Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9519

PROJECT COMPLETION REPORT

BRAZIL

NORTHWEST REGION INTEGRATED DEVELOPMENT PROGRAM

PHASE I

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT(LOAN 2060-BR)

APRIL 30, 1991

..iculture Operations DivisionCountry Department ILatin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY AND EQUIVALENT UNITS

Appraisal:

Currency Unit = Brazilian Cruzeiro (Cr$)US$1.00 = Cr$68.1Cr$1.00 = Cr$0.015

Completion:

Currency Unit = Brazilian Cruzeiro (Cr$)US$1.00 = Cr$42.3Cr$l.00 = US$0.024

GOVERNMENT OF BRAZIL FISCAL YEAR

January 1 to December 31

POLONOROESTE PROGRAM FISCAL YEAR

April 1 to March 31

WEIGHTS AND MEASURES

The metric system is used throughout the report.

FUNAI Fundasao Nacional do ±ndio(National Indian Foundation)

IBAMA Instituto Brasileiro do Meio Ambiente e doe RecursosNaturais Renovaveis(Brazilian Institute of the Environment and RenewableNatural Resources)

IBDF Instituto Bra4.leiro de Desenvolvimento Florestal(Brazilian Forestry Development Institute)

IEF Instituto Estadual de Floresta(State Forestry Institute)

INCRA Instituto Nacional de Coloniza,co e Reforma Agraria(National Institute of Colonization and Agrarian Reform)

ITERON Instituto de Terras de RondOnia(RondOnia State Land Institute)

NUAR Ndcleo Urbano de Apoio Rural(Rural Service Centers)

PIN Programa de Integra,co Nacional(National Integration Program)

PDRI Projeto de Desenvolvimento Rural Integrado(Integrated Rural Development Project)

POLONOROESTE Programa Integrado de Desenvolvimento do Noroeste do Brasil(Northwest Region Integrated Development Program)

SAR Staff Appraisal Report

SEMA Secretaria Especial do Meio Ambiente(Special Secretariat for the Environment of the Ministry ofthe Interior)

SEMARO Secretaria de Estado do Meio Ambiente(RondOnia State Secretariat for the Environment)

SEPLAN-RO Secretaria de Estado de Planejamento e Coordena9fo Geral(RondOnia State Secretariat for Planning and Coordination)

SETRAPS-RO Secretaria de Estado do Trabalho e Acio Social(RondOnia State Secretariat of Labor and Social Action)

SUDECO Superintendencia do Desenvolvimento da Regigo Centro-Oeste(Superintendency for Economic Development in the Center-West Region)

SUDHEVEA Superintendencia do Desenvolvimento da Borracha(Superintendency for Rubber Development)

GLOSSARY OF ACRONYMS

BB Banco do Brasil(Bank of Brazil)

BASA Banco do Amazonas Sociedade AnOnima(Bank of Amazon)

CAGERO Companhia de Armazens e Silos do Estado de RondOnia(State Warehouse and Silo Company)

CEPLAC Comisslo Executiva para a Lavoura Cacaueira(Executive Commission for Cocoa)

CFP Companhia Ce Financiamento da Produglo(Company for Production Financing)

CIBRAZEM Companhia Brasileira de Armazenagem(Brazilian Storage Company)

CNPq Conselho Nacional de Pesquisa(National Research Council)

CODEAGRI Companhia de Desenvolvimento Agricola do Estado de RondOnia(State Agricultural Development Company)

CODARON Companhia de Desenvolvimento Agricola do Estado de RondOnia(State Agricultural Development Company of RondOnia)

DER-RO Departamento de Estradas de Podagem de RondOnia(State Highway Department of RondOnia)

EMATER-RO Empresa de AssistOncia T6cnica e ExtensAo Rural do Estadcde RondOnia(State Technical Assistance and Rural Extension Company ofRondOnia)

EMBRAPA Empresa Brasileira de Pesquisa Agropecuaria(Brazilian Agricultural Research Company)

EMPA-RO Empresa de Pesquisa AgropecuAria do Estado de RondOnia(State Agricultural Research Company of RondOnia)

FIBGE FundaVAo Instituto Brasileiro de Geografia e Estatistica(Brazilisn Institute of Geography and Statistics)

FIPE Fundaglo Instituto de Pesquisas Economicas(Institute of Economic Research of the University of S&oPaulo)

THE WORLD BANK vIoa a 15ONYWASt"F160n. O.C. 20433

U.S.A.

OMe. CA 0'sectzw G.p

April 30, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on BRAZILNorthwest Region Integrated Development Program - Phase IAgricultural Development and Environmental Protection Project(Loan 2060-BR)

Attached, for information, is a copy of a report entitled 'ProjectCompletion Report on Brazil - Northwest Region Integrated DevelopmentProgram - Phase I - Agricultural Development and Environmental ProtectionProject (Loan 2060-BR)" prepared by the Latin America and the CaribbeanRegional Office with Part II of the report contributed by the Borrower. Noaudit of this project has been made by the Operations Evaluation Departmentat this time.

Attachment

This document has a restcted distnbution and may be used by recipients only in the performanceo( their official duties. Its contents may not otherfwse be disclosed without Wotid Bank authonzation.

I ~ ~ ~ ~ ~ ~ ~

PROJECT COMPLETION REPORT

BRAZIL

NORTHWEST REGION DEVELOPMENT PROGRAM - PHASE IAGRICULTURAL DEVELOPMENT AND ENVIP')NMENTAL PROTECTION PROJECT

(LOAN 2060-BR)

TABLE OF CONTENTS

Page

PREFACE ......................... .. iEVALUATION SUMMARY . . . . . . . . . . . . . .. . ii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . 1Project Identity . . . . . . . . . . . . . . . . . . . 1Project Background . . . . . . . . . . . . . . 1 .Project Objectives and Description . . . . . . . . . . 2Project Design and Organization . . . . . . . . . . . 3Project Implementation . . . . . . . . . . . . . . . . 5Project Results . . . . ... . . . . 13Project Risks . . . . . . . . . . . . . . . . . . . . 22Project Sustainability . . . . . . . . . . . . . . . . 23Bank Performance . . . . . . . . . . . . . . . . . . 24Borrower's Performance . . . . . . . . . . . . . . . 25Project Relationships . . . . . . . . . . . . . . 25Consulting Services . . . . . . . . .. . . . .. 26Lessons Learned ... . . . . . ...... . . . . . 26Project Documentation and Data . . . . . . 28

PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . . 29Comments on Part I . . . . . . . . . . . . . . . . . . 29Evaluation of the Bank's Performance and Lessons Learned 29Evaluation of Borrower's Own Performance and

Lessons Learned . . . . . . . . . . . . . . . .. . 30

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . 37Related Bank Loans . . . . . . . . . . . . . . . . . 37Project Timetable . . . . . . . . . . . . . . . . . . 38Loan Disbursement . . . . . . . . . . . . . . . . . . 38Project Implementation . . . . . . . . . . . . . . . . 39Project Costs and Financing . . . . . . . . . . . . . 45Project Results . . . . . . . . . . . . . . . . . . 46Status of Covenants . . . . . . . . . . . . . . . 49Mission Data . . . . . . . . . . . . . . . . . . . . . 53

ANNEXES . . .. . . . . .... . . . . . . . . 54

MAP - IBRD 15483R

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PROJECT COMPLETION REPORT

BRAZIL

NORTHWEST REGION DEVELOPMENT PROGRAH - PHASE IAGRICULTURAL DEVELOPHENT AND EMVIRONMENTAL PROTECTION PROJECT

(Loan 2060-BR)

PREFACE

This is the Project Completion Report (PCR) for the AgriculturalDevelopment and Environmental Protection Project under the Northwest IntegratedRegional Development Program in Brazil, for which Loan 2060-BR in the amount ofUS$67.0 million was approved on December 1, 1981. The loan was closed onMarch 31, 1990, four years behind schedule. It was fully disbursed and the lastdisbursement was on September 6, 1990.

The PCR was jointly prepared by the Agriculture Operations Divisionof the Latin America and the Caribbean Regional Office (Preface, EvaluationSwummary, Parts I and III), and the Borrower (Part II).

Preparation of this PCR was started during the Bank's finalsupervision mission of the project in May 1990, and is based, inter alia, on areport prepared by Bank consultants after a field visit in May 1990, the StaffAppraisal Report, the President's Report, the Loan and Project Agreements, theBorrowerts progress and final reports, studies by the State of RondOnia and theInstitute of Economic Research of the University of Sao Paulo, Bank supervisionreports, correspondence between the Bank and the Borrower, and internal Bankmemoranda.

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PROJECT COMPLETION REPORT

F'AZIL

NORTHWEST REGION DEVELOPMENT PROGRAM - PHASE I

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTIoN PROJECT(Loan 2060-BR)

EVALUATION SUMMARY

Objectives

1. The Agricultural Development and Environmental Protection Project wasone of five projects approved by the World Bank between during 1981-1983, tosupport the Northwest Integrated Regional Development Program (POLONOROESTE) inBrazil. The Program aimed to: (a) promote orderly occupation, development andintegration into the national economy of the less developed Northwest Region,which at the time was already encountering severe migratory pressure from otherparts of Brazil; (b) increase the productivity, incomes, health and socialwelfare of the Region's population; and (c) ensure that the development of theRegion was consonant with the need to protect its land resources, ecologicalsystem and indigenous communities. As such, the POLONOROESTE Program tried tomeet various objectives, ranging from corrective actions to cope with the effectsof existing migration to the Program area, to efforts to stimulate newdevelopment in the Northwest Region. Of the five projects, Loan 2060-BR wasprimarily directed towards the first task, while others (e.g. Loan 2062-BR,Northwest Highway Project, and Loan 2353-BR, New Settlements Project) were moreconcerned with the latter.'

2. Specifically, Loan 2060-BR was intended to consolidate existingsettlements in Central Rond8nia, which was already partially occupied by migrantswho were still practicing itinerant, slash-and-burn cultivation of annual crops,despite the fact that the relatively good soils on which they had settled werecapable of supporting environmentally more suitable and economically moreprofitable perennial crops. By introducing technological change and improvinginfrastructure, social and agricultural services, the project sought to raise theproductivity and incomes of these settlers, as well as to absorb, at a relativelylow cost, a portion of the new migrants who might otherwise move into environmen-tally more fragile parts of the Amazon Basin. Finally, the project also soughtto improve environmental protection in the entire area of influence of thePOLONOROESTE Program and to support preparatory activities for future phases ofthe Program.

3. At appraisal, project costs were estimated at US$199.3 million, andit was expected that the Bank loan of US$67.0 million would finance 35Z of totalcosts net of taxes. In 1983, a supplemental loan of US$22.8 million was approved

1/ An Evaluation Overview of the overall POLONOROESTE Program is providedin Annex 10.

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as part of a Special Action Program to increase the Bank's cost-sharing andaccelerate disbursements for ongoing projects in Br .eil. In March 1985,disbursements were informally suspended under thii and other POLONOROESTE loans.They resumed in August 1985, after compliance with key actions agreed. At loanclosing (March 31, 1990, with final disbursement on September 6, 1990), the Bankhad disbursed US$71.5 million and canceled some US$18.3 million. Final totalproiect costs were estimated at US$132.2 million or 66X of the original estimate,with the Bank loan financing 54? of the total costs.

Implementation Experience

4. During the early years, project implementation did not proceed asanticipated (Para. 5.01). Following a Mid-Term Review in November 1984, the Bankinformally suspended loan disbursements on this and the other POLONOROESTE loans,pending corrective actions related mainly to enhanced protection of Amerindiancommunities and environmental protection, but also including the shortage ofrural credit, the causes of delays in construction activities, and poormonitoring and control within some implementing agencies. Disbursements wereresumed in August 1985, when the Bank was satisfied that corrective actions werein place. Project implementation was expected to take five years, but the loanclosing date was extended four times until March 31, 1990. The final disburse-ments took place on September 6, 1990. By loan closing, disbursements were about80 percent of the appraisal estimates, as revised in 1983, or US$71.5 million.The final project cost was US$132.2 million, of which 54 percent was financed bythe Bank. The Brazilian Government expended an additional US$26.1 millionequivalent in the implementation of the Amerindian Protection Special Project,as well as an undocumerted, but probably substantial amount, on rural credit,input supply and land titling in support of the settlement consolidationsubproject.

Results

5. The project achieved part of its objective of absorbing populationinto existing settlements in Central RondOnia. Even with the almost threefoldincrease in the state's population from 1980-89, population in the project areaas a share of the total population of RondOnia increased from 502 to 60X. Whilethe rest of the State became almost 70? urban, the project area maintained themajority of its inhabitants in rural areas, as had been the case in 1980. By1990, the project area accounted for 75? of the rural population of Rondonia,compared with only 60? a decade earlier.

6, Project achievements were more modest in raising incomes and thestandard of living c' target farmers and fostering a change from shiftingcultivation of annual crops to sustainable production of perennial treecrops.The number of dire't beneficiaries was 62? of the appraisal estimate (about13,300 compared to 18,200 families). Incomes of project beneficiaries didimprove, but not as much as anticipated at appraisal: actual average familyincome is estimated to have reached only 56? of appraisal estimates or US$6,600.Total incremental cropped area was very close to that estimated at appraisal but,with the exception of cocoa and beans, actti'. yield increases were some 5? to 50?below appraisal estlmates. While farmers vith adequate financial resources andtechnical assistance did introduce perennial crops and progressed well, most were

not able to make this transition and continued shifting cultivation anddeforestation.

7. Most of the physical targets of the environmental protectioncomponent of the project were also attained, but the broader objective ofestablishing effective environmental safeguards under the POLONOROESTE Programwas not met. Environmental protection and ecological research activities weretoo limited in scope. Also, the p..oject did not ir..:lude any mechanisms tointroduce environmental considerations into public investment planning in theState, nor did it address the policies and regulations that would continue toundermine the project's environmental protection objectives. On the other hand,in spite of its obvious shortcomings, the project was instrumental in establish-ing an institutional framework and capability which will be extremely useful forenvironmental protection in the future. It also helped to increase the debate,awareness and polit:.cal commitment to protection and conservation of theenvironment in this part of the Amazon Basin, and as a reflection of this, asubstantial share of project funds originally intended for other purposes wasredirected to environmental protection during the later years of projectexecution.

8. With regard to Amerindian protection, the Government achievementsexceeded the physical targets which had been included in a parallel SpecialProject financed solely with Government funds. Many more Amerindian groups (67)were assisted than the 28 specifically covered under the Special Project,including an indigenous population of 9,600 (vs. 4,200 estimated at appraisal);9,300 kms of Amerindian reserve borders were demarcated, involving an area of 9.0million ha (vs 3,900 kms and 3.1 million ha foreseen at app. tsal) and moreschools, infirmaries and FUNAI administrative units than estimated at appraisalwere constructed. In spite of these accomplishments, the institutional andfinancial weaknesses of FUNAI resulted in underutilization of the physical andsocial infrastructure, and the limited enforcement capacity of the Federal andState Governments resulted in frequent invasions of the Amerindian reserves.

9. When the project was launched, RondOnia was still a FederalTerritory, converting to statehood only in end-1981. Consequently, the newState's institutional base was quite weak. Through the project, key institutionswere created and/or strengthened (e.g., the State Forestry Institute and ForestMilitary Police, a State Secretariat for the Environment and a State LandInstitute were established, and the State agricultural extension service wasgreatly strengthened). These institutional developments may ultimately have awider impact than the project itself. Project institutions, drawing on thelessons learned during implementation, should now be better able to design andimplement future Government policies and investment activities for sustainabledevelopment and environmental protection.

Sustainability

10. The staffing strength r key project institutions was created,maintained or increased. Increment 1x revenues received by both the State andthe Federal Government should be sufficient to maintain the productive componentsof the settlement consolidation subproject in central RondOnia. For individualfarmers, financial sustainability of agricultural production at the farmi level

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is dependent on success in establishing farming systems and cropping patternsthat are consistent with the agronomic and economic characteristics of theproject area. Farmers who did not have secure land tenure, investment capitaland technical assistance continue to rely on s.tift and burn cultivation of annualcrops. This system is not sustainable, although project experience suggests thatfinancially, economically and agronomically sustai.iable agricultural systems canbe developed if farmers are provided with satisfactory financial and technicalassistance. Finally, deforestation of soils without sustainable develor .potential has not occurred on a significant scale under the project. To a sman1extent it did, and contributed to soil erosion and siltation of rivers.

Findings and Lessons Learned

11. The following are the main lessons learned in the course ofimplementing this project, which should be taken into account in the design ofother similar cperations.

(a) Public investments in frontier areas characterized by a fragilenatural environment should be based on better technical knowledge ofthe sustainable development potential than that which was availableat the beginning of this project. Agro-ecological zoning to guidepublic investment to suitable locations should be a condition sinequa non of future projects in such areas. In addition to publicinvestments, the policy and regulatory framework governing landoccupation and development patterns in the project area should bemade consistent with the recommendations of the agro-ecologicalzoning (i.e., by increasing the private costs of occupying t I morefragile areas). Otherwise, direct investment to protect theenvironment may be undermined by stronger incentives to exploit itin an unsustainable manner.

(b) The economic and political conditions outside the project area whichaffected the level of migration to that area should have been betteranalyzed. While the project strategy was conceptually sound, thescope and content of project interventions were insufficient toachieve its ambitious objectives. Although reasonably successful inbenefitting farmers in the settlement consolidation sub-projectarea, these achievements were inadequate, considering the largepopulation that moved to RondOnia during project implementation.The project was designed to benefit 18,200 families during a periodwhen RondOnia grew by more than one million people. Such a massiveinflux of migrants created demands on infrastructure and on theenvironment, which were clearly beyond the project's ability toaddress.

(c) Project organization and management arrangements, with many agenciesand excessively centralized decision making at the Federal Govern-ment level, hdmpered project implementation. Decentralization infavor of the state and municipalities, including more control overbudgetary resources, would have resulted in greater accountabilityof project management to the community and would have facilitatedproject implementation. Also, an increased role for NGOs and

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private organizations in project implementation could have enhancedaccountability to the ultimate beneficiaries and improved theresponsiveness of project executing agencies.

(d) When agriculture requires long-term financing, a careful analysisshould be made of the avatlability of credit for the farmerbeneficiaries and of the suitability of the terms for the kind ofcu.ltivation planned (in this case, perennial tree crops which wouldnot generate any income during the development period). If suitablesources of credit are not available and where the failure of theagricultural development strategy could result in widespreadenvironmental legradation (i.e., extensive deforestation), the Bankshould either make spacial provision for credit in the proiectitself or should not support the project at all.

(e) For innovative projects with above-average risks, it is essentialthat monitoring and evaluation systems be oriented to generate earlywarnings about project impact and implementation problems, and thatproject design provide considerable flexibility to allow for thetimely introduction of adeouate corrective measures. At the sametime, the Bank should be prepared to take sufficiently strongactions early on (i.e., suspension of disoursements) to remedy suchproblems. In addition, a longer start-up period and less optimisticassumptiors atout speed of farm development should be assumed forprojects to be implemented in relatively unknown or difficultenvironments.

(f) The physical demarcation of environmental conservation units andAmerindian reserves is a necessary, but not sufficient, conditionfor their protecticn. Financial disincentives, such as the absenceof pub,:^ physical and social infrastructure in the surroundingareas ana strong enforcement capacity to prevent and punishinvasions are also required for ensuring the protection of suchareas.

PROJECT COMPLETION REPORT

BRAZIL

NORTHWEST REGION DEVELOPMINT PROGRAM - PHASE IAGRICMTURAL DEVELOPMENT AND ENVIROIMNTAL PROTECTION PROJECT

(Loan 2060-BR)

PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. Proiect Identity

- Project Name: Northwest Pigion Development Program -Phase Is Agricultural Development andEnvironmental Protection Project

- Loan No. s 2060-BR- RVP Unit s Latin America and Caribbean Region

Country Department I- Country : Brazil- Sector s Agriculture

2. Proiect Background

2.01 Over the last two decades, increasing scarcity of arable land andmechanization of agriculture in the South of Brazil, and droughts andpersistent poverty in the Northeast, have stimulated large numbers of ruralfamilies to migrate towards the Northwest States of the Amazon Basin insearch of land to farm and a better standard of living. During the 1970s,the population of the territory of Rond6nia grew at an annual rate of 162,making this the most rapidly expanding agricultural frontier in all ofBrazil. The Government road-building and colonization schemes which had beenestablished to help integrate the Northwest region with the rest of thecountry were unable to keep pace with this rapidly accelerating migration.Between 1970 to 1975, some 60,000 new families migrated to RondOnia, but onlyabout half of these were absorbed in various settlement schemes. An equalnumber joined the marginal populations of newly created towns or becamesquatters on the fringes of public projects, 1,n traditional indigenous areasand forest reserves. By the late 1970s, RondOnia's population had more thanquadrupled when compared to that at the beginning of the decade. Socio-economic problems were mounting, defcrestatic.s was largely uncontrolled, andthe security of the State's indigenous inhabitants was serious3y threatened.

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2.02 In 1980, in recognLtion of the pressing socio-economic problemsc. 4ed by rising spontaneous migration to the region, the BrazilianGc.ernment launched a program of major investments in the agriculturalfrontier areas of Rondonia and Western Mato Grosso. The program, known asthe Northwest Region Integrated Development Program or "POLONOROESTE", aimedto absorb the human influx in a sustainable manner, by increasingagricultural productivity, rural incomes and social welfare. The majorcomponents were road construction and improvement, including the completionand asphalting of the main Federal highway into the Northwest Region (BR-364)between Cuiaba and Porto Velho (the capitals of Mato Grosso and Rondonia,respectively), consolidation of existing settlement schemes and support forthe establishment of new ones, improvement of phvsical and socialinfrastructure and services, and measures to protect the natural environmentand the interests of the indigenous population.

