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Documentof The WorldBank Public Disclosure Authorized ReportNo: 19877- MEX PROJECTAPPRAISAL DOCUMENT Public Disclosure Authorized ON THE SECONDPHASE OF A PROPOSEDLOAN IN THE AMOUNTOF US$55MILLION TO NACIONALFINANCIERA, S.N.C. WITH THE GUARANTEEOF THE UNITEDMEXICAN STATES FORA Public Disclosure Authorized RURALDEVELOPMENT IN MARGINALAREAS PROJECT - APL II November24, 1999 Public Disclosure Authorized MexicoCountry Management Unit Environmentallyand SociallySustainable Development Unit LatinAmerica and the CaribbeanRegion CURRENCYEQUIVALENTS (ExchangeRate EffectiveJune 15, 1999) CurrencyUnit = $ MexicanPesos 1$ =US$ 0.11 US$ 1 = $9.5 FISCALYEAR January 1 through December31 ABBREVIATIONSAND ACRONYMS APL AdaptableProgram Loan CAS CountryAssistance Strategy CDR Comisionde DesarrolloRural (Rural DevelopmentCommission) CONASUPO CompaniaNacional de SubsistenciaPopulares (Grain Marketing Board) CRDS ConsejoRegional de DesarrolloSustentable (Regional Sustainable Development Councils) FIRCO Fideicomisode RiesgoCompartido (Trust Fund for SharedRisks) FONAES FondoNacional de Empresasde Solidaridad(National Soilidarity Business Fund) GATT GeneralAgreement on Tariffs and Trade INI InstitutoNacional Indigenista (National Indigenous Institute) INIFAP InstitutoNacional de InvestigacionesForestales y Agropecuarias(National Institute for Forestry, LACI Loan AdministrationChange Initiative NAFIN NacionalFinanciera (National Development Bank) NAFTA North AmericaFree Trade Agreement NGO Non-GovernmentalOrganization PROCAMPO Programade ApoyosDirectos al Campo (NationalProgram for AgriculturalDirect Support) SAGAR Secretariade Agricultura,Ganaderia y DesarrolloRural (Ministryof Agriculture, Livestockand Rural SEDESOL Secretariade DesarrolloSocial (Ministryof SocialDevelopment) SEMARNAP Secretariade MedioAmbiente, Recursos Naturales y Pesca (Ministryof Environment, Natural SCT Secretariade Comunicacionesy Transportes(Ministry of Comunicationand Transport) SINDER SistemaNacional de ExtensionRural (NacionalSystem of Rural Extension) SOE Statementof Expenditures SRA Secretariade la ReformaAgraria (Ministryof Land Tenure) Vice I'resident: Davidde Ferranti CountryManager/Director: OlivierLafourcade SectorManager/Director: John Redwood Sector Leader/TearnLeader: AdolfoBrizzi Mexico Rural Development in Marginal Areas Project - APL II CONTENTS A: ProgramnPurpose and Project DevelopmentObjective Page 1. Program purpose and programnphasing: 3 2. Project development objective 3 3. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 6 4. Program description and performance triggers for subsequent loans 6 C. Project Description Summary 1. Project components 9 2. Key policy and institutional reforms supported by the project 11 3. Benefits and target population 11 4. Institutional and implementationarrangements 12 D. Project Rationale 1. Project alternatives considered and reasons for rejection 15 2. Major related projects financed by the Bank and other developmentagencies 16 3. Lessons learned and reflected in proposed project design 17 4. Indications of borrower commitment and ownership 18 5. Value added of Bank support in this project 18 E. Summary Project Analyses 1. Economic 19 2. Financial 19 3. Technical 20 4. Institutional 20 5. Social 21 6. Environmentalassessment 22 7. Participatory approach 23 F. Sustainability and Risks 1. Sustainability 23 2. Critical risks 24 3. Possible controversial aspects 25 G. Main conditions 1. Effectiveness conditions 25 2. Other 25 H. Readiness for Implementation 25 I. Compliancewith Bank Policies 26 Annexes Annex 1: Project Design Summary 27 Annex 2: Detailed Project Description 40 Annex 3: Estimated Project Costs 48 Annex 4: Cost Benefit Analysis Summary 49 Annex 5: Financial Summary 55 Annex 6: Procurementand DisbursementA4rrangements 56 Annex 7: Project Processing Schedule 61 Annex 8: Documents in Project File 63 Annex 9: Statement of Loans and Credits 64 Annex 1O:Country at a Glance 66 Annex 11: Characterization of the Indigenous Population 68 MAP(S) IBRD 30581 MEXICO Rural Developmentin Marginal Areas Project - APL II Project Appraisal Document Latin America and the Caribbean Region LCC1F Date: November 24, 1999 Team Leader: Adolfo Brizzi Country Manager/lDirector:Olivier Lafourcade Sector Manager/Director: John Redwood Project ID: P057530 Sector(s): AY - Other Agriculture LendingInstrument: Adaptable Program Loan (APL) Theme(s): RURAL DEVELOPMENT Poverty Targeted Intervention: Y IBRD Others Total Commitment Closing USS m % USS m US$ m Date Date APL 1 47.00 74.6 16.00 63.00 07/15/98 06/30/2003 Nacional Financiera S.N.C. Loan/ (NAFIN) Credit APL 2 55.00 75.3 18.00 73.00 02/15/2000 06/30/2005 