06 The principal positive impact of these operations on low-income fsmilies, accordingly, was in terms of improved shelter (particularly in RMRDP and to some extent PROENE), urban services (UT-III and to a lesser degree PRAM), and local environmental conditions (RMRDP and PAGENE). Some of the most dramatic improvements have occurred as a result of the upgrading and Capibaribe valley components in the hills and selected low-lying areas in metropolitan Recife. However, FIDEM staff indicate that there has already been considerable turnover of upgraded properties to higher income groups in some of these areas. This upward "filtering" process is typical of many Bank-assisted urban projects involving tenure and shelter improvements in low-income neighborhoods.

C. Institutional Impact

4.07 The institutional development impact of nearly all the operations surveyed has been limited. In part this was due to factors outside the control of project executors and, at least in the case of UT-III, the Bank. Two

In its comments on an earlier version of this report, the Brazilian Government recommended that future Bank urban development activities should give priority to employment generation. More specifically, it was affirmed that "it was the consensus opinion of the meetings and discussions [on the draft audit report] that Bank-financed programs were not sufficiently concerned with employment generation. In the country's present situation, in which the social sectors are confronting extremely serious problems, the creation of jobs is crucial; even the sustainability of the benefits originating from (the projects under review] is dependent on this.

4 According to the same table, the project's performance with respect to the number of permanent jobs "created or improved" through the micro-enterprise support program (24,772) was much closer to the appraisal target (26,591), 4s was the number of small firms which received technical assistance (5,666, compared with an estimate of 6,420). The first of these indicators, however, is highly ambiguous since it is unclear either how many new employment positions were, in fact, created, or whit is meant by "improved" jobs.

s See, for example, recent OED audits of urban projects in Morocco (Rabat and Second Urban Development Projects, Report No. 9729, June 28, 1991), Kenya (Second Urban Project, Report No. 9740, June 28, 1991), Ecuador (Guayaquil Urban Development and National Low-Income Housing Projects, Report No. 10238, December 31, 1991) and India (Second Madras and Kanpur Urban Development Projects, Report No. 10579, April 22, 1992). 43

important agencies that the Bank had hoped to substantially strengthen as a result of its urban lending in Brazil, were either greatly weakened during the course of project implementation (FIDEM) or subsequently dissolved (EBTU). Both were largely victims of the country's recent trends toward democratization and decentralization.

4.08 Beyond this (and with the exception of PROENE, which did not have explicit institution building objectives), the institutional subprojects of the operations assessed were among the most difficult to implement and generally produced the least impressive results. Even in the Parana project, which was otherwise a very successful operation, this was the case. According to the PCR (para. 11), "despite some 59 training courses.. .offered as part of the technical assistance program, an institutional development program (including the preparation and monitoring of fiscal collection plans aimed at financial strengthening of the municipalities and recovery of capital improvement costs) was never implemented." While the PCR attributes this to the "excessive attention of project management to the physical and financial (disbursement) aspects of the project," it was also true that participating Mayors were less interested in putting their fiscal houses in order than in obtaining additional resources for infrastructure and service provision which produced clear political dividends.

4.09 In the case of RMRDP, institutional development activities, initially designed to consolidate FIDEM's status as a metropolitan planning and coordination agency were redirected toward the administrative and financial strengthening of metropolitan municipalities during the latter years of project execution. With the disappearance of EBTU, UT-III's main contribution on the institutional front was likewise to support local agencies such as the Public Transport Secretariat (STP) in Joao Pessoa and the Municipal Urban Transport Superintendency (SMTU) in Maceio. 6 In addition to their Directors, most of the present technical staff of these agencies participated in UT-III.

4.10 In all cases but PROENE, these operations have nevertheless left important institutional legacies. In Parana, most of the professional staff who are currently involved in the implementation of PEDU formerly worked with PRAM, while the operational procedures of the new municipal project were directly derived from those of the earlier one. Administratively, PRAM has also served as a model for subsequent Bank municipal projects in Santa Catarina (1985) and Rio Grande do Sul (1989). RMRDP, in turn, was described to the Audit mission by one former Superintendent of FIDEM as "a school" in metropolitan politics and development. Various of his colleagues also highlighted the operation's importance as a unique learning experience in local public sector management. UT-III, finally, helped extend the practice of urban transport planning and management, first developed in Curitiba and other metropolitan areas, to key secondary cities and agglomerations throughout Brazil.

6 These two agencies, which were visited by the Audit mission, were both headed by former local AGLURB subproject coordinators. The current Director of STP, moreover, had also been the AGLURB coordinator in Natal. 44

D. Financial Performance

4.11 As reported in Chapter II, all of the operations reviewed suffered counterpart funding problems. These were particularly serious for projects that depended on federal funding, but even PRAM, in the relatively well-to-do state of Parana which received no federal resources, ran into difficulties on this score. As affirmed in the PCR (para. 11), "availability of counterpart funds, as in all other Bank loans to Brazil, was adversely affected by high rates of inflation during project implementation, causing state budget allocations for the project to lag approximately 55 percent behind their yearly planned amounts in US dollar terms."

4.12 Unlike the other projects, however, PRAM's cost recovery experience was largely positive. Very few of the funds on-lent to AGLURB cities undel UT- III, in contrast, were reportedly repaid into federal coffers, while poor to non- existent cost recovery was also a characteristic of the Recife project. in hindsight, many present and former FIDEM Superintendents and staff interviewed by the Audit mission identified the project's lack of cost recovery as one of its principal deficiencies. A related concern was the substantial dependence of metropolitan municipalities, especially Recife and Jaboatao, on project financing, as project expenditures reportedly accounted for close to two-thirds of all municipal investments in the metropclitan region in 1988-89. As the PCR (para. 32) observes, "there can be little doubt that the local authorities regarded the project as an important alternative source of revenue through which they could postpone efforts to improve their own financial performance." Given the "emergency" reconstruction nature of its design, finally xcept for shelter improv,-ents for higher income groups, there were no provis- -s for cost recovery in PROENE.

E. Sustainability

4.13 In the case of urban infrastructure and services, the sustainability of benefit flows from project investments will depend primarily on their adequate operation and maintenance over time and, thus, on the continued availability of public resources to fund recurrent costs or the mobilization of community participation for this purpose. The former may depend directly on cost recovery from project beneficiaries. In addition to the above, the nature and extent of benefit flows from shelter improvements will depend on complementary investments by residents to consolidate or further enhance the amenity and -- especially when legalized tenure has been granted -- asset values of their dwellings. Sustainability of benefit flows from institutional development efforts, in turn, will normally also depend on the continued existence and evolving priorities of both the providing and recipient agencies involved.

4.14 It appears likely that most of the benefits derived from the local transport infrastructure investments and traffic management improvements made under UT-III will be sustainable. Although the Audit mission did not visit any of the PROPAV sub-ojects, it did inspect numerous relatively large investments ("corridor improven. nts") in two AGLURB subprojects, Joao Pessoa and Maceio. On the assumption that -he situation encountered in these two areas is fairly representative of that in the AGLURB cities generally, the quality of street maintenance and traffic control appears to be quite reasonable. The continued 45

existence and experienced professional staff of the municipal transport agencies in the two cities visited also suggests that institutional mechanisms have been put into place to ensure a continued flow of transport planning and management interventions at the local level. Interviews with ex-project staff both in these cities and Brasilia, however, suggested a persisting need for some federal support in terms of training and technical assistance, areas in which EBTU formerly played a key role but where there is presently an institutional vacuum.

4.15 Sustainability of some of the investments made in connection with the Recife project, particularly for income generation and institutional development, is more doubtful. As the PCR notes (para. 33), "maintenance of project components has been mixed; while equipment and buildings have suffered premature decay through lack of maintenance in the fishing cooperative and the tourist facilities provided, with the larger upgrading components, maintenance by the local communities themselves has been effective." For other components, such as the Curado Urban Center, it is unclear whether there are any benefits to sustain. In any case, it is evident that, in light of the current fiscal situation in Brazil, continued large-scale investments at the metropolitan level on the basis of federal government transfers are no longer possible.

4.16 Given its positive cost recovery performance and the comparatively good quality of local public administration generally in the state, it is likely that benefits from the Parana project will be sustained. Both infrastructure and community facilities subprojects visited by the Audit mission were being well operated and maintained by the respective municipalities. One underlying reason for this is that they clearly responded to local needs and demand -- as opposed to planners' aspirations as was the case with a substantial portion of the Recife project -- and there appears to be continuing community pressure on municipal governments to ensure their upkeep. The PCR (Executive Summary, pg. iii) nevertheless cautions that "the financial crisis facing Brazil's public sector may become a risk factor in sustaining such benefits to the extent that it would adversely affect the municipalities' ability to finance recurrent costs," suggesting the need for greater local resource mobilization efforts.

4.17 The sustainability of benefit flows from PROENE's investments also appears likely unless participating municipalities fail altogether to clean and otherwise maintain the drainage works, dikes, and pumping stations installed under the project. Large drainage canals improved under the project in Maceio (known as the "Reginaldo" canal) and Salvador (along the Camurugibe river valley) that were inspected by the Audit mission seem thus far to be well-maintained and the latter is currently being extended with local resources. Maintenance needs will nonetheless vary in accordance with the type of civil works involved. Institutionally, on the other hand, at present there is nothing to sustain since

According to the PCR (para. 18), most of the infrastructure and community facilities built under PRAM has a useful life of more than 30 years, if properly maintained. The main exception is street paving which requires rehabilitation every 6 years or so. However, it was also affirmed that "municipal operation and maintenance standards are quite satisfactory, statewide," an observation shared by the Audit mission on the basis of its selected visits to project investments in five municipalities in various parts of the state. 46

the central project coordination unit was disbanded and there is little immediate prospect of continuing a regional flood prevention program in the absence of federal government support.

F. Issues of Project Design

4.18 As indicated at the outset of this report, the projects under review embodied distinctly different approaches to urban development. UT-III was a subsector-specific (ie., urban transport), multi-city nationwide operation. RMRDP was a single place (ie., metropolitan Recife) "integrated" project. PRAM was a multi-sector, multi-place (but state-specific) credit program targeted at towns and small cities. PROENE was designed as a multi-place (but region- specific) "emergency" reconstruction operation, covering several investment sectors (especially shelter improvement and flood control) but lacking the broad scope of RMRDP.

4.19 The most comprehensive initiative from an urban development standpoint was the Recife project, which was also the least successful. This operation, whose design was e!onsidered highly innovative in the Bank at the time of Board approval, was ultimately the victim of its own complexity, both in terms of the number and variety of interventions it contained -- some of which (eg., the Capibaribe valley development scheme, the institucional development subproject) were themselves individually very complex -- and the number and variety of institutions involved in its implementation. Being at the same time place-specific and multi-institutional, moreover, it was highly vulnerable to local administrative changes and political rivalries and disagreements, both within and between different levels of government.

4.20 RMRDP was also a victim of its own complexity in the sense that implementation delays associated with its multi-sector, multi-institutional character helped force project execution to be stretched out over seven and a half years, thus exposing it to multiple rounds of political-adm'nistrative turnover. These factors were further compounded by deteriorating economic conditions and their impact on the fiscal situation of and financial management and control within the Brazilian public sector. This, together with evolving inter-institutional politics, directly affected the availability of counterpart funds and, thus, project implementation performance. The PCR (para. 44) draws the following general conciusion in this regard, with which the Audit agrees:

With 183 actions planned through 33 agencies, the project proved too complex an undertaking. Neither supervision by FTDEA nor the Bank could be adequate. There were too many flashpoint- for conflicting interests between agencies and personalities. The experience highlights the need for a simpler project, one which concentrates on a few priority components, involving only those agencies with clear legal responsibilities and political authority for implementation and operation.

4.21 The Parana project, in contrast, while also multi-sectoral in nature, was considerably more straightforward from an implementation standpoint. Even though a very large number of individual executing agencies (ie., municipalities) 47

were involved, project implementation and financing arrangements were relatively simple. More importantly, the operation was demand-driven, rather than defined in a centralized and largely technocratic way, as was the case with RMRDP. Individual subprojects, being considerably smaller in scale, were also far more "implementable" both on account of their technical simplicity (many being based on standardized designs) and because they required fewer resources and thus were less subject to funding delays. Procurement procedures were made more flexible during execution to further facilitate physical implementation. These subprojects had the additional advantage of being carried out during a single local government mandate, thus generating clearly identifiable political dividends. In short, where RMRDP, by design, was largely inflexible, PRAM was almost exactly the reverse.

4.21 UT-III and PROENE shared many of the advantages of PRAM by covering a number of urban areas and being at least partly programmatic in nature. Like PRAM, the PROPAV subproject was demand-driven. .cs execution was straightforward, and its benefits were highly identifiable both in a socio-economic and a political sense. The AGLURB subproject, while more complex, nonetheless involved far fewer executing agencies than RMRDP and appears to have been able to respond flexibly to changing local economic circumstances (to the point that several major investments were eliminated during implementation). UT-III's subsector- specific character was also clearly an advantage both from a technical and an institutional perspective.

4.22 Due to its "emergency" nature, finally, PROENE had limited objectives and comparatively simple implementation requirements and coordination procedures. In practice, if not in design, it evolved into an operation that was largely subsector-specific since many of its interventions were focused on a single problem, the need for flood prevention and control. This facilitated execution. Unlike RMRDP and UT-III, once initial start-up difficulties were resolved, PROENE was executed fairly rapidly, making it somewhat less susceptible to the financing problems that affected all of the operations under review.

4.23 As indicated throughout this report, the projects examined were carried out during a period of severe macroeconomic and (at least at the sector level) institutional turbulence and very significant political change. While some of these factors (eg., the eventual extent of the economic crisis or the institutional chaos in the area of urban development) could not reasonably have been anticipated at the time of project preparation and appraisal, others (ie., the schedule and increasingly open nature of elections at the federal, state, and local levels) could fave been more adequately taken into account. In any event, experiences such as that of RMRDP reveal that multi-faceted, place-specific, and largely pre-defined interventions, especially when they also require extended

8 The higher initial share of Bank participation in total project costs also played a helpful role in this context. 48

implementation periods, are particularly vulnerable both to political- institutional and to economic-financial change. 9

4.24 At the other extreme, PRAM and, to a lesser but still significant extent, UT-III demonstrate that flexible, demand-driven operations, which are also well-attuned to local political calendars and concerns, can be very effective in terms of improving the urban environment and providing services and other benefits to urban -- including low-income -- populations in a large number of localities, whether in one or various states. When properly oriented and managed, they are often also able to induce positive institutional change (ie., in terms of municipal management or the operation of local urban transport systems), whether they are subsector-specific or not.

4.25 Comparing the recent experience with "integrated" (RMRDP) versus subsectoral (i.e., UT-III, PROENE) and programmatic (ie. PRAM) approaches to urban development leads to the conclusion that the former is likely to prove both considerably more difficult to implement and considerably less effective in terms of achieving its (often more ambitious) objectives than the latter. '0 Beyond this, even had the "integrated" approach been more successful in Recife, other than possible demonstration effects, its impact would still have been limited in spatial and institutional terms to a single metropolitan area and one set of state and local agencies. Subsectoral and programmatic approaches, in contrast, normally permit both a broader territorial and institutional impact. "

4.26 Non-integrated, non-single place projects are likely to generate at least two other types of benefits as well: the stimulation of competition among different participants (or potentially eligible participarts), whether these be states, cities, or municipalities, with the likelihood of some efficiency gain

9 The experience in Calcutta, as described in an article by Biswapriya Sanyal and Meenu Tewari, entitled "Politics and Institutions in Urban Development - The Story of the Calcutta Metropolitan Development Authority," in a recent publication of the Asian Development Bank and the Economic Development Institute, The Urban Poor and Basic Infrastructure Services in Asia and the Pacific (Manila, 1991, Volume III, pp. 603-634), provides another example. A third example can be found in the recent OED audit of two urban projects in Ecuador, previously cited in footnote 4 of this section.