2.03 POLONOROESTE activities were financed under five complementary Bankloans (Part III, Table 1), including the Agricultural Development andEnvironmental Protection Project, which ; the subject of this CompletionReport. This particular project was designed mainly to: (a) consolidateexisting settlements in an area which was believed to include the best soilsin the territory (now State) of Rond8nia; (b) implement environmentalprotection activities in the entire POLONOROESTE program area; (c) supportpreparatory activities for Phases II (Agricultural Development in MatoGrosso) and III (New Settlements in RondOnia) of POLONOROESTE; and (d)strengthen POLONOROESTE program management, monitoring and evaluation. Inparallel, and within a framework agreed with the Bank, the BrazilianGovernment financed a Special Amerindian Project for the protection of theindigenous population in the POLONOROESTE program area. It also committeditself to finance rural credit, land titling and several other activities tosupport settlement consolidation in Rond8nia.

2.04 The project was prepared by the Government with extensiveassistance from the Bank, FAO/CP and consultants. More than 300 staff weekswere used in the preparation and appraisal of the project between June 1979and February 1981. Project preparation took into account both Governmentstudies which had been done before launching the POLONOROESTE Program and thefindings of the 1980 Bank report "The Integrated Development of Brazil'sNorthwest Frontier", which provided the background and basis for Bankinvolvement in the POLONOROESTE Program.

2.05 Loan 2060-BR, in the amount of US$67.0 million, for theAgricultural Development and Environmental Protection Project was approved onDecember 1, 1981, signed on December 15, 1981, and became effective on April26, 1982. An Amending Agreement increasing the loan amount to US$89.8million was signed on December 14, 1983, under the Bank's Special ActionProgram (SAP) for Brazil.

3. Proiect Obiectives and Description

3.01 The Agricultural Development and Environmental Protection Projectsought to consolidate settlement in six municipalities (about 30,000 km2) of

Central Ronddnia which had already been partially occupied during theprevious ten to fifteen years. It was expected to establish about 18,000permanent and sustainable smallholdings of under 100 ha each, therebyimproving output and incomes of existing settlers and absorbing, at arelatively low cost, part of the new migrants who would otherwise move intoenvironmentally more fragile areas of the Amazon Basin. The underlyingstrategy was to promote a transition from shifting cultivation of annualcrops and deforestation to the production of environmentally more suitableand economically more profi+r.a perennial tree crops. Production of coffee,cocoa and rubber/latex r-. axpected to increase by some 55,000 tons.Improvements in physical social infrastructure and security of landtenure were also expc to benefit the broader population in thesettlements and general] .ei'd t) an increase in the density of occupation inareas with good soils. T1't p-ojact also sought to improve environmentalprotection in the entire area cf influence of the POLONOROESTE program (i.e.,all of RondOnia and part of Ma:. Grosso), to support preparatory activitiesfor future phases of POLONOROESTE, and to help strengthen program management,monitoring and evaluation. The project thus included the following fourinter-related subprojects (and components), which were to be implemented overa five-year period:

(a) settlement consolidation in RondOnia (including farm access roads,establishment of rural service centers, rural extension, agricultura'lresearch, crop drying and storage, farmer organization, and education);

(b) environmental protection and ecological research in thePOLONOROESTE program area (including the establishment of national forests,natural reserves and ecological stations, forestry control, and ecologicalresearch);

(c) land tenure regularization in Western Mato Grosso in preparationfor POLONOROESTE-Phase II (Mato Grosso Agricultural Development), and soilsurveys and other studies in preparation for POLONOROESTE-Phase III (NewSettlements in Rondonia); and

(d) program management, monitoring and evaluation.

In parallel with (a) above, the Government committed to finance with its ownresources rural credit, seed production and land titling. In parallel with(b,, and withinL a framework appraised and agreed by the Bank, the Governmentundertook to implement a Special Project for the protection of the Amerindianpopulation in the POLONOROESTE program area.

4. Project Design and Organization

4.01 The largest subproject, settlement consolidation, was designed asan integrated rural development project under the POLONOROESTE regionaldevelopment program. This and the other sub-projects were recognized asbeing ambitious in light of weak institutional capacity, limited knowledge ofthe Northwest Region and its indigenous communities (which were still at anearly stage of contact with the national society), and the location in an

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environmentally risk-prone frontier area. Also, several activities key toproject success (Amerindian protection, rural credit and land titling inRond8nia) were not actually included in the project, and consequently notfinanced by the Bank, but were to be coordinated and executed in parallel bythe Government. Nonetheless, it was believed that the priority which theGovernment assigned to the POLONOROESTE program, combined with the measuresalready being taken by the Government for environmental and Amerindianpiotection, and the establishment of a monitoring and evaluation systemdesigned to provide early feedback into the decision-making process, would besufficient to ensure project success. Also, it was planned that one agency,the State Agricultural Development Company of RondOnia (CODARON) would beresponsible for planning and implementation of all agricultural activitiesand physical infrastructure, thereby simplifying the requirements for inter-agency coordination.

4.02 The project was clearly designed as a remedial effort to help bringorder to the accelerating spontaneous migration to the Federal territory ofRondonia. In retrospect, more attention should have been paid to analysisand corrective actions in relation to the policies, regulations and publicinvestment programs which were fostering this migration, and also to thosewhich would govern the future pattern of land use in the project area.Statewide land use mapping based on adequate technical knowledge of soilcapabilities, and zoning to better orient and discipline governmentinvestment (particularly roads and other infrastructure), should also havebeen in place before starting the project.

4.03 Finally, project design was based on some important assumptionswhich proved to be optimistic. Among these were chat: (a) assistance to only18,000 families over a five-year period would be adequate, at a time whenannual migration had already reached that level and was clearly on the rise;(b) the Government would provide sufficient and timely credit to targetfarmers without support from the project; (c) the Government would have thecapacity to carry out the Special Amerindian Protection activities withoutfinancial assistance from the project; and (d) the priority to provide scarcecounterpart funds would be as great for sustainable agricultural developmentand environmental protection as for the pavement of BR-364. In the event,migration and settler turnover proved to be much higher than anticipated.Soon after appraisal, the Federal Government suspended special credit lineswhich were to have been used by the project, although the commercial bankingsystem was still relatively under-developed in the project area and theuntenured status of most migrants precluded their having access to theselimited services anyway. The chronically weak and under-funded NationalIndian Foundation (FUNAI) was unable to implement the Special AmerindianProject efficiently. Plagued by problems, originating partly fromcompetition with State sectoral institutions and allegations of corruption,CODARON was abolished in 1985. While the direct involvement of the normalstate departments and agencies responsible for agriculture and infrastructuredevelopment had positive aspects, it did result in even more complex projectadministration/ implementation arrangements than were originally conceived.The State Coordination unit did not have sufficient authority to enforcedecisions on project execution, ensure interagency coordination or monitor or

supervise project activities, nor did it have control over the performance ofFederal Agencies involved in the project. The National Coordination Unit wastoo distant from project implementation needs at the field level and alsolacked authority to coordinate the federal agencies. Finally, the difficultfiscal situation in Brazil led to inadequate and late disbursement ofcounterpart funds, the impact of which was heightened by weather conditionsin the Amazon Basin which limit the period during which physical works can beimplemented to only a few months in each year.

5. Proiect Implementation

5.01 During the early years, project implementation did not proceed asanticipated, for reasons cited in paragraph 4.03. Following a Mid-TermReview in November 1984, the Bank informally suspended loan disbursements onthis and the other POLONOROESTE loans, pending corrective actions relatedmainly to enhanced protection of Amerindian communities and environmentalprotection, but also including the shortage of rural credit, the causes ofdelays in construction activities, and poor monitoring and control withinsome implementing agencies. Disbursements were resumed in August 1985, whenthe Bank was satisfied that corrective actions were in place.

5.02 The original Bank loan of US$67.0 million was expected to finance342 of total project expenditures (35Z net of taxes). This financing sharewas raised to 50? in 1983 under the Special Action Program for Brazil (para.2.05). The increased share of Bank financing and changes in the allocationof loan proceeds reduced but did not fully avoid, project implementationdelays resulting from counterpart funding problems.

5.03 Project implementation was expected to take five years, but theloan closing date was extended four times until March 31, 1990. The finaldisbursements took place on September 6, 1990. By loan closing,disbursements were about 802 of the appraisal estimates, as revised in 1983,or US$71.5 million. The final project cost was US$132.2 million, of which54Z was financed by the Bank. The Brazilian Government expended anadditional US$26.1 million equivalent in the implementation of the AmerindianProtection Special Project, as well as an undocumented, but probablysubstantial amount, on rural credit, input supply and land titling in supportof the settlement consolidation sub-project.

5.04 Settlement Consolidation Sub-Proiect. (a) Farm Access Roads. Theproject provided for planning, construction, rehabilitation and constructionsupervision of some 3,900 km of all-weather farm access roads. A total ofabout 2,350 km of access roads were constructed and 2,300 km of roadsrehabilitated. In addition, several kms of drainage and about two kms ofsmall bridges were built. The component achieved its principal objectives ofproviding access to markets and services by settlers, although quality was attimes sub-standard. Roads were laid out in straight lines, followingsettlement plans which allocated rectangular plots of roughly equal size toeach family, with little regard to the contour of the land or thehydrographic network in the area. CODARON, the agency responsible in theearly years for the execution of this component, failed to coordinate its

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work adequately with the Department of Roads (DER-RO), or to provideappropriate road design and construction supervision. When execution wastransferred to DER-RO in 1985, the quality of works and supervision improved.However, road maintenance capacity did not improve, largely because ofchronic budgetary shortages, and limited implementation capacity.

5.05 (b) NUAR Irfrastructure. To facilitate the provision of servicesand promote the de%ilopment of stable communities in remote areas, theproject provided for the construction of rural service centers (NUARs) andrelated basic 'urban" infrastructure at 39 locations. The NUARs were to bezoned as urban areas occupying 40 ha each and located at the crossings ofmain settlement feeder roads, supporting some 800 farms per center. EachNUAR was to include a deep well and water supply system, an electricitygenerator and distribution system, offices for the local projectadministration and key executing agencies, a multi-grade school, health post,crop drying and storage unit, small sawmill and project guest house. Landwas also prepared and subdivided into residential lots which settlers couldpurchase (the alternative being to establish residences on the farmsthemselves), and space for the development of small private commercial andindustrial enterprises (e.g., pharmacies, restaurants, clothing makers,etc.). Some of the NUARs were the only source of support to the settlers anddeveloped very rapidly into small towns and cities with three having becomethe capitals of new municipalities. Others competed with existing politicalsubdivisions of the State, and some early implementation delays can be tracedto political conflicts with local authorities. In 1985, the Bank and theGovernment agreed that 19 of the originally planned NUARs would not beconstructed. In some of these cases, previously existing towns wereproviding the required support services to settlers; in others, thesettlement of the area was progressing so slowly or the soil quality of thearea was lower than anticipated and the construction of a NUAR was notjustified. Except for storage units, only two of which were constructed, andsawmills, none of which was constructed, all remaining infrastructure wascompleted according to the revised target.

5.06 (c) Agricultural and Forestry Extension. The project financedextension services to assist project beneficiaries in improving agriculturalproduction and forest conservation techniques and in cultivating ecologicallysuitable perennial crops. The State Technical Assistance and Rural ExtensionCompany of RondOnia - ASTER-RO, (later EMATER-RO), was initially responsiblefor all agricultural and forestry extension, except for cocoa, which washandled by the Executive Committee for the Cocoa Development Plan (CEPLAC).It also organized farmer and project staff training courses, assisted farmersin obtaining credit, and participated in the drying and storage and communityorganization components (paras. 5.11-5.13). The RondOnia State ForestryInstitute (IEF), established in 1986, also participated in forest extension.

5.07 About 11,300 farmers (62Z of the original target of 18,000) wereindividually assisted at farm-level, and 3,300 were contacted under a groupassistance scheme, bringing the total of farmers reached with technicalassistance and agricultural orientation messages to 14,600, or 802 of theappraisal goal. Specific training courses in subjects such as perennial crop

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planting and cultural practices, farm administration and soil conservationwere offered to some 13,500 participants (almost five times the appraisaltarget), with some farmers taking more than one course and including farmersalso receiving technical assistance at the farm level. EMATER established900 demonstration units (four times the appraisal estimate) for crops such ascoffee, rubber, black pepper, guarana and other tropical fruits and forimproved practices of soil conservation and management of small animals.Rural extension infrastructure and transportation facilities wereconstructed/acquired as scheduled, but hiring of extensionists was delayed,reaching 95? of the appraisal estimate only at the time of loan closing.Although pre-service training was regularly provided, only 84 EMATER staff(56Z of appraisal estimates) received specialized in-servire training underthe project.

5.08 Overall, extension performance under the project was good, despitesuch constraints as: (a) lack of adequate coordination with, or poorperformance by, other agencies responsible for complementary services (e.g.,community organization, marketing, land regularization and rural credit); (b)scarce and often untimely arrival of operating funds; and (c) the limitedprinr experience of most extensionists with the climate and agronomicconditions of the project area. Extensionists, most of whom lived in thecommunities assisted and worked very closely with farmers, were instrumentalin promoting perennial crops and improving farmer incomes. When lack ofcredit became a major constraint, the extension service proposed andimplemented a system of credit-in-kind, which made possible the introductionof perennial and other higher-value crops. By assuming responsibilitiesoriginally assigned to other agencies, the extension service was instrumentalin developing community organizations and promoting the adoption ofsimplified storage and processing methods. Productivity of both annual andperennial crops increased, seed and seedling production by farmers'associations developed rapialy, and the total area planted to perennial cropeexpanded. Rural extension was also responsible during the later years of theproject for farmers' experimentation with diversification into mixed croppingsystems (including viable new crops such as timber and fruit treeb,, croprotation, enrichment of fallow land and improved silvipastoral systems, andefforts to retain forest reserves at farm level by introducing appropriatereplanting and product extraction techniques. While many of these activitiesare only now beginning to take holc =nong settlers, they should yield greateragricultural and environmental benefits over the next years.

5.09 (d) The Agricultural Research component was to be complementary toongoing national research programs of the Brazilian Agricultural ResearchCompany (EMBRAPA), focussing on adaptation of the main annual and perennialcrops and crop rotation and farming systems to thc specific conditions of theproject area. The actual number of experiments, demonstration units, seedproduction, soil tests and mapping and production of technical and scientificpublications reached or exceeded appraisal targets, and practically allproposed physical research infrastructure was completed. However, both lowsalaries, which were responsible for high personnel turnover, and budgetconstraints did limit quality of experimental work. As the fiscal deficit atthe Federal level became increasing severe, EMBRAPA had difficulty in

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sustaining its activities and continuity of research work under the projectwas achieved only with additional financial participation of the state.

5.10 Despite the constraints, the adaptive research component didgenerate some satisfactory results for immediate use by settlers. The mainachievements concerned coffee progenies adapted to the region; crops new toRondonia, such as guarani, black pepper, citrus, avocado, mango, andtangerines; agro-forestry systems including native forest species withcoffee, rubber and annual crops; and the selection of annual crops, improvingplanting dates and seeds. Limited research was conducted on pest and diseasecontrol, technical aspects of forest product utilization by settlers and woodprocessing by local industries. Institutional coordination between theagencies responsible for research and extension, both to determine farmers'needs and disseminate research results, was poor at the beginning of theproject but improved in later years.

5.11 (e) Crop Drytna and Storage. This component provided for theconstruction by the Brazilian Storage Company (CIBRAZEM) of 19 largewarehouses with drying, cleaning and handling equipment, and having acapacity to store 2,500 tons of grain each, to complement existing publicstorage faciliLies in providing support to the Federal Government's minimumprice program (CFP). Only two such units were built. Because of theirlocation and size, and the difficulties vhich CIBRAZEM encountered inoperating them, utilization by small farmers was extremely limited. The Bankand the Borrower decided in 1984 to reorient this componentt the remaining 17large warehouses were dropped in favor of 18 smaller community storage units(600 tons each), to be managed by farmers' associations. Although thisrevised strategy responded better to settlers' needs, the impact of the CFPscheme was relatively limited. A parallel, and more successful approach tofacilitate marketing of settlers' output was carried out with thecollaboration of EMATER and farmers' associations. Several farmers' retailmarkets were established in municipal capitals to sell directly to consumers,and processing facilities for coffee and rice were installed at the communitylevel. It is estimated that these markets and processing facilities didimprove the prices received by farmers for most products, yielding net gainsof 10-202 in the prices for coffee and rice.

5.12 (f) The Farmer Organization component financed infrastructure andthe services of technical staff of the State Secretariat of Labor and SocialAction (SETRAPS-RO) in Rond6nia. The objective was to promote theestablishment of farmers' associations which would participate in a range ofcommunity activities, such as construction and maintenance of access roads,school and health post maintenance, agricultural extension groups, andnutrition and health education. Farmers' initial response to this activitywas poor. In 1985, EMATER, which was already in charge of assisting farmerson production-related activities, also assumed responsibility for fosteringcommunity organization. Some 47 formal community based rural organizationswere formed in the project area by EHATER.

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5.13 Appraisal assumptions about the kinds of activities in whichfarmers' associations and community groups would be interested inparticipating proved to be wrong, mainly because farmers viewedinfrastructure construction and maintenance as Government functions. On theother hand, EMATER's approach of organizing around themes which would have adir4ct and measurable impact on incomes (e.g., storage, jointmarketitig/transport and processing of agricultural products) elicited animmediate and positive response from farmers.

5.14 (g) The Education component was designed to improve both physicalinfrastructure and the quality of teaching in the project area. It wasoriginally planned to construct a four-classroom school at each NUAR and oneclassroom satellite schools, to be operated on a two-shift basis. However,because of much greater than expected population pressure, limited efficiency(i.e., more children had to repeat grades than anticipated) and fanmerdemands for higher grades at the NUARs, six-classroom schools operating fourshifts were actually built at each of the 20 NUARs. Many of the 199satellite schools were expanded to two or three-classroom facilities andoperated three shifts. In total, 24,300 additional school places werecreated (61Z of appraisal targets). The expanded physical educationalinfrastructure provided under the project, while not reaching appraisaltargets because of the reduction in the number of NUARs, has been able tomeet much of the incremental demand in the project area because of moreintensive use of facilities.

5.15 The basic education level of teachers in the project area is higherthan elsewhere in the State, but finan_ial difficulties have limited teacherrecruitment, (only 470 of the 1,090 new teachers who were to have beenretained had actually been employed by the end of the project period), in-service training, supervision, and the availability of didactic and otkirschool materials, thereby depressing the Laneral quality of teaching. Schooldrop-out, repeater and graduation rates have only reached levels similar tothose of other public schools in Rondbnia, outside the project area, whichare themselves low compared with results of other parts of Brazil. Thedevelopment of a curriculum, adapted in terms of content and language torural RondOnia, had been an important objective of the project. Althoughsuch a curriculum was prepared by a special group in the State Secretariat ofEducation, it was based on individualized instruction, with which fewteachers had any experience or training, and therefore was dropped in 1986.An innovative school calendar adapted to the needs of the rural areas (i.e.,with vacations scheduled during periods of peak labor demand on the farms,rather than during the traditional vacation months in Brazil) was not adoptedbecause of administrative and logistical difficulties in implementation.

5.16 (h) Parallel Activities. Activities essential to the success ofthe settlement consolidation subproject (land titling in RondOnia, ruralcredit, and seed production and distribution) but not included in the projectare discussed in paragraphs 6.10 and 6.12 on Project Results.

5.17 The Environmental Protection and Ecological Research Sub-Proiects.(a) National Forests. This component was to finance the establishment of two

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national forests covering 300,000 ha, including identification, delimitation,patrolling, inventories and feasibility studies of possible commercialdevelopment options. Two national forests totalling 505,000 ha were legallycreated at Jamari (225,000 ha) and Bom Futuro (280,000 ha), although only thefirst was demarcated during the project period. A management plan for theadministration and dsvelopment of Jamari was prepared and the neededinfrastructure and equipment put in place, but the plan Was not implementedbecause inadequate staffing and resources and the overall weaknesses of theBrazilian Forestry Development Institute (IBDF) in charge of the component.Field studies and development proposals for Bom Futuro also were notimplemented, for similar reasons.

5.18 (b) Forestry Control. To improve the monitoring and control oflogging and the supervision of forestry extension, the infrastructure andoperating capacity of IBDF was to be strengthened. The existing headquartersand control posts in both RondOnia and Mato Grosso were to receiveassistance, and four additional control posts were to be constructed,equipped and staffed. By project completion, three new control posts hadbeen constructed in each State (i.e., two more than pX.nned). However, theeffectiveness of forestry control efforts was limited by both IBDF'smanagerial weaknesses and inability to hire and retain adequate numbers ofqualified staff, and by the rapid development of local wood industries. Asa result, throughout much of the project period, deforestation went virtuallyunchecked in the POLONOROESTE program area, particularly in Rondonia.

5.19 A series of corrective measures taken during the later years of theproject did help to improve forestry control: in particular, increases inthe level and incidence of taxes for forest exploration and of fines againstviolators reduced the rate of increase in deforestation, and the resultingrevenues helped to strengthen the institutional capacity to implementforestry control in Rondonia and Mato Grosso. Both a Forestry MilitaryPolice to improve forest protection and enforcement, and a State ForestInstitute to provide adequate forest extension, were created in RondOnia. InMato Grosso, an existing institute was strengthened and a Forest MilitaryPolice group created to improve forestry and environmental protection.During the last year of project execution, the start-up of an EmergencyProgram to control deforestation and burning in the Amazon area was alsofinanced and a satellite imagery system to monitor deforestation wasimplemented.

5.20 (c) Natural Reserves and Ecological Stations. This componentprovided for the establishment of three Natural Reserves (the Pacaas NovosNational Park and the Guapore and Jaru Biological Reserves), improvements tothree Ecological Stations in Mato Grosso (Ique, Serra das Araras and Taima),establishment of one Ecological Station in RondOnia (Cunia), and incrementalstaff costs of both IBDF and the Special Secretariat for the Environment(SEMA). By project completion, the boundaries of all of the Natural Reservesand Ecological Stations had be6n demarcated, and most of the plannedinvestments in infrastructure and equipment had been made. The project wassuccessful in establishing these units and in facilitating the officialprotection of important ecosystems of the Amazon area. However, the

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institutional weaknesses of IBDF and SEMA. lack of adequate staffing of theReserves/Stations and financial constraints, particularly during the earlyproject years, resulted in poor functioning of the facilities and an apparentinability to avoid sporadic invasions into most of the areas.

