World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No.13203

PERFORMANCE AUDIT REPORT Public Disclosure Authorized

COLOMBIA

POPAYAN REGION EARTHQUAKE RECONSTRUCTION PROJECT (LOAN 2379-CO) Public Disclosure Authorized

JUNE 24, 1994 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. CURRENCY EQUIVALENTS

Official Parallel Rate Rate Year ($b/US$) ($b/US$)

1977 20 N/A 1979 25 N/A 1982 196 N/A 1983 500 N/A 1984 9,000 25,000 1985 (May) 45,000 180,000 (Sept.) 100,000 1,500,000

LIST OF ABBREVIATIONS AND ACRONYMS

BCH - Banco Central Hipotecario BR - Banco de la Republica CRC - Department of Cauca Reconstruction and Development Corporation DPN - Departamento de Planeacion Nacional GNP - Gross national product GOC - Government of Colombia JM - Junta Monetaria OD - Operational Directives OMS - Operational Manual Statements OPN - Operational Policy Notes PAR - Performance Audit Report PCR - Project Completion Report REI - Rapid Evaluation of Impact SENA - Servicio Nacional de Aprendizaje

FISCAL YEAR

January 1 - December 31 FOR OFFICIAL USE ONLY

THE WORLD BANK Washington, D.C. 20433 U.S.A.

Office of Director-General Operations Evaluation

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Performance Audit Report on Colombia: Popayan Earthquake Reconstruction Project (Loan 2379-CO)

Attached is the "Performance Audit Report on Colombia: Popayan Earthquake Reconstruction Project (Loan 2379-CO)" prepared by the Operations Evaluation Department.

The Popayan Reconstruction Project was the forty-fourth emergency operation undertaken by the Bank. It involved two novel approaches to disaster lending: (i) the adoption of a multi-sectoral time slice approach, and (ii) an emphasis on reducing the impact of future disasters. The project achieved its objectives. Largely as a result of the Bank's activist approach during the emergency period, the project experienced few major problems during implementation and, once initial obstacles were overcome, it became one of the few urban projects in Latin America where the actual disbursement curve approached the appraisal forecast.

This project was originally rated as satisfactory and the Audit findings corroborate this classification. Although this project was unavoidably complex, project design and the overall reconstruction strategy provided sufficient flexibility. It involved an emphasis on reducing the impact of future disasters. An earthquake of similar magnitude to that which struck in 1983 may cause far lower levels of damage because of project activities.

The PCR provides a brief but full account of the project experience; it is informative on the achievements and on the compliance with covenants. The PAR elaborates on the achievement of institutional objectives and on project design.

Robert Picciotto by H. Eberhard K6pp

Attachment

FOR OFFICIAL USE ONLY

PERFORMANCE AUDIT REPORT

COLOMBIA

POPAYAN EARTHQUAKE RECONSTRUCTION (LOAN 2379-CO)

TABLE OF CONTENTS

Page No.

PREFACE ... 1 BASIC DATA SHEET ...... EVALUATION SUMMARY...... v

1. OBJECTIVES AND METHODOLOGY ...... 1

The Audit as a Rapid Evaluation of Impact (REI) ...... 1

2. BACKGROUND...... 1

The Project Context and Institutional Arrangements ...... 1 Bank Experience with Recovery After Disasters ...... 3

3. THE PROJECT...... 4

Origins, Preparation and Appraisal ...... 4

4. PROJECT IMPLEMENTATION AND RESULTS ...... 6

Long-Term Results of Physical Implementation ...... 6 Compliance with Operational Directives ...... 11

This report was prepared by Alcira Kreimer (Task Manager), and Ronald Parker (Consultant) who audited the project in January and February of 1994. Elizabeth Tweddle provided administrative assistance.

Page No.

5. CONCLUSIONS ...... 12

Execution ...... 12 Project Design, Points of Special Interest ...... 12 Lessons Learned ...... 13

ANNEX 1 - Comments from the Borrower ...... 15 i

PERFORMANCE AUDIT REPORT

COLOMBIA

POPAYAN EARTHQUAKE RECONSTRUCTION (LOAN 2379-CO)

PREFACE

This is a Performance Audit Report (PAR) on the Popayan Earthquake Reconstruction Project benefitting the Department of Cauca, involving a World Bank loan amounting to US$40 million equivalent to Colombia. The project was executed by the Department of Cauca Reconstruction and Development Corporation, which used the proceeds of the loan to finance the reconstruction of the city center, including public buildings and urban infrastructure, as well as to create new urbanizations for renters made homeless by the disaster. The loan was approved on February 2, 1984; it was entirely disbursed two weeks before the closing date.

The PAR is based on the Project Completion Report (PCR) prepared by the Latin America and Caribbean Regional Office and issued on June 1, 1992 (the Borrower contributed extensive statistical information to the report, but did not complete Part II), the Staff Appraisal Report (SAR) the loan documents, and study of the project files. An OED mission visited Colombia during January and February of 1994. The excellent cooperation and valuable assistance provided by the Department of Cauca Reconstruction and Development Corporation, the Department of National Planning, and the National Disaster Response and Prevention System in the preparation of this report is gratefully acknowledged.

Following standard OED procedures, copies of the draft PAR were sent to the Government and the Borrower for comments. Comments received from the Borrower are incorporated in this report and reproduced as Annex 1.

PERFORMANCE AUDIT REPORT

COLOMBIA

POPAYAN EARTHQUAKE RECONSTRUCTION PROJECT (LOAN 2379-COO

BASIC DATA SHEET

KEY PROJECT DATA

Item Appraisal Actual Actual as % Expectations Estimates of Appr. Est. Total Project Cost (US$ Million) 149.46 77.27 52 Loan Amount (US$ million) 40.0 40.0 100 Date Physical Components Completed N/A Economic Rate of Return: (%): Returns on most project components cannot be reasonably quantified.

