PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE. Productive Initiatives For Solidarity Project Region

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5534 Project Name Productive Initiatives For Solidarity Project Region LATIN AMERICA AND CARIBBEAN Sector Other Social Services (60%); General agriculture, fishing and forestry services (30%); Sub-national government administration (10%) Project ID P11225 Borrower(s) REPUBLIC OF PARAGUAY Implementing Agency Social Action Secretariat Secretaría de Acción Social Presidente Franco esquina Ayolas Edificio AYFRA, 2do piso Asunción Paraguay Tel: (595 21) Fax: (595 21) Environment Category [ ]A [ ]B [ ]C [ ]F [ ]TBD (to be determined) Date PID Prepared March 3, 2010 Estimated Date of May 24, 2010 Appraisal Authorization Estimated Date of Board August 26, 2010 Approval I. Key development issues and rationale for Bank involvement 1. In spite of recent progress, from a long range perspective Paraguay has not made significant advancements in the reduction of poverty or inequality. The country has experienced economic growth since 2002, with poverty decreasing from 49.7 percent to 37.9 percent by Yet even with this important reduction, the level in 2008 still remained higher than the poverty rate registered in 1997 (36.1 percent). Extreme poverty shows the same trajectory over this period, decreasing between 2002 (24.4 percent) and 2008 (19 percent), but never falling below the 1998 level (18.8 percent) 2. Moreover, despite recent trends and substantial economic growth over the last 15 years, achieving the Millennium Development Goals (MDG) by 2015 remains a considerable challenge, especially among poor and marginal rural populations. In addition, even within the LAC region, which is characterized by social and economic inequality, Paraguayan disparity stands out. Social exclusion in Paraguay is a direct product of these high poverty and inequality levels, manifesting itself mostly in disparities in access to productive assets, possibilities for accumulating human capital, and opportunities in the labor market. 1.DGEEC, Mejora de la metodología de medición de pobreza en Paraguay Resultados , (2008). 2 DGEEC, Mejora de la metodología de medición de pobreza en Paraguay Resultados , (2008), pp. 13.

2 2. Regional inequality is pervasive in Paraguay3. In 2007, for example, extreme poverty in the department of Asunción was 9.3 percent, while in the central departments of San Pedro and Caaguazú it registered 32.2 and 33.6 percent, respectively. In other departments of the East region (Región Oriental), extreme poverty ranges from almost 14% in Central to 15% in Cordillera; 19.1% in Paraguarí; 19.9% in Guairá; 23.1% in Misiones; and 25.1% in Itapúa. Since 2002, those residing in the Central Urban Region had a higher probability of being poor than those residing in the rural areas outside the Central Region While rural areas continue to have the country s highest levels of poverty in Paraguay, urban poverty has experienced the sharpest increases over the last decade 5. Poverty in Paraguay remains a predominantly rural problem, exhibiting levels at or above 50 percent for the greater part of the decade between 1998 (52 percent) and 2008 (48 percent) and reaching levels as high as 62.7 percent in Yet urban poverty, while considerably lower than rural poverty, has seen the greatest proportional increases over the same period. Measured at 23.3 percent in 1998, the rate soared to 43.2 percent in Although it has declined over the subsequent years, the 2008 rate of 30.2 percent shows that there are more poor living in urban areas than during the previous decade. Extreme poverty measurements also show important trends. At 19 percent, rural extreme poverty remains close to the 1998 rate (18.9 percent) while urban extreme poverty has risen from 7.3 percent in 1997 to 10.6 percent in Several causes explain the increased urbanization of poverty, and particularly extreme poverty, such as rural-urban migration of the poorest in search of employment and, more recently, increasing food prices. 4. Employment, particularly for those with the lowest skill levels, has not improved substantially. In 2007, 70.7 percent of the labor force in Paraguay was employed in the informal economy. The informal sector has increased in urban areas (from 57 to 68 percent, between 2005 and 2007), and decreased in rural areas (from 86 to 79 percent for the same period). In addition, in 2007 almost 35 percent of the population between the ages of 10 and 64 was found to be underemployed, and both underemployment and informality are on the rise in the country 7. Sector Background and Key issues 5. Poverty reduction is a leading priority for the government of Paraguay. The Ministry of Finance s Economic and Social Plan and the Social Plan set the Government s key priorities as improving governance, reducing corruption and addressing the needs of vulnerable groups. Embodied in these priorities is a development policy entitled Paraguay Para Todos y Todas, which represents the new Government s vision for the country s social development 8. The GOP social development plan is particularly interested in developing communities capabilities in areas such as: planning, identifying common goals and interests, formulating 3 Fazio and Tornarolli (2005) Working Paper N.3/05 Monitoring the Socio-Economic Conditions in Paraguay CEDLAS Universidad Nacional de La Plata. 4 Diaz-Bonilla, et. al Carolina Perfil y determinantes de la pobreza (2007). 5 DGEEC Mejora de la metodología de medición de pobreza en Paraguay Resultados (2008). 6 DGEEC p Ibid p See