5.21 Corrective measures and additional activities introduced duringproject implementation led to marginal improvements and a-n expansion ofpreservation and protective activities to other areas. In particular, thecreation of the State Secretariat for Environment and the State LandInstitute in Rond6nia, together with the newly established IEF and ForestryMilitary Police (para. 5.19), and the consequently increasing participationof the State in the execution of this component were important achievements,although they did not eliminate problems of invasions into the protectedareas. Additional activIties included studies for the establishment of newconservation units, not contemplated originally in the project,infrastructure, equipment and protection for the Pantanal National Park inMato Grosso and environmental education and pollution control. As a result,four new conservation units, covering an area of 1.6 million ha, werecreated, the protection of the Pantanal area was enhanced with enforcement oflaw and regulations for protection of fauna and flora, new State legislationand norms for environmental protection were approved, and activities tocontrol polluting industries such as casserite and gold mining wereinitiated.

5.22 (d) Ecological Research. The project planned to finance ecologicalresearch, which had hitherto been practically non-existent in RondBnia.About twenty research projects were ultimately undertaken, in such areas asmeteorology, hydrology, animal and plant ecology, and anthropologicai. and.human ecology. Major Brazilian universities and other research institutionswere involved, with the participation of more than 170 researchers, includingsome 56 at PhD and 50 at MSc. level. About 200 scientific papers andarticles were published, directly attributable to this project component.However, the very good diagnostic capabilities of many of the researchersnotwithstanding, the lack of policy focus and clear linkage with projectimplementation reduced the direct impact of this component on projectresults.

5.23 (e) Parallel Activity - Amerindian Protection. It was recognizedat appraisal that rapidly accelerating occupation and development of WesternMato Grosso and Rond8nia was placing increasing pressure on the Amerindiancommunities in those areas, and that this situation would worsen with time inthe absence of strong protective measures. In particular, there would beincreased competition for land traditionally used by Amerindians, they wouldbe exposed to contagious diseases to which they had no immunity, and theircultural identity would be eroded. The Bank regarded this as a criticalissue and conditioned its broader support for POLONOROESTE on the FederalGovernment's commitment to protect Amerindian interests in the program area.

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The Federal Government prepared and agreed to finance and implement, as aparallel activity to the Environmental Protection Sub-Project, a SpecialProject for Amerindian protection.

5.24 As appraised by the Bank, the Special Project sought to provideassistance to 28 Amerindian reserves in RondOnia and Mato Grosso, estimatedto include a total of 4,250 Indians. Specifically, the Project woulddemarcate 3,940 kms of the boundaries of seven of the reserves covering atotal of 3.1 million ha; construct and equip 28 infirmaries and 20 schools;construct/reconstruct 18 administrative units. The costs of this SpecialProject (US$26.1 million) were not included in the cost estimates for theAgricultural Development and Environmental Protection Project since theGovernment did not wish the Bank to participate in its financing.Implementation of the Special Project was, however, a condition in the LoanAgreement.

5.25 During project implementation, a further 39 new areas and/orindigenous groups were identified, and the Government also extended toseveral of these areas or groups activities included in the Special Project.As a result, 9,600 Indians living in an area of about 11.0 million ha,received some assistance under POLONOROESTE, and by project completion mostof the original physical targets agreed in the Special Project had beenexceeded. Some 9,300 kms of Amerindian reserve borders were demarcated,covering about 9.0 million ha of reserves, 38 infirmaries and 32 schools wereconstructed and equipped, 1,000 ha of crops developed, and 63 Amerindianposts constructed or rebuilt. In spite of these accomplishments, theinstitutional and financial weaknesses of FUNAI resulted in underutilizationof the physical and social infrastructure, and the limited enforcementcapacity of the Federal and State governments resulted in frequent invasionsof the Amerindian reserve3.

5.26 Preparation Activities for POLONOROESTE Phases II and IIISub-Proiect. The content and impact of this sub-project is discussed belowin paragraphs 6.22 and 6.23 on Project Results.

5.27 Proiect Management. Monitoring and Evaluation Sub-Proiect. AtState level, project management was the responsibility of the ProjectCoordination Unit within SEPLAN-RO. Implementation of agriculturalactivities and infrastructure was to be undertaken by CODARON, a RondOniaState public enterprise created in 1980, to substitute the Rond6niaSecretariat of Agriculture and other State institutions and thereby simplifyexecution arrangements. A federal POLONOROESTE Coordination unit wasestablished within SUDECO, serving as the secretariat to an Inter-MinisterialCouncil for the program. CODARON constructed (under contract) roads and therural service centers, including schools and health posts, and reconstructedexisting roads. However, lack of expertise resulted in poor roadmaintenance, implementation of agricultural activities and management of someof the service centers. Problems arising from competition with Statesectoral institutions and allegations of corruption caused the extinction ofCODARON in 1985, at which time the sectoral institutions assumed directresponsibility for project execution. The State project coordination unit in

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Porto Velho was not given sufficient authority to coordinate the projecteffeptively, suffered seven changes of project manager, and had to rely on 14other agencies once CODARON was abolished. Program management also remainedover-centralized in Brasilia, with many decisions depending on SUDF(,0.However, the Inter-Ministerial Council itself hardly operated, and althoughSUDECO controlled the flow of POLONOROESTE funds to RondOnia, it wag notstrong enough to resolve problems that had to be decided at higher levels ofthe Federal Government. Finally, those Federal institutions which weredirectly responsible for execution of some project activities (i.e., FUNAI,IBDF) operated very independently of both SUDECO and the State, and ingeneral performed poorly. Decentralization of many environmental activitiesover the life of the project, from Federal to State institutions, improvedthe situation.

5.28 Total Proiect Cost. In U.S. dollar terms, the total project costwas 34? less than estimated at appraisal, due to the reduction in the numberof rural service centers, the respective reduction in the cost of productionand social infrastructure, and lower than anticipated expenditures on laudregularization and project management. Aggregate loan disbursementsrepresented about 80? of the original and supplementary loans and 54? oftotal project costs (details provided in Part III).

6. Project Results

6.01 General. The project achieved part of its objectives of absorbingpopulation into existing settlements in central RondOnia. Even with thealmost threefold increase in RondOnia's population from 1980-89, populationin the project area as a share of the total population of the State increasedfrom 50 to 602. While the rest of the State become almost 702 urban, theproject area maintained the majority of its population in rural areas, as hadbeen the case in 1980. Consequently, by 1990 the project area accounted for752 of the rural population of Rondonia, compared with 60? a decade earlier.Improved physical infrastructure, particularly the road network, andagriculture and social services (including the establishment of schools andhealth posts in previously almost unassisted communities) were largelyresponsible for this result.

6.02 Project achievements in raising incomes and standards of living oftarget farmers and fostering a change from shifting cultivation of annualcrops to sustainable production of perennial treecrops were more modest.While farmers with adequate financial resourcee and technical assistance didintroduce perennial crops and progressed well financially, not enough of themwere able to make this transition. Continued widespread shiftingcultivation, both within settlement areas on assigned plots and elsewhere inthe State, resulted in severe deforestation throughout most of the 1980s. Inretrospect, the scope of the project was too limited to effectively improveproduction and income of the large and rapidly increasing rural population inthe area in the 19809.

6.03 Most of the physical targets of the environmental protection sub-project were attained, but the broader objective of establishing effective

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environmental safeguards under the POLONOROESTE Program was not met. Thiswas partly because the environmental protection and ecological researchactivities were much too limited in scope and the project did not includeany mechanisms to guide direct public investments in the State on the basis,inter alia, of environmental considerations, nor did it deal explicitly withthe main policies and regulations undermining environmental protectionobjectives. While the migration and deforestation process was alreadyunderway in Rondonia by 1980, the paving and completion of BR-864 (underanother of the POLONOROESTE pcojects) and the construction of an extensiveroad network under this project, combined with the failure to implement theproject agricultural strategy on a wide enough scale, were important factorsencouraging deforestation in Rondonia. In the case of Mato Grosso,Government subsidies and fiscal incentives were primarily responsible forincreased deforestation by large cattle ranchers.

6.04 With regard to the Amerindian protection, the Government didachieve much more than the physical targets established in the SpecialProject. Many more Amerindian groups were i.dentified and assisted in thecourse of project implementation than the 28 specifically covered under theSpecial Project, alt.hough delimitation/legalization of some of these areaswas not completed. Protection and corrective action against recurrentinvasion of these areas was also less than satisfactory.

6.05 When the Project was launched, Aond6nia was still a FederalTerritory, converting to statehood only in end-1981. Consequently, the newstate's institutional base was quite weak. Through the project, keyinstitutions were created and/or strengthened (i.e., State forestry instituteand forest military police, a State Secre4ariat for the Environment and, mostrecently, a State Land Institute have been created and state agriculturalextension services strengthened). These institutional developments mayultimately have a wider impact than the project itself. The projectinstitutions, drawing on the lessons learned during implementation, shouldnow be better able to design and implement future Government policies andinvestment projects for sustainable development and environmental protection.Finally, a large number of personnel at all levels are now trained in ruralproject planning, administration, monitoring and evaluation, and to a lesserextent, in the design and enforcement of environmental protection activities.

6.06 Production. At appraisal, it was estimated that the project wouldincrease agricultural production through both an expansion of cropped area,increased crop yields, reduced post-harvest losses and an expansion of smallanimals and livestock production by small farmers. Total SAR and PCRestimates of incremental cropped area and animal production are detailedbelows

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SAR and PCR Estimates for Incremental Cropped Areaand Production at Full Development

SAR PCR

Area Production Area Production(ha) ('0(0 tons) (ha) ('000 tons)

Rice (paddy) 11,800 33.6 2,200 12.3Maize 10,600 20.6 11,400 23.3Beans 6,300 3.7 13,600 9.7Manioc 2,200 22.2 -3,200 -24.7Coffee 17,400 24.2 21,500 14.8Cocoa 15,000 22.5 20,200 24.3Rubber 10,000 9.9 2,900 2.4Citrus - - 3,800 56.5

Beef (tons) 1.0 1.8Milk (Mill. lts) 2.5 17.0

6.07 Total cropped area was originally estimated to reach about 270,000ha at full development, which represented an increment of 73,000 ha over thepre-project situation. The main increase was to come from coffee, cocoa andrubber (582), rice and maize (302), and other crops (12?). Based on EMATERand SEPLAN-RO data, it is fstimated that the total cropped area under theproject actually reached 267,000 ha or almost 100? of the appraisal estimate.The incremental 70,000 ha derived from (a) a greater than anticipatedexpansion in the area planted to cof£*e. cocoa, beans and maize, (b) asubstantial shortfall in the anticipated e,xpansion of rubber and rice, (c) adecrease in area planted to manioc resulting from a declining demand for thisproduct, and (d) the introduction of citriis in the project area, which hadnot been foreseen as a significant activity at appraisal. It was estimatedat appraisal that the average farmer would increase his cropped area by some4 ha. The actual average increase was 6., "ia planted.

6.08 Livestock production also increase^!. The number of head of cattlein the project area grew from 126,000 in 19EL to 780,000 in 1988. However,as the impact of the project began to be felt, cattle growth declined,compared with the rest of the State. Betwezn 1981 and 1985, the number ofcattle in the project area grew 356Z. From 1985 onwards, as the mixedfarming model promoted by the project began to take hold, involving increasedemphasis on perennial crops, the number of cattle grew by only 36t in theproject area, compared to 1452 in the rest of the State. The importance ofcattle in the project area reflected the trend common to frontier developmentelsewhere in Brazil, but with a significant difference. While outside theproject, cattle production is generally pursued as an extensive singleproduction-line enterprise with emphasis on beef and breeding, cattle in theproject area are complementary to other farm activities, comprising part ofa mixed and rotational farming system with emphasis on beef and milkproduction. Swine production increased at rates similar to other , irts ofthe State, and milk production became en important and stable source ofincome in the project area.

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6.09 Appraisal targets for increases in productivity, however, turnedout to be too ambitious for most crops, as detailed below:

SAR and PCR Estimates for Crop Yields (tons/ha)

ADDraisal PCR

Without Proiect With Proiect Without Proiect With Proiect

Rice 1.9 2.6 1.7 1.9Maize 1.6 2.0 1.7 1.8Manioc 6.0 8.0 9.0 10.0Beans 0.4 0.6 0.5 0.6Coffee 0.8 1.0 1.0 1.2Cocoa - 1.5 0.4 0.7Rubber 1.0 1.0 1.1Citrus - - 5.0

As shown in Annex 2, average yields were estimated at appraisal to increasebetween 232 and 53X, through expanded use of fertilizers, improved croprotation systems, and adoption of improved genetic material and certifiedseeds and seedlings. The only significant crop yield achievement was forcocoa, which received specific credit and intense technical assistance fromCEPLAC and to a lesser extent for beans, for which a disease-resistantvariety was introduced on a limited scale. Shortages of investment andproduction credit, higher than expected fertilizer prices, lower productprices and less technical assistance resulted in actual yield increases thatwere some 52 to 50S below appraisal estimates. Actual low average yields forcocoa and coffee reflect, to some extent, the fact that plantationp are notyet fully developed. As shown in Annex 3, the value of incremental projectoutput at full development was estimated at about US$62 million, comparedwith appraisal targets of US$144 million to be attained at full projectdevelopment. Prices for several products fell short of appraisal forecasts.Prices for cocoa and coffee at project completion were 572 and 63?,respectively, of the levels forecasted at appraisal.

6.10 As conceived at appraisal, on-farm investment and working capitalwere to be financed under existing Government rural credit programs as aparallel activity to the project, without Bank support due to the largesubsidies involved. Seasonal production credit was considered important forannual crops and for maintenance of pere3nials, while availability ofmedium/long-term credit was considered essential for the establishment ofperennial crops. In the event, virtually no official credit was madeavailable to project beneficiaries in the early years, other than long-termcredit tarough CEPLAC for cocoa planting. This had a major impact on projectperformance in meeting output and productivity targets. Extension agents,trained to assist farmers in obtaining and using credit, had difficulty indeveloping useful messages for farmers without credit. A commendableexperiment with in-kind credit during the later years of the project didsucceed in directly raising the total area planted to perennial crops, butthe output and productivity results will not be felt for a few years, until

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these crops mature. The distribution of seeds and seedlings was anotherparallel activity to the project, which was to be wholly financed by theGovernment without Bank support. Although a capacity to produce seeds forannual crops, and rubber, coffee and forest trees seedlings has beenestablished by the Government (Part III, Table 4), there is little follow-updata about the use made of the planting materials which were distributed.Project authorities believe that this program did have positive results inhelping to offset partially the absence of credit, particularly for perennialcrops. However, forest seedlings produced by the project had no signific:antimpact in counteracting deforestation.

6.11 Employment Generation. It was assumed at appraisal thatagricultural intensification and the development of perennial crops wotaldcreate a demand for an incremental 20,700 fully employed laborer years, ofwhich about 4,600 would be provided by hired labor. However, based on arecalculation of the labor requirements of the most common farm models, onlyabout 14,800 incremental laborer years were actually created (712 of target),of which some 2,700 laborer/years were provided by hired labor. Althoughthere was a larger than expected increase in the area planted to coffee andcocoa, the lack of financing for fertilizer and herbicide and for othercultural practices reduced labor demand per ha cultivated.

6.12 Land Tenure. To help consolidate existing settlements in RondOnia,the Government committed itself to provide land titles to all settlers by1982. INCRA only partially achieved this objective, providing titles to some19,800 farmers occupying about 2 million ha (i.e., slightly more than thenumber of direct beneficiaries of project extension activities, but only athird of the estimated 60,000 families living in the virinity of thesettlement schemes). Nonetheless, these land regularization activities hada significant impact in terms of estdblishing a core of family-owned farms incentral RondOnia, and reducing the incidence of squatters and extensiveranching which has characterized the occupation of most of the rest of theBrazilian agricultural fronticr. Indeed, land ownership (coupled withfinancing and technical. assistance) proved to be the most stabilizing factorin the sub-project area, leading to less frequent turnover of farms, theintroduction of sustainable mixed farming with perennial crops and theconsequent reduction in shift and burn cultivation/deforestation in this partof the State. About one-third of the original settlers in the older INCRAcolonization schemes are still cultivating the same plots, or about the sameas the proportion of titled to total families (19,800/60,000) mentionedabove. This compares very favorably with the situation outside the sub-project area, where only about 102 of present occupants are originalsettlers. From 1980 to 1985, the relation of squatters to total farmestablishments in the sub-project area declined from 51? to about 25?, alsoin contrast to trends elsewhere. Finally, the number of farms larger than100 ha, producing almost exclusively livestock, declined from 36? to 16? ofall farms within the sub-project area, whereas elsewhere in the State, theproportion of such larger farms to the total number of farms increased from30? to 46? during 1980-85. Data for later project years are not available,

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but the decrease in the growth of livestock and field observation in theproject area indicate that these tendencies have most likely been maintained.

6.13 Environmental Protection. At appraisal, it was assumed thatstrengthening the institutional capacity of IBDF and SEMA, and creatingseveral conservation units and biological and ecological reserves wouldcounterbalance the effects on deforestation of paving the BR-364 highway andthe accelerated investment in roads and other infrastrvcture in thesettlement areas in central RondOnia. However, as showT in Annex 4,deforestation continued at a rapid rate, and by 1988, estimates for thedeforested area of Rondonia ranged between 132 (INPE) and 24? (Mahar-IBRD),compared with only 0.52 in 1975 and 3? of the State in 1980. Besides thevery high rate of migration and continued widespread shifting cultivation,deforestation also increased because the number of wood industries inRond6nia grew rapidly from 400 in 1982 to more than 1.100 in 1987, and theoutput of processed lumber increased from 1.4 to 4.2 million m3 during thesame period. Satellite imagery clearly suggests that, for all practicalpurposes, deforestation in Rondonia begins and is coterminus with newlyconstructed roads. Contributing factors included the establishment of thecolonization schemes themselves; other official investment programs,particularly roads; a growing wood industry; and limited institutionalcapacity to control illegal logging and forest burning for shiftingcultivation. In addition, various public policies and regulations, such asspecial fiscal incentives (particularly important in Mato Grosso), andinadequate land registration and titling procedures actually encouraged rapidnatural resource depletion. The resulting policy framework was one in whichthe full economic costs of uncontrolled deforestation was not reflected infinancial costs, which artificially stimulated deforestation for agriculturaland logging purposes.

6.14 Several corrective actions taken during project implementation didhelp in strengthening the institutioral capacity for forest control andenforcement. Of particular importance were the decentralization from theFederal Government to the State of forest acAnkinistration and theestablishment of the State Forestry Institute (IEF) and the State ForestryMilitary Police. IEF combined the functions of controlling deforestationwith education/extension for farmers about agro-forestry practices and theState Forestry Military Police is responsible for protecting againstinvasions of forests, natural and biological reserves, and Amerindianreserves. During the last project year, the start-up phase of an EmergencyProgram to reinforce deforestation control and forest burning, was financedunder the project with the support of IBAMA. Satellite imagery was used todetect forest burning and illegal deforestation, directing more effectivelythe monitoring, control and enforcement efforts of IBAMA, IEF and theForestry Military Police. As a result, and although illegal deforestationand sporadic invasions of reserves persist, according to IBAMA and the newly-created National Secretariat for the Environment, the rate of deforestationand burning has finally begun to decrease over the past three years.Furthermore, the technical and institutional capacity created by the projectwill be critical in achieving additional reductions in the future.

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6.15 As indicated in Annex 5, all National Forest, Natural Reserves andEcological Stations included in tne project were established. The projectalso financed protection activities for other conservation units in Rondoniaand Mato Grosso, and for studies which provided the basis for the creation ofadditional conservation units and one extractive reserve in RondOnia in 1989.While all planned infrastructure and equipment was put in place, seriousmanagement, staffing and budgetary problems of the two Federal agencies incharge of the environmental conservation component (IBDF and SEHA) resultedin underutilization and in some cases roandoning of that infrastructure. Thepreparation of developmen4 plans anl implementation of pilot sustainableforest management schemes in the National Forests did not take place, andmeasures to protect the conservation units were poorly implemented, if atall. Nonetheless, 10? of the total area of Rond6nia has been officially setaside for conservation units, which is the highest percentage of officiallyprotected area of any Brazilian State.

6.16 Finally, although not foreseen at appraisal a State Secretariat forthe Environment (SEMARO) and a State Environmental Council were created inRondonia with project suppo.t. SEMARO initiated the regulation and controlof polluting industries, such as casserite and gold mining, and environmentaleducation throughout the State. In Mato Grosso, the project funded theactivities of a Forestry Battalion to enforce legislation against hunting anddegradation of unique flora and fauna in the Pantanal National Park. Resultswere significant, not only in terms of initial apprehension of infractors andthe volume of fines collected, but also in terms of public educationundertaken to enhance environmental protection of the Pantanal area. Theproject also supported the creation in Mato Grosso of a Secretariat of theEnvironment, which has focussed its initial work on controlling mining andchemical pollution into the Pantanal basin.

6.17 Overall, in spite of its many shortcomings, the environmentalprotection sub-project was instrumental in establishing an institutionalframework and capability which will be essential for improvements in thefuture. It also helped to increase the debate, awareness and politicalcommitment to protection and conservation of the environment in at least partof the Amazon Basin. A3 a reflection of this incr(eased awareness andcommitment, a substantial share of project funds originally intended forother purposes was redirected to environmental protection during later yearsof project execution. The appraisal report estimated thedt US$15.0, or only7Z of total project costs, would be spent on environm:ental protection.However, final estimates of project outlays for environmental protectiontotal US$36.7 million, or 23% of project costs, US$25 ne. on of which wereused during the last three years of the project.