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENT (US$ million)

FY84 FY85 FY86 FY87 FY88 FY89

Appraisal Estimate 24.0 36.0 40.0 40.0 40.0 40.0 Actual 0.0 15.4 25.8 31.5 37.1 40.0 Actual as % of Estimate 0.0 42.8 64.5 78.8 92.7 100.0

PROJECT DATES

Item Original Plan Actual

Initial Request for Bank Financing 4/04/83 Appraisal 4/19/83 Negotiations 8/29/83 12/15/83 Board Approval 2/02/84 Loan Agreement Date 2/27/84 Effectiveness Date 2/00/84 6/26/84 Loan Completion 12/31/86 06/30/88 Closing Date 6/30/87 iii

STAFF INPUTS (Staff Weeks)

FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 Preappraisal 1.9 Appraisal 4.9 58.6 Negotiation 9.5 Supervision 19.5 17.9 5.2 3.5 2.7 - - 5.0 Other 4.8 20.0

Total 11.6 107.6 17.9 5.2 3.5 2.7 - - 5.0

MISSION DATA

Stage of Month No. of Staff Project Project Cycle Year Persons Week Rating

Identification 4/83 5 7 Pre-appraisal 7/83 8 28 Post-appraisal 5/84 4 5 1 Supervision I 9/84 1 1 1 Supervision II 10/84 1 1 2 Supervision III 5/85 2 2 2 Supervision IV 2/86 2 1 1 Supervision V 10/86 2 1 1 Supervision VI 10/87 1 1 2

OTHER PROJECT DATA

Borrower: The Ministry of Finance, Republic of Colombia

Executing Agency: Department of Cauca Reconstruction and Development Corporation

Follow-Up Project: None. Reallocated to Projects 1558-CO, Part F and 1726-CO, Part L. iv

PERFORMANCE AUDIT REPORT

COLOMBIA

POPAYAN EARTHQUAKE RECONSTRUCTION (LOAN 2379-CO)

EVALUATION SUMMARY

Introduction

1. The main objective of this audit is to 2. On March 31, 1983, during Holy arrive at an overall evaluation of project Week celebrations, a 5.4 intensity earthquake performance including technical, economic, hit Popayan and 11 other municipalities. The financial, social and environmental aspects. Bank assessment team worked with the In light of the fact that the Bank's account for Government to develop a project which would this loan was closed about five and a half increase both the local and national capacity years before the Audit, the assessment also to cope with disaster, by rebuilding both included a rapid evaluation of impacts as a private and public structures according to mechanism to understand the social and seismic-resistant standards. The Popayan physical consequences of the project and the Reconstruction Project assessed in this report extent to which its benefits are sustainable. was the forty-fourth emergency operation The research undertaken for the Audit undertaken by the Bank. It involved two focussed on two factors: firstly, effects that novel approaches to disaster lending: (i) the were celebrated as achievements at adoption of a multi-sectoral time slice completion, notably the preservation of approach, and (ii) an emphasis on reducing historical and cultural property; and secondly, the impact of future disasters. resettlement aspects. The evaluation describes relationships between program Objectives activities and changes which can be observed in the various types of neighborhoods which 3. Project objectives were tied to the exist in Popayan and the way they appeared overall program. Components were expected following the earthquake according to the film inter alia to: (i) contribute to the physical and photographic archives of the CRC. Key and economic rehabilitation of the area informants, focus groups, secondary data damaged by the earthquake by restoring review, direct observation and walking/riding essential facilities and services and re- transects were utilized during the audit establishing a basic level of economic activity process. that would minimize medium- and long-term social and economic disruption and V

dislocation; (ii) help build a streamlined expenditures. Partially as a result of this institutional arrangement appropriate for operation, however, they now have annual efficient coordination, while strengthening the budgetary reserves for emergency operations new and other existing institutions involved in which cannot be used for any other purpose. the planning and execution of the When Congress lowered the 18% interest reconstruction; and (iii) assist in developing a rates specified in the Loan Agreement to 6% framework for dealing with natural disasters for shelter sub-loans and 10% for productive in the Popayan region and in other sub-loans, the Bank ceased disbursements geologically unstable areas of the country. against the shelter component after disbursements were only 33 % of estimated. Implementation Experience The difficulties within the Bank which impeded project implementation were: the 11 4. The Bank supported an initial phase of month delay between appraisal and Board priority investments with an estimated cost of submission, and delays in modifying project US$164.8 million equivalent. The Ministry agreements on Loan 1558 (funds which were of Finance was the Borrower. The to be reallocated as bridging funds but only Government was to finance 71 % of the became available some three years after the project costs and the Bank 29%. The project earthquake). was completed in 1988, one-and-a-half years late, a fact strongly influenced by start-up Results delays. The PCR was only produced in June 1992 but was both complete and accurate. 5. This project has had a significant The CRC was able to craft a response well- impact in terms of reducing the likely effects tailored to constantly changing post-disaster of recurrent disaster within the region. environment. The CRC highlighted the Although it is impossible to predict how the following Bank actions as significant city would survive a maximum credible contributors to project success: the seismic incident, there is no doubt that an establishment of the Special Account at BR earthquake of similar magnitude to that which for expense reimbursement; the rapid granting struck in 1983 would cause far less damage. of justified exceptions (often within 24 hours); By all accounts the new building code is the use of Aide Memoires to solve problems; enforceable because it is widely understood. and the maintenance of open communication Thanks to an intensive consciousness-raising with various government levels. Among the endeavor, Popayan has become a seismically- problems on the Borrower side were: the nine informed town. Publications were developed month delay before the CRC was assigned aimed at various constituencies and courses personnel; the appointment of four different were given on a variety of topics from "what mayors and four different governors during is an earthquake and how does it affect a project implementation; and the provision of building" to the proper ways to tie steel and counterpart funds in a timely manner. The mix concrete. While there is no hard data on Borrower's early commitment to cost this knowledge acquisition process, in recovery was largely abandoned. The numerous conversations it became apparent downside of using public entities in the that everyone from government officials to reconstruction process was that they had no school teachers discourses knowledgeably funds with which to pay back extraordinary about construction details and the vi requirements of seismic-resistant design. government can (politically) afford to worsen Most observers attribute this educational leap the situation of disaster victims-there is no to the speed with which public officials began disincentive for "free riding". the consciousness-raising effort: within 60 days after the earthquake a new building code 8. While recent Bank experience with had been imposed and the educational housing for the urban poor clearly indicates program had begun. that cost recovery in squatter upgrading and slum improvement programs are the best Sustainability means of providing sustainable benefits to lower income groups, this approach may not 6. As this project was done on an be adaptable to conditions which prevail after emergency lending basis, and its intended an earthquake or other major disaster. impact was limited to reconstruction, Collecting repayment from poor families is sustainability considerations in the sense of often complicated by their lack of a formal institutional continuity and maintenance of address, the fact that various family members benefits are not strictly relevant to this Audit. somehow managed to receive emergency It is noteworthy, however, that by becoming loans, and the lack of an institutional more disaster resistant, the city of Popayan infrastructure capable of handling loans not has become a more sustainable urban tied to an easily identifiable piece of land. environment. 9. This project suggests several important Findings and Lessons lessons regarding the use of infrastructure components in helping to improve living 7. The fundamental cost recovery issue conditions in the marginal neighborhoods of raised by this project is whether post-disaster the larger urban areas in Colombia. First and subsidies are unavoidable, given the financial foremost, designing interventions so that poor situation of the poor and the political realities neighborhoods do not become permanent most governments confront at such times. slums. Among the practices worthy of Because of the poor's limited experience with replication are: laying out new settlements by receiving credit from formal sources, disaster constructing curbs; connecting poor areas to loans that stem from the banking sector tend the urban center with wide paved roads; not to be repaid. In Colombia, though it has keeping the size of lots for housing sites been true in other countries as well, larger than 100 in; insistence that all solid tremendous expectations of receiving construction within the marginal something-for-nothing are raised by disaster. neighborhoods be built to seismic-resistant While this attitude should in no way be standards; and attention to the legalization of encouraged, to the degree that the project's land tenure simultaneously with urbanization goals involved poverty targeting, the Bank work. The multi-sectoral time slice approach failed to come to terms with the fact that the functioned as intended during this project: it poorest sectors of society will not mobilize is a practice that should be encouraged in resources to repay project loans for services future Bank post-disaster lending. Many of which they have already received and from the more important issues raised by the which they are already benefitting. Since project could not be conclusively answered strict enforcement is not an option-no within the scope of this audit. It would be vii worthwhile to compare this project with other emergency loans. A detailed analysis of Bank experience in post-disaster lending was called for in several of the interviews undertaken, and in the opinion of this Audit such a measure is clearly warranted. PERFORMANCE AUDIT REPORT