3 development plans, strengthening management capacity, control, and supporting productive sector-oriented development opportunities. 6. To begin to reverse poverty trends and to reduce the obstacles that perpetuate social exclusion, the country must invest in creating productive economic opportunities, especially for the extreme poor. In addition, it is important to address institutional weaknesses which are key constraints to economic growth and poverty reduction. Paraguay is making progress in consolidating democracy and reforming the State. However, there are still significant challenges in ensuring adequate prioritization of public investments and their efficient implementation. To promote better governance and improve the well being and the capacities of poor / excluded groups to take the lead in their own development, it is also essential to strengthen the demand side of public investment so that local communities can play a stronger role in identifying and undertaking their productive economic activities. Increasing local participation in public investment decision making can contribute significantly to efficient execution of investments, and build confidence and empower local communities. 7. Paraguay has made significant progress in institutionalizing the Community Driven Development (CDD) approach. The economic and local governance results of the Paraguay Pilot Community-Driven Development Project (called hereafter the Pilot ) as well as some other community-based initiatives have provided evidence that the CDD approach is one effective tool for achieving their poverty reduction and development goals of the government. In this context, the GOP requested this follow-on operation to build on the successes of the Pilot and scale it up to help reach their poverty reduction goals. Drawing on its extensive experience implementing the CDD approach regionally and specifically through the Paraguay Pilot, the Bank would be able to provide financial and technical assistance to support the government to reduce poverty and improve governance through the proposed operation. The methodological options for local community development approach would combine the lessons learned from the Pilot operation with international good practice. 8. Bank assistance will help define a new CDD approach that connects local and national institutions so as to empower local social actors to make decisions and create effective horizontal and vertical partnerships to design and implement productive investments using a community driven approach to development. 9. The CDD Pilot implemented by the Social Action Secretariat (SAS), allowed the agency to build critical institutional capacity. SAS has used the decentralized CDD model along with other programmatic systems developed under the Pilot operation to: (i) implement social programs, particularly addressing the needs of indigenous peoples and poor communities; (ii) assess beneficiaries eligibility for the government s Conditional Cash Transfers Program (Tekoporâ) 9 ; (iii) integrate data bases and monitoring systems for its various development programs and establish an electronic documents archiving system. Building on lessons learned from past experience and building on the priorities of the new government, the proposed project would be designed to support SAS s programs for assisting the country s most vulnerable populations. Other government agencies have also begun to employ Community Driven 9 The Tekoporâ (CCT) program is currently targeting 115,104 households. Conditionalities address basic services on health and education for children adolescents, women, elderly and disabled (

4 Development, such as the Ministry of Agriculture, which uses the approach in its implementation of the Bank-financed Sustainable Rural Development Project (PRODERS). However, there are still significant challenges in ensuring adequate prioritization of public investment activities and their efficient implementation. Rationale for Bank Involvement 10. In spite of Paraguay s progress utilizing the CCD approach, public service providers have not been adequately integrated or coordinated with local development planning. Local government investments lack the necessary planning, coordination between municipalities and sound monitoring that is needed for local communities to bring dynamism to the rural economy. The lack of transparent budget allocations works against territorial cohesion, and economic inclusion. Local development upward and downward accountability needs incentives to ensure that allocations respond to local participatory planning processes and take into consideration community demands. The proposed project would provide communities with opportunities to hold local governments accountable for public resource allocation and expenditures according to community demands, thus supporting the improvement of local governance. 11. SAS has achieved positive results through its social projects and programs but needs further support to improve inter-institutional coordination. In Paraguay, the links between implementation and central and local planning, as well as between monitoring systems, need strengthening. The proposed project will support such coordination, focusing on building technical institutional capacity in planning based on territorial economic considerations and in implementation and participatory monitoring 10. This new generation CDD project would support local social actors to make joint decisions and create effective partnerships related to the design and implementation of income generating activities, connecting local rural and urban spaces and institutions. 12. The Proposed operation fits strategically with the Country Partnership Strategy (CPS): The CPS proposes increased Bank engagement as Paraguay initiates a new phase in its efforts to overcome significant and entrenched development challenges. This strategy seeks to make targeted contributions to support the Government to meet its broad objectives of improving governance, reducing poverty and sustaining growth both in the short and medium term 11. The proposed project is fully aligned with the Bank s Paraguay country program. The proposed operation would support the development of productive activities based on local drivers of growth, enhance poor people s capacities and access to opportunities, and help further strengthen the institutional capacity in Paraguay, particularly at local levels to develop and implement propoor community development activities underpinned by a high degree of accountability. 10 This would be the case of supporting a sectoral coordination defined by the new Social Cabinet which is made up of several ministries and secretariats, (Health, Education, Social Affairs, Finance, Agriculture among others) and under the Presidency. 11 CPS (WB 2007), p. 31.

5 13. In this context of the new government s poverty reduction goals and the Bank CPS, the active Paraguay portfolio is operating in poor rural and urban areas with several related operations, whose main purposes are summarized in the following table. Table 1: Related World Bank Operations Number Project Effective Closing Date Emphasis Amount Main Target Date Group TF55417 IPs Land 7/06/ /12/2010 Agricultural land $1.7M Rural JSDF Regularization productivity IPs communities TF56735 IPs 11/12/ /5/ 2010 Indigenous $1.59M IPs communities JSDF Communities CDD P Sustainable Agriculture & Rural Development (PRODERS) $37.5M P Water and Sanitation Sector Modernization 1/09/ /12/2013 CDDs Community organization & governance; natural resources management; animal health. 1/29/2010 3/31/2015 Increase the efficiency, coverage, and sustainability of water supply and sanitation services. $63.84M Small-scale farmers (with fewer than 20 hectares of land), IPs a& rural workers in San Pedro & Caaguazú Depts.). Vulnerable areas of Metropolitan Asunción, rural communities and indigenous populations. 14. The proposed project would complement these operations in several ways, e.g. by: (i) targeting some of the poorest communities of Paraguay not targeted by the other projects; (ii) building the capacity of local municipalities and community-based organizations, (iii) working in synergy with development activities implemented by and in the municipalities. In the Departments of San Pedro and Caaguazú, the Project would make efforts to avoid overlapping with the activities and the beneficiaries of PRODERS. In the selection of districts, the Project would be guided by a combination of the Geographical Priority Index and the Quality of Life Index which is used by SAS to target its Conditional Cash Transfers Programs. II. Proposed objective(s) 15. The overarching development objective of the Productive Initiatives for Solidarity Project is to support small productive, community development sub-projects for poor rural and urban communities, adopting a territorial development approach, and to build the capacity of local and national institutions to promote community based development for local economic growth. Key indicators for project performance would be: (i) Improved capacities of local government and community-based organizations for territorial and local development planning; (ii) increased access by the poor and vulnerable to local productive income-generating activities; and (iii) improved efficiency and accountability of local institutions that are responsible for planning, designing and implementing productive services. III. Preliminary Description

