PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB6188 Operation Name Disaster Risk Management Development Policy Loan with a CAT DDO Region LATIN AMERICA AND CARIBBEAN Sector General water, sanitation and flood protection sector (100%) Project ID P Borrower(s) Implementing Agency Date PID Prepared December 7, 2010 Date of Appraisal December 6, 2010 Authorization Date of Board Approval February 1, Country and Sector Background GOVERNMENT OF EL SALVADOR INISTRY OF FINANCE Ministerio de Hacienda Blvd De Los Heroes No Edificio Ministerio de Hacienda San Salvador El Salvador Tel: (503-22) Fax: (503-22) El Salvador s vulnerability to adverse natural events, exacerbated by environmental degradation and extreme climatic variability, compromises the sustainable development of the country and long-term economic growth and imposes significant socioeconomic costs. According to the Natural Disaster Hotspot study by the World Bank, El Salvador has the second-highest economic risk exposure to two or more hazards. The same study also ranks El Salvador second among countries with the highest percentage of total population at a relatively high mortality risk from multiple hazards. Due to its geographic location and geotectonic characteristics, El Salvador is exposed to a variety of natural hazards, including hydro-meteorological and geophysical hazards. Along with the rest of Mesoamerica, El Salvador is one of the most seismically active regions on earth, situated on three tectonic plates. Since 1972, the country has had nearly 6,500 deaths due to natural disasters, with an estimated economic cost of more than US$16 billion. 1 El Salvador has a comprehensive and integrated disaster risk management (DRM) program. The GoES has fully implemented the National System for Civil Protection and Disaster Prevention and Mitigation adopted in 2005 and also included DRM in its National Development Plan as a policy priority. Key achievements by the GoES include establishing the Civil Protection and Disaster Prevention and Mitigation Fund, which is now operational and is funded. The GoES has prepared and regularly updated the National Plan for Civil Protection and Disaster Prevention and Mitigation and is implementing the National Program for Risk Reduction. In addition, the GoES has enhanced its disaster preparedness by developing the National 1 Source: Centre for Research on the Epidemiology of Disasters (CRED) at the University of Louvain in Belgium and the evaluations conducted by the Economic Commission for Latin America and the Caribbean (ECLAC).

2 Earthquake Contingency Plan, the Rainy Season Plan, and the sectoral Emergency Response Plan. These efforts indicate that the GoES has mainstreamed disaster risk management in its core development agenda. In recent years, the country has taken important steps toward implementing a sound disaster risk management framework, focusing on actions to mitigate natural disaster risks and lower the country s vulnerability in the context of the Hyogo Framework for Action : Building the Resilience of Nations and Communities to Disasters. 2 The prior actions demonstrating such progress are described in this document. As a member of the Coordinating Center for the Prevention of Natural Disasters in Central America (Centro de Coordinación para la Prevención de los Desastres Naturales en América Central, CEPREDENAC), the country recently endorsed the Central American Comprehensive Disaster Risk Management Policy (Política Centroamericana de Gestión Integral de Riesgo de Desastres, PCGIR 3 ), which aims to facilitate the implementation of policy decisions on risk reduction. 2. Operation Objectives The overall development objective of the proposed operation is to enhance the GoES s capacity to implement its Disaster Risk Management Program for natural disasters. This objective will be achieved through budget financing that will in turn support the GoES s policy and institutional reform. 3. Rationale for Bank Involvement The proposed Project is fully consistent with the World Bank Group s Country Partnership Strategy (CPS) for FY (Report#50642-SV) discussed by the Executive Directors on November 24, The Project contributes, in particular, to the first strategic objective of the CPS, namely, to strengthen fundamentals for economic recovery by addressing macro and institutional vulnerabilities. The Project would support this objective by providing El Salvador a rapid source of funds in the event of a major natural disaster (floods, hurricanes, earthquakes, volcanic eruptions, or landslides), enabling a quicker response to address emergency needs. The CAT DDO would be accompanied by the further implementation of the country s comprehensive Disaster Risk Management Program and technical support activities such as CAPRA. The specific CPS outcome to which this operation would contribute is the implementation of emergency plans for the most vulnerable populations and local jurisdictions. 2 As a commitment to take action to reduce disaster risk at the global level, governments around the world have adopted guidelines to reduce vulnerabilities to natural hazards, called the Hyogo Framework for Action (Hyogo Framework). The Hyogo Framework assists the efforts of nations and communities to become more resilient to, and cope better with, the hazards that threaten their development gains. 3 The PCGIR was approved at the Heads of the State Meeting on June 29 30, 2010 in Panama, Panama.