COLOMBIA

POPAYAN EARTHQUAKE RECONSTRUCTION (LOAN 2379-CO)

1. OBJECTIVES AND METHODOLOGY

The Audit as a Rapid Evaluation of Impact (REI)

1.01 As per Procedural Guidelines for Operations Evaluations Staff dated May 1990, the main objective of this audit is to arrive at overall evaluation of project performance, including its principal aspects (technical, economic, financial, social, environmental and other). In light of the fact that this loan was closed about six years before the Audit while the disaster reconstruction project has been implemented according to a fifteen year reconstruction plan, the Audit also included a rapid evaluation of impacts as a mechanism to assess the social and physical sustainability of the project. Two factors were taken into account in the choice of impacts to study: firstly, effects that were celebrated as achievements of the project at completion, notably the preservation of historical and cultural property; and resettlement aspects. This mini-impact evaluation describes relationships between program activities and changes which can be observed in the various types of neighborhoods which exist in Popayan and the way they appeared following the earthquake according to the film and photographic archives of the CRC. Key informants, focus groups, secondary data review, direct observation and walking/riding transects were utilized during the audit process.

2. BACKGROUND

The Project Context and Institutional Arrangements

2.01 The operation assessed in this report aimed to assist the Government of Colombia in the reconstruction of the city of Popayan and its environs, and to help the region to recover physically and economically from the massive damage caused by a disaster. The project was managed through a newly created regional development organization, the Department of Cauca Reconstruction and Development Corporation (CRC). In 1983, the year of the earthquake, the Department of Cauca held only 3% of the national population, and it had long ceased to be what it once was-the country's most important region. The Departmental economy relied heavily on coffee and cattle production, but even in those areas its economic importance to the rest of 2 the country was in decline: its contribution to national GNP had dropped steadily since 1950, and even then had only amounted to 3.4%.

2.02 The city of Popayan, the Departmental capital, contained many buildings of historic and architectural interest from the colonial period. The city's ambiance and traditions, such as the processions and pageantry during Holy Week, attracted some 200,000 visitors a year at the time in question. On March 31, 1983, during Holy Week celebrations, a 5.4 intensity earthquake hit Popayan and 11 other municipalities. Tourists fled the area in panic. About 250 people were killed and 1,500 injured. Damage to buildings and office equipment impeded the functioning of the governmental apparatus. Public utilities required major repairs, with the loss of power greatly complicating actions aimed at disaster relief. The greatest damage in dollar terms was to historic and religious buildings and their contents. A massive operation to provide emergency shelter was urgently required, as was a major construction effort to build replacement housing. The social situation during the reconstruction period has been described as explosive: low- income apartments could not be repaired by the landlords for prices that would allow them to charge rents that the poor could afford to pay. Thus, after the earthquake, Popayan, which had not had a problem with squatters previously, experienced large land invasions as 24,000 newly homeless people began to take matters into their own hands.

2.03 With the help of guidance provided by several Bank missions, a carefully crafted reconstruction strategy slowly evolved through which the region could solve its urgent need for housing and other high priority needs-about 2,400 homes were completely destroyed in Popayan, another 6,900 suffered major structural damage, and an additional 4,500 had minor structural damage as well as damage to non-bearing walls, roofs and plaster. The restoration of non-residential (mostly historic) buildings was begun. Other significant disaster-related damage included: urban streets, rural roads, schools, health facilities, shops, commercial and office buildings, rural infrastructure and bridges. A high-level presidential advisor was appointed to be in charge of coordinating emergency relief and the creation of the regional reconstruction/development corporation. Any reconstruction program that was going to rely on a new organization to handle the enormous and complex tasks described above was going to need institutional support. Major reconstruction costs included such services as: damage inspection, acquisition of heavy earth-moving machinery, preparation of detailed designs, construction materials acquisition, physical works and technical supervision of those works. Acquisition of land to resettle the homeless was also costly. A serious concern related to national and local urban development was the recurrent nature of earthquake disaster: the city suffered major seismic events on approximately an 80-year cycle. For example, the cathedral destroyed in the 1983 event was already the fifth such structure to occupy that spot because earthquakes had knocked down its four predecessors.

2.04 At the time of the Popayan disaster there was no coordinated institutional framework for emergency response in Colombia. Three agencies normally became involved during times of crisis-the Ministry of Health, Civil Defense and the Red Cross-but their work was uncoordinated, often resulting in gaps and overlap. The mayors were responsible for finding the funding that would be required to rebuild their cities as well as for implementing physical 3

works, but there was no budgetary mechanism or emergency fund upon which they could call. As a result, each disaster response depended largely on the personal relationship between the local mayor and the president. The Bank assessment team worked with public officials to develop a project which would increase both the local and national institutional capacity to cope with disaster. Additionally, the team strongly advised the Government to rebuild both private and public structures according to seismic-resistant standards so that the next disaster when it came would neither produce so many deaths and injuries nor require a reconstruction investment on such a massive scale. The creation of the CRC was a first step towards a more formal post- disaster coordination structure. A centerpiece of the disaster reduction strategy was to be a study which examined Colombia's vulnerability to the full range of possible disasters in order to reduce their potential impact in the future. As will be described further below, the evolution of comprehensive disaster response systems and institutions on the national level proved to be one of the most important outcomes of this project.