Nacional Financiera S.N.C. Loan/ (NAFIN) Credit APL 3 78.00 75.0 26.00 104.00 Loan/ Credit ______ ______________ APL 4 49.00 75.4 16.00 65.00 Loanl Credit Total 229.00 76.00 305.00 ProjectFinancing Data O Loan O Credit El Grant [I Guarantee O Other (Specify) For Loans/Credits/Others: Amount(US$m): 55.0 ProposedTerms: [ To be defined a Multicurrency El Single currency Fixed-spread Loan * OI Standard Variable El Fixed 1 LIBOR-based Graceperiod (years): 5 Yearsto maturity:7.5 Commitmentfee: .75% Frontend fee on Bank loan: 1.00% Government 16.30 1.70 18.00 IBRD 50.00 5.00 55.00 IDA Total: 66.30 6.70 73,00 Borrower:NAFIN S.N.C. Responsibleagency: SAGAR OtherAgency(ies): SAGAR Address: Recreo, 51. Colonia Actipan del Valle. Mexico, DF - 03230 Contact Person: Eduardo Perez Haro Tel: +525 5534 9263 Fax: +525 5524 0667 Email: [email protected] Estimateddisbursements 4 Bank FY/US$M): Annual 3.0 8.0 10.0 10.0 11.0 11.0 2.0 Cumulative 3.0 11.0 21.0 31.0 42.0 53.0 55.0 Projectimplementation period: 2000-2005 Expectedeffectiveness date: 04/15/2000 Expiectedclosing date: 06/30/2005 * Thefixed-spread loan instrumentprovides a disbursement-linkedamortization structure with, for this loan, 7.5 year mnaturityperiod for eachdisbursed amount, including 5 years of grace. OCSAFtPADF olb:0S19,l992 -2 - A: ProgramPurpose and ProjectDevelopment Objective 1. Program purpose and program phasing: The Program, of which this project is the second phase, seeks to improve the well-beingand the income of smallholders in targeted marginal areas, which are among the poorest of the country, through sustainable increases in productivity and better food security. The program aims at implementing over a period of about 10 years a phased approach of progressive geographic expansion in tentatively four phases: - Phase I, covering 6 regions, was approved by the Board in January 1998 and is under implementation. The World Bank Project Appraisal Document No. 17263-ME describes it; - Phase II covers nine new regions and is described in this PAD; and - Phase III and IV will consider the integration of additional areas according to the program requirements and the availability of the correspondentnational budget. 2. Project development objective: (see Annex 1) The project objective of the phase II reflects the program goal, aiming at improving smallholders' productivity and food security in a sustainable way in nine new marginal areas. This second phase expands geographically drawing from the experienceof phase I. 3. Key performanceindicators: (see Annex 1) Progress towards program development objectives are being measured by monitoring and evaluating key perfornance indicators such as: (i) the adoption of new technology, increases in yields and income, and better food security; (ii) the successful integration of sustainable natural resource management practices; and (iii) the promotion of off-farm activities and employment opportunities. At completion, the program will have covered a number of areas with an estimatedtotal population of about 10 million people of which about 2 million would benefit directly from program support. Progress towards the development objective of phase I and II will be driven by the same overall objectives of the whole program and will build on the indicators described in the logical framework in Annex 1. Moreover, triggers indicators have been developed for moving from one phase to the next so as to assess intermediary results and implementation performance. As described in B.4, performance needs to be differentiated according to the time-frame on which the evaluation is based. Therefore, for the areas that joined the program last, indicators will be more qualitative and process-oriented, geared towards institutional capacity, social participation, and performance of the technical assistance. As the program rolls out and implementationresults are available, trigger indicators will be more quantitative-oriented. B: StrategicContext 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Documentnumber: R99-92; IFCIR99-82 Date of latestCAS discussion: 06/08/99 The joint IBRD/IFC Mexico Country Assistance Strategy has been discussed by the Board of Directors in June 1999. The CAS is structured along three main, interrelated thrusts: (i) social sustainability, (ii) macro-economic stability and sustainable growth; and (iii) effectivepublic govemance. While the Rural Development in Marginal Areas program is national in scope, it is a poverty targeted operation which addresses developmentissues in parts of the country where persistent and growing poverty - 3 - remains the single most important challenge to the well-being
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