3 During the preparation of the CAT DDO, the Bank coordinated with several key partners working on disaster risk management initiatives in El Salvador and Central America, including: CEPREDENAC, UN-ISDR in Central America, the IADB, the World Meteorological Organization (WMO), and the ProVention Consortium. Key initiatives supported through these collaborations include CAPRA and the Mesoamerican Environmental Information System (SIAM). The Bank is already supporting El Salvador s Disaster Risk Management Program through investment projects and technical assistance. Examples of activities of this nature under implementation are: Investments under a US$80 million Local Government Strengthening Project, which aims to improve local government core processes, systems, and capacity to enhance service delivery in the medium and long term and improve disaster risk management which in turn supports a CPS goal to increase economic opportunities, particularly for the poor more specifically, project component 2 is to strengthen the disaster risk management capacity of municipalities through, among other things: (a) evaluation of current risk management practices; (b) support for the development of a national risk management policy; and (c) provision of technical assistance to municipalities in disaster risk reduction activities. El Salvador participates in a CAPRA initiative supported by the World Bank, the IADB, and UN-ISDR to support decision making and risk management through open source, multihazard disaster risk analysis tools. A related activity completed in late 2009 is the Global Facility for Disaster Reduction and Recovery (GFDRR)-funded Hurricane Ida Damage, Loss and Needs Assessment (PDNA) for Disaster and Recovery and Reconstruction. This supported the post-disaster recovery phase by providing financial and technical assistance, sharing best practice examples from other countries, supporting formulation of a recovery and reconstruction financing plan, and providing advice to the GoES on managing recovery and reconstruction (including financing mechanisms and monitoring implementation and ensuring that disaster risk reduction forms an integral part of the recovery and reconstruction strategy). The damage and losses according to the report totaled US$314 million or 1.44 percent of GDP. 4. Financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 50 Total Institutional and Implementation Arrangements While the Ministry of Finance (Hacienda) is the main counterpart of the Bank for this DPL with a CAT DDO, the implementation of the Program is a shared responsibility between the Ministry

4 of Interior and the National Commission for Civil Protection and Disaster Prevention and Mitigation. Throughout the drawdown period, satisfactory implementation of the Disaster Risk Management Program will be monitored periodically. Such periodic monitoring may take place at a frequency consistent with the information needs of the Bank, but no less than every 12 months, and could be initiated by either the Bank or the borrower. In broad terms, the Program is expected to result in: (a) a strengthened National Commission and its Directorate capacity to coordinate and facilitate disaster risk management activities; (b) a well-funded and functioning system to finance risk reduction and disaster recovery activities; (c) the generation of analysis and inclusion of risk mitigation initiatives in the programs of line ministries; and (d) an increasing proportion of investment projects that properly integrate disaster risk management considerations. If at any time during the drawdown period the Bank concludes that the DRM program is not being implemented in a manner satisfactory to the Bank and/or that the macroeconomic program was off track, the Bank would promptly advise the borrower of the need for improvement and that a subsequent review would be necessary to confirm that the DRM and/or macroeconomic programs were once again being implemented satisfactorily before it would be able to grant any request for drawdown. In this case, follow-up monitoring would be more frequent until a review confirms that the program is back on track. Once the Bank is satisfied that drawdown conditions are again in place, the Bank would inform the borrower that its eligibility to submit disbursement requests has been restored. 6. Benefits and Risks The proposed operation would enhance the GoES s capacity to implement its Disaster Risk Management Program for natural disasters. Fiscal Risks. Notwithstanding the economic downturn and the impacts of the global financial crisis on the fiscal accounts, El Salvador s macroeconomic management is deemed adequate. Fiscal policy supported by the International Monetary Fund program remains prudent and consistent with medium-term sustainability. In addition, the dollarization regime, an important stabilization pillar, is expected to remain strong during the term of this project. Therefore, fiscal risks are considered moderate. Coordination Risks. The coordination risks are considered low given the institutional and legal framework of the National System of Civil Protection. Within this framework, the GoES has responded effectively during the recent emergencies caused by Tropical Storms Ida (in November 2009) and Agatha (in May 2010). Institutional Risks. The National Development Plan includes efficient environmental risk management as one of its priority policy areas. In addition, the National Program for Risk Reduction for under the Ministry of Environment and Natural Resources (MARN) was prepared with the full political support of the GoES. Hence, the institutional risk is considered low.