10 A similar conclusion was reached in the Ecuador audit, op. cit., which also compared an "integrated" project (Guayaquil) and a subsector-specific (in this case low-income housing) operation in terms of performance and results.

" From the standpoint of project performance, moreover, single place operations, whether multi-sectoral or not, also incur the risk associated with "putting all of one's eggs in the same basket." Should local or extra-local circumstances impede such a project from being properly implemented or otherwise generating its desired results -- as occurred in both Recife and Guayaquil -- the operation will almost certainly be unsatisfactory. If, however, the project involves various localities, unsuccessful performance in one or even several of them (eg. the Sao Luis AGLURB subproject in UT-III) will not necessarily mean that the operation as a whole will fail. 49 in terms of resource allocation; and the possibility of interchanging information and experience (e.g., methodologies, procedures, ways of dealing with common problems, etc.) among participants over the life of the project and, thus, of "learning by doing" collectively, as well as individually. Finally, such operations are likely to permit substantially greater flexibility in project implementation, thereby endowing project managers (and Bank supervision staff) with the possibility of responding more effectively to unforeseen problems resulting from changing economic, political, and/or institutional circumstances.

G. The Importance of External Factors

4.27 The experience of the operations evaluated in this report also clearly demonstrates the often significant impact of "external" factors (ie. variables totally beyond the control of project designers and executors) on project implementation and results. " While there is no need to delve further into the details at this point, all of the projects examined --and much of the Bank's portfolio in Brazil during the 1980s more generally -- were affected to some extent by macroeconomic and/or both national and local political and institutional trends and transformations. Inflation, exchange rate devaluations, and federal macroeconomic policies, on the one hand, and democratization, decentralization, institutional instability at the sector level, periodic administrative changes, and political rivalries, on the other, all influenced the execution of most, if not all, of the projects considered above. While these were by no means the only variables affecting project performance and some operations were affected to a much greater degree than others, these factors strongly conditioned the financial and institutional environment in which the projects under review were carried out.

4.28 While project planners and ex-ante evaluators will never be able to fully anticipate how such contextual factors will evolve -- and thus affect performance -- over the course of a given project's implementation period, such external variables, whether at the local, sector, or national level, should be clearly kept in mind in preparing and appraising new investment operations and alternative (including worst case) scenarios should be consciously considered. In addition, as suggested in the previous section, project designers shoulO reduce project complexity (institutional or otherwise) to the minimum necessary and build in as much flexibility as possible in order to facilitate adjustments during implementation if these are clearly justified. Finally, this suggests the need to ensure that Bank supervision is adequate in terms of frequency, focus, and staffing. This, however, does not appear to have been the case in most of the projects assessed in this report.

12 This was also one of the main findings of a review of 359 completed projects across all sectors of Bank lending assessed by OED in 1990. See, Annual Review of Evaluation Results - 1990, Report No. 9870, August 31, 1991.

13 Or, as the PCR for the Recife project aptly puts it (para. 40), "project design should be simple involving few agencies over a short time scale to avoid creating a complex web of inter-relationships with unlimited points of potential conflict." 50

V. THE ROLE OF THE BANK

A. Preparation and Appraisal

5.01 The Bank played a key role in the preparation of nearly all the operations reviewed. With respect to UT-III, the Bank strongly insisted on the project's institutional strengthening focus and on the need to progressively transfer subproject appraisal and supervision responsibilities to EBTU. Project preparation was facilitated by the existence of a good working relationship between EBTU and the Bank and their joint learning experience during the elaboration, appraisal, and implementation of the first urban transport project. If anything, it could be argued that EBTU may have been too dependent on the Bank, in the sense that too much of the agency's activity may have been centered around the preparation and execution of Bank-supported projects.

5.02 Bank participation in the preparation of the Recife project was even more significant. The Bank and local agencies, particularly FIDEM and the municipalities of Recife and Jaboatac, with support from CNDU and SUDENE, essentially pieced together what eventually became RMRDP out of the initial "Projeto Recife" proposal, FIDEM's spatial development plan for the metropolitan area, and housing investments previously negotiated with BNH. Bank preparation and appraisal missions were recalled by their Brazilian counterparts as having been both very intense and productive, with Bank and local agency staff composing a single team to put the project into its final form. The Bank's collaboration and assistance during the pre-approval stages of the project were specifically praised by several of the former FIDEM Superintendents and staff with whom the Audit mission spoke.

5.03 In the case of PRAM, the Bank's role during preparation was considerably more limited, as relatively few adjustments needed to be made to the existing municipal capital improvements program. Unlike RMRDP, which required one identification and three preparation missions and consumed a total of 74.2 staff weeks t1.rough appraisal and another 72.6 staff weeks from appraisal through Board approval, the corresponding figures for PRAM were two preparation missions, 24.8 staff weeks through appraisal, and just 4 staff weeks between appraisal and Board approval. These figures provide as good an indicator as any of the comparative complexity of the two operations.

5.04 Finally, the Bank responded quickly and effectively to the Government's request for reconstruction assistance after severe flooding occurred in the Northeast in early 1985. An initial identification/preparation mission was fielded in May 1985, with appraisal occurring just two months later and Board presentation in December 1985. As with RMRDP, Bank staff and consultants worked closely with SUDENE and other federal and state agencies t- identify and

I Some former EBTU staff interviewed by the Audit mission believe that EBTU's close relationship with the Bank may even have contributed to its extinction because this led to tensions with other federal transport agencies that were able to lobby effectively against it. 51

dimension reconstruction support needs and to define implementation arrangements for PROENE.

B. Supervision

5.05 The supervision experience in most cases was considerably less positive. Former EBTU staff complained of Bank "inflexiLility" during early supervision missions for UT-III, which, in their view, was later alleviated as the result of a change in task managers. The PCR (para. 47), in turn, observes that, during supervision, "the Bank identified areas where EBTU should have acted (eg., evaluation of the effectiveness of EBTU reorganization, need for ex-post evaluations, problems in Sao Luis, etc.) (but] while these points were always recorded in Aide Memoir, follow-up appears insufficient. Long periods between missions meant that new and more pressing problems had arisen by the next mission." Altogether, the Bank fielded 14 supervision missions between September 1981 and Nciember 1987, but half of these occurred during 1981-83 at the time of the remaining AGLURB appraisals. In general, these missions contained one or two Bank staff members and/or consultants and spent an average of one week in the field.

5.06 Local project personnel also viewed Bank supervision of RMRDP as having been insufficient, particularly after the first years of implementation. 2 Data on staff inputs clearly seem to bear this out. Thus, as compared with a total of 146.8 staff weeks spent on the project through Board approval, supervision received 84.6 staff weeks, of which 50.8 were consumed in FY 1983-84 and the remaining 23.8 in FY 1985-90. Furthermore, while the appraisal mission occupied ten Bank staff and consultants during a total of 23 days, supervision missions, on average, contained just 2 people and spent only 5 days in the field. Given its complexity and recurrent implementation problems, the project was clearly undersupervised.

5.07 Part II of the PCR (para. 17) provides the borrower's perspective on Bank participation in RMRDP:

Bank s'aff performance varied greatly over the nine-year period. After its decisive role in project design and negotiation, during 1982-85 supervision was generally spotty, focusing only on critical areas... .From 1986 to 1990, staff contribution was minimal and supervision a formality. Staff substitutions were constant, resulting in loss of proje.t memory. Short visits and overloaded mission schedules did not promote intimate understanding of local characteristics, nor efficacious relationships with the local coordination team. Bank staff performance over the implementation period was often hindered by dependence on World Bank authorities in

2 One ex-Superintendent of FIDEM remarked to the Audit mission that the Bank acted like a "development agency" during preparation and appraisal, providing needed orientation and technical assistance to project agencies, but changed its behavior to that of a "bank" during supervision, being primarily concerned with procurement and disbursements. This view was largely shared by other former FIDEM directors and staff. 52

Washington to make decisions, which led to excessive delays during project implementation.