6.18 Amerindian Protection. Protection of indigenous lands was thecornerstone of the Special Project. The regularization of an Amerindian areaincludes identification, delimitation (which precedes demarcation),Presidential confirmation of the physical demarcation, and registration inthe cart6rio (land registry). For all practical purposes, demarcation, whichrequires an accurate survey of reserve boundaries, is the single mostimportant step. The share of the Amerindian population living in demarcated

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reserves in the POLONOROESTE Program area increased, due to the project, fromonly about 182 in 1980 to 852 in 1989. However, in January 1990 an earlierdemarcation of one of the largest Amerindian areas was revoked and is nowawaiting re-identification and re-demarcation. The total Amerindianpopulation currently living in demarcated areas is about 7,457 Indians or78Z. As shown in Table 4, in addition to physical demarcation of knownAmerindian areas, substantial progress was achieved in the identification anddelimitation of new ones.

6.19 The pace of demarcation work accelerated after the Bank informallysuspended disbursements in 1985 (para. 5.01). The situation subsequentlyimproved, but protection of the reserves against illegal logging, mining andsquatters has been difficult given the profitability of these operations, thecollusion of loggers and miners with Indian leaders, the size of the area,and the limited enforcement capacity of the Government. Nonetheless, whilethere are no accurate data on the extent of such invasions, based oninformation provided to Bank supervision missions from various sources, theyare estimated to involve less than 5X of the Indian lands.

6.20 The project also helped to stabilize Indian health conditions. Theheavy mortality of the contact period was reduced and the birth rate rose.However, the incidence among Amerindians of tuberculosis, malaria, measlesinfluenza and intestinal parasites is still high. During th, %eriod, many ofthe health services in field infirmaries deteriorated due to high staffturnover and inadequate training, inadequate supply of medicines and poormaintenance of equipment. Additionally, acculturative influences favoringtypes of food not readily available to the indigenous population and pressureon the environment which reduced game and fishing, have negatively affectedthe diet and nutrition of some of the region's indigenous groups.

6.21 Thirty-two schools were built on the reserves, but the teachers hadinadequate training and inappropriate textbooks, and the poor livingconditions for teachers limited the utilization of these facilities. By1988, virtually the only functioning schools on the reserves were thoseoperated by missionaries. Lastly. some 1,000 ha of crops were developed, butefforts at establishing communal gardens and marketing failed. In general,Amerindians refused to work communally; therefore, much equipment was notused and most gardens were abandoned after a short time. Almost all of thetrading posts which had been created closed down quickly, as few Amerindianshad adequate commercial experience.

6.22 Preparatory Activities for Phases II and III of POLONOROESTE. Twoactivities financed under the project were considered prerequisites for whatwould be the second and third phase POLONOROESTE projects (Mato Grosso RuralDevelopment Project and New Settlements Project in Rond6nia). The firstinvolved regularization of land tenure in Mato Grosso to reduce landconflicts and enable smallholders to obtain investment credit. However, only501 of titling targets were achieved and the project had little effect instabilizing land occupation by small farmers in Mato Grosso as a basis forPhase II of POLONOROESTE. Field estimates and data provided by unions andchurch groups indicate that there are still about 50.000 landless families in

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Mato Grosso. An additional 40,000 farmers have settled on the soils aroundJuina and Alta Floresta in northern Mato Grosso, which are not considered tohave an aptitude for sustainable agriculture.

6.23 Tl.e second preparatory activity financed under this project wassoil surveys for Phase III of POLONOROESTE, in support of new settlements tothe North of the Loan 2060-BR project area in Rondonia. Since this area wasgenerally believed to include poorer soils, it was essential to have detailedsoil survey results before deciding where to locate new infrastructure.However, because of the higher than expected migration to Rondonia, theGovernment and the Bank ultimately agreed to start colortzation (under Ln.2353-BR) one year before the soil studies had been completed. This proved tobe a precipitous decision. Once the results of the studies were known, itwas necessary to reduce drastically the scope of Phase III to exclude muchmore extensive areas of poorer soils than had been anticipated.Unfortunately, by the time this decision was taken, three colonizationschemes with rural service centers and some important road infrastructure hadalready been constructed in areas with limited sustainable developmentpotential.

6.24 Economic Rate of Return. At appraisal, the economic rate of return(ERR) was estimated at 22Z. It was derived by including 10OZ of projectcosts of the settlement consolidation sub-project (rural extension,agricultural research, farmer organization, storage and drying facilities,agricultural service centers, access roads, and sub-project coordination,management and monitoring at the Rondonia level), except for education andthe parallel activities financed exclusively by the Government. The costs ofthe other sub-projects (environmental protection and ecological research,preparatory activities for Phases II and III of POLONOROESTE, andprogram-wide management, monitoring and evaluation) were also excluded. Thebenefit analysis included all the incremental production related t., theproject for the 18,200 farmers who received direct technical assistance.

6.25 Applying these same assumptions, the ERR was re-estimated using1989 constant prices. Past expenditures, excluding taxes and duties, werecalculated in U.S. dollars and adjusted to 1989 constant prices using theM.U.V.2 deflator. For labor, a conversion factor of 75Z was used atappraisal. Due to high demand for labor both within and outside the projectarea, a labor conversion factor of 90Z was used in the PCR calculations. Theprices of tradeable goods (rice, maize, coffee, cocoa and rubber) andfertilizers were calculated at 1989 constant prices using the World Bank'sCommodity Prices and Price Projections (Annexes 6 and 7). The total value ofincremental project production was obtained by aggregating the output of thevarious farm models, adjusted for actual changes in cropped areas and yields,by the number of assisted farmers shown in Annex 8. The re-estimated ERR isabout 16Z (Annex 9). Factors contributing to reduce the ERR include the

2 M.U.V. (Manufactured Unit Value) 1982 to 1989 as follows: 1982 - 1.447,1983 - 1.484, 1984 - 1.511, 1985 - 1.495, 1986 - 1.264, 1987 - 1.156, 1988 -1.063, 1989 - 1.0

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smaller than anticipated number of farmers assisted by the project, lowproductivity levels of several crops and the decrease in real prices for mostcrops over the period 1982-1989. Factors contributing positively to the ERRinclude a 342 reduction in total project costs due mainly to the reduction inthe number of rural service centers constructed under the project (from 39 to20), a reduction in investment maintenance costs at full development withouta corresponding reduction in area planted, greater than anticipatedproduction of some key crops, and the development of other crops notanticipated at appraisal (e.g., citrus production actually contributed 8.5Zof incremental farm income at market prices in 1989, and income from millkproduction also grew much more than anticipated at appraisal).

6.26 Financial Performance. The appr61sal report estimated that at fulldevelopment the weighted average annual farm family income of beneficiarieswould increase more than tenfold, from an estimated US$d50 to US$11,900.Price projections for most project products proved to be optimistic and farmfamily incomes varied with the different models between about US$3,500 andUS$8,000, reaching a weighted average of only 56Z of appraisal estimates(i.e., US$6,600 per family or a seven-fold increase). This income, which canstill be considered good, was possible because farmers assisted under thisproject were located in the best soils of RondBnia which required lowerexpenditures for inputs which in turn compensated for the lower yields andproduct prices. In all farm models, the financial rate of return matched orexceeded appraisal estimates. A comparison of the FRR estimated at appraisalwith the four models analyzed (including a new citrus model) is shown inPart III, Table 9.

6.27 Fiscal Impact. The appraisal report anticipated that verysubstantial benefits would be obtained from taxation of production marketedinside and outside Rondonia from the settlement consolidation sub-project.It was assumed that at full development the marketing tax (ICM) would producean annual revenue for the State of US$11.4 million. Export taxes estimatedon the basis of US$50 per 60 kg bag of coffee beans would yield anincremental US$20 million for the Federal Government at full projectdevelopment. Rural social security tax revenues would increase by someUS$2.5 million per year by full development. At completion the ICM reachedonly about US$6.2 million dollars (54? of appraisal estimates), due in partto decreases in product prices, but more importantly because there wasvirtually no improvement in tax collections (which had been expected toincrease from 30? to 702 of all marketed products). Federal Governmentrevenues from coffee exports are now estimated at US$18 million (90? ofappraisal estimates) due to lower export prices than those used at appraisaland a corresponding reduction in the tax per bag in US dollar terms. Ruralsocial security revenues are only about US$1.8 million (72? of target) due toless employment generation than anticipated at appraisal.

7. Project Risks

7.01 The nature, but not the full extent, of most project institutional,production, Amerindian and environmental risks were correctly identified atappraisal. Institutional risks were related to the ability of project

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management to achieve the necessary coordination among all executing agenciesand the capacity of the executing agencies to accomplish their tasks.Production risks were associated with the incomplete knowledge of productionand soil conservation techniques appropilate for the frontier region.Amerindian risks included the known weaknesses of FUNAI, the need for carefulsequencing of protection activities in relation to the regional developmentprocess, and the continuity of Government commitment to the protection of theindigenous population. Environmental risks related to the limited technicalknowledge of the frontier environment, the ecolog4cal risks of increaseddeforestation of poor soils and the risks that encroachment on fragileenvironmental areas would continue in spite of the project. The magnitudeand rate of spontaneous migration into Rondonia and the effect of Brazil'sfiscal crisis on project financing were also not fully appreciated atappraisal. The underestimation of these various risks led to most of theundesirable consequences associated with this operation.

8. Project Sustainability

8.01 The staffing strength of key project institutions (e.g., IEF,Forestry Military P-lice, SEHARO, EMATER) was created, maintained orincreased. Roads, school, health posts, storage and the basic infrastructureof project executing agencies was expanded. Incremental tax revenuesreceived by both the State and Federal Government should be sufficient tomaintain the productive components of the settlement consolidation sub-project in central Rond8nia. Environmental and Amerindian activities toprotect conservation units and Amerindian reserves in the whole POLONOROESTEprogram area are dependent on scarce and fluctuating budgetary allocations,but the State and Federal Governments are making strong efforts to maintainthese investments and continue the work initiated under the project.

8.02 For individual farmers, financial austainability of agriculturalproduction at farm level is dependent on success in establishing farmingsystems and cropping patterns that are consistent with the agronomic andeconomic characteristics of the project area. In the general condi.,ons ofthe Amazon frontier, and even in the sub-project area which has the bestsoils of Rond8nia, this would favor mix-farming including inter-cropping ofperennial crops and agro-forestry and rotational systems between crops andpastures for the production of transport insensitive products. Farmers whodid not have secure land tenure, investment capital and technical assistancecontinue to rely on shift and burn cultivation of annual crops. Under thiesystem, a farmer deforests part of his plot, clearing it by burning, and thenuses the soil fertility accumulated under the forest canopy for a few years.Thereafter, to maintain yields of annual crops, even with relatively goodsoils, the farmer needs to fallow part of his land and continue deforestingother parts of his plot. This system is not sustainable within the limits ofthe farmer's plot, unless the farm is large enough to provide sufficientincome by cultivating at any given time only a fraction of the land.However, project experience suggests that financially, economically andagronomically sustainable agricultural production systems can be developed iffarmers are provided with satisfactory financial and technical assistance.

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8.03 Deforestation of soils without sustainable development potentialhas not occurred on a significant scale under the project. To the smallextent it did, and contributed to soil erosion and siltation of rivers. Landclearing in the Amazon may also have detrimental effects on the region'shydrological balance, the earth's ozone layer and ecological/ biologicaldiversity but the extent to which the project may have contributed to theseeffects cannot be quantified.

9. Bank Performance

9.01 The Bank involvement measured in terms of staff inputs throughoutthe life of the project has exceeded by far the average for Bank agriculturalprojects. Identification, preparation, appraisal and negotiations extendedover a period of more than two years and absorbed a total of about 330 Bank,FAO/CP and consultants staff weeks. A total of 18 mult.,-person supervisionmissions were fielded over a period of 9 years, and several additional one-person missions (generally specialized consultants) also visited the fieldduring the same period, so that a total of 340 sw were used during projectimplementation. Many of these missions served the purpose not only ofinforming the Bank about progress in project execution. but also providedtechnical assistance to the POLONOROESTE coordination and implementingagencies and helped to obtain essential decisions/actions at higher levels ofGovernment. The close Bank-Government working relationship helped toidentify needed project corrective measures (such as the expansion orintroduction of new environmental protection measures). Nonetheless, projectcoordinators report that, on occasion, insufficient staff continuity(especially in the use of consultants), resulted in inadequate follow-up bythe Bank of problems identified by supervision missions. Problems like thedelays in release of counterpart funds, inadequate credit, and the need tostrengthen environmental and Amerindian protection activities should havebeen addressed earlier, rather than waiting nearly four years to the 1984mid-term review to take definitive action. The Bank's decisions to increasethe percentage of the cost of the project financed by the loan and to extendthe loan closing date by a total of 39 months (through four extensions)proved to be sensible, because they enabled the agencies involved to build onthe experience gained in the earlier years to execute the remainder ofseveral project components in a more effective manner. The Bank alsodemonstrated reasonable flexibility in adapting the project to changing needsduring execution (including support for the start-up of an EmergencyEnvironmental Protection program to reduce forest burning in the last year ofproject implementation). However, the Bank's quick decision to providesupplemental funding for increasing the share of loan funding proved, inretrospect, premature, considering that a similar amount of loan funds wascanceled at project completion. Although the wisdom and timing of the Bank'sdecision to support the completion and pavement of BR-364 under anotherPOLONOROESTE project (Ln. 2062-BR) can be questioned, once that decision hadbeen taken the Bank did make a valuable contribution under this project topromoting more orderly settlement than would otherwise have occurred, and tostrengthening the protection of the environment and of the Amerindianpopulation in RondOnia and Mato Grosso.

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10. Borrower's Performance

10.01 The Borrower cooperated closely with the Bank, FAO/CP andconsultant missions during the preparation, appraisal, implementation andproject completion phases of the project, and was generally open tosuggestions on how to improve and modify the project in response to changingcircumstances and the need to increase environmental protection because ofrapidly accelerating migration into the project area. However, throughoutmost of the life of the project, the Borrower did not proviCdt the necessarycounterpart funding for the POLONOROESTE Program. Although the prolongedeconomic crisis and associated fiscal deficit were contributing factors, thismust ultimately bc attributed to a decision regarding its priorities,inastuch as the Borrower did allocate substantially greater expenditures toother investment programs during the same period. Moreover, even within thelevel of counterpart funding that was made available for POLONOROESTE,greater emphasis was given to the completion of physical infrastructure(paving of BR-364, and feeder roads) than to essential agricultural supportservices and environmental protection. By project completion, the Borrowerhad complied with most of the 1985 mid-term evaluation agreements and themain loan covenants, although with some delays, except for those relating tothe provision of agricultural credit and adequate counterpart financing. TheAmerindian and environmental covenants were implemented, but the maintenanceand effectiveness of protection services are not yet adequate. Given thecomplex organization and management structure of the POLONOROESTE Program,and the limited decision-making authority of the Federal and (particularly)State coordination units, the Borrower managed the project about as well ascould be expected. Within the limitations imposed by chronic budgetaryconstraints, staff resources were reasonably deployed and trained. TheBorrower also prepared a satisfactory Project Completion Report.

11. Proiect Relationships

11.01 The Bank-Borrower relationship, satisfactory until the end of 1984,became strained during 1985 when, based on the critical findings of theNovember 1984 mid-term evaluation mission, the Bank informally suspended loandisbursements and conditioned the resumption of its financiug on the resultsof corrective measures agreed by the Government in April 1985. Disbursementswere normalized in August 1985 after the Bank determined that the Governmenthad complied with the key measures. From that time onwards, apart fromoccasional misunderstandings originating from conflicting guidance bydifferent specialists participating in the Bank's supervision missions, afruitful dialogue was re-established between the Government and the Bank, andamong the implementing agencies.

11.02 Some of the imbalances observed in 1985 and the detrimental effecton the Program of suspending disbursements might have been avoided if therehad been closer coordination among Bank units supervising implementation ofthe POLONOROESTE Program, so that its strengths and weaknesses would havebeen appreciated earlier on. The Bank should also have reacted more rapidly

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and firmly in cases where important conditionalities were not being met,either by insisting on compliance or, where the Government was clearly unableto comply, by identifying and agreeing on alternative solutions.

12. Consulting Services

12.01 FIPE Evaluation Team. The Institute for Economic Resear-ch of theUniversity of Sao Paulo conducted on-going independent evaluation ofPOLONOROESTE, including a report for the Mid-Term Review of the project in1984. Relations between SUDECO and FIPE became tense and at timesacrimonious, as PIPE filed increasingly critical reports on projectperformance. From FIPE's perspective, SUDECO and project management weredefensive and unwilling to consider constructive criticism. From SUDECO'sperspective, FIPE's evaluation was superficial and heavily based on second-hand information, and concentrated on documenting problems without offeringpractical alternative solutions. Some of the Bank's supervision reportsrated FIPE's reports as very good. Eventually, however, the value to projectmanagement of the evaluation reports declined because of the atmosphere ofmistrust.

12.02 FAO/UNDP BRA 87/037. From the beginning of 1988, technicalassistance was provided under the FAO/UNDP BRA 87/037 project. Much of thisassistance made only a limited contribution to the project. However, threeproject officers based in Porto Velho did very good work in forestrydevelopment, education and project administration, and another threetechnicians based in CuiabA assisted with economic/project analysis,marketing and Amerindian communities. The inputs of these six specialistswere much appreciated by the National Program Coordin&tion and by the States,and they made substantial contributions to the preparation of the follow-upRondOnia Natural aesource Management Project and to draft working papers forthis PCR.

13. Lessons Learned

13.01 The following are the principal lessons learned from the project,which may be relevant for the design of similar operationst

(a) Public investments in frontier areas characterized by a fragilenatural environment should be based on better technical knowledge of thesustainable development potential than that which was available at thebeginning of this project. Agro-ecological zoning to guide public investmentto suitable locations should be a condition sine aue non of future projectsin such areas. In addition to public investments, the policy and regulatoryframework governing land occupation and development patterns in the projectarea should be made consistent with the recommendations of the agro-ecological zoning (i.e., by increasing the private costs of occupying themore fragile areas). Otherwise, direct investment to protect the environmentmay be undermined by stronger incentives to exploit it in an unsustainablemanner.

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(b) The economic and political conditions outside the project areawhich affected the level of migration to that area should have been betteranalyzed. While the project strategy was conceptually sound, the scope andcontent of project interventions were insufficient to achieve its ambitiousobjectives. Although reasonably successful in benefitting settlers in thesettlement consolidation sub-project area, these achievements wereinadequate, considering the large population that moved to Rondonia duringproject implementation The project was designed to b.nefit 18,200 familiesduring a period when RondOnia grew by more than one million people. Such amassive influx of people created demands on infrastructure and on the

environment, which were clearly beyond the project's ability to address.

(c) Project organization and management arrangements with many agenciesand excessively centralized decision making at the Federal Government level,hampered project implementation. Decentralization in favor of the state andmunicipalities, including more control over budgetary resources, would haveresulted in greater accountability of project management to the community andwould have facilitated project implementation. Also, an increased role forNGOs and private organizations in project implementation could have enhancedaccountability to the ultimate beneficiaries and improved the responsivenessof project executing agencies.

(d) When agriculture requires long-term financing, a careful analysisshould be made of the availability of credit for the farmer beneficiaries andof the suitability of the terms for the kind of cultivation planned (in thiscase, perennial tree crops which would not generate any income during thedevelopment period). If suitable sources of credit are not available and

where the failure of the agricultural development strategy could result inwidespread environmental degradation (in this case extensive deforestation),the Bank should either make special provision for credit in the projectitself or it should not support the project at all.

(e) For innovative projects with above-average risks, it is essentialthat monitoring anid evaluation systems be oriented to provide early warningsabout project impact and implementation probleme, and that project designallows for considerable flexibility. At the same time, the Bank must beprepared to take sufficiently strong action early on (i.e, suspension ofdisbursements) to remedy such problems. These conditions would allow for thetimely introduction of adequate corrective measures to original projectdesign. In addition, a longer start-up period and less optimisticassumptions about speed of farm development should be assumed for projects tobe implemented in unknown and difficult environments.

(f) The physical demarcation of environmental conservation units andAmerindian reserves is a necessary, but not sufficient, condition for theirprotection. Financial disincentives, such as the absence of public physicaland social infrastructure in the surrounding areas and enforcement capacityto prevent and punish *nvasions are also required for ensuring the protectionof such areas.

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14. Proiect Documentation and Data

14.01 The Staff Appraisal Report, the reports of Pederal and Stateproject coe,rdination units at SUDECO and SEPLAN-RO, supervision missions, andthe work of FIPE and the FAO/CP technical assistance, provided a good basisfor the Borrower and the Bank to implement the project and supported neededmodifications and adjustments. Although SUDECO and the State ProgramCoordination maintained project implementation records, not all data relevantfor the preparation of the PCR was readily available. In particular, projectmonitoring efforts at the level of the project implementing agencies havebeen directed mostly to short-term administrative controls and comparisons offinancial resources versus targets, rather than to data needed for a broaderex-post evaluation of project impact.

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PART II - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE'

1. Comments on Part I

1.01 The Borrower's final evaluation of the project was prepared by theexecuting agencies involved and is part of the Final Project Reportssubmitted by the National and State POLONOROESTE Coordination Units. Thedata were discussed and analyzed during a mission by Bank consultants in May1990. This information was used to prepare the Bank's Part I and theStatistical Annex to this completion report.

2. Evaluation of the Bank's Performance and Lessons Learned

2.01 The aspects relating to the performance of the Bank duringappraisal refer, inter alia, to the analysis of the problems in the regionand the risks inherent in the project, the limited intervention of nationalinstitutions at this stage, the underestimation of the technical andinstitutional difficulties, as well as the inadequate allocation andproblematic flow of funds for project activities including environmentalprotection and indigenous communities.

2.02 Already from the first year of project implementation, the flow ofnational counterpart fundin&, was irregular. To correct this situation, theLoan Agreement was amended in December 1983, raising the Bank's participationrate from 34Z to 50Z, thereby facilitating project execution.