Bank Experience with Recovery After Disasters

2.05 The forthcoming OED Urban Portfolio Review notes that in terms of project outcomes ratings, emergency has been the most satisfactory subsector. In terms of institutional development and sustainability this project also fits this favorable pattern. The Popayan Reconstruction Project assessed in this report was the forty-fourth emergency operation undertaken by the Bank. It involved two novel approaches to disaster lending: (i) the adoption of a multi-sectoral time slice approach, and (ii) an emphasis on reducing the impact of future disasters. The Bank response in Colombia was strongly influenced by preceding and largely unsuccessful operations in the Dominican Republic, Guatemala and Nicaragua. In those instances, a major stumbling block to the achievement of the reconstruction objectives had been a short-sighted concentration on pre-selected sectors, coupled with attempts to achieve broad social reforms beyond the capacity of local institutions to handle. In a conscious attempt to avoid the errors of the past, Bank missions worked with the municipality and the CRC to identify the full gamut of reconstruction activities that would be required, and the Bank agreed to support all components of this overall program not funded by other entities for a specified period of time. As a consequence of this approach, the emergency loan proceeds were invested in a wide range of endeavors including: rubble clearance, purchase of heavy equipment, repair of basic infrastructure, shelter construction, land acquisition, restoration of productive capacity (touristic, industrial and commercial assets), and institutional support. Other donors were able to coordinate because of the existence of the comprehensive plan which the Bank had helped the Government to put together.

2.06 A technical term which may help the reader to understand the second reason why this project was innovative is disaster mitigation. The term is used to describe practical actions, projects or programs that reduce the long-term vulnerability of groups or geographic regions to natural disaster. Disaster experts now recognize that on every continent the same types of disaster strike the same nations repeatedly, and most disasters have a hidden human cause. To oversimplify, an event such as the Popayan earthquake only resulted in a disaster because of a series of factors associated with the built environment. When disaster reduction is not 4 consciously pursued, disaster-caused damage is rebuilt much as it had been before (with the same disaster vulnerability). This project attempted (through improvements in design and the creation of an improved building code) to cause the built environment to be upgraded to seismic-resistant standards, while setting aside broader social issues.

3. THE PROJECT

Origins, Preparation and Appraisal

3.01 Two Bank missions assisted the Government in the planning of the reconstruction program. The first one, an identification mission two weeks after the earthquake, helped early damage assessment teams and advised the government to move towards both a comprehensive and mitigating approach to the reconstruction process. An additional emphasis was to design in sufficient excess capacity in public facilities and services to cover anticipated future needs. An appraisal mission two and a half months after the earthquake assisted the Government with the final details of project design, helping to schedule reconstruction activities and advising on reconstruction legislation, new building codes and regulations, financial arrangements for reconstruction loans to individual and commercial beneficiaries and institutional coordination arrangements. Throughout the emergency period, Bank staff familiar with similar reconstruction projects elsewhere were able to help to identify project activities, warn of potential problems, provide training and orientation to GOC personnel, and work with them on the financial and institutional details that would be required for efficacious implementation. Because this project was an emergency loan, no Staff Appraisal Report was prepared.

3.02 To the degree possible, the assessment mission had evaluated damage and elaborated an overall reconstruction strategy rather than identify precise components within specific reconstruction solutions. This approach allowed the CRC to refine its activities in the light of improved information and careful planning. Project objectives were tied to the overall program. Components were expected inter alia to: (i) contribute to the physical and economic rehabilitation of the area damaged by the earthquake by restoring essential facilities and services and re-establishing a basic level of economic activity that would minimize medium and long-term social and economic disruption and dislocation; (ii) help build a streamlined institutional arrangement appropriate for efficient coordination, while strengthening the new and other existing institutions involved in the planning and execution of the reconstruction; and (iii) assist in developing a framework for dealing with natural disasters in the Popayan region and in other geologically unstable areas of the country. Ultimately, a 15-year comprehensive reconstruction plan was adopted by the GOC. Investments selected for Bank financing had to meet the following criteria: (i) activities had to lead to the reconstruction of assets of critical necessity in the initial reconstruction period; (ii) they had to result in the immediate restoration of key social and economic activities in the city and region; (iii) there had to be a strong likelihood of efficient implementation and timely disbursements; (iv) they had to be in areas where insufficient or no 5 other financing was committed; and (v) there had to be confirmation of high priority by the Government and local authorities.

3.03 Economic and rinancial aspects. The Bank was to support an initial phase of priority investments scheduled to take place over three years, with an estimated cost of US$164.8 million equivalent. The Ministry of Finance was the Borrower. The Government was to finance 71% of project and the Bank 29%. The Banco de la Republica (BR) managed the Special Account, an activity made easier by the passage of Presidential Decree No. 2714 which reduced processing time on disbursements by limiting the time required for clearance of the loan and budgetary withdrawal requests of the various agencies described below. A National Reconstruction Fund was established by the GOC to handle its contributions to the reconstruction effort. Reallocation of two ongoing loans took place, with US$1.3 million coming from Loan 1726-CO Part 2-L, and US$6.4 million from Loan 1558-CO; the remaining US$40.0 million to be used for the project was to come from Loan 2379-CO. The project was negotiated in December 1983 and approved in February 1984, 11 months after the earthquake. To place this span of time in some perspective, in a similar operation following the 1992 Erzincan earthquake (Turkey) negotiations took place within three months of the disaster. Conditions of effectiveness were: the deposit of counterpart funds in the project account; the promulgation of a seismic- resistant building code; the origination of a procurement manual for the CRC; and the existence of subsidiary project agreements with the 12 implementing entities. Disbursements began in August 1984.

3.04 The principal institutions within the reconstruction project were: the CRC, the Department of Cauca, the Municipality of Popayan and the Banco Central Hipotecario. Institutional development objectives were centered around the CRC, and aimed to support its development as a specialized regional reconstruction authority. The CRC's job was to plan and coordinate with the executing agencies the preparation of sub-loans and sub-projects and to monitor their execution. In this endeavor there was to be a high degree of reliance on Planeacion Nacional (DPN) and the Banco Central Hipotecario (BCH) which had extensive experience in urban development finance. Institutional arrangements were streamlined as much as possible and, thanks to special legislation, disbursements for the various components were to be timely in view of the emergency nature of the project. Largely as a result of the Bank's activist approach during the emergency period, the project experienced few major problems during implementation and, once initial obstacles were overcome, it became one of the few urban projects in Latin America where the actual disbursement curve approached the appraisal forecast. 6

4. PROJECT IMPLEMENTATION AND RESULTS

Long-term Results of Physical Implementation

4.01 This project was completed in 1988, one-and-a-half years late, a fact strongly influenced by start-up delays on a similar scale. The PCR on this project was only prepared in June of 1992 (four years after completion) but it is both complete and accurate. This audit focusses on the development of sustainable disaster-related strategies and institutions and more specifically on conditions in Popayan today (1994) which are a direct result of identifiable aspects of project design. The audit addresses the question, what has been the outcome of the rebuilding process in terms of: (i) public buildings and community facilities; (ii) sites and services for the homeless in their new urbanization; (iii) seismic-resistant housing; (iv) provision of equipment; (v) the restoration and upgrading of water and sewerage networks, and (vi) the preservation of important cultural and historic monuments. Additionally, three broader issues focus this inquiry: (i) what have been the impacts of this project in terms of reducing the likely effects of recurrent disaster within the region; and, in terms of future Bank disaster-related lending elsewhere, (ii) what conclusions can be drawn about the time comprehensive slice approach; and (iii) what has been the experience with full cost recovery in the post-disaster context?

4.02 From an urban development point of view, the project erred in converting almost every building in the entire city center into public offices. Bank staff warned the CRC that a plan that removed commerce and housing from the central area would cause the city to be empty and unattractive at night after public workers go home, and that has indeed happened. Public buildings and community facilities have been reconstructed in an extremely tasteful manner, however, preserving the colonial architectural tradition on the outside while incorporating modern construction technologies and amenities on the inside. Numerous archeological finds were encountered in the excavation stage of the reconstruction process and these have been showcased within buildings and courtyards. Many downtown buildings have been connected internally so that it is possible to walk between offices without going outside. Heavy equipment purchased under the project can be seen still in use (although some public officials felt that the Bank should have stipulated maintenance requirements and ensured that the necessary funds would be budgeted).

4.03 In several instances over-capacity constructed by the project is now being fully utilized: large four-lane avenues constructed through open land to access the new communities bustle with commerce and traffic; the new municipal market which had been unoccupied at the time of the PCR is now in full use; the second water treatment plant now generates public revenues by selling bottled water (it also provides back-up capacity in the event of a natural or industrial disaster); the workshops constructed for local and departmental government also generate additional revenue (they repair trucks and heavy equipment commercially when publicly-owned machinery is not making full use of the facilities), and there is sufficient electrical capacity to allow for the development of new industries. 7

4.04 Although it is impossible to predict how the town would survive a maximum credible incident, there is no doubt that an earthquake of similar magnitude to that which struck in 1983 would cause far lower levels of damage. By all accounts the new building code is enforceable precisely because it is widely understood. Thanks to an intensive consciousness-raising endeavor, Popayan has become a seismically-informed town. Publications were developed aimed at various constituencies from the man-on-the-street to the masons and engineers. Courses were given on a variety of topics from "what is an earthquake and how does it effect a building" to the proper ways to tie steel and mix concrete. While there is no hard data on this knowledge acquisition process, in numerous conversations it became apparent that everyone from government officials to school teachers discourses knowledgeably about construction details and the requirements of seismic-resistant design. Most observers attribute this educational leap to the speed with which public officials began the consciousness-raising effort: within 60 days after the earthquake a new building code had been imposed and the educational program had begun.

4.05 The Bank supported activities which targeted impoverished sectors of the population to be included in this project. Initially after the earthquake the land invasions were going to be met with police action, and there had been strong resistance to the notion of rewarding the land invaders with housing and infrastructure solutions to their settlement problems. Bank funding for the acquisition of land and a strong sites and services component aimed at the new settlements helped to avoid violence by addressing the pressing problems of the newly marginal communities. It must be noted that at the time of the earthquake the social situation in the Popayan area was extremely unstable. Homeless/squatter resettlement ultimately resulted in the creation of 17 new neighborhoods, where marginalized populations received legalized title to plots of urbanized land. Providing sites and services in the new urbanizations has had excellent results, with housing in such neighborhoods becoming quite attractive and solidly built to earthquake-resistant standards.

4.06 Among the more far-sighted policies pursued with the squatters was the determination to integrate the new settlements into the traditional urban area. They have been connected to the center by broad avenues, and sufficient land was included in each lot so that the new areas would not become slums. The CRC observed that if poor families were given "postage stamp" pieces of land, their communities would remain marginal, representing an urban blight forever. On the other hand, if houses could slowly grow to fit family size, local pride would motivate the families to invest in street-side beautification-which has happened (most notably where streets have been paved). There have also been environmental benefits of reconstructing to higher sanitary standards: two rivers which flow through town are no longer polluted because of the sewerage system and treatment facilities placed between the new neighborhoods and the waterways.

4.07 The fundamental cost recovery issue raised by this project is whether post-disaster subsidies are unavoidable, given the financial situation of the poor and the political realities most governments confront at such times. Because of the poor's limited experience with receiving credit from formal sources, disaster loans that stem from the banking sector tend not to be repaid. In Colombia, and in other countries as well, tremendous expectations of receiving 8

something-for-nothing are raised by disaster. While this attitude should in no way be encouraged, to the degree that the project's goals involved poverty targeting, the Bank failed to come to terms with the fact that the poorest sectors of society will not mobilize the resources to repay project loans for services which they have already received and from which they are already benefitting: since strict enforcement is not an option-no government can (politically) afford to worsen the situation of disaster victims-there is no disincentive for "free riding". To the degree that increases in the value of homes are never realized-urban neighborhoods in Colombia tend to be stable-there is limited scope for the poor to profit from their housing investments and pay off obligations. Too frequently, the capital investment represents a multiple of their annual earnings, and they have no tradition of borrowing for housing-dwellings grow and improve when families can afford to cover material and construction expenses out of current earnings. While recent Bank experience with housing for the urban poor clearly indicates that squatter upgrading and slum improvement programs are the best means of providing benefits to lower income groups, these approaches are not adaptable to the conditions which prevail after an earthquake or other major disaster. Collecting repayment from poor families is often complicated by their lack of a formal address, the fact that various individuals in the same nuclear family somehow managed to receive emergency housing loans, and the lack of an institutional infrastructure capable of handling loans not tied to an identifiable piece of land.

4.08 When it became apparent that small business loans and housing loans to low-income families (particularly in the new settlements) were not being paid in the manner anticipated, the Borrower's early commitment to cost recovery was largely abandoned. Although emergency loans tend to be extremely successful in terms of institutional development and the construction of physical works, direct cost recovery of emergency-related loans from project beneficiaries has been very poor, as it almost always is in developing countries following disasters. The downside of using effective public entities in the reconstruction process (which facilitated the speedy return to a minimum level of normality) is that such entities in Colombia tend not to pay each other back. In the period in question (1983-) there were no annual budgetary allocations for disaster/emergency expenditures. At least partially as a result of this operation Colombian public entities now have such annual budgetary reserves. As will be discussed further below, the Bank cut off disbursements for shelter when the Government decided to charge negative interest rates for the shelter component. In the intervening years, all interest charges have been abandoned. Housing loans given out by ICT are currently subject to amnesty, they can be paid off without interest or penalties. Even with such generous provisions many loans are still being classed as uncollectible. The amnesty policy is not retroactive, families that paid off their loan including interest and late charges get no benefit whatsoever, while those that never even made one payment receive the largest benefit. The Poverty Reduction Handbook discusses targeted Bank subsidies for low-income housing in Mexico, and notes that even in non-disaster projects, sites and services components neither reached the poorest households nor achieved cost recovery. In other countries, El Salvador for example, repayments of emergency loans have led to recovery rates below 50%.

4.09 There were modifications made to the project during implementation, but these were mostly the result of flexibility built into its original design. By establishing the criteria described 9 above tied to project objectives, instead of identifying sub-projects at a time when the scope of the problem and the needs of the victims were not yet clear, the CRC was able to craft a response well-tailored to constantly changing post-disaster environment. The CRC highlighted the following Bank actions as significant contributors to project success: the establishment of the rotating fund at BR; the rapid granting of justified exceptions (often within 24 hours); the use of Bank Aide Memoires to identify problems between the DPN and CRC (which motivated the two agencies to quickly resolve their differences); and the maintenance of open communication with the various government levels. Among the problems on the borrowers side were: the nine month delay before the CRC was assigned personnel; the appointment of four different mayors and four different governors during project implementation; and the difficulty coming up with the counterpart funds in a timely manner given that the annual budget had been prepared two years before (and included no allocations for emergency project expenditures).

4.10 When Congress lowered the 18% interest rates specified in the Loan Agreement to 6% for shelter sub-loans and 10% for productive sub-loans, the Bank ceased disbursements against the shelter component after disbursements were only 33% of estimated. The difficulties within the Bank which impeded project implementation were: the 11 month delay between appraisal and Board submission; delays in modifying project agreements on Loan 1558 (funds which were to be reallocated as bridging funds only became available some three years after the earthquake); and the insistence on what the Borrower described as an overstrict emphasis on designers' academhic qualifications or experience made it difficult to hire professionals from within Colombia.

4.11 During site visits by the Audit mission the following sustainable improvements were observed in national/regional/local institutions. The most direct result of the project has been the creation of the CRC and its continued existence. Until the recent constitutional change, the CRC played a major role in the continuing development of the Department of Cauca. Its new mandate, following the decentralization of most of its authority to the municipal level, is one of environmental protection and promoting the sustainable use of natural resources. The experience of the CRC in coordinating the reconstruction of Popayan was very influential in the creation of the new National Disaster Response and Prevention System. Colombia has developed both a national disaster coordinating system and the requisite advance financial planning to deal with the types of disaster to which it is prone in a relatively routine manner. In the words of one of the system's directors, "we know 1000% more about how to respond to disaster today than we did then." The National Disaster Fund created to channel resources to this project has become a permanent institution, facilitating both emergency recovery and investments in disaster prevention nationwide. The Municipality of Popayan developed substantial implementation capacities during the reconstruction which have served it well under the new "decentralizing" constitution, and it now routinely recovers its costs under municipal services such as water. The most observable impact of the training and studies components would have to be the widespread use of self-help construction as a result of SENA's training. Not only have SENA trained builders continued to help local residents upgrade their homes in the sites and services areas, they have also worked in housing programs for the resettlement of the families of former 10 insurgents, and many are reputed to have worked in the reconstruction of nearby Armero following the disastrous eruption of the Nevado del Ruiz volcano in 1985.

4.12 This project suggests several important lessons regarding the use of infrastructure components in helping to improve living conditions in the marginal neighborhoods of the larger urban areas in Colombia. First and foremost, attention to critical design details and sequencing the implementation of key components can ensure that poor neighborhoods do not become permanent slums. Among the practices that worked in the earthquake are:

* laying out new settlements by first placing the curbs. Preventing the construction of housing in areas that will later become sidewalks or streets avoids the endless negotiation that introducing such improvements would require once structures have been improperly placed. Often the opportunity to urbanize intelligently can be lost permanently if proper steps are not taken at the outset;

* connecting poor neighborhoods to the urban center with wide paved avenues. Lowering transportation costs and travel time makes neighborhoods a more pleasant place to live and incorporates them into the fabric of the city. Narrow roads of poor quality can permanently stigmatize a community;

* making sewerage connections directly into the bathroom fixtures within sites and services components. Project implementers noted that the introduction of sanitary infrastructure takes a measure of time, and by the time connections are available out on the street, marginal families will not connect to the system. They have had time to become accustomed to whatever facility they have put on their property, and will neither choose to spend money nor to work to connect to the sewer main if left to their own devices;

* keeping the size of lots for housing larger than 100 m2 . If there were sufficient space, a family will eventually build a dwelling unit large enough to house all its members. If a community has only small lots it is condemned to perpetual marginality, more prosperous families will move out when they can. On the other hand, if the property leaves room for expansion families will continue to invest in the home, and the community can improve over time. Additionally, when children have room to play at home it reduces delinquency;

* even within the marginal neighborhoods it is possible to insist that all construction be up to the building code's seismic resistant standards;

* legalization of land tenure should take place simultaneously with urbanization work,

* the introduction of paved streets leads to improvements in housing appearance without further public investment. 11

Compliance with Operational Directives

4.13 Operational Directives. As for any project, a very large number of Bank Operational Directives (OD, Operational Manual Statements (OMS), Operational Policy Notes (OPN) and Guidelines were applicable to the preparation, appraisal, and implementation of the project. Compliance with certain "administrative," legal, country economic and procedural requirements can be taken for granted as these were required for Board approval and effectiveness. At the time of the loan there was no operational directive in effect regarding emergency lending. Such a directive was issued subsequently, and its provisions were influenced by the experience in Popayan. The project also antedates the Operational Directive on Cultural Property, although its actions to preserve and display archeological finds within the reconstructed areas anticipate Directive provisions.

