World Bank Document

Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 11606-PA STAFF APPRAISAL REPORT PARAGUAY Public Disclosure Authorized NATURAL RESOURCES MANAGEMENTPROJECT JANUARY 31, 1994 Public Disclosure Authorized Country Department IV Agriculture and Rural Poverty Division Public Disclosure Authorized Latin America and the Caribbean Regional Office This documenthas a restricteddistribution and may be usedby recipientsonly in the performanceof their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. CURRENCY UNIT Guarani (G.) EXCHANGE RATE (as of January 21, 1994) US$I = G. 1,850 G. I = US$0.0005 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES The metric system has been used throughout the report. ABBREVIATIONS AND ACRONYMS A list of abbreviations and acronyms used in the report is shown in Annex 13. FOROFFICLIL USE ONLY PARAGUAY STAFF APPRAISAL REPORT NATURAL RESOURCES MANAGEMENT PROJECT Table of Contents LOAN AND PROJECT SUMMARY ........................... i I. AGRICULTURAL SECTOR BACKGROUND ..................... 1 Agriculture in the Economy ................................. 1 Major Public Institutions in the Sector ........................... 2 Natural Resource Use in Agriculture ............................ 3 Previous Bank Lending .................................... 4 Lessons from Previous Projects in Paraguay ....................... 5 Lessons from General Bank Experience .......................... 5 Bank Lending Strategy for the Sector ............................ 8 Rationale for Bank Involvement ............................... 8 II. THE PROJECT ....................................... 9 A. Origin and Concept .................................... 9 B. Objectives . .................................... 10 C. Project Description .................................... 11 Introduction ..................................... 11 Project Components .................................... 12 Agricultural Development Component ........ ................. 13 Indigenous Communities Component ........ ................. 17 Infrastructural Development Component ....... ................ 18 Institutional Development Component ........ ................. 19 Pilot Agricultural Credit Component ........ .................. 20 D. Costs and Financing .................................... 22 Project Costs ..................................... 22 Financing ..................................... 22 Procurement ..................................... 22 Disbursements and the Special Account ....... ................. 25 This report is based on the findingsof a Bankmission which visited Paraguayin June 1992, comprisingMessrs. Steven Oliver (Task Manager), JohnMcKenna, Philip Hazelton, Alain Tobelem, and Robert Kirmse, of the Bank, and Ms. Isabel Valencia,Consultant. The peer reviewerfor the projectis Mr. AndresAbramovich. Mr. Victor Valle assisted in the preparation of this report. The DepartmentDirector and Operations Division Chief are Messrs. Ping-Cheung Loh and MarkWilson, respectively. This document has a restricteddistribution and may be used by recipients only in theperformance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. Page E. Organization and Implementation .............................. 26 Project Management ................................... 26 Monitoring, Supervision and Evaluation ....... 27 Accounts, Audit and Reporting ............................. 28 F. Benefits and Risks ....................................... 28 Benefits ................... .... .... .... .... ... .... 29 Risks and Uncertainty .......... .. .. .. .. .. .. .. .. .. 29 Environmental Impact ........... .. .. .. .. .. .. .. .. .. 30 ITI. SUMMARY OF AGREEMENTS. AND RECOMMENDATION ..... 31 Recommendation ............... ... .. ... ... ... .. ... ... .. 34 ANNEXES: 1. The Project Area: Location and Main Characteristics .35 2. Forest Conservation and Agro-Forestry .39 3. Pilot Agricultural Credit Component .49 4. Institutional Capacity Analysis and Development .61 5. Infrastructural Development: Rural Roads .69 6. The Natural Resources Conservation Fund (FOCORN) .77 7. Project Costs and Financing ................................. 81 8. Disbursement Schedule and Estimated Annual Payments .89 9. Schedule of Monitorable Actions .91 10. Supervision Plan .93 11. Documents in the Project File .95 12. Environmental Assessment: Summary .97 13. Abbreviations and Acronyms .105 MAPS: IBRD Nos. 24200, 24201 and 24303 PARAGUAY STAFF APPRAISAL REPORT NATURAL RESOURCES MANAGEMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: The Republic of Paraguay Executing Agencies: The Ministry of Agriculture and Livestock The Ministry of Public Works and Communications The Paraguayan Institute for Indigenous People The Smaliholder Credit Agency The Ministry of Education The Ministry of Health and Welfare Loan Amount: US$50.0 million equivalent Terms: Repayable in twenty years, including five years of grace, with amortization on an annuity basis, at the Bank's standard variable interest rate. Project Objectives: The objectives of the project would be: (a) to establish the institutional framework necessary to deal with the major agricultural and natural resource problems of the project area; (b) to generate information through research and implement an area-wide system of natural resource protection; (c) to assist small farmers in the establishment of sustainable, diversified agricultural production systems and conservation measures; and (d) to encourage the direct participation of the local population in project implementation. Project Description: The components of the project would be: (a) agricultural development, which would include research, technical assistance to producers and their organizations, and support for protected areas; (b) support for indigenous communities, which would include land acquisition and regularization of titles, and the provision of technical assistance in agriculture, health and education; (c) infrastructural development, which would improve and maintain part of the existing feeder road network; (d) institutional development, including technical assistance and training support for existing and newly- created institutions; and (e) pilot agricultural credit, for on-farm investment by small farmers to support production and resource conservation initiatives. Project Benefits: The main project benefit would be the establishment of the institutional framework capable of addressing the long-term problems of agriculture and natural resource use in the project area. The - 1i - project would introduce a coherent strategy of watershed management. It would introduce technology, technical assistance and research output to small farmers in selected catchment areas to enable sustainable, diversified agricultural production to be achieved in harmony with natural resource management. Designated protected areas would be expanded and support provided for their maintenance. Remaining indigenous people would be supported, and enabled to maintain their traditional way of life on increased land areas and on protected forest areas. The provision of agricultural credit to small farmers would be improved. Poverty Reduction: The project is classified as a Program of Targeted Intervention with respect to Poverty Reduction. Environmental degradation in Paraguay has worsened the level of exposure of the rural poor to the risks of further impoverishment. Inadequate natural resource management practices, particularly those resulting in severe soil degradation, have tended to reduce farm income and increase its variability. Under the project, the growth prospects of smallholders and indigenous communities would be improved. Technical and financial support for the adoption of environmentally sound production technologies, rehabilitation and modernization of basic rural infrastructure, and improved access to formal sources of credit would enhance productivity and create an economically viable alternative to the existing pattern of natural resource mining. Project Risks: Institutional weakness is a risk faced by all projects in Paraguay. The project's institutional structure has been carefully designed, and demands considerable adjustment to established patterns of behavior in multiple institutions. The institutional structure would include a program of institutional development, and monitorable indicators would allow progress to be followed closely during supervision and mid-term review. The extensive and careless use of natural resources in agriculture has been the basis for development to date. The project aims to provide the basis to slow down and ultimately to reverse this depredatory approach to natural resource use. This will depend on a consistent message from the government and the provision of a framework of incentives and penalties. Short-term political expediency may run counter to the requirements of the necessary long-term strategic approach. The Agricultural Sector Review in progress will provide detailed recommendations and will form the basis for the necessary dialogue between the Bank and the Government. Under a Japanese PHRD grant, executed by the Bank, a natural resource inventory is being compiled; the finalized product will be an agro-ecological zoning document and an accompanying body of legal and policy instruments. This would be the subject of review, on its completion, by the Bank and the Government, and agreement would be reached on the appropriate

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