5.08 There were even mild borrower criticisms of Bank supervision of the Parana project, whose implementation was considerably smoother than that of RMRDP. As indicited in the PCR (para. 21), "although supervision missions were fielded at regular intervals, they were generally understaffed ....Despite the fact that this was generally a problem-free project, it is obvious that the supervision missions could not dedicate much time to helping the project management team solve problems such as the inadequate strategy for technical assistance." Altogether, there were ten supervision missions between 1983 and 1988. However, all but two of these contained just one staff member or consultant, and a total of only 14.2 staff weeks was spent on supervision, of which 3.6 were reportedly for "PCR preparation."

5.09 Supervision of PROENE, finally, appears to have been characterized by difficulties similar to those experienced by RMRDP. To cite the PCR (para. 19), "all missions were understaffed; and early assistance on financial and physical matters would have helped to organize the accounts and programs to achieve a more efficient implementation of the project.... Consequently, the missions were barely able to address physical and technical issues. Project management and financial issues were not addressed until late 1987." Bank supervision, in fact, consisted of just five missions, containing an average of two persons who spent an average of less than six days in the field to review an operation involving nearly 800 municipalities spread across nine states.

5.10 In all of the cases reviewed, but particularly the Recife project and PROENE, Bank supervision appears to have been less adequate than it should have been. The lack of continuity of supervision staff was especially a problem in RMRDP, but also affected the performance of UT-III and PRAM to some extent. Part of the reason for changes of superJision personnel was the Bank's internal reorganization in mid-1987, which involved a general reallocation of staff working on urban projects in Brazil and coincided with the retirement of the former task manager for RMRDP and PROENE. After reorganization, the Bank had insufficient staff resources to deal adequately with implementation issues and was forced to rely heavily on consultants (including the retired former task manager for RMRDP and PROENE) for supervision of its urban portfolio. Among the operations reviewed, the most serious supervision deficiency concerned the Recife project, whose largely Bank-induced complexity required, but did not receive similarly intensive Bank attention after the first few years of implementation.

VI. CONCLUSIONS AND LESSONS LEARNED

A. Conclusions

6 01 While only the Parana project among the operations under review successfully achieved all of its original objectives, on the whole, UT-III and PROENE can be considered to have been satisfactory operations, while RMRDP can not. The reasons for the differing performance and results of these four projects have been explored throughout this report and will not be further 53

elaborated here. It is nevertheless instructive to briefly assess the extent to which each one was able to attain its goals as stated at the time of Board approval and to summarize the main reasons for observed differences between project intentions and actual achievements.

1. UT-III

6.02 UT-III did accomplish, albeit with substantial delays, its declared objectives of bringing about improvements in urban transport infrastructure and services and, with somewhat greater difficulty, in the operating efficiency of EBTU. It ultimately failed, however, through no fault of its own, to achieve its underlying goal of preparing EBTU to carry out larger program loans in support of urban transport improvements in Brazil. For the most part, the AGLURB and PROPAV subprojects were undertaken successfully, although performance varied from one city or urban agglomeration to the next. It was less successful, however, in implementing the institutional subproject, which was considered by the Bank to be the most important. In retrospect, the Bank clearly underestimated the difficulty of bringing about significant structural and administrative change within EBTU.

6.03 Despite its smaller than expected institutional impact, the project was generally satisfactory. It extended Bank-supported urban transport measures, including transport planning, traffic management, and improved bus operations, to a large set of secondary cicies, including numerous state capitals and the Federal District, and implemented a popular and reportedly widely replicated bus route pavement program in a much larger number of urban centers of varying sizes. For the most part, these investments are likely to be sustainable. Several AGLURB cities (Natal, Florianopolis, Teresina, and Vitoria) simultaneously participated in the Bank-assisted Medium-Sized Cities Project (supported by Loan 1720-BR). As a result, these operations effectively reinforced one another in terms of their physical and institutional benefits at the local level. Despite the extinction of EBTU in 1990, UT-III was responsible for the creation or consolidation of numerous local urban transport agencies.

2. RMRDP

6.04 RMRDP had four major objectives: (i) to provide localized shelter and infrastructure improvements for the urban poor; (ii) to support implementation of FIDEM's spatial development strategy for the metropolitan region; (iii) to boost income generation; and (iv) to strengthen the institutions responsible for metropolitan planning and development. The project, as executed, was partly successful with respect to the first of these goals, although the targets actually attained were substantially below those set at appraisal. However, it largely failed to achieve the other three objectives. While many of the physical works in support of FIDEM's spatial development strategy (ie., the BR-101 highway improvements, Curado IV housing estate, Curado Urban Center, Jaboatao Industrial Park, and -- in part -- the Capibaribe valley development) were eventually implemented, all but the highway and housing estate have generated a much lower level of benefits than originally expected. In hindsight, the spatial strategy was premature and its feasibility should have been subjected to closer scrutiny by both FIDEM and the Bank, particularly from an economic and financial standpoint. 54

6.05 The income creation component proved very difficult to implement (and supervise) and did not achieve its objectives. While fully in accord with Bank attempts to promote employment generacion in its urban operations during the late 1970s and 1980s, this subproject's lackluster performance is also consistent with the experience in most similat projects elsewhere. The institutional development component, finally, was only partially executed and ultimately failed to strengthen either the metropolitan planning function or FIDEM as a metropolitan development agency. Were it not for the Bank's intervention, FIDEM would have disappeared altogether after 1987, probably provoking cancellation of much of the loan prior to physical completion. In practice, these two components served only to complicate project execution.

6.06 RMRDP's unsatisfactory performance can be attributed to a combination of overly ambitious design and a series of external economic, political, and institutional factors -- including, with redemocratization of the country, the progressive weakening of the metropolitan regions themselves -- that together created a "disabling" -- rather than enabling -- environment for project implementation. In the final analysis, however, the blame must lie with project design which would have made RMRDP difficult to execute even in the absence of adverse exogenous factors.

3. PRAM

6.07 PRAM's goals were also fourfold: (i) to develop an alternative system of long-term borrowing and cost recovery for municipalities; (ii) to introduce systematic subproject selection and resource allocation criteria; (iii) to promote cost recovery; and (iv) to improve standards of living in small towns in the state of Parana. All of these objectives were substantially achieved. Unlike RMRDP and UT-III, project implementation proceeded without major problems despite the increasingly unstable macroeconomic environment at the national level and multiple changes in state and local administrations. Even with several rounds of elections, political commitment to the project was maintained throughout its implementation period. The strong institutional base at both the state and local levels in Parana when compared with most other parts of Brazil 2

I Among the comments received on the draft of this report was the following: "The document blames RMRDP's unsatisfactory performance to 'an overly ambitious design and a series of external economic, political, and institutional factors.' Looking back, it might be added that the whole idea and existence of Metropolitan Regions in Brazil were doomed to fail since their implementation in the '70s (was] due to the prevailing institutional and political pre-conditions for their creation at that time. Actually, the Bank, if it had understood better the changing political dialogue of the '70s, would not have accepted to invest in an institutional and financial arrangement that sooner or later (it proved sooner...) would be dismantled. In the early '80s, fewer people still believed in the Metropolitan Regions."

2 This suggests, however, that the project's positive results may be considerably more difficult to replicate in administratively (and economically) less well-endowed parts of the country such as the Northeast. While this does 55

and the project's origins in an existing municipal capital improvement program were also relevant faccors in its success. Nevertheless, at the end of the project, a key implementing agency, FAMEPAR, wa& reportedly in an increasing state of deterioration, contributing to delays in the preparation and early execution of the follow-on project (PEDU).

4. PROENE

6.08 PROENE's stated objectives were to assist in the rehabilitation of flood-damaged urban areas and to strengthen public sector planning capacity for flood prevention and control in the Northeast. The Government's emergency program, of which the operation was a part, substantially achieved the first goal, although due to initial implementation delays Bank-supported interventions took on more the character of flood prevention (ie. large-scale storm drainage works) than flood reconstruction. The second objective, however, went largely unattained. On the whole, the project can nevertheless be judged satisfactory because its execution, once initiated, was reasonably straightforward and it produced clearly identifiable benefits in terms of flood protection which appear to be sustainable.

6.09 The experience of this project nonetheless illustrates two frequent problems with "emergency" reconstruction operations. First, while the project was prepared quickly by the Brazilian Government and processed rapidly by the Bank, its implementation suffered from delays both in loan signing (4 months from the time of Board approval) and effectiveness (7 months later than initially anticipated). As a result, one major reconstruction activity (housing rehabilitation) had already been substantially completed before Bank funds could be disbursed, while much of the planned infrastructure rebuilding program was also well-advanced through the use of alternative resources (including funds reallocated from an existing Bank loan). Thus, a good portion of what the project actually financed consisted of new flood protection investments (including extensions or improvements to existing works) rather than the reconstruction of infrastructure damaged by the 1985 floods. In short, PROENE took on less the character of an "emergency" project than of a regular investment loan, without having been prepared or appraised as such. Had a more conventional approach been taken in project preparation and appraisal, the operation might have been successful in both physical and institutional terms.

6.10 Second, as was the case with PROENE and the more recent Rio de Janeiro Flood Reconstruction Project (Loan 2975-BR), "emergency" loans often attempt to deal with a backlog of long-term urban management problems. Such projects, however, frequently tend to rely too much on the hope that short-term strategies (i.e., high government priority accompanied by quick preparation and approval) will be sufficient to solve these problems. There is a need for the

not mean that the Bank should not support municipal development operations elsewhere in Brazil, it does imply that less developed state and local financial and institutional capacities are likely to present a greater obstacle to successful project performance and outcomes than in Parana (and neighboring states such as Santa Catarina and Rio Grande do Sul or Sao Paulo). 56

Bank to be more realistic about what can and can not be achieved in connection with emergency reconstruction projects.

B. Lessons

6.11 The PCRs for the operations examined draw a number of useful lessons. In some cases, lessons identified in relation to one project apply to one or more of the others as well. These can be subdivided into various categories and the most important lessons are highlighted:

(i) Project Design and Preparation

(a) project design should be kept as simple as possible since the inclusion of multiple components and institutions (as in RMRDP and, to a lesser extent, PROENE) greatly increases the risks to the operation;

(b) project design should take into account the local electoral calendar to ensure continuity;

(c) project financing requires a simple flow of funds to minimize bureaucratic delays, especially (as in RMRDP, UT-III, and PROENE) where several levels of public administration are involved;

(d) key financial aspects (ie., on-lending terms, cost recovery, etc.) should be spelled out at appraisal and reflected in project design rather being left (as in UT- III and RMRDP) to be defined by studies to be undertaken in parallel to the execution of other project components;

(e) allocation of resources among municipalities (such as in PRAM and the latter stages of RMRDP) should be based on simple criteria which can be easily assimilated both technically and politically;

(f) especially in emergency reconstruction projects, the use of existing institutions, however weak (such as SUDENE in the case of PROENE), strengthened with a well-staffed and managed team, is preferable to the creation of new agencies which would require a period of adjustment and learning on the job; and,

(g) during project preparation, all parties whose subsequent collaboration will be necessary (such as SEPLAN and BNH in the case of RMRDP) should be kept fully informed about the proposals being discussed. 57

(ii) Project Implementation and Management

(a) substantial completion of institutional reorganization, definitive operational manuals, and participating or on- lending agreements between central and state or local governments should be a general condition of project approval or effectiveness rather than being left to be resolved during the course of subsequent implementation (as occurred in UT-III);

(b) decentralization of implementation responsibilities, coupled with the provision of technical assistance and training to the institutions sharing responsibility for project execution (as occurred in UT-III and PRAM), decreases the risks associated with the concentration of responsibilities in a single agency (SUDENE in the case of PROENE);

(c) strengthening the institutional capacity of all parties involved in the implementation of municipal (and other urban) development projects is paramount; the Bank and borrower should thus attach a high value to the execution of technical assistance components;

(d) implementation of emergency reconstruction projecLs (such as PROENE was intended to be) should begin immediately after negotiations; and,

(e) project management units should be staffed with interdisciplinary teams to cover all fields of project management; the PROENE project unit, for example, should have contained professionals skilled in financial management, while technical assistance and training should have been provided to municipal staff involved in project execution and subsequent operation and maintenance.

(iii) Project Monitoring

(a) a system to adequately monitor implementation should be put in place prior to start-up to assist project management and permit subsequent evaluation (both PRAM and PROENE having been deficient on this score); and,

(b) operations (sach as UT-III and RMRDP) which contain substantial institutional development objectives should include clearly defined and measurable indicators to permit the monitoring of progress toward the achievement of these goals. 58

(iv) Project Supervision

(a) Bank supervision should be improved to ensure greater continuity during project execution (especially in complex operations such as RHRDP) and to help project management adequately address implementation problems, regardless of the overall status of project execution;

(b) insofar as possible, supervision missions should occur at flexible intervals according to project needs rather than in strict adherence to the Bank's bi-yearly schedule;

(c) in complex projects (such as RMRDP) or rapidly processed emergency operations (such as PROENE), the Bank should budget above average amounts of supervision time in order to more adequately accompany imp'ementation and provide assistance to coordinating ageacies (such as FIDEM .and SUDENE) or to finalize of details left undefined during project preparation and appraisal; and,

(d) experienced financial analysts should be included in Bank supervision missions to review project financial issues (including both counterpart funding and cost recovery) and overall financial management on a regular basis, as well as, in countries like Brazil, to monitor the impact of rapid inflation, exchange rate devaluations, and macroeconomic policy changes on project performance.

6.12 Beyond these recommendations which the Audit supports, several additional lessons should be briefly mentioned. Perhaps the most important of these is the need for the Bank to pay greater attention during project preparation, appraisal, and supervision to the external environment in which its operations will be implemented. Beyond the economic-financial factors alluded to above, institutional and, above all, political considerations need to be taken more explicitly into account in project design. The operations examined clearly illustrate both the fundamental importance of sustained political support for successful project implementation and outcomes (eg., PRAM) and the serious difficulties which can arise in its absence (eg., RMRDP). While political factors will almost always have some effect on project performance, their potential adverse impact can be minimized either, as suggested above, by tailoring project implementation periods to specific (state or municipal) government mandates or by designing operations (such as PRAM) which are sufficiently flexible to accommodate shifting priorities resulting from periodic administrative changes.

6.13 A second lesson refers to the advantages of what were referred to above as multi-place. subsector or program operations (such as UT-III. PRAM, and PROENE) over largely pre-defined, single place "integrated" projects (such as RNRDP). Among these advantages are: (i) their comparatively greater flexibility in terms of accommodating changing local political priorities; (ii) their 59

possibility of stimulating competition among different localities in terms of access to project resources; (iii) the related possibility of learning by doing collectively; and (iv) their capacity to reduce the risks of poor performance both by decentralizing implementation and spreading project resources over a larger number of participating towns and cities. * Such operations, however, must be careful not to disperse project actions so widely as to make them ineffective. From this perspective, a state by state approach to municipal and urban development in large countries such as Brazil is appropriate.

6.14 A general lesson which should be strongly reemphasized, finally, is the need for the Bank to give greater attention to project-related institutional development and financial management, particularly cost recovery, during both preparation and appraisal and subsequent implementation. The experience of the four Brazilian projects reviewed, as well as that of ntmerous completed urban developmant operations in other countries, reveals that these aspects of project performance, while often critical for the sustainability of project benefits, are frequently the weakest, in part because neither the borrower no-: the Bank has granted them the priority they deserve. Even though more recent urban operations in Brazil (eg., the municipal development projects for Parana and Rio Grande do Sul approved in 1989) and elsewhere have strengthened project design in this raspect, it is unclear if the resources presently allocated for their supervision are sufficient to permit the Bank to effectively monitor progress and make changes, when justified, in these areas during project implementation.

3 The allocation of project resources to a single large city or metropolitan area such as Recife, moreover, raises questions both in terms of the (possibly excessive) concentration of investments in (and Bank support to) such agglomerations is-a-vis the rest of the urban system (as well as rural areas) within a particular state or region and likely adverse political reactions and pressures from non-beneficiary cities or municipalities. In the case of RMRDP, this was clearly manifested when the Governot who took office in early 1983 gave greater priority to the needs of non-metropolitan municipalities, leaving the project with a considerably lower level of political support at the state level than had been provided by his predecessor. - 60 -

Annex I Page 1 of 5

Comments from Coordinador Geral Planejamento, Ministerio de Economia, Fazenda e Planelamento

(Translation from Portuguese Original)

FAX No. 1106/92 BRASILIA, June 4, 1992

TO: Dr. Yves Albouy, Chief, Infrastructure and Energy Division, OED, World Bank

FAX No. (202) 676-0625

FROM: Dr. Livio Willian Reis de Carvalho, COPLAN

FAX No. (061) 2254022 (BRAZIL)

SUBJECT: Brazil, draft Project Performance Audit Report on:

- Third Urban Transport Project (Loan 1965-BR) - Recife Metropolitan Region Development Project (Loan 2170-BR) - ParanA Market Towns Improvement Project (Loan 2343-BR) - Northeast Urban Flood Reconstruction Project (Loan 2545-BR)

In response to your communication of March 27, 1992, which accompanied this draft Report, and referring to the April 16, 1992 fax extending the date for presentation of our comments on it, I now attach a copy of Brazil's observations in the matter.

Yours, etc. - 61 -

Annex 1 Page 2 of 5

Comments from Coordinador Geral Planejamento, Ministerio de Economia, Fazenda e Planelamento

(Translation from Portuguese Original)

Brazil's observations on draft PPAR from OED/IBRD referring to: (1) Third Urban Transport Project (Loan 1965-BR); (2) Recife Metropolitan Region Development Project (Loan 21.70-BR); (3) ParanA Market Towns Improvement Project (Loan 2343-BR); and (4) Northeast Urban Flood Reconstruction Project (Loan 2545-BR).

I. Preamble

These observations are the result of consultations and meetings among representatives of' SDR-PR, SUDENE, FAMEPA. , FIDEM, DEAIN and specialist consultants, organized for the express purpose of analyzing the draft PPAR from OED/IBRD on the projects indicated above.

II. Introduction

The four projects analyzed by OED are representative of different approaches to urban development in Brazil - different in terms of the particular features of each region targeted and the conceptual and design choices r2de in each case. Taken together, and considered from a wider viewpoint, the four projects, which required close to US$350 million in financing, provided the World Bank with an opportunity to break new ground in the urban development sector in Brazil, as all four encountered similar difficulties of execution which were overcome with varying degrees of success.

In general, implementation of the four projects was seriously affec:ed by the institutional instability observable in the urban sector througiout the 1980s, a consequence of the redemocratization process the country was then going through, its degree of political and administrative decentralization, and the effects of an unfavorable economic situation characterized by high inflation rates and accompanying devaluation of the Brazilian currency in relation to the dollar. All the projects were subject to adjustments and delays that created certain difficulties as regards both their physical execution and adhetence to timetables for Bank disbursements and release of national counterpart funds.

On the other hand, the experience they provided has led to a significant step forward in this sector in Brazil and provided valuable apprenticeship in dealing with questions specifically associated with efforts to improve the quality of life in the country's major urban centers.

1/ See annexed list of acronyms. - 62 -

Annex 1 Page 3 of 5

Comments from Coordinador Geral Planejamento, Ministerio de Economia, Fazenda a Planeiamento

(Translation from Portugv 3e Original) III. Comments

The Third Urban Transport Project achieved its most resounding success by fostering an awareness of the need for planning at the local level, an atcitude absorbed by a great many professionals who have remained active in this field. As its chief objective was to improve urban transport infrastructure and services and enhance the operating efficiency of the Brazilian Transport Enterprise (EBTU), this project was implemented through three subprojects: (i) the Urban Agglomerations Program (AGLURB); (ii) the Program for Low-Cost Paving in Low-Income Areas (PROPAV); and (iii) a program to reorganize EBTU and improve its management. Although the institutioaal objectives of the latter came to nothing when EBTU was subsequently disbanded, the planned objectives of the other two operations were exceeded, in terms of the success of the bus route pavement program and the number of secondary cities that benefited under AGLURB.

The Recife Metropolitan Region Develoment Proiect constituted a major challenge to both the Government and the World Bank in that it was an attempt to support an "integrated" urban development operation in a major metropolitan area, and was designed to strengthen institutions and promote state/municipality coordination in the planning and management of infrastructure and urban services. Despite the benefits it brought to low- income groups in some per-urban areas, it was not fully successful as regards investments in housing, roads and other infrastructure works intended to consolidate a core commercial, industrial and tourism development area. Both FIDEM, the executing agency, and the Bank were at fault in their studies on the economic feasibility of the development strategy selected for the region, overestimating the political and institutional prerequisites for such a project in a metropolitan area like Recife.

Furthermore, the economic instability prevailing during the project execution period, in addition to the matter of political and administrative decentralizatian, substantially undermined the institutional strengthening of FIDEM as the agency responsible for metropolitan development.

The Paran& Project, coordinAted by FAMEPAR and the State Secretariat of Urban Development, produced the best performance, benefiting almost twice the originally planned number of municipalities through subcontracts for the execution of various types of physical infrastructure subprojects and community works to improve standards of living in towns with up to 50,000 inhabitants. Besides introducing systematic criteria for selection of subprojects and allocation of investment resources, it introduced an alternative long-term borrowing and cost recovery system funded from fiscal revenues generated by the beneficiary municipalities themselves.

The Northeast Urban Flood Reconstruction Protect, coordinated by SUDENE, was part of a larger federal program to rehabilitate urban infrastructure in 160 municipalities in nine states in the Northeast damaged by severe flooding in 1985. In addition to strengthening regional, state, and municipal planning capacity for flood protection and control in thIe Northeast, it had the more immediate objectives of rehabilitation and/or construction of - 63 -

Annex 1 Page 4 of 5

Comments from Coordinador Geral Planejamento, Ministerio de Economia, Fazenda e Planeiamento

(Translation from Portuguese Original) low-income housing, sewerage and water-supply networks, schools, hospitals. and drainage and flood-control works.

Given the fact that it was an emergency reconstruction operation, the project achieved its best results in civil flood-protection works, which mitigated the damage done by torrential rains in the region significantly. However, reconstruction of housing and public buildings fell a long way short of planned objectives, while flood prevention and control studies based on remote sensing techniques, which were to have been a major objective of this project component, never progressed beyond the initial stages.

IV. Conclusions

With the exception of the Recife Project, the results of these operations can be regarded as satisfactory, and particularly so in the case of the Parani Project, which had the benefit of a number of positive factors - political, institutional and economic.

From the general standpoint, although the urban development sector in Brazil subsequently went through a phase of political and institutional instability which threatened the sustainability of their results, all four projects helped bring about a real change in attitude and cont'ibuted to the adoption of a new type of training for sector professionals which focuses more attention on the planning and management of programs and projects in all their phases, from conception/design, execution ane. monitoring, up to supervision and evaluation.

On the subject of the conclusions and recommendations incorporated in the PPAR, we believe the following merit reflection on our part:

During preparation and negotiation of the projects, more explicit account should have been taken of the effects of changes iii political/ administrative and economic/financial circumstances during implementation. This would have allowed greater flexibili-y in dealing with adjustments in priorities, and would have minimized risks and adverse consequences, especially where the impact of inflation was concerned.

In order to guarantee greater sustainability of the benefits flowing from such projectp, closer consideration and greater emphasis should be given to all aspects of management (financial, chiefly) and institutional strengthening.

The Audit Report also advocates the financing of decentralized multi-place and multi-subsector operations, in preference to single-place "integrated" projects, highlighting the advantages of operations of the former type in terms of rectification of possible deviations and adjustment to new situations. However, it appears inconsistent when it also advises that preference be given to projects that arp designed as simply as possible and require only a simple flow of funds, on the grounds that multi-component and multi-institutional projects are to be avoided, since they face increased risks and delays which compromise both their implementation and continuity. - 64 -

Annex 1 Page 5 of 5

Comments from Coordinador Geral Planejamento, Ministerio de Economia, Fazenda e PlaneJamento

(Translation from Portuguese Original)

We are also unable to see that urban development action on the part of the Government could ever be dissociated from a broad concern with overall or multi-sectoral aspects.

It is our belief that the Audit Report should have taken a wider perspective on these four projects, in view of their complexity and diversity. Simultaneous consideration of other programs such as the Salvador Region Metropolitan Project and the Medium-Size Cities Project, also cofinanced by the World Bank, would have added important information and put the conclusions reached on a more credible foundation.

Finally, the Bank would be well-advised in future urban development projects to give priority to job creation. It was the general opinion at the meetings and discussions at which this present document was drafted that Bank-financed programs had paid little attention to this question. Given the situation in which Brazil currently finds itself, with the social sector facing very serious problems, the creation of jobs is crucial since, among other things, the sustainability of the benefits flowing from programs of this type is dependent on it. - 65 - Annex 2 Page 1 of 1

Comments from Chairman and Managing Director, Companhia Paranaense de Saneamento - SANPEPAR

(Translation from Portuguese Original)

Curitiba (Parani), May 11, 1992

Mr. Yves Albouy Chief, Operations Evaluation Department World Bank

Ref: Draft Project Performance Audit Report (PPAR) March 27, 1992

In reference to the abovementioned document, we are gratified to see that the ability of the State of ParanA to execute projects which improve conditions for its population thas been recognized].

In this regard, we take the opportunity to note that the support provided by SANEPAR was especially important to implementation of the State Government's development policies.

Yours truly,

/s/ Stanio Sales Jacob Chairman and Managing Director, SANEPAR - 66 -

Annex 3 Page 1 of 2

Comments from In'tituto Brasileiro de Administracao Municipal

INSTITUTO BRASILEIRO DE ADMINISTRAAO MUNICIPAL RECONHECIDO DE UTI LIDA0E POBLICA PELO GOVERNO FEDERAL (DEC. 34.661. do 1911/53) Edif(cio Diogo LOrdello do Mello - Largo ISAM nQ 1 - Humait - 22282 - Rio do Janeiro - Brasil Tel. (021) 266-6622 - Telex (21) 22638 INBM BR . Telefax (021) 537-1262

Coneemode AdmtniaraQso: LLz SWdu6 LMs (de0M. AVOo Vrm:M FM& EdveV O. HehVW arenao CaVaan. Jo&. Paldones Ref vtis. Maac o Maft UMoes PaamN&WNaso.Uanos supwwnssenra Gwa aurds awasLowON suelntensoes A4iAnce: Janr Reson, uno Parea Ne Cadosmweeo oarvea. ConAo FrAc:sm cerno GeU NWO. 1MneNeaWo de SIva. sesO Rawe.

Rio de Janeiro, 25 de maio de 1992

Mr. Yves Albouy Chief Operations Evaluation Department The World Bank 1818 H Street, N.W Washington, DC. 20433 U.S.A.

Dear Mr. Albouy, In attention your letter of April 17, which we received only last week, I want to inform you that I read the draftProject Perfomance Audit Report (PPAR) and found it very interesting, due to the many impor'ant comments it makes on the institutional and political aspects that can influence both the success ard the failure of international projects like the ones covered by PPAR.

Indeed, the conclusions of the document are most valuable both for those governmental organizations involved in the contract.ig and execution of projects but also for those institutions - governimental or private - responsible for providing technica a.sistance in the fields of strengthening the institutional capability of the agencies in charge of carryning out the projects.

We at IBAM are quite familiar with the many institutional and political problems mentioned in the Report. Indeed, when IBAM was providing technical assistance to CNDU for the middle-size cities Projects that was being financed by the World Bank, we were asked to prepare, in 1984,a paper for the Bank on the outstanding institutional difficiencies of that Project, in which many of the problems of the same kind are mentioned in the PPAR.

Mo. 1S - 67 -

Annex 3 Page 2 of 2

Comments from Instituto Brasileiro de Administracao Municipal

IISTITllO IRASILEIRO DE ADMIST!ACAO MUNICIPAL

Some of these problems deserve special attention. They were very well expressed in the Conclusions and Lessons Learned. Those lessons are very relevant - indeed indispensable - for the success of projects like the ones covered by PPAR. They are really a kind of a manual that both the Bank but mainly the borrowing and executing institutions should follow to avoid many mistakes, and to overcome several difficulties in the implementation of such projects. I suggest, therefore, that these lessons be disseminated by the Bank, under the appropriate form (reference to the Brazilian projectsneednot necessarily be made) and passed on to the borrowers during the negotiation period of the contract, since most of the problems mentioned are rather common to developing countries in general.

Yours very sincerely,

/ u ererros Loyola Director

/ff - 68

Annex 4 Page 1 of 2

Comments from Thereza Lobo (Consultant)

MOMTWM ATTt. 1nn

1. The following covente will basically rL1ate to Tne Evaluation Summary - Con luaione and Lessons (paras. 17-24). The document as a whole i& exceedlingly interesting and useful, mainly for those workini in the operational field of the Bank'e projects. 2. There was no evidence of a government decentralization policy at the time of the exec4ion of UT-III or even afterwards. EBTU's extinction later on was #Lot part of a decentralization proaram, but rather of a fru trated intent to implement a quite questionable Administrative Reform at the federal government. So. it wouldn't be fair to a Y that the Project "supported government decentralization policiet even though this was not its explicit goal at the time..." (pa a. 17). 3. The document blames RMRDP's (Loan 2170-BR) unsatisfactory performance to "an ovekly ambitious design and a series of external economic, poLitical and institutional factors..." (para.18). Looking back, It might be added that the whole Idea and existence of Metro litan Regions in Brazil were doomed to fail since their implemntation In the 70s, due the prevailing institutional and politi al pre-conditions for their creation at that time. Actually th Bank, if it had understood better the changing political dial gue of the 70s, would not have acoepted to invest in an instittioal and financial arrangement that sooner or later (it provd sooner...) would be dismantled. In the oarly 8o. rurwv,w a4111 bulloyad In the hetropo n Regions.

4. Although the Paramn project (Loan 2343 BR) goali were undoubtedly achieved (Pa& a. 19). It might be pointed out that the coordinating agency, pAR, at the end of the Project wa in a process of Increasing and accelerated decadence. This fact was quite evident and affeced the preparation and thn ft at wnnth of implementation of than of PRAM"don Projet - PE (Loan 3100- BR). Moreover, it ouppo t one of the lessons of the Projects - the Importance of "bust ined political support for successful project implementation3-4 )l(para.22).

5. Besides timing, therp might have other related problem with - 69 -

Annex 4 Page 2 of 2

Comments frnm Thereza Lobo (Consultant)

"emergency" operatioMs (para.20): the .. egency". concept itself of Very often, emergency reconstruction loans to deal with long attempt tern problems and solutions to a consolidated backlos of urban mana4ement problems. Such much projects rely too on the hope that short term strategies priorrity accompanied (high government bp quick preparation and approval) would enoush to solve ther. t, MOre recently - for example, the Rio Flood Reconstruction Projectl! (LoAn 2975-DR) nlso "took on more Lhe chapacter of a regulak- investment reconoeruQtIon project than an amergency lun.."(para. 20).

6. It might be addod to the useful imp1ementation lesson on -Projeot and mangement" (para. 21 (ii)) that the Bank should stimulate the creation or the continuity, caeo, of a if this is the professional and permanent team in the coordinating unit, in order to buildf!up a strong institutional the base and avoid problem of dicontinuity that Often badly implementation. affects project A good ilrecent example is of the PIMES (Loan 3129-BR), Project the MulicilDal DavAlerment Proioet in Ulu Granae ao bu, where the Bank Invested very heavily st in building up and erathening a atrong and coherent T)av&1romo%t mamouL (ataze unft WLtbAISA veveiopmont Bank and implementing agency). 7. Related to "projec monitoring" (para. 21(iii)), the Audit Report must stress thi need for a souisd place since information system in the start df Project preparation in an adequate data order to insure base, 'and both consistency and availability monitorina indicatnre Aor of evaluations. Project manassamnt and futula Impact - 70 -

Annex 5 Page 1 of 6

Comments from Arch. Jorge Guilherme Francisconi

May 28, 1992

Mr. Yves Aiboup Chief of the Infrastructure and Energy Division Operations Evaluation Department The World Bank Washington, DC 20433

Dear Mr. AlbOuY,

Re. BRAZIL: Project Performance Audit Record - Draft Loans 1905-BR; 2170-BR; 2343-BR; 2545-DR.

1. i am sending some comments about the Draft of the PPAR above refered, which you kindly submitted to my attention.

When preparing this small note, I had the opportunity to discuss it with Mr. Servulo Vicente Moreira, of the Coordenadorle de AvailaSo a Desempenho of DEAIN/MEFP of the Brazilian Government. We anallsed several topics, although the following comments are under my entire and exclusive responsability.

2. My first observation goes to the excellent substantive comments of this PPAR. As to its structure, it seems to me that It Could be improved because the document becomes repetitive a number of times. This initial comment is important because I will not deal with its good characteristics but concentrate In presenting critics, Comments and suggestions that might improve it. This analitical Condition will inevitably result In a document that apparently underestimates the good quality of this document. The following comments foliows the order of the Table of Contents to make It easier to the eventual reader.

3. pg.x: para.1.: it save that projects *encountered similar execution difficulties...Some projects, however, were far better able to deal with these tendencies than others.*

This phrase Is Misleading. These difficulties mentioned are to be found In almost projects,- WorldBank and others, that were developed in Brazil through this period. it is true that projects related to urban areas were more severellVk - 71 -

Annex 5 Page 2 of 6

Comments from Arch. Jorge Guilherme Francisconi

struck due to 'redemocratization and decentraitzationa, but these itens afected the country is a whole. The concept misleads because it dos not consider the inner characteristics of each one of these projects, that were responsable for the higher or lower level of its successes. From experience I would suggest that: - projects developed In the southeast and southern regions of Brazil, or In Minas Gerais have more chances of success then those In the northeast or north because administrative ability is much better In those arees: - any decision taken to work with SUDENE results in aditional Costs, because SUDENE does not have a good executive tradition, although It can be very good in proposals or evaluations; - to have an 'emergency projecte, such as PROENE, using WD funds Is a contradiction in itself because the procedures adopted by the Bank are not designed to emergencies. Item 1.06 (pg.2) reinforces this point. The consequence Is that, for analltical purposes, the PPAR ignores important substantive topics of the administrative and the financial/disemDursment/evatuaton procedures Of each project. When using macro variables and concepts to explain difficulties and failures It Ignores the importance of project administrators and the local peculiarities. For example, the role of FAMEPAR and BANESTADO was very important to PRAM's success. A similar model, if used In the RECIFE Metropolitan area, could have made a difference Is speeding disembursements and demanding more results from each Institutional component.

4. pg.XiII pars.11: The mixed outcome of -institutional development' Is well Identified with 'stimulating an urban transport planning mentality'. To these I would add the notion of training and qualifying administrative and technical personnel. This was done and today they are the moot impcrtant people working in this area and are those who provide Continuity in the urban transport activities at local level. What wee done was more than mentality; it was training and preparation of now experienced and competent Personnel.

5. pg.xii para.7 : it states that 'EaTU's failure to vrocess subprojects according to Schedule set at appraisal which, in retrospect, was clearly unreallstic'. The first reading is *EBTU's failure', but the real issue is 'the unrealistic appraisal' and the correct reading should be 'world Bank failure to define a realistic schedule set at appraisal'. Similar misleading comments appear several times - 72 -

Annex 5 Page 3 of 6

Comments from Arch. Jorge Guilherme Francisconi

in the document. EX: pg.XIV *Wroject results have been disappointing..... and so on, u-p to wonly limited resulteo. These are pure adfetives and these *limited results" 3u9seet - a failure that contradicts the fo.lowing Pages.

6. pg.XVI pate.18: This paragraph indicates several difficulties in a Program similar to the Medium-SIZed Cities Project, as Mentioned in page 10, foot note S. It seems Important to notice that: a. Integrated comprehensive plans, made for all metropolitan areas and seveve8 Medium size cities, were Used to guide Sector Investments (hOUsing, 8Swage, urban transportatIoU etc) but to finance these sectors and its ComPonents alitogether was firstly tried in Recife. The anallsis falls to mention how were analiSed the Institutions responsable for each Component. It also suggests an analysis of how goo were this Comprehensive Plans to guide sector projects and inveatmente but how unrealistic It 18 to use them in multi-project program investment. Why not develop a comparative analysis? Or make references to Methodology that was used to prepare, implement and evaluate the Medium Sized and the Recife Project? To conclude this topic, It seems evident that there was a lot of wishfull thinking in FIDEM and in the Bank appraisal about the RNRDP project, as defined in pg.18, Items 2.26/27.

7. pg.XVII, pare. 21.(i). It Is my understanding that 'project design and evaluation* should include the 'local electoral calendar' as mentioned. It Should also go more deeply in analysing the administrative capacity of organizations, and if necessary, define programs designed to strengnt these organizations. World-s Bank large experience permits it to built a table defining the Institutional and administrative ability of public and private organizations it has been dealing with. This would help the appraisal set in defining what should be expected from each organization and to define improvement programs. For new projects, the conditions generated by the new Constitution will put new burdens on local aggencies - which are not prepared for it. The result is that the appraisal should be carefull in regarding the new conditions prevailing today, and probably reinforce the local revenues, the 'fisCal effort' and the financial aspects of project4, due to new fiscal guigelines and Constitutional regulations - 73 -

Annex 5 Page 4 of 6

Comments from Arch. Jorge Guilherme Francisconi

8. p9.1 para.1.01.: in here the comment of Item 3 can be repeated. I find wrong to say -that "some projects were far better able to deal with this transformations than others". This is wrong concept. They were better not because they dealt better with "deteriorating economic situation and fiscal crisis, gradual redemocratization and related poiltical- administrative decentralization, and substantial institutional chang in the urban sector during the 19800." They were better because they had (and might still have) better administrative capacity, better trained personnel and political-administrative culture. To recognize and deal with this question wee an important part of my responsability when Executive Secretary of CNPU, a federal aggency responsable for urban projects during the late 1970s and again as President of EBTU in the first years of 1980s.

9. pg.3 para.1.07 and para.1.10.: these two Itens raisees a question ignored in this document relating the importance of "explicit" national, regional, state, metropolitan ou municipal policies in relation to investment programe that were sponsored by the World Bank. The basic question is: do "expilCit policies" effect -or did affect - urban programs developed by the Bank? This question permeates the document. Concepts like "Intra" and "Inter"-urban are mentioned, but yet the question is not directly considered. (see para.1.11.) . In para.1.13. the same question Is raised when it mentions the financial autonomy of SNH but lacks to consider that, at this time, there was no national policy whatsoever (after 1983/84).

10. pg.6 para.1.16. It is true that the new Constitution *transferred mumerous funclona and revenues sources from the federal to the state and municipal levels*, but my observation is that the result was strenghtning the more Industrialized states and Cities. On the other hand, those that do not have an economic base are becoming more poor than before, due to the absence of the federal government redistributive functions. The consequence is that (para.1.17.) "the Bank's decision to pursue an essentially state by state approach in its recent urban lending to Brazil" cannot ignore the growing disparities between state's financial and administrative capac4ty.

11. pg.7 para.2.01. I might remember wrong, but th "emphasis on the Institutional strengthening of ESTU" was 江 - 75

Annex Page 6 of 6

Commen&g from Arch. -orae Guilh2rme Francisconi

This personal experience rates in intriguing question about COTU and its extinction. my -understanding is that its leadership was incapable of defining a now role, more compatible and adequate for the decentralization and democratization that was emerging. if the strategic concept had been more carefully considered and now strategic* defined, I believe that eaTu. with a now format. would still exist.

13. concluding these badly written but hopefully holpfull comments. It Is Important to mention the diversity of objetives, procedures and results oeserved in these four projects. If still In Campus, I would certainly suggest a comparative analysis focusing the results achieved In the field with these world Bank loans. These comments could also be more extensive if focusing some aspects of chapters IV. - Points of Interest, V. - The Role of the Bank or VI. - Conclusions and Lessons Learned. But no substantive observation would add to proceeding comments. Sincerely,

ior; u ni