4.14 Compliance with Covenants. Apart from the standard covenants of a typical loan agreement there were few specific covenants applied to the loan and these fell into the following categories:

(i) Standard Audit Covenants. The Borrower had been in full compliance with the requirements of the audit covenant (introducing modifications in financial management in response to recommendations by external auditors) up until the audit for the last year in which disbursements would be reflected in project accounts. This audit undertaken by the Contraloria de Cuentas was not submitted to the Bank for reasons which were beyond the ability of this Audit to ascertain.

(ii) ProjectAccounts. An audit report of project accounts dated May 24, 1991 was obtained in Colombia during this Audit process. It is the opinion of that document that the final accounts of the project are not in reasonable conformity with accepted accounting principles. The auditors report (in Spanish) notes inter alia: that documents are missing for accounts receivable; that accounts payable are overestimated; that the location and amount of land still on the books as "for sale" was impossible to ascertain; "social investments" were impossible to audit given the documents presented; and an inventory had never been taken during the final or previous fiscal years.

(iii) Project Execution. The PCR reports that the Junta Monetaria resolution upon which Section 3.02 (b) of the Loan Agreement was based was modified by Congressionally mandated reductions in interest rates which ultimately produced negative returns, leading the Bank to declare the Borrower in non-compliance of this provision. Covenant specifying loan closing date: the loan closing date was not changed from June 1987, however the last disbursement from the loan account took place December 1988. The lending program carried out by the CRC was not fully in accordance with agreed procedures because Congress modified Resolution 32/J.M. of April 1983 which governed its operations, in effect changing the conditions under which the CRC could make loans for commercial and shelter purposes. 12

5. CONCLUSIONS

Execution

5.01 This project was originally rated as satisfactory and the Audit findings corroborate this classification. Although this project was unavoidably complex, it included a significant flexibility, by all accounts once the loan was approved it ran smoothly, achieving significant objectives with only minimum problems. On the Borrower side, the National Planning Department provided important support during all phases of implementation, facilitating coordination between the reconstruction program and the national investment plan. The achievement of disaster mitigation objectives at the local level sets the standard for future interventions. By ensuring that all newly constructed and repaired structures followed seismic resistant design criteria, the investment in Popayan will prove to be sustainable. The CRC did achieve high levels of coordination and otherwise managed the physical works according to commendable engineering and design standards given the severe constraints of emergency conditions. On the Bank side, the Borrower repeatedly mentioned the quality of technical help provided by the missions as being of critical importance. Successful implementation was also due to good design, the creation of a strong project implementation unit, effective leadership on the local level, and connections on the part of CRC directors to the highest political levels (which removed bottlenecks and resulted in quick decision-making). The most important lapse in execution in terms of potential long-term benefits not being achieved involved a national study which the Borrower agreed to implement that was to develop guidelines to reduce the impact of future disasters country-wide. The focus of this study was changed to an impact study of the Popayan event. This was clearly no substitute for the study that had originally been envisioned. The substitution of an easier to implement but less important study objective reflects the diminishing political importance which disaster has for governments everywhere, as the destruction fades from the public consciousness. Problems reallocating funds between loans within the Bank (described above) and the 11 month wait for Board approval were the major source of delays.

Project Design, Points of Special Interest

5.02 This was the first emergency recovery project where the Bank appraised a program (rather than a project), planning to finance a time-slice. This may be an approach which may be encouraged in similar circumstances elsewhere. The Bank has the credibility to pull together donor agencies, and the experience required to convince governments to take a longer-term approach, and to help them to focus on mitigation rather than putting things back together as they were. Mission timing seems to have been critical. The first mission was able to provide valuable training and guidance to the GOC. The second mission arrived in time to help shape a comprehensive program. Arriving after search and rescue but before project implementers have cast their projects in concrete is the most propitious timing. Early Bank missions' insistence on strategic design during the early days allowed the CRC an important measure of flexibility, 13 which ultimately made it possible to concentrate efforts on the projects which had the highest priority, given the city's constantly changing needs in the chaotic post-disaster months. In terms of response time, it would be erroneous to conclude that the Bank is always too slow to respond to disasters: there have been disasters when it has been able to move quickly, such as Erzincan (Turkey), the Mexico City earthquake, or the Rio de Janeiro flood; and other times when it has not, such as the hurricane in the Dominican Republic. A disaster response as slow as Popayan has significant costs: simple problems become more complex and costly to resolve (as occurs when land invasions begin to become semi-permanent), not to mention the health and environmental implications of allowing tent camps to linger indefinitely within city parks and vacant lots. Additionally, the importance of funding education/mitigation (an extremely low-cost undertaking) at the earliest possible date cannot be overemphasized.

5.03 This project had infrastructure components that carefully targeted impoverished sectors, providing desperately needed solutions to their problems in a manner that was straightforward and easy to implement, and which have had a continuing positive impact on subsequent urban development. It may be that the optimal approach to the problems of the urban poor, not only in a post-disaster setting, is for the Bank to concentrate on what worked in this project: this includes, inter alia, ensuring optimum urban planning; financing the delivery of electric power, water and sewerage; if necessary provide land with legalized title at the outset; and let the rebuilding of housing take place according to each families tastes and economic possibilities, while providing guidance in safe (disaster-resistant) construction techniques. Lessons Learned

5.04 Project Implementation Units are usually considered artificial and unsustainable but this may not necessarily be the case in post-disaster programs in countries where there is no functioning national disaster response system. The CRC was an important contributor to project success, in part because of leadership and access to resource, and it was an agency created to respond to the earthquake under conditions that were beyond the administrative capacity of the municipality.

5.05 Including disaster-knowledgeable people on identification missions following major crises can be crucial. The Bank has very few such people, and no mechanism for mobilizing them to respond to such events without having a negative impact on their normal activities and even their careers. Being selective in staffing identification missions in post-disaster setting avoids problems of design and scale of response which can occur when people are sent who are not used to seeing destruction on a massive scale. Disaster-knowledgeable staff were able to explain to GOC officials that, however desirable it might be to piggy-back broader social and organizational objectives on other activities of the disaster projects, they would ultimately fail to transform society and overly complicating the reconstruction process would make impossible the rapid restoration of normal activities. Conversely, by concentrating on the technical aspects of the reconstruction, and by taking a long-term approach to the problems of poor neighborhoods, significant social problems have been avoided. 14

5.06 The Popayan experience, while suggesting important directions for future Bank work, may be an isolated and idiosyncratic event. Any analysis of the lessons which should be learned from this experience would not be complete without suggesting that there are matters regarding this project which warrant further research elsewhere. Many of the more important issues which are raised by this project cannot be conclusively answered within the scope of this audit. The results of this project reviewed in isolation suggest the lessons learned above. It would be very worthwhile to examine other similar experiences with emergency lending to discover whether they support these or different conclusions. A detailed analysis of Bank experience in post- disaster lending was called for in several of the interviews undertaken, and in the opinion of this Audit such a measure is warranted. Such a review might address the following issues: (i) under what type of circumstances has the Bank been able to respond to disaster most rapidly and, conversely, what factors seem to slow down such response: (ii) determine if the results of taking a time slice of a comprehensive reconstruction program (which turned out most positively in Colombia) have been as beneficial in the other countries which have attempted it; (iii) identify lessons on full cost recovery following loans to low-income populations after disaster; (iv) what has been the experience with community participation in other disaster loans-does the importance of participation vary according to project type (more important in housing than in water systems, for example); (v) what has been the experience with mission timing, when are the best times for identification and appraisal missions after disasters; (vi) what are the lessons for project design given the varying types of emergency conditions and their impact on lending and cost recovery. The Poverty Reduction Handbook notes that housing interventions have traditionally been less successful than slum upgrading, but how can housing components be avoided following an earthquake?, and (vii) has the experience with special Project Implementation Units been substantially more positive under post-disaster circumstances than in other types of loan? 15 ANNEX I Page 1 of 4 COMMENTS FROM THE BORROWER

UNIDAD DE PLANIFICACION REGIONAL Y URBANA

UPRU 386 Santaf6 de BogotA, D.C., June 2, 1994

Dr. Yves Albouy, Chief Infrastructure and Energy Division Operations Evaluation Department World Bank

REF: "Popayan Earthquake Reconstruction Project (Loan 2379-CO). Performance Audit Report"

Dear Dr. Albouy:

We have received with great interest the above mentioned Performance Audit Report. The experience of Popayan showed the need to improve the efficiency in financial management in cases of natural disasters, to implement priority programs in the housing sector and in the production sector.

Today Colombia has annual budgetary allocations in public entities that allow to implement methodologies to execute reconstruction works in case of emergency, improving the recovery of direct costs and providing timely counterpart funding in case of international loans.

The suggestions and observations made in the document with respect to the use of infrastructure components in poor areas will be widely reported and discussed with the agencies involved in public housing and in general with the agencies in charge of plans and programs geared toward the improvement in the quality of life and urban development.

We hope to receive the final Audit Report and we wish to request that it also be sent to the agencies that the audit mission interviewed and that also are interested in having the complete documentation of the process. These are:

Corporaci6n para la Reconstrucci6n y el Desarrollo del Departamento del Cauca, Doctor Libardo Marino Dorado, Calle 5a. Carrera 6a., esquina CAN, PopayAn, Departamento del Cauca. 16 ANNEX 1 Page 2 of 4

Gobernación del Departamento del Cauca. Doctor Temístocles Ortega Narváez, Gobernador. Carrera 7a Calle 4a. Esquina. Popayán, Departamento del Cauca.

Oficina de Prevención y Atención de Desastres. Ministerio de Gobierno. Doctor Omar Dario Cardona. Director. Calle 26 NI 13 - 19. Piso 26. Edificio Fonade. Santafé de Bogotá.

Fondo de Solidaridad y Emergencia Social. Doctora Cecilia Delgado, Coordinadora Nacional. Calle 7 N° 6-54. Santafé de Bogotá.

I enclose the comments on the evaluation prepared by the Corporación para la Reconstrucción y el Desarrollo del Departamento del Cauca and by Gobernación del Departamento del Cauca.

I would also appreciate your sending us a copy of the PCR (Project Completion Report) prepared by the Regional Office, Latin America and the Caribbean, issued on June 1, 1992, based on which the Performance Audit Report of Loan 2379-CO was prepared.

Best regards,

/s/LUZ ANGELA MONDRAGON Chief, Urban and Regional Planning Office 17 ANNEX 1 Page 3 of 4

CORPORACION PARA LA RECONSTRUCCION Y EL DESARROLLO DEL DEPARTAMENTO DEL CAUCA

PopayAn, May 30, 1994

Mr. YVES ALBOUY Chief, Infrastructure and Energy Division Operations Evaluations Department World Bank Washington, D.C. U.S.A.

RE: Comments to the Performance Audit Report on Loan 2379-CO

Having read the Performance Audit Report on the Popaydn Reconstruction Project in the aftermath of the 1983 earthquake, prepared by Alcira Kreimer and Ronald Parker, we find that its contents are accurate in the light of the events that took place.

During Mr. Parker's visit to the city of Popaydn, he verified the project outcomes and collected the necessary information to carry out the evaluation, which has been correctly used in his report. We note the importance of presenting good conclusions from the experience, which are useful for similar cases. Likewise, the report is objective and indicates the mistakes made, as well as the positive results achieved. It accurately describes the evolution of the process, the problems presented, the reasons for project delays and it also notes the changes in urban development that occurred in Popaydn after the reconstruction.

It is a pleasure for the C.R.C to learn from the report that the operation has been rated by the Bank as satisfactory.

Sincerely,

/s/LIBARDO MARINO DORADO General Director, C.R.C 18 ANNEX 1 Page 4 of 4

REPUBLIC OF COLOMBIA

GOBERNACION DEL CAUCA

OFFICE OF THE GOVERNOR

Popaydn, June 1, 1994

Dr. PATRICIA RENTERIA Regional Planning Unit and National Chief of Urban Planning Fax # 2813347 - 2832320 Santaf6 de Bogota, D.C.

Dear Dr. Renterfa:

I hereby acknowledge receipt of the Performance Audit Report prepared by Dr. Ronald Parker which relates to Loan 1586, especially with respect to the reallocation of US$6 million to the Popay1n Reconstruction Project.

In this respect, I wish to inform you that the Government of Cauca agrees entirely with the observations made in said document. Perhaps I could summarize my opinion on the achievement of the objectives with Dr. Ronald Parker's phrase, which reads: "Leadership is essential to have a multiplying political effect and make use of the knowledge and diplomacy necessary to profit from the competition among companies, secure financing, influence political change and manage complex programs."

It is necessary to emphasize on the "Timing of the Resource", as this element had great impact given the unfortunate state of destruction in which our capital city was left. Thanks to the referred loan, we were able to overcome that situation in a relatively short period of time.

We want to take this opportunity to thank, on behalf of the Departmental Government and of myself, the Bank authorities and its representatives in Colombia and abroad, for the economic and technical support given to Popaydn on the occasion of the occurrences that took place on March 31, 1983.

Best and sincere regards,

Is/JOSE JAIR RINCON PEREZ Governor (E)