2.03 In 1985, based on a mid-term evaluation which revealed the lack ofeffective solutions for various problems (especially institutionalorganization in general and the components for protection of the environmentand indigenous communities), the Bank unilaterally suspended disbursements onall POLONOROESTE loans, a situation which lasted six months, with evidentprejudice to the implementation of these same activities.

2.04 With particular reference to the institutional aspect, also in thecontext of the mid-term evaluation, the Bank presented a proposal toreformulate the management structure of the POLONOROESTE Program. Thisproposal was not considered feasible and was therefore subsequentlydiscarded. From that point forward, a consensus prevailed that theinstitutional development effort should be directed more towardsstrengthening the technical and managerial capacity of the implementingagencies and the national and state coordination units, which in turn gaverise to the training and technical cooperation programs financed underPOLONOROESTE Loan 2353-BR.

81 Translation of "Avaliaglo do Projeto do Ponto de Vista do Governo' datedNovember 5, 1990 and prepared by the Secretariat of Regional Development.

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2.05 Another aspect meriting comment concerns the sequence andmanagement of Bank supervision missions, which during various stages of theprojec:. did not allow a smooth relationship among the various levels involvedin the Bank and the Government. Succeeding missions gave different guidance,resulting in unnecessary disagreements, although the supervision of the Bankdid help to reorient and implement the operating arrangements for theproject, especially in the financial area. On various occasions the Bank'sposition on subjects like the environment and indigenous communities,resulted in the Brazilian Government's feeling that it was being pressed tocarry out activities which, left to its own initiative, it might not havedone in same time frame.

2.06 The main lessons learned were:

(a) Bank/Government relations should be characterized by a greatersense of cooperation, based on mutual agreements. Unilateral positionsshould always be avoided, since besides prejudicing the Bank/Governmentrelationship, they can also adversely affect project implementation.

(b) Communications between the Bank and the Government should becontinuous and well-documented, particularly as concerns the composition ofmissions, timetable and preparation of the same. Some problems could havebeen avoided if the Bank had consulted the Government about the compositionof its missions and changes in its teams.

3. Evaluation of Borrower's Own Performance and Lessons Learned

3.01 Project execution was compromised by a series of factors whichoften were beyond the direct control of the Government's project coordinationand management, including: (a) excessive migration to the POLONOROESTEregion; (b) lack of credit for small producers; (C) sectoral policies whichwere inadequate for the region or which did not take into accountenvironmental and indigenous issues; (d) constant delays in the release ofnational counterpart fundlng; (e) fragile executing agencies; (f) lowsalaries paid to technicians in many institutions, etc.

3.02 Some components performed better, such as those concerninginfrastructure, like the construction and maintenance of roads andconstruction of public buildings in general (schools, health posts, officesfor executing agencies, etc.). However, the provision of technicalassistance, rural extension, education and supervision left much to bedesired. Various factors contributed to this, including: insufficient numberof technicians, low salaries, inadequate training, lack of resources neededto maintain support for program activities, etc.

3.03 Another aspect which contributed to unsatisfactory performance wasthe fact that the farm models actually used by many colonists were based onproducts that did not allow adequate capitalization of the farmer. Thisproblem, combined with the complete lack of familiarity of the colonists withthe environmental conditions of the Amazon (different climate and soils, highincidence of tropical diseases, principally malaria, etc.), resulted in manyof them not establishing themselves satisfactorily on the land and, in some

- 31 -

cases, abandoning the lots received in search of new frontiers or otheractivities, especially mining and urban under-employment.

3.04 More emphasis should be given to activities related to theprotection of the environment and indigenous communities which could not beadequately controlled because of the concept and location of other Governmentinvestments (settlements in unsuitable soils, road construction, etc.) orbecause of the weak performance of the institutions involved (IBDF, SEMA,FUNAI, IEFIRO, Forestry Police, SEMARO, etc.).

3.05 Nonetheless, some successes were achieved through implementationof the project, includings

- creation of State agencies with competence in the areas of activity ofthe project (IEF, ITERON, SEAM, CAGERO, SEMARO, Forestry Police);

- strengthening of other institutions related to the project (EMATER-RO,EMBRAPA, DER-RO, SEPLAN-RO, SEAGRI);

- demarcation and protection of indigenous areas;

- establishment and demarcation of conservation units;

- development of the Socio-Economic-Ecological Zoning of the State;

- the fact that environmental legislation of RondOnia and the StateConstitution now include important aspects of the Socio-Economic-Ecological Zoning;

- use of the above as the basis for preparation of PLANAFLORO, whichrcflects the positive and negative lessons learned from the project;

- environmental protection programs financed for other areas (the programto preserve the Pantanal of Mato Grosso, the Emergency Program to CombatForest Fires in the Amazon).

3.06 Maior Lessons Learned

(a) General

The great complexity of the project resulted in an excessive numberof agencies involved, and this multiplicity of State rand Federal organscaused some problems and generally made coordination very difficult.

In projects of the type being analyzed, this complexity isinevitable. However, it is necessary to concentrate coordination efforts onthose sub-groups of components which require especially close cooperation inorder to succeed (e.g., extension/research/inputs/marketing; communityorganization/education/training).

The sequence of actions should be carefully planned, to ensure thatthose which are prerequisites for other important actions (e.g., agro-

- 32 -

ecological zoning, structuring of executing agencies and coordination units,training) take precedence in the timetable. It is indispensable that beforeimplementation of projects of this kind, agro-ecological zoning of the areabe completed.

(b) Administrative

Monitoring and evaluation need to be improved, especially at thelevel of the executing agencies, where there are deficiencies in terms ofdata on physical and qualitative achievements and results (impact, such asyields, income, etc.), despite reasonable financial monitoring.

It is necessary to define and operationalize an integrated andcoherent system of programming, monitoring and evaluation.

There is an apparent need to train people at all levels inprogramming, monitoring and evaluation, to serve better the decision-makingprocess. This training should be based on the programming system which hasalready been developed (GESTOR), and on its linkages with systems ofmonitoring and evaluation, seeking to monitor and evaluate not only theperticular year's annual operating plan (POA), but also the pluriannualproject.

Monitoring and evaluation of the project should, in the firstplace, serve as an instrument for articulation among the agencies involved.In this sense, it is appropriate to speak of a participatory monitoring andevaluation, involving both the institutions which execute, coordinate,monitor and evaluate, as well as the beneficiaries.

The high turnover of technical and managerial personnel prejudicesproject performance.

It is necessary to find means to improve salary levels and trainingin order to eliminate some of the causes of turnover.

The decentralization of responsibilities for exectution, from theFederal agencies to the States, and from the latter to tte municipal andlocal levels, is an adequate means of improving implementation, monitoringand evaluation.

The training programs should be substantially reinforced to obtainbetter results for future projects.

The technical assistance to executing and coordinating agenciesshould promote effective integration of work with local technicians, toguarantee in-service training, better utilization of the assistance, andbetter selection of the consultants.

The delays in release of national counterpart funds prejudiced theentire performance of the project, with average delays of three monthsbetween the start of the fiscal year and the decree, two more months untilrelease of funds to the State, and another two months until they were

- 33 -

received by the executing agencies. Heans should be sought to eliminate thisproblem, for example by obtaining a 1002 advance of the Special Account atthe outset of the fiscal year, to be replenished as soon as national fundsbecome available.

(c) Environment

It is necessary to make a great effort in the area of education,dissemination of information and training about preservation, conservationand rational use of natural resources, as well as to substantially strengtheninfrastructure and provide additional personnel.

The project provided for the establishment of a valuableinfrastructure to serve implementation of various activities under theenvironment component. Operationalization of this structure has, however,not developed satisfactorily as a result of several factors, including:centralization of decision-making by Federal organs in Brasllia;institutional weakness of new State entities which have been created;difficulties in contracting personnel; low salary levels; inadequate trainingand limited importance given to this sector by the Government.

Apparently, the activities foreseen under POLONOROESTE for theenvironmental/forestry components should have been capable of reversing theserious problem of natural resource degradation in the project area.However, the simple inclusion of this component could not meet the real needsfor environmental protection, unless concommitant changes were made in thegeneral policy framework, to compatibiliz6 the geo-environmental potentialand limitations. On the one hand, efforts were made to minimize negativeenvironmental effects, but on the other, incentives continued to encouragedeforestation for agricultural development, to establish land rights, toobtain fiscal incentives, etc.

Given this situation, it was indispensable to modify the policyframework and to adopt means to provide for integrated development adapted tothe environmental conditions of the region, utilizing, under any hypothesis,the important planning instrument of Socio-Economic-Ecological Zoning.

One of the major problems encountered by this component relates tothe implementation capacity of the ex-IBDF and ex-SEMA. For various reasons,these institutions did not execute their activities satisfactorily because ofcentralization of decision-making in Brasilia; difficulties in contractingpersonnel; lack of political will; etc.

The State institutions created to improve execution of theseproject components also ended by performing below expectations, principallybecause of local administrative difficulties which, to a certain extent,compromised their technical performance.

- 34 -

(d) Indigenous Affairs

In the preparation of projects to protect indigenous communities,it is important to consider the cultural diversity of the groups present inthe same geographical region. These groups are differentiated by theirlanguage and social organization, and in the degree to which they have beenin contact with the national society. Each activity of a particular projectshould be planned and implemented with this fact in mind.

It is recommended that any project designed to assist indigenousgroups be preceded by the preparation of an analysis of their presentsituation (demographic, land tenure, sanitary, economic, anthropological andsocial). Studies should be carried out of the effective management capacityof the project executing agencies, with the objective of strengthening theseinstitutions and establishing an efficient and permanent monitoring andevaluation system. Specialized consultants should be contracted to carry outthese studies.

Despite all its deficiencies, the project collaborated in thedemarcation of indigenous areas, which was a basic action necessary toguarantee their survival. Principally during the years 1984-88, actions weredeveloped which allowed the demarcation of more than 9 million ha ofindigenous territory in the POLONOROESTE region, benefitting more than 10,000Indians.

The simple physical demarcation of indigenous lands is not,however, sufficient to guarantee them in the face of invasions. Permanentcontrol and supervision by specialized public agencies (Forestry Police,IBAMA, etc.) is also necessary, as well as participation over the medium andlong term of the indigenous communities themselves, as the partiesprincipally interested in protecting their own territories. It isfundamental to guarantee the participation of the indigenous communities bystimulating their traditional activities of hunting, fishing, gathering anditinerant agriculture, which serve the strategic purpose of the occupation ofthe areas. It is also important to find means of establishing boundaries ina clearer and more permanent manner. Besides the periodic checking andreplacement of stakes and sign posts, borders could be distinguished throughplanting of different forest species.

The quality, technical capacity and training of personnel involvedin this type of project is fundamental for its success. Well-trainedpersonnel with vision about the indigenous question are as important as thephysical infrastructure, which can otherwise become useless because of thelack of personnel trained to utilize it adequately.

Great care should be taken in the introduction of any new economicactivity or technology into indigenous areas. Any economic developmentproject should seek to optimize traditional indigenous agricultural andextractive practices, which are the fruit of secular wisdom and of a processof harmonious adaptation to the environment. The introduction of neweconomic activities should be consistent with the degree of acculturation ofthese societies.

- 35 -

Special attention should be paid to the situation of 4solatedindigenous groups which are found in the project area, through activitiesdesigned to guarantee the physical protection of these people and theirterritories.

The indigenous agency (FUNAI) has demonstrated its inadequatecapacity to assume the various responsibilities for implementing indigenousproject components like those in POLONOROESTE. Ideally, FUNAI can exercisea coordinating role, but it is important that other public entities(including universities and research centers) and NGOs participate directlyin the project, contributing in their areas of specialization. Wherepossible, the indigenous communities should be involved in the planning,implementation and evaluation of the project.

Health activities should not overlook the value of traditionalmedicine, and the responsibility for maintaining health care should be sharedby the communities.

(d) Productive Activities

Institutional credit constituted a problem for small- and medium-sized producers. The in-kind system ("troca-troca"), despite some problems,was better adapted to the characteristics of this target group.

There has been an expansion of areas devoted to pasture andlivestock, especially in the earlier part of the project period. Althoughthere are no concrete data after the 1985 census, an increase can be observedin land accumulation as well as in the areas devoted to pasture by smallsettlers, assisted by the project.

The technology used for cultivation of the principal annualsubsistence crops, particularly rice and corn, has not changed significantly.The traditional processes of clearing/burning/planting/exhaustion of the soilstill continues. The lack of competitiveness of these products in othermarkets, the reduced prices and the cost of inputs have made technologicalchange unattractive. There has been a certain exception to the above rule inthe cultivation of beans. This crop tripled in the project area, maintainingits productivity and actually raising it in the case of producers assisted byEMATER. One important factor which contributed to this result has been theavailability of improved seeds through the in-kind credit system.

The project contributed significantly to the establishment ofimportant areas of perennial crops, above all coffee, principally through theestablishment of improved quality seedlings, with the assistance of EMATER,and cocoa with the assistance of CEPLAC.

- 37 -

PART III. STATISTICAL INFORMATION

A. Related Bank Loans

Table 1: IBRD LOANS RELEVANT TO THE PROJECT

Loan Number Year of Purpose of StatusApproval Project

--Loan 2062-BR 1981 The centerpiece of ClosedNorthwest Highway POLONOROESTE was the 1988.Project completion of a PCR

highway -BR-364- underlinking Cuiaba (the preparationcapital of the Stateof Mato Grosso) andPorto Velho (thecapital of the Stateof Rond6nia)

--Loan 2061-BR 1981 Designed to improve ClosedNorthwest Health and maintain health 1988.Project conditions in the PCR

settlement areas of CompletedRondonia

--Loan 2116-BR Mato 1982 Designed to upgrade Closed inGrosso Agricultural existing agricultural 1988. PCRDevelopment and settlements in Mato completedEnvirorfnental GrossoProtection Plan(Northwest II)

--Loan 2353-BR 1983 Supported Extended toNew Settlements colonization of 03/31/91Project (Northwest unoccupied lands inIII) RondOnia

Comments:1. In 1980, in recognition of the growing socio-economic problems caused byaccelerated migration, the Brazilian Government launched a program of majorinvestments in the Northwest agricultural frontier areas of RondOnia and KatoGrosso. The Integrated Development Program for Northwest Brazil(POLONOROESTE) aimed to absorb the human influx in an orderly and sustainablemanner. POLONOROESTE activities have been supported by five complementaryBank loans including the Agricultural Development and Enviroramental ProtectionProject (Northwest I).

2. Parallel to the Bank-financed Agricultural Development and EnvironmentalProtection Project, the Government agreed to implement with own resources anAmerindian Protection Project.

- 38 -

B. Prolect Timetable

Table 2: PLANNED, REVISED AND ACTUAL DATES OF PROJECT TIMETABLE <1>

Item Date Planned Revised Date Actual Date

Identiflcation July 19, 1979 July 19, 1979

Preparation <1><2> November 21, 1980 November 21, 1980

Appraisal January 1981 January 1981

Project Brief March 1981 March 1981

Loan Negotiations September 1981 September 1981

Board Approval December 1, 1981 Decomber 1, 1981

Loan Signature December 16, 1981 December 16, 1981

Loan Effectiveness December 31, 1982 April 26, 1982 <3>

Loan Closing <4> December 31, 1988 December 31, 1989 March 31, 1990Loan Disbursement December 31, 1986 April 30, 1990 September 6, 1990Closing

_________________

(1> A supplemental Bank loan of US322.8 million was signed in December 1983.<2> Preparation with FAO/CP assistance.(3> With retroactive financing starting May 31,1981.<4> Total number of formal closing date extensions: 4

Comments:

A supplemental Bank loan of US322.8 million was Identifi td In Febuary 1983. An approisal mlslon wasconducted in April 1983, with a short post-appraisal mission In June 1983. Negotiations were heldduring October 1983. The proceeds of the loan were used to increase Bank's share of *ligible projectcosts to maintain project implementation rates and oesist Brazil during a period of economicstab;iization.

C. Loan Disbursement

Table 3: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS(USS million)

Fiscal Year 1982 1983 1984 1986 1986 1987 1988 1989 1990 1991

Appraisal estimate 4.66 18.40 34.00 62.60 64.00 67.00 -- -- -- --

Reviced (1) -- 22.10 36.87 62.36 82.16 89.80 -- -- -- --

Actual (3) -- 17.99 26.92 37.37 42.68 47.86 56.91 e6503 70.97 71.49(2)

Actual as % ofrevised estimate -- 81 70 60 62 63 63 72 79 so

(1) The revised values Include supplemental loan of US$22.8 million.(2) Includes financing for years 1982, 1983 and retroactive financing.(3) Including payments up to final disbursements.

0. Projoct Implmntation

Table 4: PROJECT IIPLEMENTATION INDICATORS

COWONENT IUltI S.A.R. fR&VIsed I Actual IR ks I! Z~~~~~~~ ~ ~ ~ ~~~Target |

IA. Roodonia Settlemt Consolidation I 1 1 1I ~ ~ ~ I

I.Acces Roads I I

Aces" Road - M 1 2,19 2,a21Accas Roads - Ioprovemnt 2,933

90td,> *nd S"ll Brldgo I W | I | 1,9306| lMaInly wood construction. IDrain Holes Md I Mt I 6,6 1 1I Technical Support Units no. to19 n.a. I I

2.ServIce Centers (ARsb)

Rural Service CAters no. as 20 20 1Z ooning WAR) no. 39 2D 20Deep WaleIs no. 39 20 20IPubl7c Water Supply Systm no. 39 20 20 For most WARs (1S) surface water was used. I

Extension'oY Water System It s 63 Missing information for 3 NUARs.nbe., Consumers Do. 2,S7 Ww

Elatricity Enra Sy t no. 3 20 20 160 KVA Gnor. (Wood-fired Steam Eng.)yI Extension of Tramn lsion Llnes r km I I 140 I Diosl oI-tric generators Installed in all MAR| Extonsion of Distribution Lines I|ts I I I 53,241 1 I

Eletricity Consumers no. 39 2 2,383 I Resldential, commercial, Industrial.Office for Technicians no a9 21 201 1

I Guest Residence I no. I91 201 201H llamo for Resident Technicians no I 195 G 6o |SoSa il l no: 39 a IStoreg Units no. 19 I 2

3.Agriculteral Extension I I ; j jI I I I I IDirectly Assist. _enf. Frmer I no. 18,269 0 | 11,339 I 8,440 by EMATER and 2,899 by CEPLAC.Group Assist. Scheme. Farmrs no. g I 3,300

Training Course for Extensonisti t part 159 I 84 I First project years.

I Training Courses for Farwrm I part./no. 12,890/ - I 113,627/9611 Includes both Farmer Leaders and Youth. iDm onstration Plots I plots 20 1 I 9301 ISupport Staff l tot./Inc. - /169 1 1 110/ 66 1Extensionist Staff Mmber (at NUAR levl) tot./Inc. 165/110 j 84/ S9 39

I Subject Matter Specialist (Rog.OffIce) * 7/ 4/ 4Central Ad1inistrators * 2/ 21 2/ 2 1Administrativ Support Staff I * I - / 20/ 20

Extensionist Office (WAR) 9 no. 201 211 1

COWNONENT I Units S.A.R. lRevised I Actual I Remarks' ! ~~~~~~~~~~~~~Targre t

14.Agricultural Research

D oetration Fo rs Os n 3 For crop and liv.stock.Expmrimontal Stito ons no 3 With 10 ha :ach3Weather Observation Station I Locatd t EMBRAPA research station.Soil Laboratory I no. I 1 I 11Soil Test end Mapping Services no. 26,0 Incroemntel Staff I 51 25W850Technical and Ct ntific Publications 6 1 236D onstr tlon UnlU o 412

I Sedllng Production no. I 1 198,030 1 * Sed Production ton 160 I Agricultural Experiments I no. I 1 1 4461 1Construction of Regional Center no. I I I i 1

C5.Crop Storage and Drying 1 1 1 1 1

Construction of Storage Units I no./ton 119/2,6 W j 2/2,606 j Collector Storage. Includes equipments. no./ton 18/ 600 I Community Storage. Includes equipments.

IO.Fareor Organization

Co mmunity Crbups / Organizations no. 47 1Formally assisted groups. ICooperatives no. 1 6I Cumulative 1983 - 1989. oAuoiations Issoc. I 172 I IProducer Groups group j 1,439 lRural Women Group | group I I I 291 *

I Rural Youth Group grop 1 '

7.Eucaton I I I

SchoolsNUAR - Construction and Equipment no. 9 20 APP: 4 claser., 4s stud./eirssr.,2 daily uhiftel

I PCR: 6 classr., 36 stud./classr.,4 daily shiftelSatellte - Construction and Equipment no. I 90 199 APP: 1 _-asr., 40 etud./closer. 2 daily shiftal

New Teachers l I l IPCR: 1 classr.,80 studont/claser,3 daily shift*l|Now T tchers no. ||1 6 1988 I UAR Schools no 312 233a 11 are certified teachers. ISurrounding Schools I no. 780 1 238 68 are certified teachers.

Teachers Trained no. 840 I 430 j Cumulative (Includes teachers, school directorelI I I I I I secretary and supervisors). ICurriculum Adjust usnt to. I 1 1I Adopted until 1986. INot Incrosse of School Places no. 40,000 i 24,3001 I

I~. I

I COUPONENT 1 ~Units I S.A.R. IRv ised Actul IF I Remarks 1COPOEN Target!!II

1B. Parallel Activitist Sele I -I I I II Consolidation I I I I I I

I1.FFro CroditI

I Credit for Agriculture 1I Small Farm eneficiary I no 18,208 I 3,823 FAPP (Fundo do Asslitencl so Pequeno Produtor)I II I sIwtilrYno 8,0

Credit-in-kind I I ITotal Seed Contracted i kg 0 I 56,167 A successful Innovation to maks Up for th lacklTotal Seedlings Contracted I ha 21,000 of conventional credit. Seds: rice, maiz and I

I I I I beans, noodlings, coff,e, cocoa, rubber, jtropical fruits and forest trees.

Seed and Seedling Production Program

Seed Processing Plants I no. I 3 8 Only one operating (Ji-Parana)Srage Unit I no. I 3 Targt Production I tons/year I 38,000 I ISe dllng Production Assisted by EMATER IIIIII

Rubber l million I 1.5'Coffee m miliIon I 24.5 IForest t housand I 20.7 ID

Sodling Production for SEAGRI Nurseries 1. I I F-.0

C.ert. Seed Prod. for EidATER Distribution I ton/yr I2848 9 I Sds for annual crops IProduction Sites for Distributed Seed no. I 1 2001Aquisition of Seeds for Seed Production ton106

3DICRA Land Titling j I |

Definitive Titles (Issue) ha _ 19,779 Realized by INCRA-RO IArea Regularizd 12,206,698

COWONENT I Units I S.A.R. IRovised I Actual I Rmarks II I I~~~~~~~~~~ ~~Target !I

L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C. Environmental Protection *d wteological Research I

1l.National Forost

Identification of FLOUMs localization I no. I 2 I 2 i 2 , jInvontoring and Demarcation i ha ; 8,000 1390,000 1 225,000 1

L anasgosnt Plan Studies no. I 21 2! 1Manag et Plans Executed I percent lag lee1 10Infrastructure and Equipmet I percent le e 1 G 80 I For FLONA JAMARI

12.Forestry Control I i iI . I I I I II Strengthening of Local IBDF Offices I no. 2 1 2 1 2 I Porto Volho and Culaba offices constructed| I I I | I with IBDF resources.I Control Posts - New I no. 41 71 7? RONONIA: P.Bueno, JI-Parana, Rolla * Ioura;t I 1 i I I HATO CROSSO: JUins, Pontos * Lecorda,Braznorte

I I | I I | and Km 14 Transpantanoira 1I Control Posts - Improve Existing I no. 8 a 3 3 I RONDONIA: Vilhona;S ttelite Forest Iagery Monitoring Years S a Years 1988, 1985 and 1987.I Establishment of IEF-RO 1 | | I l-Equip. and Finan. Supp. For Local Officesl 1 1 26 I 26 IEF also executed extensTon services.- Forest Coftrol and Extension Training I cours I X I 10 S I Establishment of Rondonia Forest Police I 2 Partly Fnsnc d by on 233

- Equl. *ndFinn. upp. or Poles Pots | n. | | a 2 Police post of Alto flor ta construct ofdnd l-Equip. and Finan. Supp. For Police Poets no.qI partly HinancdquLarein C23:3. undr cns-1~~~~~~~~~~~~~~~~~~~~~ equipment. Headquarter in Iadirudrostruction.

- Equip. and Finan. Support Surveillance percaft 100 I0 Surveillance for total State area. I- Forest Control and Extension Training I courses s o 69 I 4 I Courses for 120 forest policemen.

I Establish. of Rondonia Environ. Secretariatl percent I 100e 60 Activities: Environmental control, survoillancelI I 1 l l I and eduacation.

Support For Foret Surveillance In UT I I I I Enphasis to northen part of the State.- Equipment and Financial Support of INEA I percent I I 100 | 8g1Control and Surveillance of Defom.station j j I I For all logal Amazon region States.In Lepal Amazon Area | | I- Equipment and Financial Support I I 1001 8

13.Natural Reserves i iII I i I II

Pacass Novos Natural Rserv IeDemarcation / km I 1 901 901 Th park Is localized partly inside the

I I I J I Uru-eu-wau-wau Amerindian area.Dl)evlopment of Mbnagemnt Plan D no. I 1 1Infrastructure percnt 100 1001 soI Operational Support 1 percent l0e1 100 so

Jaro Biological Reserve 1 I I I

Infrastructure I percent 100 1 801 1Operational Support . percent I 100 1 i 1 69 8

I ______________________________________ I _________I _______ _______I__I _____ 1____________I___________________I________

COWMNENT I Units I S.A.R. IRevisod I Actual I Remarks I

I _ I _Target I I

Cuapore Biological Reserve II . I I

Infrastructure percent I 1W0 100 I 80j Operational Support I percent ; 1W I e 80, II Demarkation no. I I I 1

Development of Management Plan 1 km | 1 200 ; 0011I Studies For Establish. of New Conservationl no. I 2 1 2 Chapada don Cularass * Pontal do Mato Crosso. I

units In ata Gatosso I I I 4 IISupp to Pantenal Cr tos ross.sp Not Park percent ISO 40

(equpmnts) II4.EcologlI Stations

T lo (Expansion)

Infrastructure and Equipments percent 10o1 110 1101

Serra das Araraes (Estblishments) I i I

Infrastructure and Equipments prcent 100 10 1 ee

Ique (ExSh1slon) | I I >

Infrastructure and Equipmnnt percent 1 1 10 l1a I

Colaa (Establishment)I I 1 Ii

Infrastructure and Equipoents per 11 W 11 W 100 I Proscribed in favor of BAMA. I

C.Ecological Research

Research Projct. no 2Q 20 201Equlponts and Local Support. p rcont 1 W 100 10011Human Resource Development at FUFUT porcent lee 1W 100

|D. Parallel Actlvlty to Envirom ntal I tlProtection i I

I ~ ~ ~~I I .I I1. A orindiln Prot ctlon I

I _ _ _ 1 1 1 1 1~~~~ I

| Indian Population no. 4,250 | 9,60 0 9,60 |I Indli nous Area I no. 28 87 671 II Demarcation I I I I II Reserves I no I 7 28 No target sot.I Area hn(mIlilon)l 3.! 1 * 1 9.0 1 * No target set.I Borders demarcated I km 1 3,940 1 1 9,300 1No target set. II Schools no. 20 321I Infirmaries I no. 1 281 381

FUNUI Administrat;ve Units | no. 1821 82I

I conitruction/reconstruction I I I I I II _

CWVGNENT I Urnits I S.A.R. IR*VisWd I Actual I Remarks I

I Target I I IE.Studles and Program Coordination

I1.Land R.gularlzatlon In abto Grosso I For iTfNorthwest Phase U are. I

Discrimlinttd Area ha(milIIon)I S.3 I .6 3_ retloa ha(Ilion) 06 1 .4 For farers owning 2 to IN ha.

- Topornphleal Sulrv y- Phy ieul DmarcationPr ITinn qr R qulear to - Cadastral Miero-film I I 1 1 G- Trising of INCR Staff perent I lee In Vto GrossoTitling (Farmrs) no. | 400Ii

2.Soil Surveys for Mmq Settlements

Soil Survey 170 1 1 2Wi For Northwest Phase III area, but completed- urpa Inb (Xing) 7061 only In 190S

S.Program Coo dinatlon and Survey INorthwe t Coordination Unit Total Federal Program Coordination disbur sentl

was US8B.o million or 34X of foreseen at Iappraisal.

Rondonia Coordination Unit Total Rondonia Coordination disbursement was It I I I I I US14.7 million or 232X of foreseen at approisall

|Settlemsnt Consoltd. Area - Salvage Logging | II I I Proposed studies for this activity were|- | } | l | not undertakon.I,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Note. 1- Table Identifies all quantitative and qualitative targets of SAR.For a number of tarpets appralsal and PCR concepts are not fully comparable.

2- Percentage of achievement based on information provided by nationalproject mangement.

Source: SEPLUN-RO, National Project Managsment (SUDECO), Bank files and PCR mission.

- 45 -

E . Proloct Costu and Financing

Tablo 6: PROJECT COSTS

(US8 million)

SAR Estimates X Actual(1> X

A. Rondonia Settlement ConsolIdatlon

Access Roads 29.1 20.9 88.8 29.3Service Centers (NUAR) 42.8 38.6 12.9 9.8Agricultural Extension 6.4 4.6 12.8 9.2Agricultural Rosearch 4.4 3.2 4.7 3.0Drying and Storage 12.6 9.1 0.9 0.7Farmer Organization 1.9 1.4 1.4 1.1Education 6.2 8.7 6.8 4.0Input Supply -- -- 4.9 8.0Rondonia Coordination Unit 2.0 1.4 4.7 8.6

Sub-Total: 104.0 74.8 8.60 64.3

S. Environmental Protection andEcological Research

National Forestry 1.8 1.0 81.9(2> 24 .1Forestry Control 2.4 1.7 (8) (<>Natural Reserves 8.6 2.6 (8 (<8Ecological Stations 1.6 1.1 0.9 0.7Ecological Research 7.0 650 4.0 8.0

Sub-Total: 15.9 11.4 88.7 27.8

C. Studios end Prolect Coordination

Administration 8.6 6.2 8.4 2.6Land Tenure Regularizatlon 0.6 0.4 6.5 4.9Soil Research 10.1 7.2 0.6 0.4

Sub-Total: 19.1 18.8 10.4 7.9

D. Total Project

Baseline Costs 189.0 190. 182.2 100.0Physical Contingencies 16.6 11.9 -- --Price Contingoncies 43 8 81.6

Final Total Project Costs: 199.8 148.4 182.2 100.9

(1> includes agricultural and infrastructure services In Mato Grouso.(2> Includes funding for the Pantanal area.(8> Components aggregated undor National Forestry

Source: SAR and SUDECO financial reports.

- 46 -

Table 6: PROJECT FINANCING

Source Planned Final(US$ million) (X) (US$ million) (X)

World Sank loan 67.0 84 71.6 (1) 64

coo 1322 60.7 (2) 48

Total 199.8 100 182.2 100

(1) A Supplemental Loan (2060-1-BR) of US822.8 million was signed In Decomber 1988.

(2) Zn additlon, the COB financed fully the Amerlndion Protection Project. Plannedcost for this componont was US126.6 million, of which US826.1 million were utilized.

F . Prolect Results

Table 7: DIRECT BENEFITS OF PROJECT

Appraisal Estimato at Estimato atIndlcator. Units Estimate Closing Date Full Develooment

Farm famillo no. 18,200 11,380 (1) 11,330 (1)

Family Incom USS 11,900 6,677 8,686

Direct beneficlarioe no. 87,000 70,000 70,000

Totel incromentel cultivated area 000 ha. 73.8 72.4 72.4

Total Incrementsl value of producto US2 millon 148.5 70.8 70.8

Incremontal on-farm Jobs man/years 20,700 14,800 14,800

School placos no. 40,000 24,300 24,800

Water supply benoficlarie. residence 2,822 (2) 2,822

Electric energy beneficiarles resldence 1,082 (8) 1,982

(1) Aslssted directly on the farm by EMATER and by CEPLAC. In addition, some 8,800 farmers wereassisted by EMATER through the group assistance schme.

(2) Estimated benoefciery population 10,687.

(8) Estimated beneficiary population of 9,117. Total number of connected establishments(residence, commercial, Industrial): 2,868.

- 47 -

Table 8i ECONOMIC IMPACT

AppraisalEstimate PCR

EconomicRate of Return (ERR) 22X la%

Underlyina Assumptions (1) units

Incromental ProductionRic '00O tons 83.8 12.8Maize 20.6 21.3Bean* 3.7 9.7Coffee (beans) 24.2 32.4 (2)Cocoa 22.6 24.3Rubber 9.9 2.4Citrus S -- 66.5Manloc 22.2 -24.7Beef 1. 6 1.0Pork units 6.5 2.2 (3)Milk liters (million) 2.5 17.0

(1) Incremental prodLctton by year 1996 for moat activities.

(2) In cherry.

(3) In tons.

Table 9: FINANCIAL IMPACT

SAR PCR(if)

Financial Rate of Return:

Coffee > s0 > s0Coffee sharecropper > 50 > SOCocoa 34 > 60Rubber 21 > 50Citrus (1) -- > s0

Other financial indicators:(US2 million)

ICM Revenues 11.4 8.2

(1) Not foreseen at appraisal.

48 -

Table 10: STUDIES

tud-es Purpose Status Impact

Independent outside To *valuat, the Completed Used for tho 1984evaluation of project direct and Indirect Mid-Term Reviewperformance Impact of the project

for the Mid-TermReview (by FIPE)

Sotl Survey To provtdo tho basis Completed In 1986 POLONOROESTE III andfor location of now now settlementssettlements and started more than oneinfrastructure year before the soilInv-stment under survey was completed.POLONOROESTE III Once the results ofProject the study wore known,

the scope ofPOLONOROESTE III wasdristically reducedto exclude areas ofvery poor soils.

Salvage Logging To determine most Not completed A parallel study wasefficient salvage carrieod out, however,logging methods by the timber

industry.

- 49 -

G . Status of Covenants

Table 11: COMPLIANCE WITH LOAN COVENANTS

CovenontSection Description of Covenant Date Status of Compliance

8.03 The Borrower *hall cause SUDECO Each Complied with.to (a) establish the Program October 81.Coordination Unit and to employ acoordinator and two sectionchiefs satisfactory to the Bank,and (b) by October 31st of eachyear to furnish to tho Bank theproposed plan of operations forPOLONOROESTE activities for thefollowing fiscal year.

3.04 The Borrower shall cause (a) each March 81, Compl ed w;th.Executing Entity involved in 1982.POLONOROESTE activities toestablish and furnish to the Bankby March 31, 1982, detailedmonitoring plans and proceduressatisfactory to the Bank; and (b)SUDECO to enter into by March 81,1982, contractual arrangementswith independent consultants forthe purposes of assisting theBorrower in continuous evaluationof POLONOROESTE in its entirety,such evaluation to be carried outon the basis of plans andprocedures satisfactory to theBank.

8.06 The Borrower shall cause UEPAT to Each year. Complied with.publish the results of theresearch activities carried outunder Part A(4) of the Project(agricultural research),annually, a*d in a mannersatisfactory to the Bank.

8.08 The Borrower shall, for purposes June 30, Complied with.of Part B(1) of the Project 1988.(National Forest): (a) take thenecessary measures through itsMinistry of Agriculture andMinistry of Interior to assign,in consultation with the Bank,the specific responsibilities fortheir respective agencies forland-use planning and for theidentification and development,Including financing, execution ofnational forest projects in theProgram Area; couse IBDF toestablish and operate a forestrydevelopment planning group, tofurnish terms of referencesatisfactory to the Bank for theproposed planning studies to becarried out undor Part B(1)(Natlonal Forests) and by June -80, 1088 to carry out suchstudlos.

- 50 -

CovenantSection Descerlption of Covenant Date Status of Compliance

3.07 The Borrower shall, for tho December Complied with. However,purposes of Part B(2) of the 31, 1982. IBOf has not consistentlyProject (Forestry Control) by maintained staff at theseDecember 31, 1982, provide all posts.necessary facilities, staff,services, and other resources foreach of the seven forestrycontrol posts In the ProjectArea.

3.08 The Borrower shall, for the March 31, Substantially compliedpurposes of Part B(3) of the 1982. with. However, IBDF hasProject (Natural Reserves): (a) not consistentlyby March 31, 1982, define and maintained staff In thelegally establish the Guapor6 field.biological Reserve, end (b) causeIBDF and FUNAI to enter intocontractual arrangementssatisfactory to the Bank,defining the respectiveresponsibilities of the twoagencies with respect to theprotection of the Pecaas NovosNational Park and overlappinginterdicted Amerindian *reas, theworks to be carried out by IBDFin this Park, and the proceduresfor FUNAI staff to accompany IBDFfield staff as necessary.

3.09 The Borrower shall, for the -- Complied with.purposes of Part B(4) of theProject (Ecological Stations):(a) cause SEMA, together with theappropriate agency of Rondonia,to delimit the Cunia EcologicalStation in Rondonia andthereafter legally establish thisstation; and (b) cause SEMA tofurnish to the Bank for approval,detailed engineering designs andplans for the works on theEcological Stations of Ique,Serra das Araras, Taiama, andCunis.

3.10 The Borrower shall for the -- Complied withpurpose of Part C (EcologicalResearch) cause CNPq to prepare adetailed research programsatisfactory to the Bankincluding a budget, terms ofreference and executionarrangements and to promptlyenter into contractualarrangements satisfactory to theBank for the carrying out of thisresearch including the provisionfor annual dissemination by CNPqof a progress report settingforth the findings andrecommendations of the researchcarried out under such research -program during the precedingPOLONOROESTE fiscal year.

- 51 -

CovenantSection Description of Covenant Date Status of Compliance

8.11 The Borrower shall, for the - Substantially compiledpurpose of Part 0 (Land Tenure with. INCRA has notRegularlzatlon) cause INCRA to allowed farmers with(a) establish with necessary holdings smaller than theresources Its land tenuro project official arural moduloe toIn Vile Bela and complementary be titled.flold units at Ponts* E Laeorda,Mirassol d'Oeste and Barra doBugres, In the Program Aroa InMato Grosso where ruraldovelopment or settlementactivities are plannod and toprovide owners of moro than twohectares In such areas with good*nd definitivo titles promptlyfttr the completion ofdemarcation of their respectiveplots.

3.12 The Borrower shall cause SUDECO -- Complied with.to carry out the special studiesunder Part F (general studies onfuture development projects Inthe Program Area) on the basis ofterms of reference satisfactoryto the Bank and to promptlyfurnish to the Bank the resultsof each study carried out undersuch Part F of the Project.

8.13 The Borrower shall take all -- Partially compiled with.necessary measures to discourage Some actual or plannedthe agricultural exploitation of conservation areas haveareas which have been determined been subject to occasionalto be unsuitable for agricultural Invasions by squatters.development or of areas whose In most cases they havesuitability for such development been removed by thehas not yet been determined and Government.to prevent the occupation ofareas that have been legallydefined as reserves.

3.16 (a) Not later than six months Six months Complied with.after the Closing Date (as aftermodified by the Borrower and the closingBank) shall cause each of the date.Executing Entities to prepare andfurnish to the Bank throughSUDECO a report of such scope anddetail as the Bank shallreasonably request.

3.16 The Borrower shall take all steps -- Complied with.necessary to acquire when neededall land and land rights asrequired for the construction andoperation of the facilitiesprovided under the project.

- 52 -

CovenantSection Descrlption of Covenant Date Status of Compliance

4.01 Tho Borrower shall take mesxures -- Partially complied with.to ensure the timely availability Seasonal credit wasof adoquate funds for 10,200 available during mostsmall-scale farmers required for years of projectseasonal crop credit and Implementation although atmaintonance of annual crops and very high Interest rateton-farm Invostment credit. The Investment credit toBorrower shall make available establish perennial cropscredit for the above purposes was not available durlngwith priority for small-scale most of the project, withfarmers rceiving credit for the the excoption of the lostfirst time to establish peronnial two yeOrs when an In-kindcrops. credit system was

established.

4.02 The Borrower shall carry out in -- Substantially compliedRondonis the Seed Production with: seds were notProgram which shall provide funds always available on afor the instaliation of three timely basis.seed-processing units, thetraining of technicians and causeUEPAT to mako available on atimely basis an adequate supplyof basic seeds for the productionof improved seeds In the sub-Project area.

4.08 The Borrower shall cause IBDF to -- Not complied with.carry out feasibility studies In Howover, a parallol studythe sub-project area to determine wae carried out for thethe most efficient salvage timber Industry.logging mothods and furnish tothe Bank for review and commentthe recommendations of suchstudies and thereafter to takeall measures to put Into effectsuch recomnendatione.

4.04 The Borrower shall (a) cause Partially comptled with.INCRA to provide all landowners (a) Titlos were issued towithin the settlement armas of 19,000 settlers In thethe sub-project area with good project areas. (b)and definitive land titles; and Partially complied with.(b) carry out or cause to be Land tenure studies arecarried out, on the basis of underway.terms of reference and a schedulesatisfactory to the Bank, a studyon the land tenuro and useconditions and regulations In thesub-project area.

4.065 The Borrower shall take all -- Total areas demoreatednecessary measuroe to put Into *xceeded original targets;effect promptly the Special some now areas, identifledProject for protecting the during project executlon,Interests of the Amerindians. sttil require demarcation

and/or fullrogularizatlon. Therehave been occasionalInvasions of Indian land.Health care has beenIrregular and poorlycoordinated.

- 53 -

H . MISSION DATA

Table 12: BANK MISSION DATA AND STAFF WEEKS BY STAOES OF PROJECT (1>

Stwofot Flold TotalProiet Cycle Wot/Yer Staff Weeks Specialization Staff Performance Types of

(2) Represented (3> Weks Roting Status Problems(-4)

1. Through 7/79 2 Eappraisal 2/80 2 E

6/80 23.2 E, A, U, F, E, L, ED7/80 17.0 E, F, S, M, A

10/80 23.0 E, T, EG, F, A11/86 20.0 E, F, A, EN, EG2/81 41.6 E, F, S, ED, i, A,

Sub-total L, E, A, EN, EG, AN T1

2. Post-appraisal/ 8/81 8 A, E, F, AN 28.1Negotiations

8. Supervision 1/82 1.6 E, EN, AN, EG, T 2 P, Ii-/82 8.6 E, EG, T, A, AN, MM 2 F, M, P7/82 2.0 AN

11/82 6.6 E, EC, EC, M, AN 2 F, M2/83 1.0 U3/83 1.0 EC4/83 1.6 AN6/83 2.2 E, EC, A 2 F, M8/83 1.6 DM 2 M, F

10/83 2.2 E, EC. T4/83 14.5 E, EN, A, AN, DM, M, EC 3 M, T, F

10/83 4.4 E, EC, T, ED 2 M, F4/84 12.6 E, EN, T, AN, DM, M, EG 3 M, T

12/84 21.0 E, AC, EC, EN, T, AN, H, ED, DMi6/86 6.0 AN, EN, EN, AG 29/85 8.0 AN, M, AC, T, DM 3 F, M3/86 4.0 AM, T 3 M, F7/88 8.0 T, T, M, A

12/86 2.0 AN 28/87 9.0 AN, A, F, AN

10/87 3.0 E, AN 211/88 (6> 4.0 AN6/89 6.0 EC, EN2/90 (7> 4.0 AN, A4/90 (7) 2.0 E6/90 (7) 6.o E, A, EN

(1> Includes FAO/CP participation during projoct preparation

(2> Dote of return to hoadquarters

(3) E'= Economist; A = Agriculturalist; U c Manageent Specialist; F 2 Financial Analyst; L a LivestockSpecialist; ED = Education Specialist; S * Soil Specialist; T * Tree Crop* Spemiolist; EG * Engineer;EN = Environmentalist; AN a Anthropologist; DM a Demographer; M a Heolth Specialist

(4> 1 a Problem-free or Minor Problems; 2 a Moderate Problems; 3 a Major Problems

<6> F a Financial; M = Monageriol; T a Technical; P a Political; 0 a Other

<e> During 1988-1990 this project was suporvised frequEntly in the context of preparation of tho proposedfollow-up Rond8nia Natural Resourcoes Mnagemont Project. However, most of the time was not separatelyroported.

(7) PCR Mission

- 54 - Annex 1

BRAZIL

RONDONIA AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

RONDONIARURAL AND URBAN POPULATION

IN PROJECT AREAlose - 1989

___________________________________-_______--.______________________________________.___________________.__

POPULATION IN 1980 POPULATION IN 190LOCAL-TY …… - … … _ _ _ __ __ _ ____ _ -____ ---…… --

RURAL X URBAN X TOTAL RURAL X URBAN X TOTAL

Ariquemes 28,884 64 24,606 46 63,489 124,998 68 57,76? 32 182,706CIcoal 48,434 72 l8,836 28 67,269 65,301 66 47,431 42 112,732Espigao d'Oste (2) 22,360 67 11,196 33 33,548J3ru (1) 81,049 72 31,652 28 112,701Ji-Parane 80,628 68 41,536 34 122,164 64,004 42 76,036 68 129,039Ouro Preto (1) 68,436 66 36,363 34 103,799President* Medici (2) 79,608 87 11,802 13 91,410Rolim do Moura (2) 69,9560 6 32,280 36 92,230

Project total 167,948 66 84,976 36 242,922 566,e96 B6 302,468 36 68,162Other municipalities 104,911 42 143,192 58 248,103 172,263 24 388,249 69 660,512

Total - State 262,867 228,168 492,025 727,959 690,715 1,418,674- Project/State (U) 66 37 60 76 44 66

(1) Theos municipaflities were created In June 1981 by subdivdlon ofAriqu-m s, Cacoal and Ji-Porena municipalitioo.

(2) These municipalities were creatod after 1984 by subdiviston of otherproject municipalitios.

Source: FISCE and SEPLAN - RO

- 55- Annex 2

BRAZIL

AORICULTURAL DEVELOPMMENT ANL ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

SAR Ylold Estimates PCR Yilld Estimates

Without Wlth Without WithProject Project 1/ # Project 2/ Project X

-------tons/h ----------- -----------tons/he-----------

Rice 1.92 2.69 8t 1.74 1.90 9Maize 1.69 2.01 26 1.70 1.80 6Manloc 6.00 8.00 88 8.98 10.00 11Beans 0.89 0.60 68 0.49 0.68 81Coffee 8/ 0.82 1.01 28 1.04 1.20 15Cocoa - 1.60 -- 0.89 0.74 90Rubber 4/ -- 1.00 1.06 1.10 10Citrus -- -- -- -- 16.00 --Banana -- 2.00 -- 0.91 0.90 (1)

SOURCE: Staff Approleal Report; FIBQE, EMATER-RO.Farms assisted by EUATER-RO or CEPLAC.

1/ Average ylld otf better and moderate soils.2/ Yields estimated for PCR based on Appraisal cropping pattern.8/ Beans as exported.4/ Pure stand trees.

- 56 -Annex 3

BRAZIL

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Incremental Production at Full Development

SAR Estimates PCR EstimatesProduction Fanm-Gate Production Farm-Gate

Value Value('000 tons) (US$ million) ('000 tons) (US$ million)

Rise 33.6 8.4 12.3 2.4Corn 20.6 4.2 23.3 2.5Beans 3.7 1.9 9.7 6.3lManioc 22.2 1.2 (24.7) (1.2)Coffee 24.2 45.8 14.8 10.0Cocoa 22.5 35.5 24.3 23.8Rubber 9.9 29.6 2.4 4.3Banana/Citrus -- -- 56.5 3I 5.7Beef 1.0 1.5 1.8 1.9Eggs 21.6 1/ 1.1 --Chickens 1.2 1/ 2.2 -- --Pork 8.5 1/ 11.3 2.2 1.5Milk 2.5 2/ .8 17.0 3.1

Total 143.5 61.5

1 Million units2/ Million liters3/ Citrus

- 57 -

Annex 4

BRAZIL

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Status of Deforestation in Rondonia According to Different Sources

(Z of State Area)

Source 1975 1978 1980 1963 1987 1988

IBDF/IBAMA 0.50 1.72 3.12 5.85 9.61 --

INPE -- -- -- -- -- 12.60

SEPLAN/RO -- -- -- 19.20 23.70

D. Mahar 0.30 1.70 3.10 -- -- 23.70

Fernside 1/ 0.50 1.71 3.12 5.74 15.18 17.08

1/ Information for 1975 to 1983 based on IBDF data.Information for 1987/88 obtained from J.P. Kalingreau.

- 58 -

Annex 5

BRAZIL

AGRICU-LTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Conservation Areas Established in RondOnia and Mato Grossowith Support from Polonoroeste

CONSERVATION UNITS AREA(ha)

RONDONIA 2.432,534

National ParkPacaas Novos 764,801

Biological ReserveGuapor4 600,000Jaru 268,150

Ecological StationCunia 100,000

National ForestJamari 215,000Bom Futuro 280,000

Extractive ReserveRio Ouro Preto 204,583

MATO GROSSO 422.600

National ParkPantanal Matogrossense 135,000Chapada dos Guimarges 39,000

Ecological StationIque 200,000Serra das Araras 32,600T~. *., 16,000

Source: SUDECO

- 59 -

Annex 6

BRAZIL

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Economic Prices Derivation(US$/ton)

SPECIFICATION MAIZE RICE RUBBER COFFEE COCOA

International Market Price 1/ 102 296 1,271 2,010 1,020

Quality Price Adjustment 2/ 266 1,809

Overseas Transport andInsurance 60 100 200 (150) (120)

Price at Port of Santos 162 366 1,471 1,659 900

Transport to Project Area 50 50 117 (120) (120)

Sub-Total 212 416 1,588 1,539 780

Conversion Factor forProcessing 55 45

Converted Prices 212 229 1,588 692 780

Processing Costs 3/ (25) (77) (30)

Sub-Total 212 229 1,511 662 780

Taxes (ICM and FUNRURAL) 204 102 121

Farm-Gate (Economic Prices) 204 1,511 560 659

1/ For maize, rice and rubber prices based on World Bank projected prices.

For coffee and cocoa average New York prices (source: Gazeta Mercantil).

2/ 1OZ reduction in prices for quality adjustments.

3I/ Processing costs since the farmer sells coffee in cherry and rice with

shell.

- 60 -

Annex 7

BRAZIL

AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Economic Price of Fertilizer

Urea PotassiumChloride

.......... .(US$/ton) ..........

World Bank price projectionsin constant 1989 dollars 1/ 179 96

Overseas transport andinsurance +100 +100

C.I.F. Price Santos 279 196

Port handling, storage andlosses +70 +70

Transport to project area +60 +60

Farmgate prices: 409 326

1, Based on World Bank price projections bulletin October 1988.

BRAZIL

AGRICULTURE AND ENVIRONMENTAL PROTECTION PROJECT

PROJECT COMPLETION REPORT

Participating Farmers Directly Assisted by Extension Service

Farm Model/CroP Years 1 2 3 4 5 6 7

Coffee Farmer 514 2054 2497 2940 3732 3866 4000Coffee Sharecropper 276 1104 1342 1580 2006 2078 2150Cocoa 371 1484 1804 2124 2696 2793 2890Rubber 92 370 449 529 672 696 720Fruit Tree 202 806 980 1154 1465 1517 1578

Total 1455 5817 7073 8329 10571 10950 11330

AQIC%k*TIRtE AND BWIftRIS6EAL P6OTECTIO PROJ6CT

PROJECT CUMLETI4M REPORT

Co91st Ssof Stesom for Econic kAIsy.i.(WI '000)

Tear 1 ~~ ~~ ~~~2 3 4 5 6 I 9 10 11 12 13 14 15 16 17 16 19 20* ~~~S F~~~ W --TS --51-6.6 15960.- --- 2 -- 214-9-4.9-- 2,33-32.?- - 356-46.0, -45-195.0 -- 3944.- 5-72-0-7.2-- 57060.--1-6-095-4.0 -59-23-5.1 5-24.35447 -5-32 2-4. 0- 51-2 3 2.0 --- 389-36.1-- 4536.6567.9674.5--s.

SErMEBE4T COWAOLM TION 26636.5 14767.2 16470.8 8573.3 66M. 5 7304.0 620.6 15421.9 1930.4 1930.4 1930.4 1930.4 1930 4 1930.4 1930.4 1930.4 1930.4 193.4 193D.4 1930.4ACICLLTUR6L FtVERC4 0.0 1149.7 662.2 1113.7 1284.6 72.53 506.9 154.6 154.5 154.8 154.5 154.5 154.5 154.5 154.5 154.5 154.5 154.5 1541.5 154.5091WC AND ST0A9E 0.0 0.0 0.0 0.0 0.0 0.0 0.0 140.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0LAND TENUR RL6IZATIGN 1061.9 2391.5 3499.7 901.6 1129.4 163.1 55.0 120.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0NATIONAl- F01ETS 351.4 30.2 1969.3 1163.0 1480.3 626.5 It114.1t 7769.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ECQlOICAL. RESED 1296.1 56.0 55.9 500.0 482.0 322.9 639.8 356.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.05SOIL REEA 0.0 653.3 0.tp 0.0 0.0 0.0 44.0 51.1I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0AM3INISTRATION 622.6 725.2 251.9 626.0 439.7 399.7 64.4 24.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0I

0%~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~CFAM/WMV#MTl4 COSS 2656.6 9163.9 566.5 3301.5 5M.0 2621.1 1620. 753. 1 539.5 655.4 1270.5 2794.2 1117.0 1102.9 1636.3 650.5 741.4 565.2 500.4 -5692.0 FAp6M/PM1C1t04 COS S 361.4 6147.6 11096.3 16097.0 20657.0 21693.9 25477.4 23346.6 23196.6 24816.6 23781.5 22747.9 22075. 4 21973.0 2172.7 14124.7 17369.9 2091.6 2357.1 225166.1 3

o TOAL. COST -33226.9 -35377.6 -41192.7 -32196.5 -39516.6 -34061.6 -33647.2 -48140.2 -25602.6 -2735.1I -27136.9 -27626.9 -25277.3 -25161.5 -25448.9 -16660.0 -20216.1 422941.6 .26162.3 -19360.1

TOTrAL MET WITfS -32710.2 -19406.4 -19697.6 -866.6 -3672.6 11113.6 20097.7 9067.0 31257.6 3359.9 32096.2 29597.4 2921 4 26062.5 25763.2 22076.1 25147.7 33731.2 33867.2 4060. 4

Rot. of r.tre * 16.2

S.itchi. .*lwes, for low6mitaeiy cost of capital * 32.0 6

FRE4T VALLES S64CH4130 VALLESPER COET

FRO.ET * QVS FAMI IBEfITS (1006) 27244. 55 -10.3

SErTLBENT CONW'.sDAT0IO -7SI63.73 37.3A09IOLTLS3A REE.RMO -3671.71 723.4llINc AND ST?R9M -56.65 49462.1LAM) TOOM REOLIAZATICI4 4743.89 415.3NATZIWAL FORSTS -7122.02 3n2.4EICU..OICAL. RESEARt -3449.74 611.9SOIL RESEAMC -561.36 4909.6NDMIUISTAATI09 -2312.07 12213.5FANMjDfvESTIeEW COSTS -23364.76 119.6FARPES/2OLITI109 COSTS -121350.96 23.1

wImTIJ FRO)ErT SALAIES 0.00 - - -

PET BALANE 2600.6

- 63 -

Annex 10Page 1 of 14

BRAZIL

NORTHWEST REGION DEVELOPMENT PROGRAM

EVALUATION OVERVIEW

I. INTRODUCTION

1. This overview of the Northwest Development Program (POLONOROESTE) isbased on the Project Completion Reports on the Northwest Agricultural Developmentand Environmental Protection Project (Loan 2060-BR) and the Northwest HighwayProject (Loan 2062-BR), as well as other studies and Bank documents. Its scopeis limited because a number of other projects, which also supported the Program,are not dealt with. These include the Northwest Health Project (Loan 2061-BR)and the Mato Grosso Rural Development Project (Loan 2116-BR), which have beenevaluated in separate Completion Reports, and the New Settlement Project (Loan2353-BR), wraich is not yet completed. There were also other sectoral loans toBrazil with components in the Region.

2. The basic purpose of the Program was to achieve the sound,sustainable economic and social development of the Northwest Region, with aparticular emphasis on its rural areas. The specific objectives of the Programand how well they were achieved, is discussed in Section II. Section IIIdiscusses the sufficiency of these objectives to meet the basic purpose of theProgram. Section IV offers broad conclusions on the impact of the Program on theRegion, and Section V outlines lessons for the future.

II. SPECIFIC OBJECTIVES

3. Before the Program was initiated in the early 1980's, there hadalready been extensive migration to the Northwest Region. Much of the resultantirncrease in population could not be absorbed in official settlement schemes andthe Region was faced with mounting socio-economic problems, uncontrolleddeforestation and serious threats to the health and culture of the Amerindianpopulation. To address these problems and to assure the sound development of theRegion, the Program had a number of specific objectives designed to increasemobility (discussed in Section A), encourage orderly land settlement andagricultural production (Section B), protect the environment (Section C), promotehealth and education (Section D) and protect the Amerindian population (SectionE). Progress in achieving these objectives was to be carefully monitored andevaluated (Section F).

A. Increased Mobility

4. More than 502 of the Program costs of about US$1.6 billion (in 1981prices) were for road construction to facilitate the movement of people into theRegion and of goods to, from and within the Region, particularly from farms to

- 64 -

Annex 10Page 2 of 14

markets. The movement of people to the Region was part of a long-standingGovernment effort to encourage migration to frontier areas to alleviate seriousunemployment and poverty in other parts of Brazil, and to settle the Amazonregion for strategic reasons.

5. The population of RondOnia, the major focus of the Program, had beenincreasing rapidly from about 110,000 to 490,000 between 1970 and 1980. evenbefore all-weather transport became available. With the paving of the Cuiaba-Porto Velho road and its completion in 1984 under the Program, one year ahead ofschedule, the average daily traffic on the road more than tripled from about 435vehicles in 1980 to over 1,400 vehicles in 1987. The road reduced transportcosts by 302 to 60? for different types of vehicles and made transport possiblethe entire year. Annual migration into Rond6nia increased rapidly from about60,000 in 19RA-1982 to more than 15,000 in 1984-1986. As a result, Rondonia'spopulation nearly tripled during the 1980's, reaching about 1.4 million in 1989.

6. The construction and improvement of feeder and access roads was fullycompleted in 1986, after some initial delays, and this part of the Program alsoachieved its main objective of giving settlers access to markets and services.However, as discussed in para. 15, some access roads were built in areas laterdetermined to be unsuitable for agriculture, a few were located too close toAmerindian reserves and therefore contributed to the problems of invasions, anddesigns did not always take adequate account of the land contours andhydrographic features ot the settlement areas.

7. The Northwest Highway Project also intended to strengthen the StateHighway Department but this component was implemented less successfully. As aresult, in 1987 the Department was maintaining less than half the roads for whichit was responsible. Moreover, by 1990 one-third of the pavement of the mainhighway was in poor condition and some short sections had reverted to a gravelsurface and was receiving emergency repairs; its maintenance was theresponsibility of the Federal Highway Department. Axle load restrictions werenot enforced and the weigh stations financed under the project have not beenoperational.

B. Land Settlement and Agriculture Production

8. The second largest component of the Program, including threeagricultural projects, and accounting for about 40? of total costs, was toencourage the settlement of farmers in areas where sustained agriculturalproducticn was possible and to increase agricultural productivity. In the firstof these three projects, the Agricultural Development and EnvironmentalProtection Project (Loan 2060-BR), which accounted for about 13? of total Programcosts, the emphasis was on the consolidation of existing settlements in an areawith the best soils in RondOnia, although soil surveys were included to preparefor expansion of settlements to other areas under another project. The strategywas to promote a move from shifting cultivation of annual crops to the productionof environmentally more suitable and economically more profitable perennial treecrops. At the same time, settlement in unsuitable areas and in those which hadnot yet been bufficiently studied, was to be discouraged, and an excessiveconcentration of land ownership was to be prevented. The following observations

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refer exclusively to the results of Loan 2060-BR.

9. It is now estimated that the Agricultural Development andEnvironmental Protection Project provided individual extension services at farmlevel to about 11,330 farm families, compared to 18,200 expected at appraisal.The decrease is explained by a slower expansion of extension services, especiallyin the early years (para. 10), the limited availability of credit (para. 12), thereduction in rural centers (para. 30), and a gradual change in the strategy ofthe extension siarvice from individual to group assistance techniques. As aresult of the latter, about 3,300 additional farmers were contacted under a groupassistance scheme, bringing the total of assisted farmers to about 14,360, orabout SOZ of the original target. Also, training courses on specific subjects,such as perennial crop planting, were offered to 13,500 farmers. The incrementalarea cultivated of about 72,400 ha. is almost the same as expected at appraisal.As a result, the average farmer increased the area cropped by 6.5 ha., insteadof 4 ha. estimated in the SAR.

10. Most extension staff received pre-service training, but only 84participated in specialized in-service courses; this was considerably lower thanthe original target of 155. The extension service operated under difficultconditions, 3uch as insufficient operating funds, lack of farm credit and limitedexperience of most agents with the climate and agronomic conditions of theproject area. Nevertheless, it provided valuable advice on crop diversificationand rotation, efforts to retain forest reserves at the farm level, developingcommunity organizations, simplified storage and processing methods, etc. Theseactivities are only now beginning to take hold among settlers but should yieldimportant wider agricultural and environmental benefits in the future.

11. The value of the annual incremental production under the project wasinitially estimated at US$144 million at full development but is now expected toreach only $71 million. The major reasons are the sharp declines of prices forcoffee and cocoa, serious shortages of agricultural credit until the last 3 yearsof the Program, and lower yields for most commodities, reflecting primarily lessintensive use of fertilizer and other inputs. For similar reasons, incrementalemployment generation, which had been estimated in the SAR at the equivalent ofabout 20,700 labor-years, is now expected to reach only 14,800 labor-years.

12. Funds for on-farm credit were not included in the Project becauseinterest rates were highly subsidized, but the Government had given assurancesin the Loan Agreement that adequate credit would be available from existingsources. However, virtually no credit was made available to the projectbeneficiaries because of Brazil's tight financial situation. This interferedparticularly with the production of perennial crops for which farmers must waitseveral years before receiving any income, To alleviate the credit restraint,a new program of credit-in-kind was initiated, beginning with the 1985/6 cropyear, providing seedlings primarily for coffee and rubber, and seeds for beans,corn and rice. The credit was essential for the rapid expansion of the area forcoffee and bean cultivation.

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Annex 10Page 4 of 14

13. The incomes of the beneficiaries did not rise as much as had beenestimated. At appraisal, the average annual income of participating farmfamilies was expected to increase from about US$850 to US$11,900, but it is nowestimated that incomes will average only about US$6,600, which is still asubstantial increase. The financial rates of return are as high as anticipatedand the economic rate of return, while somewhat lower, is still a satisfactory16X. Lower prices and yields have been offset at least in part by greaterproduction of some crops and lower expenditures for on-farm investments andinputs. For the Program as a whole (including the roads), the economic rate ofreturn is also estimated at 162 compared to a SAR estimate of over 50Z, withlower cost more than offset by lower agricultural production. While the methodof re-calculating the economic rate of return is comparable to that in the SAR,its significance is limited by the fact that it does not allow for importantexternal costs (e.g., deforestation) and benefits (institution-building) whichcannot be quantified. It should also be emphasized that the relatively good rateof return was possible only because this particular project was located in thebest soils of central Rond6nia; similar results could not be obtained in other,agronomically more marginal, parts of the POLONOROESTE Program area.

14. The Program improved the pattern of land ownership. Titles to landwere provided to nearly 19,800 farmers occupying about 2.2 million ha. Whilethis is more than the number of direct project beneficiaries, it is only onethird of the 60,000 farm families in the settlement schemes, all of which wereto receive title under the Project. However, as a result of the project, theproportion of farm owners, in RondOnia, increased from 402 to 57? of all farmestablishments between 1980 and 1985 while the proportion of squatters declinedfrom 512 to 28Z.

15. The project also financed soil surveys north of the project area inpreparation for possible new settlements under another POLONOROESTE project.Because of the high immigration, the Government and the Bank agreed to startsettlement under Loan 2353-BR (New Settlements Project) before the surveys werecompleted. Unfortunately, much of the area proved to have poor soil and beforenew settlement could be prevented, three settlement schemes with rural servicecenters and feeder roads had already been constructed in areas where agriculturalproduction was not sustainable.

16. The number of cattle in the project area increased rapidly from126,000 in 1981 to 783,000 in 1988. However, the growth of the cattle herd inthe project area slowed down during the second half of that period as the mixedfarming model promoted by the project and emphasizing perennial crops, took hold,while the increase accelerated outside the project area. For the most part,livestock in the project area serves as a complement to the farm activities ofsmall farmers, supplementing their income and reducing their risks. It does nothave the damaging impact of extensive ranching involving major deforestation,land speculation and absentee ownership. as occurred elsewhere in other frontierareas of Brazil.

17. The performance of agricultural production in the project area hasbeen good so far in that farmers who received technical assistance and who hadsavings or were able to obtain credit, introduced perennial crops and developed

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Annex 10Page 5 of 14

sustainable production systems. But many were not able to make this transitionand therefore continued shifting cultivation and deforestation. The long-termviability of the agricultural development of sensitive frontier lands will dependon institutional, financial and technical factors. The agricultural institutionswhich the project helped develop, though still weak, can be sustained with theadditional resources which have become available from marketing and export taxes.For individual farmers, financial sustainability is only possible on the basisof intercropping of perennial crops and agro-forestry.

18. An important limitation of the settlement consolidation component isthat its size was insufficient to meet the needs of the project area. It plannedfor the assistance to 18,200 settler families involving some 87,000 people,during a period when Rond6nia's population increased by more than a million.Such growth imposed demands on land, infrastructure and institutions far beyondthe scope of the Project.

C. Environmental Protection

19. A third major objective of the Program was to protect the environmentby strengthening the capability to control deforestation; studying the promotionof sustainable forestry operations in suitable areas; establishing naturalreserves end ecological stations for biodiversity preservation; and undertakingecological research. The Northwest Agricultural Development and EnvironmentalProtection Project was intended to address the environmental issues for theentire Program.

20. These activities were estimated to cost about US$21 million (in 1981prices), accounting for about 1.4Z of total Program costs. The Bank supportedproject originally allocated US$15.8 million for environmental protection but theamount was increased to US$36.7 million in the later years of the project.

21. Deforestation in Rondonia had accelerated rapidly in the late 1970's.By 1975, about O.5Z of the forest was cleared, by 1980 it was more than 3Z, by1983 nearly 6Z and by 1988 the estimates ranged between 132 and 24Z according todifferent sources. Most of the deforestation was the result of clearing alongthe main highway and feeder roads. The number of registered logging operationsin RondOnia increased from 400 in 1982 to 1,150 in 1987, and the volume ofprocessed lumber from 1.4 to 4.2 million m3. Such rapid deforestation had, infact, been encouraged by the government's broad policies to develop the Amazonregion, including road construction, colonization schemes, fiscal incentives andsubsidized credit, which created high, though short-lived, private profits atsubstantial public costs.

22. To address this problem, two national forests were established butthe plans for their protection and development were not implemented because oflack of funds and staff. While the number of forestry control posts constructedexceeded the original program, their effectiveness was very limited because theresponsible Federal agency, Brazilian Eorestry Development Institute (IBDF), wasweak and had insufficient resources, the large migration to Rondonia and therapid development of local wood industries. As a result, deforestation wentvirtually unchecked for much of the project period. In recent years, a series

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Annex 10Page 6 of 14

of corrective measures were taken to improve forestry control, including highertaxes on forest exploration, greater fines on illegal exploration, theestablishment of a Forestry Military Police to strengthen enforcement and of aState Forest Institute to provide forest extension services, and an EmeirgencyProgram was initiated to control deforestation and burning. These efforts havebegun to reduce the rate of deforestation and burning, according to theresponsible government agencies, and have laid the basis for possibleimprovements in the future.

23. The project did not plan for public reforestation, but relied insteadon a strategy of smallholder intercropping of perennial crops and agro-forestrydevelopment on private lots. Of the two planned seedling stations to promoteperennial tree crops and forestry development, only one was completed, and creditconstraints limited the number of settlers who could implement such farmingsystems (paras. 12, 17). Little is known about the distribution, utilization andsurvival of forest seedlings produced, but they evidently had no significantimpact on counteracting deforestation.

24. Several Biological Reserves were established and the National Parkof Pacaas Novos was strengthened under the project. Because of a shortage ofresources of the responsible agencies, maintenance of the reserves is precariousand policing is inadequate to prevent frequent invasions by settlers, loggers andminers. Four ecological stations were built and equipped and a State EnvironmentAgency (SEMARO) was established in 1986 to control pollution and initiateenvironmental education. Only 55Z of the funds for ecological stations werespent because of institutional weaknesses and lack of counterpart funds.

25. The project included US$7 million for ecological research, but onlyUS$4 million were spent. About 20 research projects were undertaken, involving179 researchers from major Brazilian institutiuns, and more than 200 scientificpapers were published. While much of the work reflected very good diagnosticcapabilities of the researchers, a lack of policy 2ocus and direct connectionwith project implementation greatly reduced its impact on project results. Theimplementation of the environmental protection component was weak and longdelayed. However, as awareness of the seriousness of the problems and thecommitment to address them grew, the funds for environmental protection were morethan doubled, as indicated in para. 20.

26. The most serious difficulty in achieving the environmental objectiveswas the institutional weaknesses of the two key agencies - IBDF and the SpecialNational Secretariat for the Environment (SEMA). Staffing with appropriatepersonnel was exceedingly difficult with low salaries, reduced even further bydelays in payments during periods of high inflation. As a result, most IBDFemployees in RondOnia resigned at different times during project implementation,so that many accomplishments were threatened or even wiped out. Behind thesedifficulties were not only the serious budgetary problems of the Government, butan ambiguous commitment to the environmental objecttves. However, the lack ofeffectiveness of IBDF led to the creation of a State rerestry Institute in 1987,which opened local offices in many parts of the project area. It has establisheda permit procedure for clearing and burning forests which, if pursuedconsistently, would provide a valuable instrument for controlling forest

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Annex 10Page 7 of 14

destruction, but its present effectiveness cannot yet be evaluated since thenecessary data are not being collected.

27. The project did not anticipate adequately the very large increase inmigration and the massive impact this would inevitably have on the environment.As a result, the scope of environmental measures was too small to meet the scaleof environmental problems resulting form the rapid increase in population. Onthe other hand, the project has laid the institutional and research basis whichwould permit in the future a greatly expanded effort if supported by thenecessary political commitment. But given the serious financial constraints ofthe State and Federal Governments, the long-run sustainability of this effortremains uncertain.

D. Social Infrastructure and Urban Development'

28. The Agricultural Development and Environmental Protection Projectincluded US$5.2 million for education. The number of school places was too beincreased from 27,000 to 67,000. In addition, 1,900 new teachers were to beemployed and 840 teachers were to be trained. The project as implementedincreased the number of school places by 24,300, instead of 40,000, ard only 470new teachers were employed. The quality of education was generally low. Thetraining of teachers and the provision of text-books and teaching aids wasdeficient primarily because of a shortage of funds.

29. The project also included funds for 39 service centers (NUAR) toprovide support to groups of farms, including public water systems, electricitysupply, schools, administrative offices, health posts, crop drying and storageunits, etc. These NUARs were seen as the forerunners of future towns, under astrategy to encourage a more even development of urban areas in Rond6nia andavoid overcongestion of Porto Velho and the other main cities. The number ofNUARs was later reduced to 20, mostly in areas where existing small towns werealready developing rapidly, and in a few cases because settlement was progressingtoo slowly to justify construction of a center. Most of the NUARs have sincedeveloped into towns and several into the capitals of new municipalities.

E. Protection of Amerindian Population

30. The Program recognized that the rapid development of the Region wouldplace increasing pressures on the local Amerindian communities. In particular,there would be increased competition for land traditionally held by Amerindians,they would be exposed to contagious diseases and their culture would bethreatened. The SAR regarded this as a critical issue "to be addressed andsatisfactorily resolved prior to the further implementation of the proposedNorthwest Program" (Annex 8, para. 11). The Federal Government agreed toimplement a Special Project to protect Amerindians, involving land demarcation

1 Two of the POLONOROESTE projects-not dealt with in this assessment (para.1) also had social infrastructure components, and the third was a freestandinghealth project for the Program area. The results of these more significantsocial investments are not dealt with in this analysis.

Annex 10Page 8 of 14

and regularization, health and education services and economic development. Thecosts of this project (US$26.1 million) were not included in the costs of theAgricultural Development and Environmental Protection Project, because theGovernment did not wish the Bank to participate in its financing, but itsimplementation was a condition in the Loan Agreement.

31. Protection of indigenous lands was the cornerstone of the SpecialProject. At appraisal, the Special Project sought to demarcate 3,900 kms ofAmerindian reserve boundaries covering a total of 3.1 million ha. During projectimplementation, additional areas were identified and the Government extendeddemarcation activities to these new areas. As a result some 9,300 kms ofAmerindian reserves were actually demarcated, covering about 9.0 million ha ofreserves. The share of the Amerindian population living in demarcated reservesin the POLONOROESTE Program area increased from only about 18? in 1980 to 852 in1989. However, in January 1990, the Government revoked the earlier demarcationof one of the largest Amerindian areas and the total Amerindian population livingin demarcated areas is now about 7,500 Indians or 78? of the total.

32. The project greatly accelerated the pace of demarcation, especiallyafter the Banlc suspended disbursements in 1985 because of insufficient progress.More land was demarcated after 1985 than in the entire history of Brazil beforethen. However the protection of the Reserves against illegal logging, mining andsquatters has been difficult given the size of the area, the profitability ofthese operations and the political support they receive, the collusion of loggersand miners with Indian leaders, and the limited capacity of the Government tofully enforce the law against exploitation. There are no accurate data on theextent of such invasions, but they are frequent and involve perhaps 5? of theIndian lands.

33. To strengthen the health services for the Amerindians, 38 infirmariesand health posts and 51 wells were built, also exceeding original targets, andhealth professionals and workers were recruited. However, living conditions forthe staff were poor, many had little training, the turnover was high, medicalsupplies were frequently not available and equipment was not maintained, so thatlocal medical services became increasingly limited. In time, they became focusedon a few cenx 1 facilities at regional headquarters, but there, too, the qualityof medical c._ declined due to lack of trained personnel, facilities andmedicine. The level of diseases such as tuberculosis, malaria, measles,influenza and intestinal parasites among the Indians is very high. Acculturativeinfluences such as the introduction of powdered milk, and environmental pressuressuch as deforestation and the consequent reduction of wild game, have adverselyaffected their diet and nutrition. Nevertheless by the late 1980's, the highmortality rate during the initial contact period had been reduced and thebirthrate and the population were increasing.

34. Thirty-two schools were built on the Reserves but the teachers hadinadequate training and inappropriate textbooks, and the poor living conditionsdrove them away. By 1988, virtually- the only schools on the Reserves wereoperated by missionaries.

37. To encourage development, the project provided equipment and supplies for

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Annex 10Page 9 of 14

large communal gardens. A few of these were planted and some flour and bananaswere sold but in general the Indians refused to work communally, output was low,the equipment was not used and most gardens were abandoned after a short time.A number of trading posts were established but almost all of them closed downquickly since the Indians had no commercial experience.

F. Monitoring and Evaluation

35. Given the great uncertainties surrounding the project, major emphasiswas placed on establishing a monitoring and evaluation system which would providetimely information on the implementation and impact of the project, and thuspermit prompt corrective action. Because of conflicts between the responsibleconsultant FIPE (The Institute for Economic Research of the University of SaoPaulo) and the Program management, monitoring and evaluation did not play theimportant role envisaged, though it was crucial in calling attention to thegravity of the tnerindian protection problem and environmental and health risks.The use of external consultants for monitoring and evaluation was effectivelysuspended in 1987, in favor of the monitoring system developed by POLONOROESTE'sown staff. Information on the result of the project is still quite limited,reflecting more the emphasis of the system on compliance with physical andfinancial targets than on basic project impact.

III. SUFFICIENCY OF OBJECTIVES

36. Even if the four major objectives of the Program had been achieved,this would not have been sufficient to assure the sound development of theNorthwest Region because two important problem areas were not addressed - miningand urban development.

A. Mining

37. The improvements in transport accelerated the development of miningin RondOnia, where between 100,000 and 200,000 people are estimated to beinvolved in gold and casserite prospecting. Casserite shipments are estimatedat 48,000 tons in 1989 with a market value of nearly US$200 million. The valueof gold mined is not known but some researchers place it as high as US$l billionper year.

38. The potential value of mining activities and the extent to which theywould develop over the project period were not foreseen by the Bank and theGovernment at the appraisal stage, and hence adequate regulation and enforcementmechanisms were not built into the design of the POLONOROESTE Program. Mininghas led to serious environmental degradation, especially water pollution anddeforestation. Placer mining and river dredges have contaminated the rivers withlarge amounts of mercury and discarded crankcase oil. SEMARO, which wassupported with Bank funds, has initiated efforts to control pollution and provideenvironmental education, but it is st.ill too weak for adequate inspection andenforcement.

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Annex 10Page 10 of 14

B. Urban Development

39. The Program also underestimated what would be an extremely rapid rateof urbanization of RondOnia, because of incorrect assumptions about the likelypace of migration to the State. The urban population had already increasedrapidly between 1970 and 1980 from about 60,000 to nearly 230,000 and has sincegrown to about 700,000. The mining operations require extensive commercial andservice activities for support and have contributed to rapid urbanization, sothat by 1990 about 45 percent of the population of RondOnia lived in urban areas.The NUAR construction program (para. 30), while helpful, did not provide anadequate response. Many of the other new towns and the largest cities inRondOnia lack adequate infrastructure, such as water supply and sewage disposal,essential public services, including public health, and urban housing conditionsare frequently poor. Industrial pollution from saw mills and the processing ofraw materials is growing and the official control of these activities isinadequate.

IV. CONCLUSIONS

A. The Impact of the Program

40. As emphasized before (para. 1), this is only a limited assessment ofthe Program since several projects in its support are not covered. Moreover,some important up-to-date information, such as the distribution of landownership, is not available. Subject to these limitations, it would appear thatin most respects, the Program did not achieve the sound economic and socialdevelopment of the Region. But by establishing and strengthening institutionsand initiating important research, it laid the basis for expanded efforts in taefuture provided a strong political commitment is backed with adequate resourcesof staff and fends. Specificallyt

(a) The effort to consolidate land settlement and agriculturalproduction in central Rondonia was too small to make a sufficientimpact on the needs of that area. While agricultural production hasincreased considerably, the long-term viability of this agriculturaldevelopment is still in question because of series of institutional,technical and financial constraints. The sustainability ofagriculture in other, agronomically less suitable frontier lands inthe Program area is unlikely under existing economic andtechnological conditions.

(b) Environmental conditions in the area have continued to deteriorate.Deforestation has beeu rapid and agro-forestry efforts have not beenimplemented on a significant scale. Mining has led to extensivewater and soil pollution. Biological reserves were established butthey suffer from frequent. invasions by settlers, loggers and miners.Four ecological stations were established but their effectiveness as:ssearch stations has been weakened because of insufficientfinancial support and many of the results were not effectivelyutilized. A State Environment Agency, State Forestr) Institute,

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Annex 10Page 11 of 14

State Land Institute, and Forestry Military Police have beenestablished and which is an important accomplishmeutt in spite oftheir operational limitations.

(c) The education system was expanded and is helping to meet demand, butthe quality of teaching is not adequate.

(d) The lands and culture of the Amerindian population continue to bethreatened by the rapid development of the Region. Most of theIndian reserves have been demarcated, but protecting the reservesagainst illegal invasions has been difficult. Health andeducational services have had only a limited impact, though thepopulation is now increasing. The effort to initiate economicdevelopment did not succeed. The SAR had recognized this as animportant risk but beli$ved it could be minimized by a strongGovernment commitment, a strengthening of the responsible agency(FUNAI) and careful monitoring.

41. It seems likely that without the Program, migration into the Regionwould have been less or spread over a longer period of time, depending on theGovernment's ability to complete the road (BR-364) without Bank assistance. butthat agricultural settlements would have been less orderly and productive andthat protection of the environment and the Amerindians would have beensubstantially weaker.

B. Reasons for Shortcomingts

42. There are a number of reasons for the shortcomings of the Programs

(a) The Government of Brazil was strongly committed to opening up thefrontier area to migration, but it gave less priority to the othercomponents of the Program, especially the protection of theenvironment and the Amerindians. As a result, bhe major highway toRondOnia was completed ahead of schedule while effective demarcationof Indian reserves started on a significant scale only after theBank informally suspended disbursements in 1985, and implementationof the environmental protection component was weak until the lastyears of the project period.

(b) The economic and financial situation of Brazil was extremelydifficult during the period, so that budgets were very limited andby the time funds were received, their value had been furtherreducad by rapid inflation. The Bank tried to help meet thisproblem by increasing disbursements under the Special ActionProgram, but a shortage of funds remained porvasive.

(c) The key institutions responsible for the environment were weak as aresult of serious managemeat, staffing and budgetary problems. TheProject had recognized this as a major risk, but improvinginstitutions, especially those operating in frontier conditions, isdifficult and takes a long time. The implementation schedule for

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Annex 10Page 12 of 14

the Program was not realistic. However, the Program has created orstrengthened key institutions in Rond8nia, such as those dealingwith agricultural research and extension, forestry protection andthe environment, which will be important for future development.

(d) The volume of immigration into the Region had not been foreseen. Asa result the scale of the Progran was too small to deal with theimpact of such massive migration. Related to this was the failureto address adequately the problems of mining and urban development.

(e) The phasing of the implementation of different components underminedorderly development. In particular, the early completion of themain highway accelerated migration before the institutions andpolicies were in place to assure proper agricultural settlement andprotection of the environment and the Amerindians. Similarly,physical infrastructure such as NUAR's, schools, health posts andforest control posts could not be utilized properly because ofinadequate staff and operating funds.

(f) The arrangements for monitoring and evaluation did not workadequately. Since the Program was inherently experimental andrisky, monitoring was particularly important to warn the responsibleagencies promptly of problems in implementation.

V. MAJOR LESSONS

43. The implementation of the Program offers a number of importantgeneral lessons, in addition to the more specific lessons discussed in the PCRs.

A. Strategy for Frontier Development

44. The Program was based on the Government's strategy of alleviatingserious unemployment and poverty, particular in the southern parts of Brazil, byencouraging migration to frontier areas. The Bank does not seem to havequestioned that strategy but tried to channel its implementation toward soundeconomic and environmental development. Given the fragility of these areas, thelimited opportunities they offer for sustainable employment, and the potentialfor great harm to the environment from their development, such a strategy needsto be carefully weighed against other policies to improve employmentopportunities and living standards in Brazil.

B. Government Commitment

45. Government commitment to the objectives el a program is alwaysImportant, but it becomes crucial when the political and economic risks areunusually high, the institutional basis weak and the Government is faced withserious financial difficulties. The SAR recognized the importance of this butthe Government's strong commitment to the construction of the road, on the onehand, and the lower priority given to the protection of the environment and theAmerindians, on the other, was not fully appreciated.

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Annex 10Page 13 of 14

C. Proiect Preparation and Monitoring

46. The Project was based on extensive preparation efforts including acomprehensive, multidisciplinary study of the Region, but in retrospect they werenot sufficient. The knowledge of soil conditions, of appropriate production andconservation techniques, of methods to protect forests, of mining activities,etc. was incomplete. Moreover, preparatien did not address macro-economicpolicies, such as fiscal inrentives and subsidized credit, which wereinconsistent with the objectives of the Program by encouraging unsustainablelivestock development and deforestation.

47. The SAR recognized the risk of incomplete knowledge, though not theextent of it. There is, however, a trade-off between more preparation, involvingcosts and time and still inevitably not resolving all uncertainties, and startinga project with more limited knowledge, and recognizing that it is an experimentwhich needs to be carefully monitored and adjusted as the lessons of experienceare being learned. This choice was particularly difficult in this Program sincethe migration to the frontier was already in full swing. Unfortunately, therisks from insuEficient preparation were often not adequately met by promptmodifications in implementation.

D. Integration and Phasing of Program Components

48. The various components of the Program are interrelated so thatsuccessful implementation of some depend on adequate progress with others. Thiswas not always the case. The early completion of the road encouraged migrationbefore there was sufficient knowledge about soil conditions for farming, and manyenvironmental actions were not initiated until considerable damage had alreadybeen done. Such integration of activities, for which different agencies withdifferent degrees of administrative competence are responsible, is inherentlydifficult but the SAR did not address its importance in achieving the sounddevelopment of the Region.

49. A related problem concerning phasing arose from the fact that whilemost of the infrastructure financed under the Program was built and the neededinstitutions were established, their effective operation turneid out to be muchmore difficult than had been anticipated. The road was bu..lt, but has beenpoorly maintained; forest reserves were established, but plans for theirprotection were not implemented: schools were built but the quality ofinstruction is inadequate. It is much easier to hire contractors forconstruction or enact legislation to establish a new agency than to assure theavailability of sound management, qualified staff and adequate financialresources. This problem is not unique to the particular projects beingevaluated, but it raises important issues about unrealistic goals andexpectations, reflected in unrealistic implementation plans. These issues areparticularly relevant in this Program because of the very difficult physicalenvironment in which it was being implemented ant the need to establish newinstitutions or rapidly expand old one8, at a time of serious shortages of staffand financial resources.

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Annex 10Page 14 of 14

E. Role of the Bank

50. The Bank played a valuable role in promoting orderly settlement,strengthening the protection of the environment and of Amerindians and inencouraging necessary modifications during implementation. On the other hand,by financing the road, it helped to accelerate migration to the Region before theinstitutions were ready to handle the rapid increase in population. Nor does theBank seem to have questioned the basic strategy for development of the AmazonBasin and the financial policies which in effect subsidized uneconomic forestexploitation and were, therefore, inconsistent with the Program objectives. TheBank did not appreciate that the scope of the Program was insufficient to addressthe range and size of the problems which the Region faced.

51. The Project raises an important issue about the Bank's supervisionfunction. Supervision has two purposes - to inform the Bank about progress inproject implementation, including compliance with loan conditions, and to providetechnical assistance to the implementing agencies. For most projects thesefunctions can be carried out by two or three field missions per year. However,in a project of this size and complexity and with such major risks, the Bank maywant to consider the desirability of stationing its own staff in the projectarea, especially during crucial periods of implementation. It would provide theBank with more up-to-date information on progress and greater opportunities fortechnical assistance. But it runs the risk that the Bank would interfere, orcould be seen to interfere, with the Government's exclusive responsibility forproject implementation auid thus even weaken the responsible agencies. If thatrisk can be minimized, the full-time stationing of staff in the area deservescareful consideration in projects of this type. This was in fact done for theRoad Project but not for the Agriculture and Environment Project.

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