6 The proposed Project involves three components that will directly reach an estimated beneficiary population of 10,000 households, representing about 55,000 beneficiaries 12. The Components of the proposed Project designed based on lessons learned from the Pilot Community-Driven Development Project (called hereafter the Pilot ) and the Bank s experience with CDD operations would be: (a) Component 1: Capacity-Building and Institutional Development (about US$2 million IBRD). This component would strengthen local government and communities capacity to (i) prepare territorial development plans based on key drivers of growth, and (ii) identify, plan implement and manage community-based productive activities. It would provide technical assistance to government officials and service providers to facilitate participatory territorial planning and support local inter-agency coordination for those involved in the implementation of project activities. This component would also implement a communication strategy involving the promotion and dissemination of key project information throughout the project cycle addressed to pre-identified audiences (such as project users, government, and services providers). Finally, a participatory monitoring and evaluation system and social accountability mechanisms would be supported under this component. (b) Component 2: Community Development Sub-Projects (about $10.5 million IBRD). This component would finance small-scale investment projects (sub-projects) presented by committees/associations of eligible beneficiaries based on the key drivers of economic growth identified at the regional level. These sub-projects will also respond to the needs and priorities of communities. The activities financed by this component would be based on a menu of productive investments aimed to establish productive chains and economies of scale. It will include the following sub-components: (i) income generating sub-projects (i.e. agricultural diversification, small enterprises, artisan workshops, complementary livelihoods for fisherfolk). Income-generating sub-project proposals would range between US$15,000-US $35,000; (ii) financing of technical assistance (i.e. specific technical production assistance); (iii) municipal development to support key community productive investments (i.e. information technology programs, etc.). Municipal development sub-projects would be identified based on community participation processes. The selection criteria for the sub-projects would be based on a pro-poor investment selection which, focused on income-generation activities must be: (i) linked to the key economic drivers for the region; (ii) identified and prioritized in the participatory planning process; (iii) confirmed as technically, economically, and institutionally viable and sustainable; (iv) complying with the environmental regulations applicable to the project. 12 The Social Action Secretariat has developed two different types of instruments to locate the poorest areas (departments, districts municipalities and communes- and neighborhoods) and households. The Geographical Priority Index, which is bases on data of the Statistics, Survey and Census General Directorate (DGEEC), facilitates an order of intervention. At the geographical level, the Quality of Life Index identifies the households to be benefited with a certain intervention, and it is made of data collected from a Beneficiary Selection Form, based on the 2001 Permanent Home Survey of the DGEEC.

7 (c) Component 3: Project Management, Monitoring and Evaluation (about US$2.5 million, IBRD). Support the Project Coordination Unit (PCU) to coordinate the technical and administrative aspects, oversee implementation, monitoring and evaluation of the Project, and to carry out specialized studies. These studies would include at least the following: (i) regional economic assessments to identify key drivers of growth; (ii) base line studies; (iii) mid-term and final social and economic beneficiary assessment; (iv) productive sector specific studies. Detailed monitoring plans will be prepared to identify and mitigate any potential problems. They will include the definition of monitoring indicators related to the execution of the sub-projects and the improvements of the livelihoods of beneficiaries. IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) * Projects on International Waterways (OP/BP 7.50) Piloting the Use of Borrower Systems to Address Environmental and Social Issues in Bank-Supported Projects (OP/BP 4.00) V. Tentative financing Source: Borrower/Recipient IBRD: Total ($m.) US$15 million VI. Contact point Contact: Pilar Larreamendy (LCSSO) Title: Task Team Leader Tel: Fax: plarreamendy@worldbank.org Location: Washington, DC * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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