5 Moral Hazard. The risk of an unwarranted declaration of emergency to enable an early drawdown due to, for example, a sudden deterioration of the country s macro financial situation is considered low given the existing legal framework for declaring natural disasters. Political Risks. The country is politically stable and there has been a low turnover of senior and technical officials within the GoES. This represents a low risk of loss of momentum to continue the reforms supported by this program. 7. Poverty and Social Impacts and Environment Aspects Disasters triggered by natural events have a disproportionate impact on the poor. Improvements in national disaster risk management and vulnerability reduction strategies are expected to benefit the poor. Ninety-nine percent of people affected by approximately 6,000 large-scale natural disasters registered worldwide between 1970 and 2002 were in developing countries. This is because the poorer segments of the population often live in the most vulnerable locations and in inadequately constructed housing. 4 In addition, the poor have limited labor skills, fewer assets, and little or no savings. They have little opportunity for risk diversification and restricted access to credit. Because of this, they are less able to cope with the impacts on consumption or disruptions to income. Exogenous shocks can also increase poverty indirectly through the effects of lower economic growth, higher inflation (the poor are more vulnerable to inflation), and through consequential lower government spending for social services. 5 As has been extensively documented, the poor are most at risk from natural and man-made disasters, particularly in terms of health and productivity. Civil Protection Law (Law no. 777) and its regulations mandate the actions that the GoES will implement to reduce vulnerability to disaster risk and enable the poor to return to, or improve, the socioeconomic, health, and environmental conditions found before the disaster event. The disruption of public utilities, such as potable water or sewage systems, communications, and transport infrastructure during a disaster event, increases the probability of the poor and other vulnerable groups (such as indigenous peoples) suffering from increased gastrointestinal and other illnesses. The Damage, Loss and Needs Assessment for Disaster Recovery and Reconstruction after Tropical Storm Ida in November 2009 confirmed that the poor suffered the most from this event. The assessment noted that the most affected communities were located in four Departments with low or lowest scorings on the Human Development Index. The GoES response following this event focused on attending to the needs of these communities including providing temporary shelter, food, and health clinics (see Box 2 for details). The rehabilitation and reconstruction projects included low-income housing and rural infrastructure components, directly targeting the poor population in the country, and also aimed to strengthen disaster preparedness in these areas by ensuring adequate use of materials for housing construction and rehabilitating urban drainage, among others. 4 Caribbean Economic Overview 2002: Macroeconomic Volatility, Household Vulnerability, and Institutional and Policy Response, World Bank Report No LAC, World Bank, Washington, DC, Fund Assistance for Countries Facing Exogenous Shocks, International Monetary Fund, Washington DC, 2003,

6 The implementation of the GoES s DRM policies and programs supported by the DPL with a Catastrophe Deferred Drawdown Option (CAT DDO) is expected to have a significantly positive impact on poverty and social issues in the medium to long term. Improvements in national disaster risk management and vulnerability reduction strategies that the proposed Program supports are expected to bring considerable benefits to the poor. The DPL with a CAT DDO will help the GoES enhance its capacity for disaster risk management by supporting the implementation of its Disaster Risk Management Program at the national level. For instance, it will better position governmental institutions participating in the National System for Civil Protection, Prevention and Mitigation to (a) enforce compliance with the existing institutional and legal framework pertaining to settlement and construction standards of public and private affordable housing programs, and to (b) explore affordable natural-hazard insurance schemes within the existing legal and financial regulatory framework. It will also strengthen the capacity of municipalities to include and enforce disaster prevention considerations in their master plans and also to promote local organizations and education campaigns targeted to poor neighborhoods and vulnerable communities, including indigenous groups. The proposed operation supports policies that seek to alleviate poverty by strengthening disaster risk management in El Salvador. In case of a declaration of a State of Emergency, the activation of the DPL with a CAT DDO will avoid the need to divert funds originally destined to development projects. This will guarantee the continuity of development plans, mainly targeted at alleviating the needs of the poor. It will also ensure that resources are quickly available to attend to the needs of the population. The proposed operation is likely to have positive effects on the environment and natural resources, by providing the GoES with critical funding for implementing measures that reduce environmental degradation and its adverse consequences on the population. In particular, this operation will help the GoES to support and strengthen the following areas: (a) institutional, legal, and policy frameworks for disaster risk management, by focusing on key program milestones and outcomes; (b) risk identification, assessment, and monitoring capacities by enhancing its institutional framework; (c) knowledge management and education, by implementing relevant programs (such as building or renovating old schools with infrastructure more resilient to disasters); (d) reduction of underlying risk factors such as developing new projects in safe areas; and (e) improved preparedness for effective response and recovery by supporting the National Commission of Civil Protection. These areas of support will directly contribute to strengthening institutions related to environmental protection and disaster risk management. In addition, the raison d être of the operation is to support the GoES s efforts in mainstreaming disaster risk management into a number of key policy areas, such as environmental management. MARN is currently implementing a National Program for Risk Reduction for , and an institutional Environmental and Risk Reduction Policy in line with the GoES s Development Plan. Measures included in the Plan are aimed at reducing environmental risks and vulnerability to natural disasters, such as better mapping and enforcement of land zoning and urban development, and watershed management activities.

7 8. Contact point Contact: Armando Eduardo Guzman Escobar Title: Senior Disaster Risk Management Specialist Tel: (202) Fax: 9. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: