Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 11235-Ho

STAFF APPRAISAL REPORT

REPUBLIC OF HONDURAS

NUTRITION AND HEALTH PROJECT

DECEMBER 14, 1992

Human Resources Operations DivisionCountry Department IILatin America and the Caribbean Regional Office

This docunient 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 EOUIVALENT UNITS

T1q$l = 5.4 Honduras Lempiras (L)SDR 1.0 = US$1.4045 (October 1992)

WEIGHTS AND MEASURES

1 Metric Ton (mt) = 1,000 kg1 Kilometer (km) = 1,000 m

GLOSSARY OF ACRONYMS

AIDS Acquired Immunodeficiency SyndromeBFLH Breast-feeding League of HondurasBMI Maternal Child Coupon Program (Bono Materno Infantil)BMJF Women Head of Household Coupon Program (Bono Mujer Jefe de

Familia)CACM Central American Common Market (Mercado Comun Centroamericano)CARE Cooperative for American Relief Everywhere (NGO)

CBH Central Bank of HondurasCESAR Rural Health Center (Centro de Salud Rural)

CESAMO Health Center with Physician (Centro de Salud con Medico)CONAMA National Environmental Commission (Comision Nacional del

Medioambiente)EEC European Economic Community

ESAC Energy Sector Adjustment CreditFHIS Honduran Social Investment Fund (Fondo Hondurelo de Inversidn

Social, also "SIF")FHIS-I First Honduran Social Investment Fund Project

FHIS-II Second Honduran Social Investment Fund ProjectGDP Gross Domestic ProductGNP Gross National ProductGOH Government of HondurasGPA Global Program on AIDSGPO General Procurement Office (Proveedurfa General de la Republica)

HIV Human Immunodeficiency Retroviruses

ICB International Competitive BiddingIDA International Development AssociationIDB Inter-American Development Bank

IHSS Honduran Institute of Social Security (Instituto Hondurelo de

Seguridad Social)

JNBS National Social Welfare Board (Junta Nacional de Bienestar Social)JUNTA Local Water and Sanitation Board (Junta Administradora de Agua)

LCB Local Competitive BiddingLSMS Living Standards Measurement Survey

MOE Ministry of Education

MOF Ministry of FinanceMOH Ministry of Public HealthNGO Non-Governmental OrganizationNLO NGO Liaison OfficePAC Supplementary Food for Women and Children (Programa de

Alimentacidn Complementaria)PAHO Pan-American Health Organization

PHC Primary Health CarePRAF Family Assistance Program (Programa de Asignaci6n Familiar, also

"FAP )PRONASSA National Health Services Program

SAC Structural Adjustment CreditSAL Structural Adjustment Loan

SANAA National Water and Sewerage Service Company (Servicio AutonomoNacional de Acueductos y Alcantarillados)

SECPLAN National Planning SecretariatSCES Social Cabinet Executive SecretariatSDR Special Drawing RightsSOE Statement of ExpenditureSTD Sexually Transmitted DiseaseUN United Nations

UNDP United Nations Development Programme

UNICAP UNICEF Procurement and Assembly CenterUNICEF United Nations International Children's Emergency FundUSAID U.S. Agency for International Development

WFP World Food ProgramWHO World Health Organization

FISCAL YEAR

January I - December 31

FOR OMCIAL USE ONLY

HONDIURAS

NUTRITION AND H8ALTH PROJECT

STAFF APPRAISAL R8PORT

Table of Contents

CREDIT AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . . . . .iii

BASIC DATA SHEET ... . . . . . . . . . . . . . . . . . . . . . . . . . vii

I. THE ECONOMIC REFORM PROGRAM AND POVERTY ALLEVIATION . . . . . . . . . 1A. The Economic Reform Program .1B. Poverty in Honduras . . . . . . . . . . . . . . . . . . . . . 2C. Government Strategy. 4D. Bank and IDA Support .5E. IDA Lending Strategy for the Social Sector . . . . . . . . . 6F. Lessons Learned From Past Experience . . . . . . . . . . . . 7G. Rationale for IDA Involvement. 9

II. THE NUTRITION AND HEALTH SECTORS .. 9A. Nutrition Overview and Issues . . . . . . . . . . . . . . . . 9B. Overview of the Health Sector and Issues . . . . . . . . . . 13C. Sector Objectives and Strategy . . . . . . . . . . . . . . . 20

III. LESSONS FROM THE PRAF PILOT FOOD COUPON PROGRAMS . . . . . . . . . 23A. Overview of the Programs .23B. Evaluation Findings and Lessons Learned . . . . . . . . . . . 25

IV. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27A. Origin of the Project .27E. Objectives .27C. Description .28D. Lending Arrangements and Implementation . . . . . . . . . . . 36E. Costs and Financing Plan .38F. Procurement .41G. Supervision and Reporting .44H. Disbursements .45I. Documentation of Expenditures . . . . . . . . . . . . . . . . 45J. Accounts and Audits . . . . . . . . . . . . . . . . . . . . . 46K. Annual Project Implementation Reviews . . . . . . . . . . . . 47

This report is based on the recommendations of an evaluation study of PRAFfood coupons program undertaken in November 1991 (Report No. 10488-HO) and onthe findings of an appraisal mission, which visited Honduras in July 1992.The mission was composed of Messrs./Mes. A.M. Sant'Anna, Task Manager, E. deGaiffier A. (LA2HR), R. Bitran, A. Cajina, R. Jarquin, M.A. Roschke and F. Vio(CONS). Messrs./Mmes. Arriagada, de St. Antoine, Dorkin, and Nguyencontributed to the report at headquarters. Messrs. Rainer B. Steckhan (LA2DR)and Kye Woo Lee (LA2HR) are the Department Director and Division Chief,respectively, for this operation and Messrs./Mfes. F. Mardones, P. Musgroveand A. Dianderas (LATHR) are the Peer Revievers.

This document his a restricted distribution and may be used by recipients only in the performanceof their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

V. BPNBFITS AND RISKS . . . . . . . . . . . . . . . . . . . . 48A. Benefits .......... 48B. Risks . . . . . . . . . . . . . . . . . . . . . . .48

VI. AGRBDKUTS REACHED AND RCONATIXOU. .. . . . . . . . .49A. Agreements Reached ................ 49B. Recommendation . . . . . . . . . . . . . . . . . .52

1. Project Costs2. Financing Plan3. Disbursement Schedule4. Project Area5. Regional Organization of the Ministry of Health6. Project Performanc Indicators7. Annual Project Implementation Reviews8. Impact of the PRAF Food Coupon Progrm_9. Improvements in the PRAF Food Coupon Program to be Implemented Under

the Project10. PRAF Food Coupon Programs: Targeting Criteria and Expansion Plan11. PRAF Organizational Chart12. Nutrition Education13. Primary Health Care Centers14. Human Resources Development of the NM15. Basic Drugs for the Primary Helth Care Network16. Environmental Health17. Terms of Reference for Studies18. Nutrition and Health Sector Policy Letter19. Draft Outline of PRAF Operational Manual20. Draft Outline of Water Supply and Sanitation Operational Manual21. Selected Documents and Data Available in the Project File

MAP: IBRD No. 24083

HONDURAS

NUTRITION AND HEALTH PROJECT

STAFF APPRAISAL REPORT

CREDIT AND PROJECT SUMMARY

Borrower: The Republic of Honduras

Executina AQencies: The Ministry of Public Health (MOH)The Family Assistance Program (PRAF)Social Cabinet Executive Secretariat (SCES)

Beneficiaries: Targeted poor groups in rural and urban marginal areas,particularly mothers and children under eight years ofage, in the 13 departments with the highestmalnutrition rates

Amount: SDR17.8 million (US$25.0 million equivalent)

Terms: Standard IDA terms with 40 years maturity, including 10years of grace

Proiect Obiectives: The proposed project would help achieve the followingobjectives: (a) protect groups particularly vulnerableto the economic adjustment process by channelingnutrition assistance to improve the nutrition status ofchildren and pregnant and nursing women among thepoorest segments of the population; (b) support thedevelopment and implementation of a longer-termnutrition 4ssistance strategy for Honduras; (c) reducematernal, child, and infant mortality and morbidityrates by improving access to basic health services andsafe water supply and sanitation, by improving thequality of services provided by the MOH, and bysupporting health, nutrition, and family planningeducation activities; (d) strengthen the institutionalcapacity of the MOH, the PRAF and the SCES for sectorplanning, program formulation, monitoring, andevaluation, and improve efficiency in the procurementof drugs; and (e) control the spread of AIDS.

Proiect Description: The project would provide for: (a) Expanding nutritionassistance and develoning a lonQer-term nutritionuolicv (US$32.2 million equivalent to 591 of totalproject cost) through: (i) formulation andimplementation of a longer-term nutrition policy(0.21); (ii) expansion of the PRAF food coupon programsto about 255,000 poor, pregnant and nursing women,children under five, and primary school children in the13 departments with the highest malnutrition rates(551); (iii) technical assistance to strengthen PRAF'sinstitutional capacity to administer the program in the

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project area (21); (iv) nutrition education for healthstaff, community workers and mothers focusing onbreast-feeding, weaning and early childhood feedingpractices (2%); and (v) annual nutrition censuses atpublic primary schools (1U); (b) Strenathenina thedelivery of basic health services (US$16.7 millionequivalent to 281 of total project cost) including:(i) rehabilitation of about 130 health care centers andconstruction of an estimated 30 additional healthcenters in priority rural areas where services arecurrently not available (71); (ii) improvement of MOHinstitutional capacity through additional staff, stafftraining, and supervision and institutional support tothe project unit of the MOH (61); (iii) basic drugs forthe primary health care network and technicalassistance to improve the efficiency of pharmaceuticalprocurement (131); and (iv) support of the formulationand implementation of a medium-term national AIDScontrol program (41); (c) Improving environmentalhealth (US$4.1 million equivalent to 71 of totalproject cost) through: (i) provision of rural watersupply and sanitation supported by communityparticipation, benefitting about 60,000 people in poorunderserved communities in four departments (7.91); and(ii) a medical waste disposal training program (0.11);and (d) Monitoring. evaluation and auditing (US$1.2million equivalent to 21 of total project cost)including institutional strengthening of the SCES.

Benefits: The main benefits of the project would be to: (i)prevent a deterioration in the nutritional status ofthe population most at risk to the impact of theeconomic adjustment program, through the distributionof food coupons; (ii) support longer-term nutrition andhealth sector policy formulation and implementation;(iii) reduce maternal, child and infant mortality andmorbidity rates by improving access to basic healthservices and safe water supplies and sanitation; (iv)increase the coverage and efficiency of primaryeducation through increased enrollment and lowerrepetition and dropout rates; (v) improve poorchildren's capacity to learn through better nutritionand greater school attendance; (vi) strengthen theinstitutional capacity of the MOH, SCES and PRAF; and(vii) help curtail the spread of AIDS.

Risks: The main risks associated with the project are: (i)management constraints affecting PRAF's operationalcapacity to administer expanded food coupon programs,and to adjust them to the Government's longer-termnutrition policy; the project would reduce this riskthrough institutional strengthening of PRAF; (ii)delays in improving the quality of basic healthservices in the project area due to institutional

v

constraints facing the MOH; the project would reduce oreliminate this risk through institutional strengtheningof the MOH, annual reviews of project implementation,and improved health and nutrition expenditure controlsand budget planning at the MOH. Risks (i) and (ii)would also be addressed through close IDA supervision,especially in the food coupon program, which is a newarea for the Bank group; and (iii) uncertainsustainability of the PRAF food coupon programs beyondproject support; this risk would be reduced by: (a)assisting the GOH in securing donor participation forthe formulation and implementation of a long-termnational nutrition assistance strategy; and (b)attracting additional donor assistance for furthersupport of the PRAF food coupon programs.

ESTIMATED PROJECT COSTS:' Local Foreian TotalUS$ million

I. NUTRITION ASSISTANCEA. Nutrition Policy 0.01 0.09 0.10B. PRAF Food Coupons 21.00 9.00 30.00C. PRAF Technical Assistance 0.35 0.61 0.96D. Nutrition Education 0.44 0.29 0.73E. Nutrition School Census 0.22 0.02 0.24

Subtotal 22.02 10.01 32.03

II. HEALTH SERVICES

A. Primary Health Care Centers 1.47 1.58 3.05B. Human Resources Development 2.68 0.05 2.73C. Basic Drugs 0.63 5.83 6.46D. AIDS Program 0.53 1.32 1.85

Subtotal 5.31 8.78 14.09

III. ENVIRONMENTAL HEALTH 2.08 1.10 3.18

IV. MONITORING. EVALUATIONAND AUDITING 0.47 0.60 1.07

BASE COST 29.88 20.49 50.37

Physical Contingencies 0.32 0.25 0.57Price Contingencies 2.16 1.13 3.29

TOTAL PROJECT COST 32.36 21.87 54.23

Net of taxes and duties.

vi

FINANCING PLAN:

Local Foreign Total

US$ millionGovernment of Honduras 9.45 1.78 11.23

Beneficiaries 0.69 0.29 0.98IDA 12.06 12.94 25.00

USAID 1.80 1.20 3.00World Food Program 6.00 4.00 10.00

UTNDP 0.14 0.19 0.33UNICEF 0.11 0.00 0.11PAHO 0.01 0.07 0.08

Other Donors 2.10 1.40 3.50Y'

TOTAL FINANCING 32.36 21.87 54.23

ESTIMATED IDA DISBURSEMENTS:

IDA Fiscal Year 199 1996US$ million -

Annual 4.8' 9.4 7.7 3.1

Cumulative 4.8 14.2 21.9 25.0

ECONOMIC RATE OF RETURN: Not applicable

Y The GOH is pursuing discussions with donors interested in the project (seepara. 4.15).

Y Includes Special Account deposit of US$2.0 million.

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9tit Y rA. General Country Data

GNP per capita 570 US$ (estimate) 1991Population 5.1 Million (amt.) 1991Projected Population Year 2000 6.3 Million

B. Demoaranhic indicators

Crude Death Rate (per 1,000 inh.) 6.8 Deaths 1991Population Growth Rate 2.8 Percent (est.) 1991Total Fertility Rate 5.2 Births 1990Life Expectancy at Birth 66.3 Years 1991Women aged 15-44 using contraceptives 29.7 Percent 1991

C. Basic Health Indicators

Infant Mortality Rate (per 1,000 live births) 50.0 Deaths 1989Mortality of Children 0-5 Caused by

Diarrhea and Acute Reospiratory Infections 46.5 Percent 1987Maternal Mortality Rate

(per 100,000 live births) 221.0 Deaths 1990Births Unattended by Health ItaUi 53.0 Percent 1991Physicians (per 10,000 inh.) 4.1 Physicians 1991Nurses (per 10,000 inh.) 1.5 urses 1991Auxiliary Nurses (per 10,000 inh.) 10.0 Aux. Nurses 1991MOH Expenditures as k of

Total Current Expenditures 7.2 Percent 1991MOH Expenditures as % of GDP 2.0 Percent 1991

D. Basic Nutrition Indicators

Low Weight of Infants at Birth 20.0 Percent 1985Children 0-5 malnourished (weight/age) 46.4 Percent 1990Children 6-9 yru malnourished (height/age) 34.9 Percent 1991Households Consumption of Food below

80t adequacy 49.1 Percent 1987

E. Environmental Health

Lack of access to safe water supply 36.0 Percent 1989rural areas: 52.0 Percent 1989urban areas: 15.0 Percent 1989

Lack of access to adequate exreta disposal 38.0 Percent 1989rural areas: 58.0 Percent 1989urban areas: 11.0 Percent 1989

viii

F. Basic Education Indicators

Adult Illiteracy Rate 32.4 Percent 1988Primary School Enrollment/Children 7-13 yr. 93.0 Percent 1991Primary Education Repetition Rate 11.7 Percent 1991Primary Education Completion Rate 30.6 Percent 1991Primary Students per Teacher 37 Students 1989NOR Expenditure as e of

Total Current Expenditures 18.6 Percent 1990MOE Expenditure as e of GDP 8.2 Percent 1990

Sources: SECPLAN, MOH, MOE, SCES, 1991 MOH Epidemiological and Health Survey.

DEFINITIONS

Crude Death Rate Number of deaths per 1,000 population in a given year.

Infant Mortality Rate Number of deaths of infants under one year of age in agiven year per 1,000 live births.

Life Expectancy Rate Average number of years an infant would live ifprevailing age/sex-specific mortality trends at thetime of birth were to continue.

Total Fertility Rate Average number of children who would be born alive toa woman during her lifetime if she were to passthrough her child-bearing years conforming to theprevailing age-specific rates.

Enrollment Rate Percentage of children of a given age group enrolledin schools at a particular level of education.

Adult Illiteracy Rate Percentage of population aged 15 and over who cannotread or write.

Completion Rate Ratio between the number of students exiting lastgrade of an education cycle and the number of studentsentering the first grade of the same education cycle.

HONDURAS

NUTRITION AND HEALTH PROJECT

STAFF APPRAISAL REPORT

I. THE RCONOMIC REFORK PROGRAM AND POVERTY ALLEVIATION

A. The Economic Reform Procram

1.1. Since March 1990, the Government of Honduras (GOH) has carried out acomprehensive economic stabilization and adjustment program designed tocorrect distortions resulting from past macroeconomic mismanagement and to laythe foundation for sustained economic growth over the medium-term. Thestabilization program has focussed on increasing tax revenues, adjusting theexchange rate to reflect market trends, reducing public expenditures,increasing tariffs for major public enterprises, and reducing Central Bankfinancing of the fiscal deficit. The structural adjustment program has restedon five pillars: (i) a trade/tariff reform promoting the production ofexportable and efficient import-substitution goods; (ii) a gradualliberalization of financial sector policies and regulations; (iii)administrative decontrol of agricultural pricing and marketing, includingelimination of the public monopoly on the basic grains trade; (iv) publicsector reforms in the areas of tax structure and administration, investmentprogramming; and (v) public enterprise restructuring. At the sectoral level,the GOH expanded the reform program in late 1991 to the energy sector, withthe objective of establishing a sound framework for energy policy formulationand regulatory functions, enhancing the efficiency and financial viability ofthe electricity subsector, and promoting greater competition in the petroleum(oil and gas) subsector through deregulation of pricing, distribution, andexploration activities.

1.2. Good macroeconomic performance during 1991 suggests that the economy isrecovering from the 1990 recession and attests to the GOH's satisfactoryimplementation of the economic stabilization and adjustment programs describedabove. Gross domestic product (GDP) grew by 2.9% and agricultural output grewby 3.4% with strong increases in production of nontraditional agriculturalcommodities for the export market and maquila activities in the free tradezones. While encouraging, this GDP growth rate is only slightly below thepopulation growth rate of about 2.8% per year, resulting in a decline of percapita GDP. The fiscal deficit was contained at about 3.5% of GDP (down from8.4% in 1990), and inflation declined from about 11 during the fourth quarterof 1990 to 2% during the fourth quarter of 1991. In the same period privateand public investment increased by 11.5% and 30.3%, respectively.

1.3. Implementation of the stabilization and adjustment program has had amixed impact on different sectors of the economy and on rural and urbanfamilies. Liberalization of the exchange rate and decontrol of agriculturalprices have increased income earning opportunities in agricultural and export-oriented activities (as well as in efficient import-substituting industries).Consequently, real incomes appear to be increasing for participants involvedin these sub-sectors of the economy. These same factors, however, haveincreased hardships for urban dwellers and net consumers of food in rural

2

areas, who face higher prices for basic foods and other consumer commodities.Contraction of employment in the central government and publicly-ownedenterprises has largely affected urban workers, as has the increase in tariffsfor public utilities (water, sanitation, electricity, telephone), since theseservices are not widely available in rural areas. While severance paymentshave helped cushion the impact of layoffs and many affected workers have foundemployment in the private formal and informal sectors of the economy, the highlevels of open unemployment and underemployment in Honduras at 4.6% and 30.1%,respectively, in 19911' have meant that families have often faced reductionsin disposable income.

1.4. The combined impact of these factors on the real income of the poorestfamilies has raised serious concerns that health and nutrition indicators maydecline in the short-term, particularly among the vulnerable groups consistingof pregnant and nursing mothers and children under five. There is alsoconcern that the welfare of children from poor families may deteriorate inother ways, resulting from increased pressure on parents to withdraw childrenfrom school and put them to work. The seriousness of such potentialdevelopments, when viewed against the background of Honduras' underlyingchronic poverty, spurred the GOH to establish two innovative safety netprograms in 1990: first, the Honduran Social Investment Fund (Fondo Iondureflode Inversion Social, FHIS), which finances labor-intensive social and economicinfrastructure, social services, and informal sector subprojects; and second,the Family Assistance Program (Programa de Asignacion Familiar, PRAF), whichprovides nutritional assistance via food coupons for the most vulnerablegroups of the population. The dimensions of poverty in Honduras are exploredin greater detail in the following section.

B. Poverty in Honduras

1.5. Honduras, with an estimated population of 5.1 million in 1991, is one ofthe poorest countries in the Western Hemisphere. Its 1991 gross nationalproduct (GNP) per capita of US$570 is higher only than that of Haiti, Guyana,and Nicaragua. Fifty-seven percent of the population live in rural areas.The population of Tegucigalpa and San Pedro Sula, the largest cities in thecountry, are estimated at 600,000 and 340,000 inhabitants, respectively.Although social indicators have improved over the last 20 years, they arestill very low: between 1972 and 1991, estimates of average life expectancyincreased from 53.1 to 66.3 years and infant mortality declined from 124.9 to50.0 per 1,000 lives births. Extreme poverty affects over 50 of the nationalpopulation and nearly 80% of the rural population. The poverty problem isaggravated by the rapid population growth of about 2.8% per year, arising fromhigh fertility rates (5.2 children per woman of childbearing age on a nationalscale, and over six children in rural areas in 1990), low levels ofcontraceptive use (60.8% in urban areas and 36.1% in rural areas in 1991), andlow birth spacing, with 30% of births taking place in an interval of less than24 months.

1.6. Health and nutrition indicators reflect the acute problems facing theHonduran poor: lack of sufficient income leading to inadequate diets, lack ofsanitation (38% of households lack appropriate excreta disposal and 36% do not

' SECPLAN. Multipurpose Household Survey, May 1991. In urban areas, openemployment and underemployment estimates were 7.6% and 25.2%, respectively.

3

have access to safe water), deficient coverage of the primary health care(PHC) system (which currently reaches approximately 601 of its targetpopulation), and ignorance about hygiene, correct nutritional practices andpreventive health care. Infant mortality is due largely to diarrhea and acuterespiratory infections. Maternal mortality is estimated to average 221 per100,000 live births.k These indicators are much higher in rural areas andare subject to wide regional variations. For example, maternal mortality isestimated at above 340 per 100,000 in the three poorest health regions.Honduras has made significant progress in controlling transmissible diseasesin recent years through intensive immunization campaigns. During the 1990-91period, there were no reported cases of poliomyelitis, cholera or hemorrhagicdengue, and only a handful of cases of typhoid and measles. Nevertheless, theincidence of diarrhea, acute respiratory infections and malaria continue to bevery high, and the recently observed explosive pattern of transmission ofHuman Immunodeficiency Retroviruses (HIV) and Acquired ImmunodeficiencySyndrome (AIDS), is of epidemic proportions, particularly in the northwesterncoastal region of the country (para. 2.14).

1.7. Nutritional deficiencies are a contributing factor in about 60* ofinfant deaths, and in 1990, an estimated 461 of children under five wereestimated to be malnourished. By the time they enter primary school, 351 ofchildren are stunted, a sequel of chronic undernutrition. Undernutrition is amajor health problem of pregnant and nursing women: over half the womenattending health centers suffered from mild or moderate anaemia and vitamin Adeficiency. These national averages mask large regional disparities. Forexample, in the poorest regions the malnutrition rate for children under fiveis estimated to exceed 65%.

1.8. The status of education in Honduras is also critical. Although schoolenrollment indicators show good access to public schools (931 net enrollment),the country has a 321 adult illiteracy rate, and on average the populationattains only 2.4 years of schooling. Repetition and dropout rates are high,with only 30W of those who enter first grade likely to reach sixth grade atthe national level, and much worse in rural areas. Part of the reason forthese low completion rates (particularly in rural areas) is that over 361 ofprimary schools offer less than six grades. Repetition in primary school is201 and 121 in the first and second grades, respectively. The dropout ratesaverage 3.71 and are 5.2* in first grade, reflecting a legacy of poormanagement and inappropriate resource allocation in the education sector,which has resulted in low internal efficiency of the education system ingeneral, and of the primary level in particular. The primary educationsystem, especially, suffers from a severe shortage of classrooms,deterioration of existing facilities, and a lack of textbooks, desks, andteaching materials.

C. Government Strategy

1.9. The GOH's fundamental goals for poverty alleviation are to: (i) improvechild and maternal survival; (ii) develop the human capabilities of thepopulation; and (iii) enhance income earning opportunities for the lowest

v The Honduran maternal mortality rate is only exceeded in Latin America bythat of Haiti, estimated at 230 per 100,000 live births. See UNDP, HIumaDevelopment Report. 1990.

4

income groups (Annex 18). To achieve these objectives, the GOH isimplementing a two-pronged strategy in the social sectors. In the short-term,priority is being given to execution of the safety net programs managed by theFHIS and the PRAF, which are targeted to the most vulnerable members ofsociety and are intended to prevent a deterioration in the already precariousliving standards of the poorest groups during the adjustment period. Althoughthese institutions are viewed as temporary,F and as providing a transitionalinstrument for responding rapidly to a critical poverty situation, theirprograms may be extended until the line ministries have been strengthened andproject activities may be reintegrated into normal ministry operations. Moregenerally, to protect social sector programs from the full impact of theausterity measures underway, it is the GOH's intention to at least maintainthe share of social expenditures in the budget roughly constant in real terms,at one third of public spending and about 11i of GDP, during the remainder ofthis Administration ending in December 1993. In the medium-term, the need toexpand the coverage and quality of basic social services is likely to demandhigher budgetary allocations. However, the scale of such increase will dependpartly on the extent to which the government is able to implement plannedreforms to increase management efficiency and redirect scarce resources towardthe country's neediest groups (para. 1.11). The Government's policy innutrition and health is presented in its nutrition and health policy letter,satisfactory to IDA (Annex 18), which was presented at negotiations (para.4.4(a)).

1.10. PHIS assistance includes rehabilitation of schools and health centers,construction of latrines and wells, provision of teaching materials and healthsupplies, training for social personnel, and credit for informal sectoractivities. The FHIS has worked closely with the Ministries of Public Health(MOH) and Education (MOE) and with local communities to ensure that theseentities would provide staff and finance operating expenses and maintenance ona recurrent basis for social infrastructure rehabilitated or constructed withFHIS financing. Over the next three years, the GOH also plans to expand thefood coupon program managed by the PRAF in collaboration with the MOH and MOE,to the poorest areas of Honduras. To optimize the nutritional impact of thefood coupons among the target beneficiary population (poor pregnant andlactating women, primary school students, and children under five), programexpansion would include strengthening the operations of primary health centersand primary schools and improving rural water supply and sanitation. Theconcept of integrating an improved PRAP food coupon program with provision ofother basic social services, emerged from discussions between the Governmentand IDA based on an evaluation of the pilot phase of the food coupon programcarried out by IDA under the Social Investment Fund Project (FHIS-I) (Cr.2212-HO) (para. 3.5). The GOH has also created a Nongovernmental Organization(NGO) Liaison Office (NLO) to facilitate NGO activities in Honduras and tostrengthen the partnership between the public sector and NGOs in addressingpoverty problems. This initiative is being supported by IDA under the SecondSocial Investment Fund project (FHIS-II) (Cr. 2401-HO).

1.11. The GOH's strategy for the medium-term is to develop and implement asocial sector reform program that would: (i) improve policy formulation,

' The original legal life of the FHIS ends in March 1994. The life of thePRAF was originally scheduled to end in January 1994. Congressional DecreeNo. 135.92, published November 14, 1992, extends PRAF's life indefinitely.

5

sector management, and program coordination in the social sectors; (ii)increase the efficiency and equity of social sector programs by shiftingresources to PHC, basic education, and water supply and sanitation(particularly in rural areas); (iii) strengthen the institutional capacity ofsocial sector line ministries; and (iv) review nutritional assistance programsto ensure that the most vulnerable groups benefit, efforts and resources arenot duplicated, and that programs are as cost-effective and efficient aspossible. To coordinate efforts on social sector policy formulation andprograms, the GOH created the Social Cabinet and its Executive Secretariat(SCES) in 1991 (Annex 18). Work on developing such a broad sector reformprogram is currently underway with assistance from the Japanese TechnicalAssistance Grant Facility, administered by IDA. Social sector reformimplementation has already started in several areas and would be supported bythe proposed Nutrition and Health project (para. 4.2). As a result of theseefforts, the GOH expects to be able to integrate, as much as possible, theexperience and activities of the FHIS, the life span of which is limited(para. 2.15), into mainstream ministry programs.

D. Bank and IDA SurDort

1.12. The Bank and IDA have supported the GOH's efforts to restructure andreactivate the economy through a combination of technical advice and financialassistance. Following the clearance of arrears to the Bank Group in late June1990, a Second Structural Adjustment Loan (SAL II) of US$90 million wasapproved in September 1990, followed by a Structural Adjustment Credit (SAC)of SDR14.3 million in January 1991, and an Energy Sector Adjustment Credit(ESAC) of SDR37.95 million in October 1991. As a result of Honduras'sclassification as an IDA-only country in late 1991, the country becameeligible for the IDA Reflow program for the first time in FY92, and asupplemental credit of SDR23.8 million, attached to the ESAC, was approved inNovember 1991. To date, the first two tranches of SAL II (totaling US$65million), the SAC (SDR14.3 million), the first tranche of the ESAC (SDR15.0million) and the supplemental IDA Reflow Credit (SDR23.8 million) have beendisbursed.

1.13. IDA has also been actively involved in supporting the GOH's povertyalleviation efforts. In February 1991, the FHIS-I Credit of SDR14.3 millionwas approved to finance FHIS and other priority social sector projectactivities (PRAF pilot food coupon programs, Living Standards MeasurementSurvey (LSMS), sector planning). Following the successful implementation ofFHIS-I, IDA approved the FHIS-II Credit of SDR7.1 million in June 1992, whichbecame effective in November 1992. A water supply sector loan of US$19.6million (Ln. 2421-HO), approved in 1984, has experienced delays inimplementation. However, following clearance of arrears with the Bank andother co-financiers, this project has been restructured, its timetable re-phased, and implementation has now been re-initiated.

E. IDA LendinQ Strateav for the Social Sector

1.14. The IDA sectoral lending strategy for poverty alleviation and humanresource development is to support the implementation of safety net programsin the short-term while strengthening the institutional capacity of the lineministries and restructuring social programs to improve their efficiency andequity impact over the medium-term. The core poverty alleviation program to

6

achieve these objectives over the next two years consists of the FHIS-I andFHIS-II projects, the proposed Nutrition and Health project and accompanyingsector report ("Review of the PRAF Food Coupon Programs" scheduled fordiscussion with the government in January 1993), and a possible social sectorreform operation. In April 1991, the GOH requested IDA assistance to: (i)expand the PRAF food coupon programs, strengthen PHC services, and providerural sanitation facilities in most underserved areas; and (ii) develop asocial sector reform program to increase the efficiency and equity of socialservices, with particular attention to targeting public spending and improvingthe quality and sustainability of primary health, primary education, andnutritional assistance programs. This Government request is being processedthrough two operations: (i) the proposed Nutrition and Health project; and(ii) a social sector reform operation which is now under preparation forpossible appraisal in FY94.

1.15. A second generation of poverty reduction and human resource developmentprojects, building on this core program and a forthcoming Country PovertyAssessment, the latter in preparation, would be proposed for the post-1994period for discussion with the incoming administration. This next generationof projects is likely to include sector investment operations in the health,education, and water supply sectors, emphasizing program development andimplementation capacity for services required to improve Honduras's low socialindicators. In parallel, IDA support for a reform program in the agriculturalsector, currently beyond the negotiations stage, would help alleviate ruralpoverty through improved access to land and efficiency gains in theagricultural sector.

1.16. IDA support for FHIS-I and FHIS-II and for the proposed Nutrition andHealth Project would clearly contribute to the short-term strategic objectiveof expanding an effective safety net for the very poor, and to the medium-termobjective of strengthening line ministry capacity and targeting socialspending. In the case of the MOH, the proposed project aims to strengthenpreventive health services, access to nutrition information and familyplanning services, nutrition education (para. .6) and improved environmentalhealth through rural water supply and sanitatic. '- -a. 4.7), working throughthe line ministry and its normal programs. The posbible social sector reformoperation would focus on instilling more discipline in the social sectorexpenditure programming process, redeploying existing resources to increaseefficiency and equity in social services delivery, supportingdecentralization, cost-recovery programs, and service quality improvement.Follow-up investment operations in subsequent years would ensure additionalservice coverage expansion and consolidation of the institutional developmentgains over the longer-term.

F. Lessons Learned From Past Exoerience

1.17. Since the proposed project would be IDA's first nutrition and healthoperation in Honduras, and the first instance of direct Bank Group support fornutrition assistance in the form of financing of food coupons, the review ofpast experience covered Bank- and IDA-financed health and nutrition projectscompleted in other countries as well as policy support through adjustment

7

operations. In the case of AIDS, although lending started only in the early1990s, considerable experience has been accumulated since then.4

1.18. Lessons learned from successful pilot food coupon operations have beenincorporated in the design of the PRAF food coupon program and are describedin detail in Chapter III. In addition, other types of nutrition assistanceexperience have shown that successful projects are designed to:

(a) target nutrition assistance to the poorest and most vulnerablegroups at risk in order to prevent malnutrition;

(b) combine nutrition interventions with health care and education toaddress the problems of illness and ignorance that contribute tomalnutrition;

(c) focus interventions on the earliest phases of infancy andchildhood, including assistance to pregnant women, to improve thechances of reaching children before malnutrition might have causedpermanent damage;

(d) strengthen the internal efficiency of nutrition assistanceprograms, aiming at simple and stable logistics and transparentmanagement;

(e) ensure program sustainability by setting realistic spendingtargets, reliable financing arrangements and by establishing clear normsfor phasing-out from the program those beneficiaries who no longerrepresent the group most at risk of malnutrition; and

(f) provide a reliable basis for adjustments to program design thatimprove its impact on reducing malnutrition by monitoring and evaluatingprogram outcomes on a systematic basis.

1.19. From successful health projects, the following lessons have been learnedand were incorporated in the project design:

(a) ensure strong and sustained support on the part of the borrowerfor preventive health care;

(b) aim at a relatively simple project design;

(c) build in project design the necessary flexibility for changeduring implementation, through reviews and revisions;

(d) ensure the involvement of highly-qualified local staff;

(e) provide for close supervision of project implementation;

(f) combine direct primary health care interventions withstrengthening local organizational and policy formulation capacity; and

4 The World Bank, "Population, Health, and Nutrition FY 1991 Sector Review"(Report No. WPS 890, April 1992). See also, "India: National AIDS ControlProject", SAR Report No. 10165-IN, March 1992.

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(g) improve program sustainability by providing assistance for:sector expenditure analysis and assessment of the cost of healthservices delivered; budget planning; and establishment of cost-recoverymechanisms on an affordable basis.

1.20. Lessons learned from international as well as Bank Group experience inhelping control the spread of AIDS have been incorporated in the design of theAIDS component. These lessons include:

(a) address the problem quickly, at the initial stages of theepidemic, when interventions have a higher benefit-cost ratio;

(b) combine AIDS prevention measures with prevention and treatment ofother sexually transmitted diseases (STDs);

(c) design prevention strategies taking into account socio-culturaldeterminants of transmission behavior;

(d) use mass media to increase awareness and focus on interpersonalcontact techniques to promote change in behavior of the groups that aremost a risk of contamination; and

(e) mobilize broad-based support to implement the AIDS controlstrategy, involving educators, NGOs, religious groups, workers andemployers, as well as health sector professionals.

1.21. Considering these lessons, the proposed project emphasizes a relativelysimple design for nutrition, health and environmental health components.Project preparation was carried out by highly-qualified Honduran staff at theMOH, PRAF and SCES. Most of the local project preparation staff will continueto be involved in the project during implementation. Several of the specificelements of the project build upon previous Honduran experience, including:(a) PRAF's pilot food coupon programs helped design the nutrition assistancecomponent (Chapter III and para. 4.4); (b) MOH experience of phase one (1980-1988) and phase two (1988-1995) of a health sector project financed by theUnited States Agency for International Development (USAID) helped focus on themeasures for strengthening the quality and coverage of primary health care,and delivering environmental health services in rural areas (paras. 4.6(a)-(c)); (c) MH experience with an emergency AIDS control program (1990-92),which succeeded in increasing awareness of the disease countrywide, helpeddesign an improved and expanded AIDS control program for the medium-term(para. 4.6(d)); and (d) MOE experience with the 1987 and 1991 nutritioncensuses of primary school children served as basis for the preparation of thenutrition school census subcomponent (para. 4.4(e)).

1.22. The project has a strong policy formulation and institutionalstrengthening focus, fully reflecting the Government's sector priorities, andsetting the stage for long term sustainability. These goals would be achievedthrough: (a) the formulation of a long term nutrition policy (para. 4.4(a));(b) streamlined nutrition and health sector management (paras. 4.4(b) and4.6(b); (c) improved targeting and beneficiary exit criteria for nutritionassistance (para. 4.4(b)); (d) combined health, education and environmentalhealth interventions with nutrition assistance (paras. 4.4(b), 4.6(b)-(c) and4.7); (e) mobilization of resources from the private sector through the

9

participation of NGOs (para. 4.4(d); and (f) improved cost-recovery for healthservices (para. 4.9(c)).

1.23. Project implementation flexibility is ensured through annualimplementation reviews based on a set of performance and impact indicators(para. 4.9(b)). Coordination during implementation is ensured by the SC8S,facilitating monitoring, evaluation and reporting activities by PRAF and theMOH (para. 4.9). Strong support for the project was build during the PRAPpilot food coupon program implementation and has since been reinforced by moreintense involvement of MOH regional and area departments, and by theparticipation of local NGOs.

G. Rationale for IDA Involvement

1.24. IDA involvement in the proposed project follows the successful MaternalChild Coupon Program (BMI) pilot project (para. 3.4). The proposed project isconsistent with IDA's country and social sector assistance strategy to supportGOH efforts to alleviate poverty and prevent a deterioration in thenutritional status of the population most at risk to the impact of theeconomic adjustment program, while strengthening the administrative capacityof the line ministries (para. 1.14). Furthermore, the project would fostermore efficient allocation of resources in the health and nutrition sectors, byhelping redress the balance between preventive and curative health care (para.4.16) and by promoting the rationalization of nutrition assistance on asustainable basis (para. 4.4(a)). IDA support would also assist the GOH inits efforts to mobilize donor assistance to control the spread of HIVinfection and AIDS, which represent a serious public health threat in Honduras(para. 4.6(d)).

II. THE NUTRITION AND HEALTH SECTORS

A. Nutrition Overview and Issues

2.1. The nutrition status among children under five shows a deterioratingtrend in recent years despite the relatively high level of public spendingallocated to nutrition assistance (para. 2.5). The number of childrenexhibiting symptoms of malnutrition (measured by weight/age) declined from 431in 1966 to 381 in 1987, but increased in 1990 to reach 461 on averagenationwide.

2.2. The major factors hampering the improvement of nutrition indicators inHonduras are: (i) inadequate diets; (ii) inadequate infant feeding practices;(iii) less than efficient nutrition assistance programs; (iv) inefficientnutrition education; and (v) lack of a coherent nutritional policy andstrategy.

2.3. Inadeauate Diets. Despite improvements in availability of food over thelast two decades, the diets of more than 62* of Hondurans fall significantlyshort of the minimum recommended calorie and protein intakes. The diet of 80*of Hondurans consists mainly of corn, beans, rice, plantains, and vegetable

E' MOH, National Nutrition and Health Surveys for 1966, 1984, 1987, 1990 and1991.

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fats, with corn accounting for half the caloric intake in rural areas. Thisdiet has varied little over the centuries until about ten years ago, whenwheat became more readily available as a result of U.S. aid programs (wheatimports have increased 4001 since 1975). Honduras experienced a generalimprovement in its nutritional status throughout the 19709 and early 1980s,but this trend has slowed down as a result of mounting economic problems inthe late 1980s. The ensuing food price increases, high unemployment, andlower per capita income have contributed to the deterioration in thenutritional status of large segments of the population, particularly women andchildren. From 1987 to 1990, malnutrition rates almost doubled amongpreschool children in the rural departments of Comayagua, Intibuca and La Pazand are reported to have increased by 271 in Tegucigalpa, reflecting the highvulnerability of the urban poor.

2.4. Inadeauate Infant Feeding Practices. Among infants, the malnutritionproblem is compounded by inadequate breast-feeding practices. The UnitedNations International Children's Emergency Fund (UNICEF) estimates that 201 ofinfants are born with low birth weight. This level is considerably above therate in countries at a similar level of development and reflects poor accessto maternal and child health and nutrition services among the ruralpopulation.y Proper breast-feeding practices are very important to infantnutrition and also aid in birth spacing and in reducing diarrhea andrespiratory diseases. Health experts recommend exclusive breast-feeding for aminimum of six months, followed by use of special weaning foods. The MOH 1990epidemiological and health survey found that 231 of infants stopped breast-feeding before three months of age, and another 20* before the sixth month.Since then, the MOH has started to increase maternal education in breast-feeding and weaning practices offered through the PHC system, with assistancefrom USAID. This program would be expanded under the proposed project aspregnant and nursing mothers and health care staff would receive intensivetraining in breast-feeding practices (para. 4.4(d)).

2.5. Less than Efficient Nutrition Assistance Proarams. Honduras has reliedon food aid since the 1950s. In 1991, an estimated US$16 million or 0.71 ofthe country's GDP was spent on nutrition assistance, including the amount offood aid monetized to finance the PRAF food coupon programs and the imputedvalue of food aid distributed in-kind, covering about 251 of the totalpopulation. Program sustainability is primarily dependent upon assistancefrom the donor community. The shares of each program in the total are: 121for the school feeding program (US$1.9 million); 201 for the food-for-workprogram (US$3.1 million); 33% for programs providing Supplementary Food forwomen and Children (Programa de Alimentacldn Cooplementaria, PAC) (US$5.3million); and 35% for PRAF food coupon programs (US$6.0 million). The fooddistributed either in-kind or in monetized form, has been provided by theWorld Food Program (WFP), USAID and the European Economic Community (BBC).The GOH contributes with logistics and administrative support. A briefdescription of each program is given below.

(a) The school feedina oroaram, which began in 1959, benefittedapproximately 484,200 primary school children in 1991, or about 521 of

F In 1985, the percentage of underweight babies at birth was estimated at 151in Bolivia and 171 in Haiti, two of the poorest countries in Latin America.See UNDP State of the World's Children, 1990.

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the total population of the public school system, covering alldepartments except Tegucigalpa. The food ration, valued at aboutUS$0.04 per student, consists of a snack of corn-soybean which is mixedwith water and distributed daily for 160 school-days per year. Eachportion provides 200 calories and eight grams of protein. The programis contemplating distribution of milk in addition, but milk donationshave not been received during the last two years. The program isexecuted by MOE, and the Cooperative for American Relief Everywhere(CARE) provides administrative support for storage, control,distribution, and supervision of program operation at the local level.Food donations have been provided by USAID and, since 1980, also by theEEC. The sole criteria for beneficiary selection is enrollment in apublic kindergarten or primary school. Approximately 0S of the parentsof beneficiaries pay a monthly fee of one Lempira (L) to help coveroperating costs. Program expenditures in 1991 are estimated at US$1.9million. The basic shortcomings of this program are: (i) the verysmall size of the nutrition supplement provided (about 8% of therecommended daily caloric intake, and about 20% of the recommended dailyprotein intake); (ii) its relatively high operating costs estimated atabout half the value of the subsidy; and (iii) lack of targeting ofbeneficiaries, except for the exclusion of Tegucigalpa.

(b) The food-for-work program is the largest in terms of amount offood donated per beneficiary and covers some 85,600 families since 1991.This program is targeted to impoverished subsistence farming householdsand provides, in addition to food and employment, technical assistance,and cash remuneration equivalent to US$5 per day worked per person.work in a specific community development project is the basic conditionof eligibility for this program across the country. Most of the fooddistributed (80%) is provided by the WFP. Under a separate program,USAID provides the balance through CARE. The GOH participates inprogram administration and logistical support. Administrative costsaverage more than 40% of total costs, raising the issue of programsustainability over the longer-term.

(c) The Sui:plementarv Food for Women and Children program (PAC). ThePAC was started with USAID and WFP support in the 1980s and currentlycovers approximately 173,000 women and children (61% are children aged1-6 years, 37% are pregnant mothers, and 2% are volunteers who work inthe program). The program is operated practically nationwide (16 of 18departments), covering women and young children exhibiting symptoms ofmalnutrition. Food aid from USAID accounts for about 70% of the totaland an additional 30* is provided by the WFP. Food is distributed everymonth at MOH health centers and hospitals and National Social WelfareBoard (Junta Nacional de Bienestar Social, JNBS) early childhoodcenters. The weighted average of the monthly rations provide anestimated 500 calories/day and 19 grams of proteins/day per beneficiary,or approximately 25% of the daily minimum requirements. Rations varyslightly in composition and quantity, by donor, but the typical rationis uncooked and consists of cereal (corn and/or rice), beans, oil, andmilk. For the portion of the program financed by USAID, CARE isresponsible for procuring food, supervising transportation and storageat the central level and providing management support to the MOH. TheNOH transports the food from the central storage facility to

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distribution sites and MOH local staff package and distribute to thebeneficiaries. The estimated average administrative cost of the PACprogram is 30 of total program cost. The main issues affecting theefficiency of this program are; (i) unreliable targeting; (ii)difficult food distribution logistics; (iii) need for continuedtechnical assistance from the donor community; and (iv) excessive use oflocal health staff time for program administration.

(d) The PRAF food coupon programs. The GOH established the PRAF inMarch 1990. PRAF's operations began in May 1990 with a first pilot foodcoupon program, directed towards poor primary school children of womenheads of households (Bono Mujer Jefe de Familia, BMJF), distributedthrough the MOE primary school network in seven departments. By the endof 1991 the BMJF benefitted about 120,000 school children, two times ayear, with food coupons equivalent to US$37 per year for each child witha limit of three children per household. A second pilot food couponprogram targeted to low income children under five and pregnant andnursing mothers (Bono Materno Infantil, BMI) was started in December1990 with IDA support provided under the FHIS-I project. The BMI isdistributed through MOH health centers on a monthly basis. By the endof 1991, the BMI covered 32 health centers in three departments,providing about 56,000 beneficiaries with monthly coupons equivalent toUS$45 per year for each child and mother without limit per household.PRAF food coupons expenditures in 1991 amounted to about US$6.0 millionequivalent. Administrative costs were estimated at 16', on average, forboth programs.7' More details on the PRAF food coupons as well as anevaluation of these programs are provided in Chapter III. As discussedin that chapter, the PRAF food coupon programs, whose expansion would besupported under the proposed project, are a more cost-effectiveinstrument for nutrition assistance than the programs that distributefood in-kind. The PRAF programs are not only more efficient in terms oflogistics, but also better targeted and more transparent, and theyprovide complementary social services.

2.6. Insufficient Nutrition Education. Experience in developing countriesshows that despite the prevalence of food-insecure families, well developedand operated nutrition education is effective to improve the nutritionalstatus of the most vulnerable groups. In general, Honduras' nutritionprograms have not sufficiently addressed such problems as delayed solid foodsupplementation and dietary management of diarrhea. Two additional priorityareas requiring information are breast-feeding promotion (para. 2.4) andweaning food preparation and feeding practices for children aged 6 to 36months, a high risk period for diarrhea and other infectious diseases tooccur. These issues are addressed under the project's nutrition educationcomponent (para. 4.4(d)).

7' The PRAF food coupon programs are reviewed in detail in the report Republicof Honduras: Review of the PRAF Food Coupon Programs. World Bank, Report No.10488-HO, dated May 12, 1992. See also Bitran, R.A. and Heinig, S.J., "Studyof the Effect on Health Services Utilization of the Maternal and Child FoodCoupon Program in Honduras." Report prepared for the World Bank by AbtAssociates, Inc., Cambridge, MA: July 13, 1992.

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2.7. Lack of a Coherent Nutritional Policy and Strateav. While nutrition hasbecome an increasingly important component of poverty alleviation efforts inHonduras, nutrition activities have often been viewed as discreteinterventions missing the synergistic benefits of a comprehensive approach andoverlooking sustainability issues. Most existing programs suffer frominadequate coordination leading to overlapping of beneficiaries and poorcomplementarity with the delivery of health and education services, deficienttargeting, high operational costs, and logistical bottlenecks. In addition,no periodical evaluation of program outcomes has been undertaken, limiting theGOH's capacity to decide on the best mix of nutrition interventions and theirfinancial viability. The GOH is increasingly interested in developing anintegrated approach to nutrition and recognizes the need to review theadequacy of existing assistance to improve efficiency and ensure long-termsustainability (Annex 18 and para. 2.15). These issues would be addressedunder the proposed project through the development of a national nutritionpolicy and strategy establishing an integrated framework for nutritionassistance over the long-term (para. 4.4(a)), including improved monitoring ofprogram outcomes (para. 4.9).

B. Overview of the Health Sector and Issues

2.8. Structure of Health Services Provision. An estimated one-third of thepopulation has no access to basic health services. The MOH is the majorhealth services provider in the country, but covers only an estimated 60% ofthe population. The Honduran Institute of Social Security (InstitutoHondurezlo de Seguridad Social, IHSS) covers approximately 7% and the formalprivate sector another 3% of the Honduran population. Additional healthservices are provided by the JNBS, the Ministry of Labor's Occupational HealthDepartment, and the military. The extent of care provided by traditionalpractice is unknown, but is believed to be significant considering that in1991, more than half the mothers responding to the MOH Epidemiological Surveyhad their most recent delivery at home. The MOH is responsible for developingnational health policy, establishing service norms, and planning, financing,and controlling the health services delivery system. The national healthpolicy aims at extending coverage of basic health services to better serve thepoorest regions, targeting population groups at higher risk of morbidity andmortality, emphasizing the reduction of preventable diseases and supportingquality of service provision and sustainability through more efficientmanagement systems (Annex 18).

2.9. The NOH service system is composed of eight health regions and 36administrative areas (Annex 5). During the 1986-1991 period, the MOH PHCnetwork was expanded by approximately 15% and the hospital network by 24%.Services are delivered according to a hierarchical plan consisting of threelevels of attention:

(a) The PHC service level, consisting of: (i) community healthworkers including an estimated 8,500 midwives and health guardians; (ii)530 rural health centers (Centros de Salud Rural, CESARs) staffed by anauxiliary nurse, a health promoter and, in some regions a malariacontrol worker, providing immunization, treatment of common diseases andpreventive maternal-child services including monitoring of pregnancy andchild development; and (iii) 200 health centers with physician (Centrosde Salud con Medico, CESAMOs) staffed by a physician (usually a recent

14

graduate serving obligatory social service), a nurse, auxiliary nurses,health promoters, a laboratory technician, administrative personnel, andoccasionally a dentist. The size, service structure, and number ofstaff of the CESAMOs vary according to the location and the size of thepopulation served; they provide support to CESARs and a variety ofpreventive and curative ambulatory services including maternal and childcare, health education, environmental sanitation, laboratory tests andsometimes odontology;

(b) The secondary health care service level consists of: (i) 12 areahospitals, normally with 50 beds each; (ii) seven regional hospitals ofvarious bed capacities; and (iii) three maternal and children's clinics.These area and regional hospitals offer services in general surgery,internal medicine, pediatrics, and obstetrics/gynecology; and

(c) The tertiarv health care service level comprises seven nationalreferral hospitals, including one maternal and children's hospital, apulmonary disease hospital, two psychiatric facilities, and threegeneral hospitals.

2.10. While the development of the public health system and expansion of waterand sanitation and education services have been the main factors contributingto the health status improvements of the past two decades, the performance ofthe health system remains mixed. Despite the relatively high level of publicfunding allocated to the health sector (para. 2.13), much remains to be doneto reduce the high level of mortality and morbidity due to endemic infectiousdiseases and childbearing through proper use of PHC services. The majorissues facing the health sector are: (i) low coverage and poor quality of PHCservices; (ii) poor maintenance and lack of equipment and supplies; (iii)inefficient management of resources at the MOH; and (iv) rapid progression ofHIV infection and AIDS.

2.11. Low Coverage and Poor Oualitv of PHC Services is due to the combinedeffect of lack of access and poor quality of the services delivered, thelatter leading to the under-utilization of existing facilities.

(a) The lack of access results from an insufficient number of PHCfacilities, less than optimal location of some of these facilities, andinefficient outreach. Location decisions have traditionally favoredurban areas. The average distance from villages to the health centersin the poorest rural regions is about ten km, compared to less than twokm in metropolitan areas. Inadequate outreach by health staff meansthat coverage is not extended to the smaller and more isolated villages.Lack of access to PHC services is compounded by very low water supplyand sanitation service levels (para 1.6), particularly in the ruralareas, where 52% of families lack water supply and 58% lack adequatesanitary facilities. In areas where water systems exist, the quality ofthe water is poor, as pollution is contaminating an alarming 75% of thedrinking water supply. As a result, waterborne diseases andparticularly diarrheal diseases remain the first cause of morbidityamong children in Honduras. The recent cholera epidemic, althoughcontrolled through an intensive campaign by the MOH, remains a seriousthreat. These problems would be addressed under the proposed projectthrough: (i) the rehabilitation and limited expansion of the PHC

i5

network in underserved rural areas; (ii) the provision and maintenanceof safe water supplies and excreta disposal in underserved ruralcommunities; and (iii) the development of priority criteria forselecting the location of new facilities (paras. 4.6(a) and 4.7(a)).

(b) The poor aualitv of services leads directly to under-utilizationof existing facilities. This has been confirmed by a survey ofbeneficiaries which showed that the main reason for the under-utilization of health centers was the poor quality of services,including the manner in which the poor are received and treated, thelong waiting times and the shortage of drugs. The under-utilization ofPHC facilities is reflected in the increased demand for health servicesgenerated in the districts where the BMI food coupon was introduced:the number of preventive care consultations increased, on average, by1311 in participating facilities. Several factors contribute to the lowquality of PHC services:

(i) Inefficient service delivery results from the lack of anintegrated health care model at MOH health centers. Although theMOH has developed all the necessary PHC service norms for prioritysubprograms, it has not emphasized the need to integrate programactivities at the level of the health centers. As a result,service provision is fragmented according to program activities,causing users to receive less than the necessary care or makeseveral visits in order to benefit from all the PHC programs;

(ii) Insufficient PHC staff and inadeauate mix of staff are thenext most important reasons for poor quality of service delivered.An estimated 191 of the MDH PHC facilities are closed for extendedperiods due to inefficient staff allocation. The CESARs arenormally staffed by only one staff: an auxiliary nurse whoperforms administrative, training, and outreach activities besidesPHC services. As the average size of the catchment area served bya CESAR is twice as large as the maximum 1,500 population that canbe effectively served by one auxiliary nurse, a minimum of twoauxiliary nurses per CESAR is necessary to provide adequate PHCservice coverage in most locations. In addition, the rotation oftemporary personnel is inefficiently managed, often leaving vacantcritical staff positions, such as the physician serving theCESAMOs;

(iii) Inadeauate staff training. The MOH in-service trainingprograms offer approximately six weeks of training per year toprofessional nurses, five weeks of training per year to auxiliarynurses, and only occasional training for other categories of staffor community health volunteers. The current in-service trainingprogram is less than efficient because the contents of thetraining, which are designed centrally, do not properly respond tothe specific health problems of each region; there is inadequateintegration between training modules; programs are poorlyscheduled causing facilities to be closed for extended periods oftime due to absence of staff on training; and, as training isoffered primarily to MOH staff, the potential of using communityhealth volunteers to extend service coverage is lost;

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(iv) Less than efficient suoervision. The actual practice of PHCservices provision is seldom supervised at the level of healthcenters. MOH supervision guides are well developed but arenormally applied in a centralized manner, giving little emphasisto on-site supervision, a pattern that weakens the link betweenin-service training and practice; and

(v) The inefficient referral system hampers the quality ofservices delivered at PHC centers. The linkage that should existbetween CESARs and CESAMOs and between these and the areahospitals to ensure prompt and appropriate attendance to patientsrequiring higher level care is often broken due to lack of meansof communication and of periodical on-site supervision. Theisolation of most CESARs is a disincentive for the population touse this level of service.

These issues would be addressed under the project by: (i) fostering theorganization of PHC services in an integrated model through training ofstaff at all levels and strengthening service supervision (para.4.6(b)); (ii) establishing a revised staffing plan and providing foradditional staff to be allocated to PHC services (para. 4.6(b)); (iii)supporting a study on hospital referrals by the Master's Program of theSchool of Public Health; and (iv) supporting community outreach andparticipation, including training of outreach workers and volunteers inthe areas of environmental sanitation and nutrition education (paras.4.4(d) and 4.7(a)).

2.12. Poor Maintenance and Lack of Eauioment and Supplies at PHC facilitiesfurther constrain service quality and access. Nationwide, over 100 PHCfacilities (14% of the network) have been found to be in a state of physicaldeterioration, many of them without running water or sanitary facilities. Athird of the facilities currently lack adequate refrigeration and 22% are inneed of other basic equipment such as scales. Laboratory equipment has beenimproved with donor assistance in 65% of the CESAMOs where most laboratoriesare located, but there are serious deficiencies in laboratory supplies.Minimal communication networks need to be installed to improve referrals.Deferred maintenance of PHC facilities is due to: (i) lack of communityinvolvement resulting from a centralized MDH maintenance system for equipmentand vehicles that curtails local initiative; and (ii) inadequate MOH budgetaryallocation for maintenance. To raise the physical plant and equipment of PHCfacilities to minimum standards, a necessary element for service qualityimprovement, the proposed project would emphasize rehabilitation of existinghealth centers, replacement of basic equipment and in addition, establish amaintenance schedule and fund, managed at the local level with communityparticipation (para. 4.6(a)).

2.13. Inefficient Management of Resources at MOH. Management improvements inthe allocation of resources by the MOH are particularly needed in the areasof: (a) planning and budgeting health expenditures; (b) cost-recovery; (c)personnel management; and (d) drug supplies. The main issues facing the MOHmanagement in these areas are the following:

(a) Unbalanced Health Exxenditures. Despite sharp cuts in overallGovernment spending, health expenditures by the MOH have been sustained

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at approximately 7% of total public sector expenditures in 1991 and 1992and are projected to increase in real terms in 1993 to 8% of totalgovernment spending. The expenditure trend is positive and compareswell with other countries with similar per capita income.v Inaddition, total sector financing has benefitted from increased externalassistance, which reached nearly one-third of total public spending inhealth in 1990. Although the share of hospital expenditures has beendeclining slightly, from 48% in 1991 to an estimated 47% in 1992 and toa projected 46% in 1993, they still represent a high proportion of theMOH budget and show a strong curative care bias. At the same time,despite announced strong support for PHC from MOH (para. 1.9), PHCexpenditures have remained at about one-third of the health budget inrecent years, suggesting the need for budgetary increases to matchprimary health services priorities. The MOH is now in the position tocorrect its budgetary imbalances. That would require increasinghospital efficiency and cost-recovery in order to finance the expansionin PHC expenditures. In addition, the MOH needs to analyze itsoperating expenditures, aiming at more cost-effective performance.Recurrent costs, including salaries, account for an estimated 88% of theMOH expenditures. Of these recurrent costs, 53% consist of salaries,17% of drugs and medical supplies, and 30% of other operating expenses.The proposed project would support the MDH efforts towards moreefficient management of budgetary resources through strengthening theMOH planning department, assisting in the annual review of sectorexpenditures and budget (para. 4.6(b)), supporting the reform of thecurrent cost-recovery system and its expansion system-wide (para.4.9(c)), and improving drugs procurement practices (para 4.6(c)).

(b) Insufficient Cost-Recoverv. The NOH started a pilot cost-recoveryprogram in 1989 through user fees charged for curative services athospitals and PHC facilities. The goal of the program is to recover 25%of the operating costs excluding salaries, i.e., almost 12% of totaloperating costs. AB an incentive for hospitals, 90% of funds recoveredfrom user-fees are allowed to be retained at the facility level while10% is forwarded to the MCH regional office. These cost-recoverymeasures have already produced positive results. Local retentionpercentages for PHC facilities are slightly lower than for hospitals.'In 1991, L6.9 million or 2.2% of total MOH recurrent expenditures wererecovered, primarily by hospitals (the amount recovered by PHCfacilities accounted for 25% of the total recovered). User feesrecovered represented approximately 6% of recurrent expenditures,excluding salaries. Funds were used locally to purchase supplies anddrugs, fuel, food, and to cover building maintenance. In support of theprogram, the MOH has developed a comprehensive computerized system ofreporting user fees and revenues use, which represents an important

Y For example, in Bolivia, where GDP per capita at US$630 in 1990 is about10% above the Honduran level, health expenditures represented only 2.3% oftotal Central Government expenditures in 1990. World Bank, World DevelonmentReport. 1992. Comparable data for Haiti are unfortunately not available.

F In accordance with Government Agreement No. 0232 of February 1990, whichwas part of the USAID-sponsored Health Sector II Project. The PHC facilitiesare allowed to retain only 75% of the funds collected and must remit 25% tothe regional MOH office.

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asset for further development of the system. Improvements are stillneeded in the areas of: (i) cost-recovery incentives tailored to PHCfacilities, where preventive health services should be emphasized overcurative services; (ii) cost-recovery agreements between MOH and IHSSfor shared services; (iii) differential fees for privately insuredpatients; and (iv) an action plan to improve fees collection. Theproposed project would address these issues through a detailed review ofthe cost-recovery situation and the development of an action plan aimedat improving and expanding the MOH cost-recovery system (para. 4.9(c)).

(c) Less Than Efficient Personnel ManaQement. As a result of thebudgetary imbalance and inadequate planning, management of health sectorpersonnel is very deficient, especially with regard to: (i) theallocation by service level and geographic region; and (ii) the mix andlevel of skills. The MOH currently employs one professional nurse forevery two physicians and the ratio of one professional nurse to sevenauxiliary nurses is grossly inadequate to ensure appropriate care andsupervision. The great majority of physicians serves the metropolitanareas while rural areas lack all categories of health staff. Althoughthe MOH has started a training program to double the supply of nursesand other health technicians, it would not be sufficient and would stillleave severe shortages for these categories of personnel. The proposedproject would address these issues by strengthening the human resourcesdepartment of the MOH in charge of personnel planning and training, andby allocating additional staff to underserved rural areas (para.4.6(b)).

(d) Scarcity of Drugs and Medical Supplies. PHC facilities sufferfrom chronic shortages of medicines and other consumable items needed inthe performance of their functions. These shortages are a majorcomplaint of the population and one of the first reasons cited for notusing PHC facilities and giving preference to hospital services (para.2.11(b)). Although with assistance from USAID improvements have beenmade in the MOH capacity to store, distribute and inventory drugs, atthe local, regional, and central levels, serious inefficiencies stillexist. The major factors that account for the scarcity of drugsinclude:

(i) Inefficient procurement procedures that do not guaranteeleast-cost treatment protocols, delivery schedules that minimizelength of storage, quality control, appropriate bidding packages,or timely supply of drugs. As a result, the 171 of the MOH budgetspent on drugs buys approximately 30% to 40t less than would bethe case if appropriate procurement procedures were used;

(ii) Inadeauate budQetary allocation for drugs to be distributedto PHC facilities representing approximately one-half of theminimum requirements. Local drug requirements are determinedthrough a comprehensive inventory control system, established bythe MOH with assistance from USAID, which fairly accuratelyestimates the yearly demand. For 1992, the gap between projecteddemand and budgetary allocations was estimated at 42%; and

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(iii) Low incentives for distribution of aeneric drugs throuah theprivate sector. The drugs offered through private sectorpharmacies are predominantly brand names sold at relatively highprices. The small share of generic drugs in the private retailmarket is partly due to GOH regulations that provide littleincentive for the marketing of generic drugs. In addition, theindustry would need to improve its procurement, quality controland marketing strategies in order to significantly increase theshare of generic drugs in the market and lower the average retailprices for essential drugs.

The proposed project would increase the supply of drugs to PHCfacilities and improve efficiency of procurement procedures for drugsand medical supplies at the MOH. In addition, during the first year ofproject implementation, a study of the private sector drug market wouldbe carried out to explore the potential marketing of generic drugsthrough private pharmacies nationwide (para. 4.6(c)).

2.14. Rapid Progression of HIV Infection and AIDS. Recent data collected inHonduras point to a pattern of explosive epidemic in the spread of the HIVvirus and AIDS, similar to the early patterns observed in some Africancountries that are severely affected by the economic, social, and healthconsequences of the disease. Population-based HIV prevalence and AIDSincidence rates in 1991 have progressed to levels that are among the highestin Latin America: notified cases translate into a prevalence rate of 12.4 per100,000 inhabitants which is higher than the level reported in the U.S.A.(11.3 per 100,000). Data point to a very efficient heterosexual transmissionpattern among high risk groups which is beginning to affect low risk groups.A contributing factor to the extent and efficiency of HIV transmission is thewidespread presence of largely untreated sexually transmitted diseases (STDs).Experience in other developing countries has shown that a failure to addressthis public health threat carries the risk of permitting, over a period of afew years, the disease to grow to epidemic proportions. To strengthen itscurrent AIDS control program, the MOH is preparing, with assistance from thePan-American Health Organization (PAHO) and the World Health Organization(WHO), a Medium-term AIDS Control Program for the 1993-95 period, specifyingthe full range of control, prevention and treatment activities required tocurb the spread of HIV infection and AIDS, at an estimated cost of US$5.0million. This program would be presented by the GOH to the donor community inTegucigalpa in December 1992. The proposed project would support about 40% ofthe program activities (para. 4.6(d)), approximately matching the government'scontribution, and prospects of mobilizing the required additional assistancefrom grant sources, particularly from USAID and the Global Program on AIDS(GPA) are good. Complementing AIDS and STDs control activities, the projectwould support this program through: (i) incorporating into the protocols forprenatal care provisions for systematic detection and treatment of STDs thatare a risk factor for HIV infection; (ii) ensuring that nutrition educationcontain modules directed to mothers infected with the HIV; and (iii)monitoring the implementation of the Medium-term AIDS Control Program (para.4.6(d)).

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C. Sector Obiectives and Strateav

2.15. Obiectives. The GOH objectives for the health and nutrition sectors(Annex 18) are to reduce malnutrition, mortality, morbidity levels anddeveloping human resources capacity in general. The GOH strategy for thehealth and nutrition sector focuses on: (a) improving the nutrition status ofthe Honduran population by rationalizing and expanding nutrition assistanceprograms; (b) strengthening PHC services by improving the quality of servicesdelivered, especially the mother and child PHC services, by extending the PHCnetwork and related water and sanitation infrastructure, and by extending thecoverage of the food coupon programs to attract vulnerable groups to use MOHfacilities; (c) launching an AIDS control program; (d) increasing theefficiency of referral systems and specialized medical care; and (e)strengthening MOH's planning, budgeting, and evaluation capacity.

2.16. ImDroving the Nutrition Status of the Population. In October 1992, insupport of the GOH nutrition policy objective of significantly reducing theincidence of malnutrition in Honduras, Congress has extended the legal life ofthe PRAF indefinitely. The programmed expansion of coverage of the PRAF foodcoupon programs will be targeted to the poorest and most vulnerable women andchildren, through the MOH and the MOE primary services network. In addition,complementary nutrition education programs at health care facilities and localcommunities will be carried out, and all existing nutrition assistanceprograms will be better coordinated and adjusted to increase their efficiencyin addressing long-term nutrition assistance needs nationwide.

2.17. Strengthening PHC Services. For the period 1993-97, the MOH seeks toimprove the quality of basic health services delivered by: (i) betterdefining the package of services to be offered, including renewed emphasis onfamily planning education and birth spacing, and better organizing healthfacility activities; (ii) providing in-service training and strengtheningmedical supervision in the skills needed for delivering PHC servicesefficiently and courteously; (iii) deploying a majority of newly trainedparamedical personnel to PHC facilities; (iv) ensuring a more adequate supplyof medicines, supplies and other essential inputs, commensurate with theproper operations of PHC facilities; and (v) rehabilitating and re-equippingexisting PHC facilities to the minimum standards required for efficientdelivery of the services expected of them. In addition, the MOH seeks toextend the coverage of the PHC system by constructing, equipping, staffing,and operating additional facilities in undeserved areas and constructingsimple water supply and sanitation works with community support. Demand forprimary health services by the most vulnerable groups of women and youngchildren is expected to increase significantly in response to the expansion ofthe BMI food coupon program, thus ensuring high utilization of the improvedPHC services provided by the MOH.

2.18. Launching an AIDS Control Program. To contain the risk of a full blownAIDS epidemic, the MOH intends to present to the international donor communityan integrated AIDS program focussing on HIV/AIDS monitoring and preventionmeasures (para. 2.14). As part of this program, efforts will be made todetect and treat other STDs that constitute a major cofactor in thetransmission rates of the HIV. Prevention measures would be expanded through:(i) community level education, mass communication and peer support; (ii) PHC

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services in the context of prenatal care and control of STDs; and (iii) at thehospitals.

2.19. Increasing efficiency of referral and specialized medical care withoutincreasing the level of public resources allocated to hospitals would besought by the MOH through: (i) focusing hospital activities and resources onreferral and specialized services and assigning to ambulatory and PHCfacilities the simpler tasks of providing basic and preventive health careservices; (ii) requiring all hospitals to meet the appropriate accreditationstandards by 1994; (iii) granting hospitals increased financial autonomy andaccountability; and (iv) generalizing cost-recovery at an affordable level.These programs are already underway. Their financial impact would bemonitored in the context of redressing the intra-sectoral allocation ofresources.

2.20. Strengthening MOH's planning, budqeting and evaluation capacity by: (i)assigning additional staff to the Planning Department and the Human ResourcesDivision; (ii) improving resource allocation by carrying out systematicexpenditure reviews and installing more efficient management informationsystems; (iii) evaluating the ongoing cost-recovery programs and preparingaction plans for generalizing cost-recovery; (iv) strengthening the analyticalcapability of the planning department to evaluate policy and program impactusing sample surveys and performance indicators; and (v) promoting greaterparticipation of the private sector and NGOs in the provision of health andpharmaceutical services.

2.21. ImDroving coordination among social sector agencies and programs TheSCES was created in 1991, through Executive Agreement No. 841, with the basicobjective of providing technical assistance to the Social Cabinet on humanresources development. The SCES has two major functions which help theGovernment implement its social sector policy reforms: (i) it helpscoordinate the Government's social sector policies and programs undertaken byvarious line ministries and agencies; and (ii) it monitors the achievements ofthe Government's targets for the social sectors, analyzes the effectiveness ofsocial programs and provides feedback to the Social Cabinet. The ExecutiveSecretary, who heads the SCES, is appointed by the President (Agreement No.1708 of August 1991) and supervises a high-quality staff of six professionals,including an economist, lawyer, demographer, educator, public healthspecialist and financial analyst. Funding for the SCES has been provided bythe Japanese Grant Facility, the United Nations Development Programme (UNDP)and UNICEF and, starting in FY93, budgetary support from the Office of thePresidency. Additional support to strengthen the SCES's institutionalcapacity would be provided under the proposed project (para. 4.9).

2.22. Improving coordination of water supolv and sanitation nrograms. Watersupply and sanitation services, which directly impacts upon the health statusof the population, also need improvements in coordination. Since the approvalof the Health Code (Congressional Decree No. 65-91 of May, 1991) the GOH hastaken a positive step towards promoting environmental health and, at the sametime preserving natural resources. The code covers environmental sanitationdealing with water sources, storm runoff, sewage and excreta disposal, aircontamination, solid wastes and housing. An MOH commission is presentlyworking in the by-laws and on the procedures that would be used to enforce theCode. The sector institutions responsible for water supply and sanitation

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services include the National Water and Sewerage Service Company (SANAA), theMOH through its Environmental Sanitation Division, and the Municipalities andthe National Environmental Commission (CONAMA). Although the MOH is theagency with overall responsibility for setting the policies and operatingnorms for water supply and sanitation, the sector still lacks overallcoordination and, sometimes, agencies exercise overlapping activities. TheGOH recognizes the need to restructure the water supply and sanitation sectorand to further promote its institutional development. To this end, the GOHplans to undertake a study in 1993 to analyze the main sector issues and torecommend appropriate solutions, taking into account the new municipal law.IDA intends to assist the GOH in its effort to promote improvements in servicedelivery and sector management through technical assistance to be providedunder a technical assistance sector operation planned for FY93. Theenvironmental health component under the proposed project, although in verysmall scale, addreeses the key issue of sector decentralization through localoperation and maintenance of the systems built (para. 4.9 and Annexes 16 and19).

2.23. StrenQthening monitoring and evaluation caoacitv. To permit systematicevaluation of the effectiveness of social spending by the public sector, theGOH has expanded its regular data collection program through the creation ofspecial module to monitor the impact of its social programs on the welfare ofthe Honduran population. Specifically, the multiple purposes household surveyhas been expanded to incorporate a Living Standards Measurement Survey (LSMS),including key social variables and consumption patterns in addition to basicdemographic, employment and income information, under the leadership of thePlanning Ministry (SBCPLAN). This LSMS was introduced as a component underthe FHIS-I project with support from IDA. Improvements to the LSMS are nowbeing planned and would be completed by early 1993. In parallel, the SCES isfocusing on analyzing available social indicators data and on sharpening thetechnical specification of indicators to measure performance of specificprograms. These initiatives would be supported under the proposed project(para. 4.9 and Annex 6).

2.24. Fosterina Donor Coordination. The donor community has activelysupported the GOH health and nutrition programs for several decades. TheInter-American Development Bank (IDB) has focused on expansion of PHC andhospital infrastructure, is presently financing the water supply andsanitation program of SANAA in urban and rural areas, and will further assistin the provision of social infrastructure through financing of the FHIS-IIproject. USAID is currently providing technical and financial assistance tothe MOH and SANAA to support, strengthen and continue the process of extendingcoverage of efficient, sustainable and effective PHC and rural water andsanitation services with an emphasis on child survival through its HealthSector II project. As part of its health assistance program, USAID alsosupports the design and implementation of periodic health and nutritionsurveys. In addition, USAID, WFP and BBC provide food in-kind for targetednutrition assistance programs (para. 2.15). The BEC is also currentlyfinancing an extensive program of expansion of rural water supply andsanitation. A MOH hospital infrastructure and equipment project financed bythe Government of Japan was recently completed and continued assistance fromJapan is being provided for training programs for paramedical staff.Donations from the Government of Spain have enabled the MOH to replace medicalequipment in older hospital facilities. United Nations (UN) agencies

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including UNICEF, PAHO, WHO, and UNDP have continued to provide technicalassistance to the MOH in the areas of policy planning and program development,training, computer systems, and epidemiological information systems. IDA'sinvolvement through the proposed project would contribute to promote donorcoordination in the nutrition and health sectors, especially by: (i)assisting the GOH in securing donor participation for the formulation andimplementation of a long-term national nutrition assistance policy (para.4.4(a)); (ii) attracting additional donor assistance for further support ofthe PRAF food coupon programs (para. 4.4(b)); and (iii) assisting the GOH inmobilizing additional resources to control the AIDS epidemic (paras. 2.14 and4.6(b)). In parallel to the project, IDA would collaborate with the donorcommunity in assisting the GOH's efforts to better coordinate water supply andsanitation sector investments and improve sector organization through acomprehensive sector study scheduled to commence in 1993 (Annex 18).

III. LESSONS FROM THE PRAF PILOT FOOD COUPON PROGRAMS

A. Overview of the Programs

3.1. The principal objectives of the PRAF food coupon programs are threefold:(i) to transfer income to low-income families most vulnerable to contractionsin income; (ii) to reduce the incidence of malnutrition among young children,which has been increasing among children under five (para. 2.1); and (iii) topromote efficient use of public social services and expenditures, inparticular, the services provided by health centers and primary schools. In1991, the average number of MOH consultations was 0.6 per capita per annum,which is 601 below the applicable international norm. Furthermore, between1982 and 1991, the growth rate for check-ups received by children under ageone was below population growth, indicating a declining number ofconsultations per infant. Similarly, primary education left much room forimprovement in both quantitative and qualitative terms: while primary schoolenrollments are high, outcomes are inadequate due to high dropout andrepetition rates (para. 1.8).

3.2. PRAF was created on August 7, 1990, through Presidential Decree No.1208-A and ratified by Congressional Decree 127-91 published on November 22,1991. That law was amended by Congressional Decree No. 135-92 published onNovember 14, 1992, extending PRAF's legal life indefinitely. PRAP isconstituted as a decentralized entity of the Presidency, with administrative,technical and financial autonomy to carry out the food coupon programs andwomen's training programs designed to assist the mother of children whobenefit from the food coupon programs in generating income and being capable,through their own efforts, to have their children phased-out of the program.PRAF is headed by an Executive Director, appointed by the President, who isalso a member of the Cabinet and responds directly to the President of theRepublic. The current incumbent has had previous Cabinet position experience,having been Vice-Minister of Transport in the 1970s. He has been in hiscurrent position since the creation of the PRAF in 1990 and is a wellrespected personality in the country. PRAF's organization chart is presentedin Annex 11. PRAF's permanent staff consists of 60 professional and technicalpersonnel, most of them occupied in administering the food coupon programs. Amanagement audit was undertaken by USAID in August 1991. The mainrecommendations, which have been implemented, were that PRAF improve: (i) its

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accounting procedures; and (ii) its computerized management informationsystems. PRAF's managerial capacity will be strengthened in monitoring andevaluation and financial management (para. 3.6 and Annex 9). An experiencedmanagement information system (MIS) director was appointed in mid-1992 and isin the process of installing an appropriate MIS. Technical assistance will beprovided under the project to strengthen the MIS (para. 4.4(c)). PRAF'sfinancial management receives strong support from the Central Bank of Honduras(CBH). Under the project it will be further strengthened through technicalassistance (para. 4.4(c)). The CBH retains the financial control of couponemission and redemption while leaving to PRAF the administration of the coupondistribution through the banking system and local MOH and MOE personnel, asexplained below (para. 3.3).

3.3. The logistics of the PRAF food coupon programs work as follows. PRAFprepares annual projections of BMJF and BMI coupons, in collaboration with theMOB and MOH, and presents these projections to the CBH. The CBH requests fromthe Ministry of Finance (MOF) the corresponding budget allocation to the PRAFspecial account and issues the coupons on security paper in L20 denominationswith an expiration date of four months from issue date. This prevents couponsfrom remaining in the system as another monetary unit and ensures expenditureof the budget allocation. PRAF distributes the coupons through selectedbanking institutions with branches in the distribution area. Local staff fromthe MOE and MOH, supervised by PRAF, take the coupons from the banks toparticipating schools and health centers, where security boxes are provided tokeep the coupons until distribution. Distribution occurs twice per year atprimary schools and monthly at health centers. Beneficiaries use the couponsto buy food and other essential items at local retail stores. Retailers cashthe coupons at local banks which, in turn, redeem them at the CBH. The CBHreturns the voided coupons to PRAF with a statement of accounts.

3.4. Under the BMI (para. 2.5(d)) health centers' participation in the pilotprogram was based on: (i) poverty criteria; and (ii) geographic proximity toTegucigalpa, to facilitate monitoring during the pilot phase. In December1991, the BMI benefitted an estimated 13V of poor children under five andpregnant and nursing women at risk of malnutrition, financing about 201 of thevalue of their minimum food requirements. In collaboration with the PRAF,which has been responsible for the financial administration and evaluation ofthe program, the MOH has helped to define where the program would operate andits eligibility criteria. The pilot BMI program covered three low-incomedistricts in Tegucigalpa, 11 municipalities in the department of Valle, andtwo municipalities in the department of Copan. In 1991, the total annual costof the program per beneficiary was US$55, of which 23* represented PRAF'sadministrative costs. Economies of scale accruing during the programmedexpansion of the BMI under the proposed project are expected to reduce theshare of administrative costs to approximately 6* of the value of the subsidy(Annex 10).

3.5. In the BMJF program (para. 2.5(d)), local level MOE staff selected thebeneficiaries based on a teachers' survey of their students' family income,family size, and parents' civil status. In December 1991, the BMJF benefittedabout 561 of the children in grades one through three at risk of malnutrition,financing about 171 of the value of their minimum food requirements. PRAF hasbeen responsible for the financial administration and evaluation of the BMJFprogram. Currently, the program covers 3,100 schools in seven of the 18

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departments (Copan, Cortes, Choluteca, Francisco Morazan, Intibuca, Lempira,and Valle). In 1991, the total annual cost of program per beneficiary wasUS$43, of which 16% represented PRAF's administrative costs.

B. Evaluation Findings and Lessons Learned

3.6. An evaluation undertaken under the FHIS-I project showed that the BMI iswell-targeted and has had a positive impact on the income of families withpregnant and nursing women and children under five. In 1991, it transferredfood coupons equivalent to US$1.4 million to low-income families. The programhas led to increased use of health facilities and to a shift in the demand forhealth services towards preventive services, which are cost-effective andpoverty oriented. The number of MOH consultations rose by 131* inparticipating facilities in 1991, compared to the same period in 1990 (Annex8, Table 1). The BMJF is also well-targeted and has had a highly positiveimpact on income levels, and in 1991 transferred an estimated US$4.6 millionequivalent food coupons to poor families. Thanks to its eligibility criteria,the program has had a malor imDact on primary school enrollments. In 1991,enrollments rates rose on average by about 12% in the participatingdepartments, compared to a historic annual increase of 3%. Primary educationperformance has also improved in participating departments: in 1991, dropoutrates declined on average by 1.3% to an average of 11.8, and repetition ratesdeclined on average by 0.4% to an average of 3.2% compared to the previousyear, whereas they remained at substantially the same levels elsewhere (Annex8, Table 2). The targeting experience under the pilot program was used todetermine the targeting criteria under the project (para. 4.4(b)). Inparticular, PRAF will apply simpler and standardized eligibility criteria andwill improve the reliability of its targeting of the BMJF by usingmalnutrition rates rather than means assessment.

3.7. Initial apprehension that the food coupon programs might have a negativeimpact on inflation have been shown to be unfounded, as the size of theprograms have been very small compared to the relevant national aggregates.

3.8. Similarly, the fear that the BMI might have a negative impact on familyplanning acceptance among poor rural women has proven to be inaccurate. Infact, the latest MOH epidemiological survey, conducted in 1991, showsdeclining fertility rates in rural areas including those covered by the BMIfood coupon program.

3.9. However, the evaluation also found that both orograms still face someimolementation issues. While PRAF has already incorporated into itsOperational Manual improvements to coupon distribution methods, it still needsto improve eligibility criteria and, in the case of the BMJF, the frequency ofcoupon distributions (para. 4.4(b)). There are also weaknesses inadministrative capacity, especially monitoring and evaluation. In addition,the improved coverage rates in basic health and education service utilizationcall for complementary actions to be taken by the MOH and MOE to improve thequality of services offered as part of the GOH's social safety net. Under theproposed project, PRAF would improve the logistics for coupon distribution andits administrative procedures, including more frequent auditing, additionaltechnical staff, and the information system (para. 4.4(c)).

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3.10. As to the advantages and disadvantages of the channels used by PRAF forcoupon distribution, the evaluation indicates that there should be a largerexpansion of the BMI than of the BMJF, given the health benefit accruing fromnutrition assistance provided to unborn and very young children who can bereached before exposure to malnutrition might have caused permanent damage.The BMJF, on the other hand, has had major impact on education throughincreased enrollment and additional education efficiency benefits areexpected. Moreover, the MOE primary education network is wider in itscoverage than the primary health network, and allows to cover a largeproportion of the most vulnerable groups. Accordingly, under the proposedproject, preference would be given to the expansion of the BMI (para. 4.4(b)),but the BMJF would remain a major channel for the PRAF.

3.11. In addition, the evaluation verified that the food coupon orograms areless costly to administer than nutrition assistance orograms that distributefood in-kind (para. 2.5). The much simpler logistics of coupon distributionthrough the banking system and its easy redemption through the food retail andbanking networks make for much lower operating costs as a percentage of thesubsidy provided than those incurred in operating food distribution in-kind.The latter requires intensive supervision for procuring and transportingcommodities, packaging and distributing food rations, controlling for theftand food quality, and covering insurance on theft and spoilage. Also, therisk of food spoilage and contamination at centers where food is stored israther large in view of the poor state of repair of most facilities. Apreliminary estimate of the financial impact of monetizing food in-kindnutrition assistance programs and replacing them with the food coupon programindicates that as much as US$3.2 million could be saved each year inadministrative costs.

3.12. The above comparison between the PRAF and other nutrition assistanceprograms has shown that soecific programs should be part of a comorehensivenutrition strateav, based on an evaluation of the sustainability and relativeefficiency of existing programs, an analysis of the effects and longer-termimpact of nutrition assistance and income generation activities, and arationalization of different types of nutrition interventions to form acomprehensive strategy suitable for promoting efficient and technically andfinancially sustainable improvements in the nutritional status of the Honduranpopulation (para. 4.4(a)).

3.13. The widespread acceptance of the oroarams by beneficiaries, implementingagencies, participating retailers, and banks is a clear indication that theyhave reached their primary objective of providing an efficient safety net forvulnerable groups that were affected by some of the economic adjustmentmeasures. The benefits of the coupon programs have led donors to considermonetizing existing in-kind food aid programs am they reach their completion,particularly since the food coupon programs have not had inflationary effects.As a result, the project would have a significant involvement from otherdonors who would finance 31% of the total cost of the proposed project (paras.4.13 and 4.17).

3.14. The PRAF pilot BMI program has shown the need to strengthen PHCservices, especially of maternal and child health services, including familyplanning, to meet the increased demand for primary health services which hasbeen generated by the food coupons distribution. This would be addressed

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under the proposed project, which would help the MOH: (i) rehabilitate andexpand PHC facilities including basic equipment and referral capacity (para.4.6(a)); (ii) expand the provision of potable water and basic sanitation(para. 4.7(a)); (iii) allocate additional staff for preventive PHC services atthe regional and local levels (para. 4.6(b)); (iv) strengthen technicalpersonnel in key central functions (para 4.6(b)); (v) carry out in-servicestaff training programs (para. 4.6(b)); (vi) improve staff supervision (para.4.6(b)); (vii) improve organization of health services and coupon distributionat participating health centers (paras. 4.6(a) and 4.6(b)); and (viii) ensurethe supply of essential drugs and supplies at PHC facilities (para. 4.6(c)).

IV. THE PROJECT

A. Origin of the Proiect

4.1. The proposed project originates from: (i) the successful implementationof the PRAF pilot food coupon programs, started by the GOH in 1990 andsupported by IDA as part of the FHIS-I project to prevent increases inmalnutrition and deterioration of health status of the population during theeconomic adjustment period; and (ii) the urgent need recognized by the GOH andIDA, through the implementation of the BMI pilot food coupon program, toimprove delivery of PHC services.

B. Obiectives

4.2. The proposed project would help achieve the following objectives: (a)protect groups particularly vulnerable to the economic adjustment process bychanneling nutrition assistance to improve the nutrition status of childrenand pregnant and nursing women among the poorest segments of the population;(b) support the development and implementation of a longer-term nutritionassistance strategy for Honduras; (c) reduce maternal, child and infantmortality and morbidity rates by improving access to basic health services andsafe water supply and sanitation, by improving the quality of servicesprovided by the MOH, and by supporting health, nutrition, and family planningeducation activities; (d) strengthen the institutional capacity of the MOH,the PRAF and the SCES for sector planning, program formulation, monitoring,evaluation, and improve efficiency in the procurement of drugs; and (e)control the spread of AIDS.

C. Description

4.3. The project would have four components:

(a) Exoandina Nutrition Assistance and Develodina a Longer-termNutrition Policy (US$32.2 million equivalent to 59% of total projectcost) through: (i) formulation and implementation of a longer-termnutrition policy (0.2%); (ii) expansion of food supplements through thePRAF food coupon programs to about 255,000 poor, pregnant and nursingwomen, children under five, and primary school children in the 13departments with the highest malnutrition rates (55W); (iii) technicalassistance to strengthen PRAF's institutional capacity to administer theprogram in the project area (2%); (iv) nutrition education for healthstaff, community workers and mothers focusing on breast-feeding, weaning

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and early childhood feeding practices (2t); and (v) annual nutritioncensuses at public primary schools (1i);

(b) Strengthening the Delivery of Basic Health Services (US$16.7million equivalent to 31% of total project cost) including: (i)rehabilitation of about 130 health care centers and construction of anestimated 30 additional health centers in priority rural areas whereservices are currently not available (7'); (ii) improvement of MOHinstitutional capacity through additional staff, staff training andsupervision and institutional support to the project unit of the MOH(6W); (iii) incremental costs of drugs for the PHC network and technicalassistance to improve the efficiency of pharmaceutical procurement(13%); and (iv) support of the formulation and implementation of amedium-term national AIDS control program (4W);

(c) Improving Environmental Health (US$4.1 million equivalent to 7W oftotal project cost) through provision of: (i) rural water supply andrural sanitation supported by community participation, benefitting about60,000 people in poor underserved communities in four departments(7.9%); and (ii) a medical waste disposal training program (0.1W); and

(d) Monitoring. Evaluation, and Auditinq (US$1.2 million equivalent to2W of total project cost) including institutional strengthening of theSCES.

A more detailed description of the project components is provided below.

4.4. Exoansion of Nutrition Assistance (US$32.2 million includingcontingencies). This component would provide incentives for those most atrisk of malnutrition to use PHC and primary education services to improveopportunities for sustainable human capital development. Specifically, thecomponent would provide for:

(a) Formulation and Implementation of a Longer-term Nutrition Poli(US$0.1 million). This subcomponent would finance consultants' servicesto assist the GOH in the preparation of a longer-term nutritionassistance strategy that would be discussed during the first annualproject implementation review (para. 4.36), and subsequently beimplemented by the GOH in collaboration with the donor community. Thestudy would: (i) analyze the extent and causes of malnutrition inHonduras, review existing nutrition assistance programs, establish thepriority modes of intervention and mechanisms to avoid overlap betweenprograms, and make recommendations for specific program adjustments toimprove program outcomes; (ii) formulate a national nutrition policy toguide implementation of nutrition assistance programs. This wouldinclude phasing-out or restructuring of some other existing nutritionassistance programs; and (iii) develop an action plan for policyimplementation. The terms of reference for this study are presented inAnnex 17. The subcomponent would be wholly financed by the proposed IDACredit. At negotiations, the Borrower presented a signed letter to IDAdescribing its health and nutrition policies and declaring itscommitment to the implementation of such policies, satisfactory to IDA(Annex 18). During neaotiations. agreement was reached that theBorrower. through the MOH, would: (i) formulate a lona-term nutrition

29

Policy and Dresent a draft policy statement to IDA by November 15. 1993:(ii) discuss that volicy with IDA durina the first annual review ofvrolect imvlementation, no later than December 10. 1993: (iii) Prepargan action plan, satisfactory to IDA. to imr=ement the policy by Janua-v31, 1994: (iv) commence the imlementation of the action planimmediately thereafter: and (vl complete the imwlementation of theaction plan, in a manner satisfactory to IDA. by December 31, 1995(para. 6.1(a)).

(b) Exoansion of the PRAF Food Coupon Proqrams (US$30.0 million).

This subcomponent would support a 44% expansion of the food couponprograms administered by PRAF, raising coverage from 25% to

approximately 40% of the target group nationwide. PRAF would carry outthe expansion in accordance with criteria and targets, agreed with IDA,

included in its Operational Manual (Annex 19), described in theexpansion plan for the food coupon programs (Annex 10). Atnegotiations, PRAF provided a draft Operational Manual, satisfactory to

IDA. During negotiations. agreement was reached: {i) on PRAF'stargeting criteria and expansion plan for the BMI and BMJF food couponprograms, satisfactory to IDA and that these criteria would beincorporated in PRAF's Operational Manual: and (ii) that PRAF would onlymodify its Operational Manual with prior IDA consultation and agreement(para. 6.1(b)). As a condition of effectiveness, a finalizedOperational Manual, satisfactory to IDA. would have been approved andadopted bA PRAF (para. 6.2(a)). The expansion plan contemplates more

than doubling the BMI coverage from about 56,000 in three departments to

about 124,000 pregnant and nursing mothers and children under five,

covering six additional departments. The BMJF, which currently has a

higher coverage than the BMI, would be expanded at a slower rate of

about 3W per year, from 120,200 to approximately 131,000, to cover

eligible students entering the first grade in seven departments

presently covered by the program. Those eligible to participate in the

BMJF program would be students entering the first grade and showing

symptoms of chronic malnutrition (stunting) measured by the national

School Nutrition Census (para. 4.4(e)). PRAF would increase the

frequency of BMJF distribution from two to four times a year to increase

propensity of coupon use in purchasing food, as recommended by IDA

(Annex 9). The expansion of the BMI food coupon program would be guided

by the following criteria: departments and municipalities with a

stunting rate above 40* would have priority; within priority

municipalities, the poorest villages would be targeted based on lack of

access to potable water and adequate sanitation; and in each village,

all pregnant and nursing women and al_ children under five years of age

would be eligible (Annex 10). The BMI expansion would not be carried

out in the same departments covered by the BMJF to avoid further

overlapping of benefits that occurred in the pilot stage. In accordance

with PRAF's Operational Manual, the distribution of both the BMI and the

BMJF would be made through the banking system. Attention would also be

given to avoiding overlapping between the food coupons expansion and

existing nutrition assistance programs that distribute food in-kind.

The quarterly operational audit of the PRAF (para. 4.34) would ensure

that any beneficiary overlapping that might occur would be immediately

corrected by PRAF. During the life of the project, the share of the BMI

would be increased from about 32% to nearly 45W of the total number of

30

beneficiaries. The proposed IDA Credit would finance US$6.0 millionequivalent, or 20% of the estimated cost of the food couponsubcomponent. Regarding the maintenance of the value of the foodcoupons, should the consumer price index in Honduras rise more than 25%,PRAF would adjust the denomination of the coupons accordingly.

(c) Technical Assistance to StrenQthen PRAF's Institutional Capacity(US$0.9 million). Under a technical assistance agreement, satisfactoryto IDA, signed on April 30, 1992, UNDP would provide US$0.3 milliontowards the cost of consulting services, training, promotion activities,equipment and vehicles. IDA would provide an additional US$0.6 millionover the life of the project. PRAF has already filled key positionswith technical staff satisfactory to IDA and would, under the project,contract consulting services to further improve the quality andoperational efficiency of the food coupon programs. In addition, theproposed IDA Credit would finance external auditing of the PRAF,including annual financial audits and quarterly operational audits(paras. 4.33-4.34).

(d) Nutrition Education (US$0.9 million). The objective of thissubcomponent is to train health staff and community workers inappropriate feeding practices that would ensure adequate nutrition forpregnant women, exclusive breast-feeding during the first six months ofinfants' lives and adequate weaning and feeding practices for childrenup to two years of age. The project would provide for: (i) training ofMOH personnel; (ii) supervision and evaluation of the nutritioneducation program; (iii) basic equipment; and (iv) operations researchon HIV transmission through breast-feeding. These activities would becarried out by the MOH in collaboration with the Breast-feeding Leagueof Honduras (La Liga de la Lactancia Materna de Honduras, BFLH) andUNICEF (Annex 12). The proposed training is an essential element toenhance the quality of maternal and child health care provided by theMOH. It would also contribute to improved birth spacing, familyplanning acceptance, and control of STDs. The final beneficiaries wouldcomprise about 128,000 pregnant women and over 100,000 children lessthan two years of age in four health regions in the project area. IDAwould finance US$0.8 million of the estimated costs of the subcomponent,including all investment costs and a declining share of the recurrentMOH staff costs. Under parallel financing, UNICEF and USAID wouldfinance the creation of a national network of nutrition counsellors atthe village level and the establishment of a center for breast-feedingorientation and documentation by the BFLH.

(e) Annual School Nutrition Census (US$0.3 million). Thissubcomponent would entail anthropometric measurement of all 6-9 year oldstudents entering the first grade of public schools nationwide. Thecensus, to be carried out annually, would be used to improve targetingof the PRAF BMJF food coupon program. The census would be implementedby the SCES, and would be wholly financed by IDA (Annex 17).

4.5. The cost of the expansion of the PRAF food coupon programs under theproject includes the cost of the subsidy (94%), coupon emission (0.6%),banking costs (1i) and PRAF's overhead (4.4%). Thus, PRAF's directadministrative costs are estimated at 6% of total program expansion costs,

31

which is reasonable. This compared favorably with a median 9's administrativecost observed for 30 targeted social sector programs in Latin America in the199OsLO. PRAF's overhead consists of: (i) program management; (ii)management information system; (iii) administrative costs associated withsupervision of coupon distribution including counting and packaging coupons,vehicles and field staff; (iv) central office staff and equipment allocated tothe food coupon programs; (v) public information services directed at finalbeneficiaries and local merchants; and (vi) program evaluation. The costs oftechnical assistance to PRAF are not included. Total disbursements areestimated at US$8.9 million in the first year, US$10.1 million in the secondyear, and US$11.0 million in the third year. IDA would finance US$6 million,equivalent to 20% of total program cost on a declining basis over the projectimplementation period (para. 4.16). Monetized in-kind food aid provided byUSAID and WFP would finance US$13.0 million, equivalent to 43% of totalprogram cost. The financing agreement between PRAF and the WFP, signed inAugust 1992, provides for an additional US$0.7 million to finance initialprogram expansion during 1992, which is not included in the project'sfinancing plan. The GOH would finance US$7.5 million or 25% of total programcost. There is still a financing gap of US$3.5 million which is expected tobe filled by additional contributions from the donor community (para. 4.15).

4.6. StrengtheninQ Delivery of Preventive Health Services (US$16.7 million).This component would comprise the following subcomponents:

(a) Rehabilitation and Construction of PHC Centers (US$3.9 million),including: (i) rehabilitation and re-equipping of about 130 PHC centersin the project area; (ii) construction and equipping of 30 new centersin priority poverty areas not currently served; (iii) creation of amaintenance fund to be locally managed to cover routine maintenance ofbuildings, equipment and vehicles; (iv) a feasibility study for a radiocommunication network to improve referrals, test of the system with tenexperimental stations during the first year of project implementation,and if successful, expansion of the network to an additional 30 stationsin the following two years of project implementation. Terms ofreference for this study are described in Annex 17; and (v) vehicles tobe used in supervision of PHC services operation including preventivemaintenance. In defining the scope of this component, priority wasgiven to the rehabilitation of existing centers, given the pressingneeds for extensive repairs facing the system and considering thatrehabilitation has lower initial and incremental operating costs thannew construction. The selection of centers to be rehabilitated underthe project was made according to the following criteria: (i) centersto be located in the BMI project area; (ii) rehabilitation works not toexceed a limit equivalent to US$10,000 per center; and (iii) location inpoor areas with high rates of malnutrition. For construction ofcenters, location would be determined according to: (i) priority areasin the BMI project area; (ii) underserved population in the catchmentarea ranging from 1,500 to 3,000 people, that is, corresponding to theservice capacity of a CESAR; and (iii) five to ten km minimum distanceto the nearest PHC centers. For new construction as well as for

1' The World Bank. "From Platitudes to Practice: Targeting Social Programsin Latin America" (2 Vols.). Report No. 10720-LAC. Washington, D.C. June1992.

32

rehabilitation, the proposed solution would be the least-cost solutionor the only alternative. Final designs are available for 32 centersalready selected and programmed for rehabilitation in 1993. Apreliminary selection of 70 additional centers to be rehabilitated hasbeen done and final designs are underway. The location of new centershas been also identified in accordance with the selection criteriaspecified above. A prototype architectural design for the new CESARshas been developed, comprising two clinics and sanitary facilitieswithin about 100 m2 floor area. The corresponding list of requiredmedical and laboratory supplies has also been prepared (Division Files).IDA would finance US$3.5 million equivalent to 91% of the estimated costof the component, and the balance would be financed by projectbeneficiaries. Community participation was estimated at 9% of the costof construction and includes the cost of fences surrounding the PHCcenters, some painting work and minor repairs (Annex 13). Durinanegotiations. agreement was reached on the criteria for selection ofhealth centers to be rehabilitated and for the location of healthcenters to be constructed (para. 6.1(c)(i)).

(b) Improvement of MOH Institutional Caxacitv (US$3.4 million). Thiscomponent is designed to improve the quality of basic health servicesprovided by the MOH in the project area, strengthen MOH's capacity toadminister these services and improve sector planning and budgeting.Specifically, the following would be provided: (i) additional healthstaff that would be allocated to primary health centers includingapproximately 28 physicians, 63 professional nurses, 168 auxiliarynurses, six laboratory technicians, six teaching staff for auxiliarynursing schools, and 40 health promoters; (ii) establishing of a ProjectUnit at the MOH Planning Department consisting of eight professionalstaff and four auxiliary staff; (iii) in-service training for all levelsof staff engaged in the provision of basic health services in theproject area; and (iv) strengthening of staff supervision (Annex 14).The incremental PHC staff would be allocated to the BMI project area,covering entire health areas (rather than restricted to the specifichealth centers where the food coupons would be distributed), so as toexpand the institution building impact of the project to a wider segmentof the MOH basic health system. The IDA Credit would finance US$2.4million of the estimated cost of this component, including recurrentcosts on a declining basis. The Borrower has already created andstaffed the Project Unit and prepared training guides and materialssatisfactory to IDA (Annex 14). Durina negotiations. aareement wasreached on criteria for allocation of MOH's plan for incrementalstaffina in the BMI project area (para. 6.1(c) (ii)). Agreement was alsoreached that the MOH Proiect Unit would be headed by a aualifiedprofessional and assisted by aualified staff. satisfactory to IDA (para.6.1(d)).

(c) Basic Druas (US$7.2 million), including US$4.7 million of theproposed IDA Credit, would be used for the procurement of essentialmedicines for the PHC network. The MOH has already improved itscapacity for inventory control, storage, and distribution of drugs inrecent years, with assistance under USAID's Second Health SectorProject, but improvement needs to be made in procurement. Thus theurgent need to increase the efficiency of the resources allocated for

33

drugs by the MOH (Annex 15). This subcomponent would finance: (i)additional pharmaceutical drugs used by the MOH in the primary healthservices network nationwide; (ii) technical assistance and training toimprove the procurement of drugs by the MOH; and (iii) a study todetermine regulatory and other factors constraining the privatemarketing of generic drugs in Honduras, and recommend appropriatesolutions, to be carried out during the first year of projectimplementation in accordance with terms of reference specified in Annex17. The medicines to be financed by IDA would be procured from UNICEF(para. 4.22). During the first project implementation year improvedprocurement practices would be introduced by the MOH for all medicines,and technical assistance provided to the MOH throughout projectimplementation would ensure MOH's adoption of the improved procurementpractices recommended by IDA. Proper use of medicines at PHC facilitieswould be ensured through staff training under the project (para.4.6(b)). With support from the Japanese Grant Facility, training andcomputer equipment has been provided to the MOH during projectpreparation. The IDA Credit would finance US$4.8 million or 671 of theestimated cost of the subcomponent, including all investment costs andpart of the recurrent costs of medicines on a declining basis, and theGOH would finance the balance. Durina necaotiations. aareement wasreached that the Borrower would Dresent. no later than December 10 ofeach year, starting in December 1993, a schedule for the Drocurement ofdruas under the rroiect. satisfactorv to IDA (para. 6.1(e)). TheBorrower has presented such a schedule for 1993, satisfactory to IDA.

(d) AIDS Control Proaram (USS2.2 million). In response to the rapidincrease in HIV infection and reported AIDS cases which have caused theGOH to declare a national emergency, this subcomponent would finance:(i) technical assistance for the preparation of a Medium-term AIDSControl Program for the 1993-1995 period; and (ii) the implementation ofthe AIDS Control Program. The activities to be financed under theproject would be carried out by the MOH, comprise: technical assistancefor preparing the final design of the Medium-term AIDS control program;medical and laboratory supplies, including medicines to treat sexuallytransmitted diseases and biosecurity supplies; NGO services andtechnical assistance to help promote behavioral change among high riskgroups; specialized training for health staff; equipment for laboratorytesting and blood bank control facilities; consulting services,including publicity services and preparation of information, educationand communications materials. Technical assistance and financing forprogram preparation would be provided by PAHO/WHO. The program andfinancing plan would be presented to the donor community, inTegucigalpa, before the end of 1992. The total cost of implementationof the three-year program is estimated at US$5.2 million. PAHO wouldprovide US$0.08 million and the IDA Credit would provide US$2.1 millionor 40% of estimated cost of program implementation. Additional supporttotalling US$3.0 million would be provided by the Government (US$2.0million), USAID (US$0.7 million) and the GPA (US$0.3 million). A"Acondition for disbursement for the AIDS Control Proaram. the Borrowerwould provide IDA with a satisfactory AIDS Control Proaram for the 1993-1995 period and a financing plan. satisfactory to IDA. for theimplementation of such vroaram (para. 6.3(a)). In addition, under theproposed project, operating procedures, staff training programs, and

34

information activities provided through the PHC network wouldincorporate appropriate preventive measures to detect the presence andslow the transmission of the HIV virus that causes AIDS. In particular,protocols for prenatal care would include provision for systematicdetection and treatment of STDs that are a risk factor for HIV infectionand a co-factor that increases the probability of infection severaltimes. Nutrition education information would also contain modulesdirected to mothers infected with HIV and operations research on HIVtransmission through breast-feeding.

4.7. Improving Environmental Health (US$4.1 million). In support of the MCHmandate to provide water and sanitation in rural areas, this component wouldbenefit approximately 60,000 villagers with water supply systems and latrinesin currently underserved villages in four departments in the project area thatexhibit the lowest water and sanitation service levels (Annex 16).Specifically, the component would provide:

(a) Rural Water Suogly and Sanitation through: (i) 40 gravity watersystems; (ii) 300 dug shallow wells with hand pumps; (iii) tools for thecommunity to operate and maintain the system; (iv) installation of10,000 latrines of the pit and water-sealed types; (v) a program ofcommunity promotion to beneficiary communities, including theirparticipation in project construction, establishment of local waterboards, operation and maintenance of the systems, and protection ofwater sources; and (vi) engineering studies to prepare a second stage ofa water and sanitation component for construction during the second halfof the proposed project; and

(b) Medical Waste Disposal Training Prooram tailored for PHCfacilities (Annex 17).

4.8. For water supply and sanitation (Annex 16), the component establishesservices levels that each community may choose from in accordance to itswillingness to pay for the services. At any level, the final design would bethe least-cost solution or the only alternative. As the MOH mandate limitsprovision of water supply to small rural communities between 200 and 2,000inhabitants, only villages with this size population would be contemplatedunder this component. The eligibility criteria for village selection include:(i) demonstrated intent and readiness, on the part of the community to form aLocal Water and Sanitation Board (Junta Administradora de Agua, JUNTA) to takeresponsibility for the operation and maintenance of the system; (ii) surfacewater sources available by gravity or ground water for well development,available at shallow depth of no more than 25 meters; in both cases, ease ofdevelopment would be an important consideration; (iii) community agreementthat latrines would be installed in rural homes simultaneously with the waterworks; and (iv) location near all-weather or dry-weather roads, oralternatively, provision of substantial community input for the transportationof materials. Care would also be taken to assure that the communities are notlisted in the portfolios of other ongoing water supply and sanitationprograms. Duringy negotiations, acrreement was reached on the criteria forselecting localities for the construction of water suvvlv and sanitationsvstW_& (para. 6.1(c) (iii)). Each JUNTA would be formed in accordance withthe legal pre-requisites established by the regulations for local water andsanitation boards approved by SANAA in 1991 and would be registered as a

35

private entity under the Ministry of Interior. The MDH would expedite thegranting of legal status to the JUNTAB by serving as intermediary to processapplications at the Ministry of Interior. Each JUNTA would adopt a Water andSanitation Operational Manual, containing the administrative, technical andfinancial criteria to be followed in operating and maintaining local watersupply and sanitation systems, including levying and collecting user feessufficient to cover system's operations and maintenance (Annex 20). Durinnegotiations. agreement was reached that the MOR would take all necessarysteps to set tariffs for the water supplv and sanitation services to bocharged by each JUNTA to the users of these services, at levels sufficient tocover the overation and maintenance costs of such systems (para. 6.1(f)). TheJUNTA Water and Sanitation Operational Manual and models of the legaldocuments whereby the MOH would transfer ownership, operation, and maintenanceof the system to the JUNTA, have been prepared by the MOH and are satisfactoryto IDA. During negotiations. agreement was reached that: (i) vrior to theinitiation of the works of any water sur,ly and sanitation subnrolects: (a)the MOH would enter into a contract with the JUNTA correspondina to thevillage where such subproiect will be located: (b) each contract shall be onterms and conditions satisfactory to IDA. includina. inter alia. those setforth in the Water and Sanitation Operational Manual: and (c) the MOH shalltake all necessary steps for the exDeditious arantina of leaal status to eachJUNTA; and (ii) the Water and Sanitation Overational Manual would not beamended without Drior IDA aareement (para. 6.1(g)). The MOH would supervisethe operation and finances of the JUNTA and perform periodical tests on thequality of the water through its regional administration, carrying outremedial action, when necessary. Durina neaotiations. aareement was reachedthat the MOH would supervise the operation and finances of the JUNTAs and testthe aualitv of the water, at least oc a year. no later than March 31 of eachyear and cause or take remedial action. if necessarv. startina in March 1994(para. 6.1(h)). Coordination between the water supply and sanitation

activities carried out by the MOH, the JUNTAs, the municipalities and SANAAwould be analyzed under a sector study proposed by the GOH (Annex 18) thatwould be supported by IDA. Relevant sector issues could be addressed under afuture sector operation for which the GOH has requested IDA support. AS"acondition of effectiveness, the Water SunmlV and Sanitation OperationalManual, satisfactorv to IDA. would have been armroved and adopted by the MOH(para. 6.2(b)).

4.9. Monitoring, Evaluation. Auditing. Studies and InstitutionalStrengthening of the SCES (US$1.2 million). In addition to coordinating theexecution of the annual school nutrition censuses (para. 4.4(e)), the SCESwould coordinate the implementation of the project, in accordance withperformance indicators satisfactory to IDA, carry out monthly meetings duringthe implementation of the project with MOH and PRAF to update said monitoringand evaluation indicators, and report periodically to IDA. The institutionalcapacity of SCES would be ensured by its staff of six professionals, whichwould be strengthened, under the project, by the contracting of a financialanalyst satisfactory to IDA, and the purchasing of adequate computer andcommunications systems and one vehicle. Under this component, to be whollyfinanced by the proposed IDA Credit, the following activities would be carriedout:

36

(a) External auditing of the accounts and other financial records andstatements of the project, including those for the Special Account andof PRAF, to be contracted by MOH and by PRAF (paras. 4.33-4.35);

(b) Monitoring and evaluation of the implementation of the project,including annual project implementation reviews to be carried out by MOHand PRAF in accordance with project performance indicators satisfactoryto IDA (para. 4.36);

(c) A study to assess the MOH's system for recovering costs of healthservices (paras 1.22 and 2.13(b)), focusing on: (i) the incentives thatneed to be provided for increasing cost-recovery; (ii) the developmentof equitable and affordable cost-recovery schedules; and (iii) theexpansion of an improved cost-recovery system nationwide; the terms ofreference for this study are described in Annex 17. Durinanegotiations. aareement was reached that MOR would: {) carry out astudy of cost-recovery of health services by no later than December 10,1993: (ii) discuss the recommendations of the study with IDA during thefirst project imnlementation review: and {iii) prepare an action vlan.satisfactory to IDA. to imwlement these recommendations by January 31.1994: aoreement was also reached that the MON would commenceimvlementation immediately thereafter. for completion by December 10.199 (para. 6.1(i)); and

(d) Operations research by MOH to study specific mother and childhealth care and nutrition problems relevant to the outcomes of theproject; priority topics would include referral system for healthservices; local information systems; service quality indicators; andsentinel sites to measure changes in health status of the populationover time (para. 2.11(b) and Annex 17).

4.10. During negotiations, agreement was reached that the SCES would contract,by January 31, 1993, a financial analyst and the necessary technical staff tostrengthen its institutional capacitv (para. 6.1(j)).

D. Lending Arrangements and Imolementation

4.11. The proceeds of the Credit (US$25.0 million equivalent) would be lent tothe Republic of Honduras, which would pass on US$6.0 million (about 24% of thetotal Credit) as a grant to PRAF to implement the food coupon programs andUS$0.6 million for the institutional strengthening of PRAP. Of the remainingCredit proceeds, about US$6.5 million would be used by the MWH to rehabilitateand/or build primary health facilities and rural water supply and sanitationsystems, US$6.6 million would support incremental MOH expenditures on fordrugs, additional staff and institutional development, US$2.1 million wouldsupport the implementation of the MOH AIDS Control Program, and US$3.2 millionwould be used for technical assistance, complementary nutrition activities,monitoring, evaluation, auditing, studies and institutional strengthening ofthe SCES. Recurrent costs, including the costs of providing food coupons,drugs and salaries, would be financed by IDA on a declining basis over thelife of the project. As a condition of effectiveness, a Subsidiary Agreementfor making the funds available by the Borrower to PRAF. satisfactory to IDA,would have been entered into and authorized (para. 6.2(c)).

37

4.12. The project would be implemented over a three-year period by PRAF, MOH,and SCES. These three institutions have the capacity to implement the projectand would be strengthened under the project (paras. 4.4(c), 4.6(b) and4.9(b)). Specific implementation arrangements would be as follows:

(a) The PRAF would: (i) implement the food coupon programs (para.4.4(b)); (ii) receive technical assistance to strengthen itsinstitutional capacity to administer its programs (para. 4.4(c)); and(iii) contract annual financial audits and quarterly operational auditswith external private auditors, acceptable to IDA (paras. 4.9(a) and4.32-4.34). At necotations. aareement was reached that PRAF would carrvout the vrovision of food supiplements, throuah food coupons, with duediligence and efficiency and in conformity with annro3riateadministrative. public health. technical. manaaerial and financialpractices, and in accordance with the PRAF Owerational Manual.satisfactorv to IDA (para. 6.1(k)). A law extending the life of thePRAF indefinitely has been passed (Decree No. 135-92 of October 1992)and was published in the Official Gazette on November 14, 1992;

(b) The MOH would implement: (i) the formulation and implementationof a longer-term nutrition policy (para. 4.4(a)); (ii) nutritioneducation (para. 4.4(d)); (iii) health services (para. 4.6); and (iv)environmental health components (para. 4.7), through a Project Unitalready established in the Planning Department (para 4.6(b)). To assistin the implementation of the rehabilitation and construction of PHCcenters (para. 4.6(a)), the MOH would enter into an agreement with theFHIS to delegate the administration of civil works pertaining to thatsubcomponent. FHIS would charge MOH a 3% fee over the value of thecivil works contracts, which corresponds to the average supervision costfor infrastructure subprojects under the FHIS-I project. PHIS wouldadminister the works in close collaboration with the MOH Project Unitand regional management, to ensure maximum community participation. Inthe event that FHIS would be phased out in 1984, the MOH would assumefull responsibility for managing the contracts for the remaining worksthrough the National Health Services Program (PRONASSA). To assist inthe implementation of the nutrition education component, the MOH wouldsecure technical assistance from the BFLH and UNICEF (para. 4.4(d) andAnnex 12). For the procurement of drugs to be financed by the proposedIDA Credit, the MOH would enter into a purchasing agreement with UNICEFand implement the component in accordance with the procurement scheduleestablished under the project. For the procurement of the remainingdrugs to be financed under the project, agreement has been reachedbetween IDA and the MOH for the provision of technical assistance forimproving MOH's methods of procurement through a consulting contractwith a firm of specialized international consultants. The MOH wouldalso be responsible for carrying out all the studies contemplated underthe project (paras. 4.9 (c) and 4.9 (d)), in accordance with terms ofreference satisfactory to IDA (Annex 17). An agreement between the NOH,the BFLH and UNICEF, to support the implementation of the nutritioneducation component, has been signed. As a condition of effectiveness,the aareement between the MOH and FHIS for administration of civil worksunder the proiect would have been siacned (para. 6.2(d)). As a conditionfor disbursement for the druars comonent. a purchasina aareement between

38

MOR and UNICEF for the vrocurement of druag financed by IDA,satisfactory to IDA, would have been sioned (para. 6.3(b)); and

(c) The I= would be strengthened under the project and would: (i)implement the annual school nutrition censuses (para. 4.4(e)); (ii)

coordinate project implementation in accordance with performance

indicators satisfactory to IDA, through monthly meetings with MOH and

PRAF and annual project implementation reviews (paras. 4.9(b) and

4.36)); (iii) present periodical reports to IDA (para. 4.29); and (iv)

contract additional staff to improve its institutional capacity (para.

4.10).

E. Costs and Financing Plan

4.13. Total project cost, net of taxes and tariffs, expressed in June 1992

prices, is estimated at US$54.2 million equivalent. Foreign exchange costs

(US$21.9 million) represent 401 of the total project cost. Detailed costsestimates and financing plan are shown in Tables 4.1 and 4.2 below,respectively, and in Annexes 1 and 2, respectively.

4.14. Project cost estimates include physical contingencies calculated at 10l

for civil works and 5 for equipment based on final engineering for the

subprojects to be constructed during the first year of project implementation;

price contingencies applicable to foreign exchange costs, estimated according

to the average forecasted for 1991-2000 in US dollar terms, or about 3.91 per

year; and local price contingencies, estimated based on forecasted localinflation rates of 8a, 61, and 41 for 1993, 1994, and 1995, respectively. The

estimated costs of financing primary health care centers include 21 forengineering and administration costs, 101 for physical contingencies in civilworks and 5* in medical, laboratory and communications equipment and 7% in

recurrent maintenance costs. The estimated cost of the environmental health,

water supply and sanitation subcomponent includes 61 engineering and

administration costs and 101 physical contingencies. Community participation

in that subcomponent is estimated at 231 of construction costs, in accordance

with regional wages and contribution in local materials. The average

investment base cost for both water and sanitation services is estimated at

US$56 per housing unit and the average operating cost is estimated at US$9 per

year per housing unit. Neither physical nor price contingencies were applied

to the food coupons component since any increase in the individual cost of

coupons would be reflected in a reduced number of coupons. The costs of

technical assistance, which would finance consultants and studies, are basedon the average cost of technical assistance provided by UN agencies in

Honduras.

39

Table 4.1: PROJECT COST SUMhARY BY COMPONENT1J

Local Foreicrn TotalUS$ million

I. NUTRITION ASSISTANCEA. Nutrition Policy 0.01 0.09 0.10B. PRAF Food Coupons 21.00 9.00 30.00C. PRAP Technical Assistance 0.35 0.61 0.96D. Nutrition Education 0.44 0.29 0.73E. Nutrition School Census 0.22 0.02 0.24

Subtotal 22.02 10.01 32.03

II. HEALTH SERVICES

A. Primary Health Care Centers 1.47 1.58 3.05B. Human Resources Development 2.68 0.05 2.73C. Basic Drugs 0.63 5.83 6.46D. AIDS Program 0.53 1.32 1.85

Subtotal 5.31 8.78 14.09

III. ENVIRONMENTAL HEALTH 2.08 1.10 3.18

IV. MONITORING. EVALUATIONAND AUDITING 0.47 0.60 1.07

BASE COST 29.88 20.49 50.37

Physical Contingencies 0.32 0.25 0.57Price Contingencies 2.16 1.13 3.29

TOTAL PROJECT COST 32.36 21.87 54.23

Table 4.2: FINANCING PLAN(US$ 000)

Local Foreiain TotalUS$ million

Government of Honduras 9.45 1.78 11.23Beneficiaries 0.69 0.29 0.98IDA 12.06 12.94 25.00USAID 1.80 1.20 3.00World Food Program 6.00 4.00 10.00UNDP 0.14 0.19 0.33UNICEF 0.11 0.00 0.11PAHO 0.01 0.07 0.08Other Donors 2.10 1.40 3.50TOTAL FINANCING 32.36 21.87 54.23

4.15. The proposed IDA credit of SDR17.8 million (US$25.0 million equivalent)

would finance 46% of total project cost. Project beneficiaries would

contribute approximately 2% of total project cost. The Borrower's

U/ Net of taxes and duties.

I The GOH is pursuing discussion with donors interested in the project (seepara. 4.15).

40

contribution would be US$11.2 million or 21% of total project cost, and wouldfinance part of the PRAF and the MOH' s recurrent costs during projectimplementation. The project includes a large proportion of food coupon costs.As these are recurrent costs, a large portion of these costs would be financedby the Borrower to ensure sustainability. Financing arrangements totallingUS$13.5 million have already been signed (US$3.0 million equivalent from USAID(BSF); US$10.0 million equivalent from WFP; US$0.33 million equivalent fromUNDP; US$0.11 million equivalent from UNICEF; and US$0.08 million equivalentfrom PAHO). There remains a financing gap of US$3.5 million for which the GOHis seeking financing from donors which have expressed interest in the project.The GOH will make its best efforts to obtain by September 30, 1993 loans orgrants in an aggregate amount equivalent to US$3.5 million to assist PRAF inthe financing of the food coupon component of the project. Duringnegotiations, agreement was reached that. in the event the Borrower is notable to obtain additional financing in the amount of US$3.5 million bySeptember 30. 1993, the Borrower will provide in its 1995 annual budget, inaddition to the corresponding amounts set forth in Dara. 4.16. an amount inLem=iras eauivalent to US$3.5 million, as incremental countervart funds for

the PRAF food coupon comoonent of the vroiect (para. 6.1(1)). A a conditionof effectiveness. agreements for total financing of US$13.5 million from otherdonors. satisfactory to IDA. would have been sianed (para. 6.2(e)).

4.16. Incremental Recurrent Costs. The proposed IDA Credit would financeabout 20* of the recurring costs of the PRAF food coupon programs and 64% ofthe MOH incremental recurrent expenditures for basic drugs and salaries on adeclining basis as indicated in the proposed schedule of withdrawals of theproceeds of the Credit (Annex 3). During the first year of projectimplementation, incremental recurrent expenditures of the MOH, including thoseexpenditures financed by IDA, would represent 4.4% of the MOH total budget(estimated at US$67.6 million equivalent in 1992); in the second year, 1.2% ofthe estimated MOH budget; and in the last year of project implementation, lessthan 1 of the estimated MOH budget. The proposed increment in MOH recurrentexpenditures should not pose a problem because the GOH plans to increase theshare of MOH budget in Central Government expenditures from 6.6% in 1992 to8.0% in 1993, which would suffice for the incremental recurrent expendituresgenerated by the project. Furthermore, the incremental recurrent expendituresgenerated by the project would contribute to the increase in the share of non-salary recurrent expenditures, particularly of drugs, from 17% to over 20% ofMOH recurrent expenditures, and redress the balance between preventive andcurative health care. This shift in resource allocation is essential tosupply urgently needed drug supplies to meet the minimum requirement of thePHC network. The partial financing of PRAF food coupons is justified because:(i) IDA's participation would promote institution and policy improvements in

the sector; (ii) Honduras' budget resources are scarce; and (iii) the programclearly has a productive purpose as it would help restore the productive laborresources of Honduras by reducing malnutrition. The PRAF incrementalrecurrent expenditures for food coupons would increase during the first yearof project implementation by 24%, followed by a 17% increase in the secondyear and a 12.5% increase in the third year of project implementation. GOHfinancing would follow the schedule in Table 4.3 below:

41

Table 4.3: GOH FINANCING OF INCREMBNTAL RECURRENT COSTS(US$ million)

199 1294 199 TOTAL

PRAF Food Coupons 1.14 2.64 3.72 7.50MOH Basic DrugsW -.- 0.59 1.79 2.38MOH Salaries & Maintenance 0.35 1.00 1.35

TOTAL 1.14 3.58 6.51 11.23

Incremental recurrent expenditurs, including USS2.4 million in foreign exchange for the procurement of basic drugs.

During negotiations. agreement was reached that the Borrower would make thefollowing incremental allocations in its annual budgets: {i) US$2.0 millionin 1993, US$2.5 million in 1994. and US$3.0 million in 1995 for PPAF foodcoupons: (ii) for MOH basic drugs. US$0.59 million in 1994 and US$1.79 millionin 1995 for MOH basic drugs: and {iii) US$0.35 million in 1994. and US$1.00million in 1995 for MOR salaries and maintenance (para. 6.1(m)).

4.17. Although GOH participation in financing the PRAF food coupon incrementalrecurrent expenditures would rise from US$2.0 million in the first year toUS$3.0 million in the third year, excluding USAID funds, the sustainability ofthe program over the longer-term would depend, to a large extent, on continueddonor financing. The IDB, USAID and the WFP were approached and expressedinterest in principle in providing assistance to the PRAF food coupon programsfor 1996 and beyond. Potential for longer-term financing commitments wouldinclude: (i) US$30.0 million from the IDB on soft loan terms, scheduled forIDB's 1994-1998 lending programs; (ii) US$10.0 million equivalent in monetizedfood aid from the WFP as a follow-on grant to its current assistance to PRAF;and (iii) a larger share of monetized food aid from USAID after 1995, theamount of which would be based on PRAF's food coupon program performance underthe project. The GOH expects the PRAF's food coupon programs to be sustainedfor as long as there is need for nutrition assistance in Honduras. Programdesign would be modified based on the GOH long-term nutrition policy thatwould be formulated under the project.

F. Procurement

4.18. A recent assessment by IDA of Honduras' procurement procedures andregulations indicates that they are not fully compatible with Bank Groupprocurement guidelines and policy. To resolve conflicts between locallegislation and IDA's procurement guidelines, the following procurementprovisions would be included in the legal documents:

(a) For works and goods to be orocured under Local Competitive Bidding(LCB) procedures: (i) contracts should be awarded to the lowestevaluated bid; (ii) foreign firms should be allowed to bid without priorregistration and should not be required to have a local agent, orassociate themselves with local firms; (iii) foreign firms should not berequired to certify that, in their country of origin, Honduran firms areallowed to participate under equal terms for contracting; (iv) incalculating the lowest evaluated bid, there should be no requirement totake into consideration the financial cost of foreign expenditures; (v)there should be no preferences to award contracts to Honduran firmsother than that accorded to members of the Central American Common

42

Market (Mercado Comun Centroamericano - CACM) (para. 4.21), and (vi) noslicing of contract amounts will be permitted for the sole purpose ofreducing contract price amounts;

(b) For Consultants' services: (i) foreign consultants shall beallowed to participate freely in the selection process even if localconsultants shall be available for the concerned services, and (ii) noregistration with national associations shall be imposed on foreignconsultants employed by foreign contractors or consultants and nomandatory association with local firms shall be required; and,

In addition, to safeguard propriety in contracting and facilitate procurementprocedures, standard bidding documents, satisfactory to IDA, would be usedduring project implementation for all methods of procurement.

4.19. The procurement plan for the project is shown in Table 4.4 below:

Table 4.4: METHODS OF PROCUREMENT(USS MILLION)

PROCUREMENT METHODCATEGORY ICB T LCB | OTHER NIF TOTAL

Equipment and Vehicles 0.9 2.0 0.5Y 3.4(0.9) (2.0) (0.5) (3.4)

Basic Drugs 4. 7F 2.3 7.0(4.7) (4.7)

Food Coupons 6. 0' 24.0 30.0(6.0) (6.0)

Civil Works 1.6 2.8f 1.0 5.4(1.6) (2.8) (4.4)

Consultants 4. 6' 0.5 5.1(4.6) (4.6)

Salaries 1. 92 1.4 3.3(1.9) (1.9)

TOTAL 0.9 3.6 20.5 29.2 54.2(0.9) (3.6) (20.5 (25. 0)

Notes: Figures in parentheses are the amounts estimcted to be financed by IDA.NIP - Not IDA Financed.

Shopping.Procured from UNICEF.

f' Not subject to procurement.F Consultants, training and other service contracts procured under procedures acceptable to DA.

4.20. Civil Works for rehabilitation and construction of health facilities andwater supply and sanitation systems, totalling US$5.4 million, would beprocured under the special procedures instituted for the FHIS and agreed withIDA. The average contract amount is estimated at US$20,000, with the largestmingle subproject costing less than US$100,000, and procurement byinternational competitive bidding (ICB) is not expected. The specialprocurement procedures instituted for the FHIS are as follows: (i) for civilworks contracts valued below US$50,000, up to an aggregate amount of USS2.0

43

million, local shopping requiring at least three quotations would apply; (ii)for some project components in remote locations, direct contracting would beapplied under exceptional circumstances, consistent with para. 3.5(f) of theIDA Procurement Guidelines; direct contracting would also apply in cases whereonly one offer would be available, and to ensure fair pricing, the system ofregional standard unit prices developed by the FHIS and updated periodically,would be used as basis for direct price negotiations with the contractor; thissystem of contracting would apply for contracts not exceeding US$35,000, up toan aggregate amount of US$0.87 million; and (iii) for civil works contractsvalued at between US$50,000 and US$100,000, local competitive bidding (LCB)would apply.

4.21. Goods: Vehicles would be procured in packages valued not less thanUS$100,000 through ICB. Health-related equipment would be grouped, to theextent possible, in bid packages valued at US$100,000 or more, and procuredalso through ICB. Packages of similar equipment valued between US$25,000 andUS$100,000, up to an aggregate amount of US$2.0 million, would be procuredthrough LCB procedures acceptable to IDA. Contracts for miscellaneousequipment items valued less than US$25,000 would be awarded on the basis ofcomparison of price quotations solicited from at least three suppliers in anaggregate not to exceed US$0.5 million. For purposes of bid evaluation underICB, manufacturers from the CACM, including Honduras, may be granted a marginof preference in accordance with IDA guidelines.

4.22. Basic Druas financed by IDA would be separated from other drugprocurement under the project and would be procured from UNICEF's stock ofessential drugs held at the UNICEF Procurement and Assembly Center (UNICAP)warehouse in Copenhagen. This procurement procedure is justified becauseHonduras does not have, at present, the capacity to package drugs for localdistribution and this deficiency curtails the country's access to economiesaccruing from bulk purchases of generic drugs. Basic drugs not financed byIDA would be procured by the MOH. Technical assistance would be providedunder the project to improve MOH's procurement methods. During the first yearof project implementation, an assessment would be made regarding thedesirability and legal feasibility of procuring all drugs consumed by the MOHfrom UNICEF. Technical assistance, staff training, and improved computercapabilities would be provided under the project to the MOH, to helpstrengthen its procurement capacity (para. 4.7(c)). Special efforts would bemade under the project to train the MOH in: (i) grouping drugs in homogeneousbidding packages; (ii) scheduling procurement and delivery dates in a timelymanner to meet consumption requirements while minimizing length of storage;and (iii) improving the coordination between the MOH, the MOF, and the CBH byestablishing clearly defined schedules of procurement for basic drugs.

4.23. Food coupons, expected to total US$30.0 million, would not be subject tospecial procurement regulations. Each beneficiary would receive a coupon ofabout US$3.70 equivalent per month and use it to purchase food inparticipating private or public stores of their choice. No food in bulk wouldbe purchased or distributed by the GOH under the project. Guarantees thatfood coupons would only be used by the beneficiaries to purchase food wouldnot be requested under the project. This is not necessary (and would bevirtually impossible to monitor) because experience during the pilot programhas shown that beneficiaries use about 83t of the coupons' value to purchase

44

food.LY The balance is used for purchasing basic items essential to poorfamilies such as school supplies, shoes and medicines. Coupon use would bemonitored during project implementation through interviews with merchants inthe project area. Experience during the pilot program has shown that, to alarge extent, the beneficiaries use the coupons to purchase food from localretail stores.

4.24. Consultants would be selected by the Borrower in accordance with IDAguidelines for the use of consultants, up to an aggregate amount of US$4.6million. Taxes paid by foreign consultants on the foreign currency portion oftheir contracts would be borne or refunded by the Borrower. IDA would reviewterms of references, letter of invitation, proposal evaluation and contractsfor all consultant assignments. Standard contract documents would bedeveloped for the hiring of consultants. The total amount of contracts forconsultants' services under the project is estimated at US$5.1 million.

4.25. Salaries and maintenance expenditures, expected to total US$3.3 million,would not be subject to special procurement regulations.

4.26. Review by IDA. IDA would review procurement documentation for: (i) allcontracts subject to ICB; (ii) the purchase agreement with UNICEF for thesupply of drugs; (iii) the first two LCB contracts for goods and worksrespectively, regardless of their amount; and (iv) all consultants' contracts.The proposed prior review arrangements are expected to cover about 50% ofgoods and works contracts financed by IDA, which is considered acceptable forthis type of project and given the safeguard provided by the auditingarrangements (paras. 4.32-4.35). All other contract for goods and works wouldbe subject to ex-post review by IDA during field supervision, on a randombasis.

G. Supervision and Reporting

4.27. Technical and financial reporting under the project would be carried outby the PRAF and the MOH under the coordination of the SCES based on projectperformance indicators satisfactory to IDA (Annex 6). The SCES would holdmonthly meetings with PRAF and the MOH for purposes of updating projectimplementation performance indicators. Duriny negotiations, agreement wasreached that SCES would: (i) coordinate the imolementation of the vroiect.and (ii) hold monthly meetings with PRAF and the MOH to update Droiectverformance indicators (para. 6.1 (n)). Agreement was also reached that theSCES would submit to IDA. no later than March 31 and September 30 of eachyear: (i) a report concerninc the vrocress in the imlementation of thepro;ect in accordance with the yerformance indicators satisfactorx to IDA; ancd{ii) a financial report which shall reflect: [a] for the semester precedincjthe date of presentation of the report, a comparison between funds committedand funds used in carzvinca out the prolect. and the funds used on recurrentcosts under the proiect; and lb) a financina plan. satisfactozv to IDA, to beapplied to the semester following the date of presentation of the report.(para. 6.1(o)).

23' See UNO y UNO Consultores. "Las que Trabajan Mas Para Ganar Menos: LasMujeres y la Crisis en los Noventa". Tegucigalpa: UNO, August 1991.

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4.28. The proposed project would require about 25 staffweeks of supervisionper year. The supervision team would be a combination of IDA staff andconsultants with experience in the implementation of nutrition and healthprojects in Latin America. Their main areas of expertise would be projectmanagement, nutrition, PHC services, engineering, and finance. In addition,the annual project implementation reviews, which would rely on a similar teamof experts, would require approximately 5 staffweeks.

H. Disbursements

4.29. The proposed IDA Credit would be disbursed over a three-year period.Annex 3 presents the allocation of loan proceeds and estimated schedule ofdisbursements. The expected disbursement profile for the proposed project(Annex 3) is considerably faster than the average profile for social sectorinvestment projects financed by the Bank and IDA in the Latin America and theCaribbean Region. Nevertheless, the proposed disbursement schedule isconsidered justified in view of: (i) implementation of the health servicesand environment health components would benefit from thorough preparation andwould be partly assisted by the FHIS, which has a track record of fastdisbursements; (ii) implementation of the food coupon program can be expectedto be on schedule; and (iii) implementation of studies and technicalassistance would be closely monitored by IDA. The project completion datewould be September 30, 1996 and the closing date would be June 30, 1997.

4.30. Disbursements would be made against the following categories ofexpenditures: (a) PRAF Food Coupons: 34% up to an aggregate amount of US$3.0million equivalent; 20% up to an aggregate amount of US$5.0 millionequivalent; and 9% thereafter; (b) Basic Drugs: 100% up to an aggregateamount of US$2.0 million equivalent; 75% up to an aggregate amount of US$3.6million equivalent; and 30% thereafter; (c) Civil Works: 100% of eligibleexpenditures; (d) Eauipment and Vehicles: 100% of eligible expenditures; (e)Consultants' Services for technical assistance to PRAF, MOH, and SCES and fortraining: 100% of eligible expenditures; (f) Salaries of the MOH: 100% oflocal expenses up to an aggregate amount of US$0.7 million equivalent; 75% oflocal expenses up to an aggregate amount of US$1.3 million equivalent; and 30tof local expenses thereafter. Disbursement would not be made against localmaintenance expenditures except for preventive maintenance for vehicles duringthe warranty period. As indicated in the schedule of withdrawals of theproceeds of the Credit (Annex 3), disbursement categories would be subdividedinto three sets, to differentiate the expenditures incurred by the each of thethree project executing agencies.

I. Documentation of Expenditures

4.31. Withdrawal applications for goods and services with a contract value ofUS$20,000 or more would be supported by full documentation. Contracts of lessthan US$20,000 and disbursements against expenses not undertaken by contract,including food coupons and salaries, would be made on the basis of Statementsof Expenditure (SOEs), for which supporting documents would be maintained bythe PRAF and the MOH and would be made available for IDA review. A SpecialAccount of US$2.0 million would be opened in the CBH under the proposedproject and CBH staff assigned to make payments from the Special Account woulddo so promptly, after confirming the accuracy of invoices and SOEs supportingthe withdrawal claim. Documentation forwarded to IDA for disbursement

46

(including SOEs, invoices, and supporting documentation) would cover a numberof subcomponents whose aggregate sum would be at least US$0.1 million.

J. Accounts and Audits

4.32. The financial accounts of PRAF have been closely verified by the CBH.In addition, PRAF was audited by private external auditors for the periodending June 30, 1991. A management audit was also undertaken by USAID and itsrecommendations have been implemented (para. 3.2).

4.33. Under the proposed project, PRAF would be audited by private independentexternal auditors, acceptable to IDA, who would undertake annual audits ofPRAF. PRAF's first annual audits would cover the period July 1, 1991 toDecember 31, 1992, with the audit to be completed no later than March 31,1993. No later than six months after the end of each fiscal year, theBorrower would submit an audit report on the Special Account and would causePRAF to submit to IDA certified copies of audit reports on: (i) balancesheets, income statements, and auditor's opinion of financial statements; (ii)SOEs; and (iii) an analysis of whether internal controls in place are adequateto minimize the possibility of misuse of food coupons' resources or otherimproprieties.

4.34. In addition, to ensure full transparency of PRAF's operations under theproject, the auditors would undertake special quarterly audits of PRAF'soperations on the basis of acceptable accounting norms and procedures. Thistype of auditing, which has been successfully used under the FHIS-I and FHIS-II projects, combines financial auditing with physical inspections of coupondistribution operations in the field. The auditors would examine a sample ofPRAF's food coupon distribution operations and ascertain: (i) whether theconditionalities agreed with IDA regarding eligibility criteria, number ofcoupons per beneficiary, and frequency of coupon distribution are beingcomplied with; (ii) would reconcile the physical progress of coupondistribution with the number of coupons issued and financial expensesincurred; and (iii) would ascertain the adequacy of PRAF's overhead coveringthe food coupon program administration. Quarterly reports would focus onoperations where errors have been detected and would provide an opinion onwhether all other operations examined were carried out in accordance withPRAF's Operational Manual approved by IDA. Quarterly reports would be sent toIDA, no later than two months after each quarter, and an annual summary wouldbe send to IDA, no later than six months after the end of each fiscal year.During negotiations, acareement was reached that PRAF would contract vrivate.independent external auditors. acceDtable to IDA. to carry out: {i) the auditof PRAF operations from July 1. 1991 throuah December 31, 1992: (ii)subseauent annual audits of PRAF operations. to be submitted no later than sixmonths after the end of each fiscal year: and (iii) sDecial auarterlv auditsof PRAF operations. no later than three months after the end of each auarter(para. 6.1(p)).

4.35. The Borrower, through MOH, would contract private, external auditors,satisfactory to IDA, to perform annual audits of the records, accounts andfinancial statements of the project, including those for the Special Account,for each fiscal year. Certified copies of audit reports would be sent to IDA,as soon as available, but in any case no later than six month after the end ofeach fiscal year. The MOH would also furnish IDA with other information

47

concerning records, accounts, and financial statements of the project, as IDAshall request from time to time. The terms of reference for these auditingcontracts would require prior approval by IDA. Durina neaotiations, aareementwas reached that the MOH would contract private, Independent externalauditors, acceptable to IDA. to carry out annual audits of the records andaccounts of the pro-ect, including those for the Special Account, and wouldpresent said audit report to IDA, no later than six months after the end ofeach fiscal year (para. 6.1(q)). In addition, for the civil works under theproject, which would be administered by the FHIS (para. 4.12(b)), quarterlyoperational audit procedures, established for the FHIS, would apply.

K. Annual Proiect Imylementation Reviews

4.36. The Government and IDA would conduct annual project implementationreviews in accordance with the terms of reference detailed in Annex 7. Thesereviews would be coordinated by the SCES and would take place during thesecond week of December of each year, starting no later than December 10,1993. The focus of the annual review would be on the progress in theexecution of the project, the achievements of the project objectives, and oncompliance with the GOH's nutrition and health policies. The annual reviewswould cover all four components of the project, i.e. for: (i) nutritionassistance; (ii) health services; (iii) environmental health; and (iv)monitoring, evaluation, studies and auditing. The progress of each projectcomponent would be assessed based on a set of performance and impact projectindicators, satisfactory to IDA (Annex 7). The results of these annualreviews would be discussed with IDA and, on the basis of this, the SCES wouldcoordinate the preparation of an action plan satisfactory to IDA, for thefollowing project year, incorporating, as appropriate, remedial actionsrecommended by IDA during the annual review to ensure the efficient executionof the project. The SCES would present the action plan to IDA no later thanJanuary 31 of each year. The plan would be implemented by the PRAF, MOH, andSCES in a manner satisfactory to IDA according to the timetable specifying inthe plan. During negotiations, aareement was reached that the Borrower would:(I) undertake annual groiect implementation reviews no later than December 10of each year in collaboration with IDA} (ii) Dregare an action glan.acceptable to IDA, by January 31 following each annual review; and (iii)thereafter implement the action olan in accordance with the timetable includedin the plan. Should this action plan not be implemented satisfactorily, IDAmay refrain from further disbursements (para. 6.1(r)).

4.37. Proiect Sustainability. Health and environmental health servicesprovided under the project would be sustained over time through: (i)collection of fees by local water boards (JUNTAS) to ensure operations andmaintenance of water and sanitation services, and setting up of user chargesby local health units to cover part of their operating costs; (ii) budgetaryprovisions to ensure appropriate funding for recurrent primary health careexpenditures, to be reviewed in annual project reviews; and (iiL) improvementsin procurement of essential drugs to permit meeting minimum requirements atlower cost. Sustainability of nutrition assistance would be ensured through:(i) increased participation of the Government in program funding over theproject life; (ii) clear targeting and exit criteria that would limit thenumber of program beneficiaries; (iii) mobilization of additional resourcesfor the PRAF food coupon program from the donor community to sustain theprogram beyond the life of the project; and (iv) implementation of a long-termnutrition assistance policy.

48

V. BENEFITS AND RISKS

A. Benefits

5.1. The main benefits of the project would be to help: (i) prevent adeterioration in the nutritional status of the population most at risk as aresult of the economic adjustment program, through the distribution of foodcoupons; (ii) support longer-term nutrition and health sector policyformulation and implementation; (iii) reduce maternal, child and infantmortality and morbidity rates by improving access to basic health services andsafe water supplies and sanitation; (iv) increase the coverage and efficiencyof primary education through increased enrollment and lower repetition anddropout rates; (v) improve poor children's capacity to learn through betternutrition and greater school attendance; (vi) strengthen the institutionalcapacity of the MOH, SCES and PRAF; and (vii) curtail the spread of AIDS.

5.2. Environmental Effects. The project would have a positive impact on theenvironment by increasing the supply of potable water and basic sanitationalbeit on a relatively small scale, and would have an environmental rating ofB. Environmental protection would be addressed by the project through: (i)protection of water sources serving the water supply systems built; (ii) useof standard safety procedures in all project works involving rehabilitation,installation, and operation of medical equipment; and (iii) safe handling ofhazardous medical wastes and materials (such as disposable needles or blood-contaminated products) ensured through training and supervision of healthstaff.

5.3. Support for Women. The beneficiaries of the proposed project would bepregnant and nursing women in low-income households at risk of malnutritionand mothers of children attending grades one to three of primary school in theproject area. In total, an estimated 120,000 women would benefit directlyfrom the project. The types of benefits that would be expected from theproject include: (i) income transfer in the form of food coupons that wouldincrease women's resources to purchase food and better feed themselves andtheir family; (ii) improved nutrition, which would contribute to reduce infantand child morbidity and mortality; and (iii) increased access to preventivehealth services, especially nutrition and family planning education,comprehensive prenatal and postnatal care, scheduled screening and treatmentfor risk factors, and proper guidance as to the benefits of breast-feeding.As a result of the project, women would improve their chances to avoid high-risk pregnancies, gain adequate weight during pregnancy, have safer deliveriesat hospitals or at home assisted by trained midwives, thus minimizing thechance of having low-weight babies with poor survival prospects. Ultimately,project impact would be reflected in lower maternal mortality rates. Theseexpected benefits accruing to women through the implementation of the proposedproject would go a long way in improving women's welfare status and theconditions for their participation in the Honduran development process.

B. Risks

5.4. The main risks associated with the project are: (i) managementconstraints affecting PRAF's operational capacity to administer expanded foodcoupon programs, and to adjust them to the Government's longer-term nutrition

49

policy; the project would reduce this risk through institutional strengtheningof PRAF; (ii) delays in improving the quality of basic health services in theproject area due to institutional constraints faced by the MOH; the projectwould reduce or eliminate this risk through institutional strengthening of theMOH, annual reviews of project implementation, and improved health andnutrition expenditure controls and budget planning at the MOH. Risks (i) and(ii) would also be addressed through close IDA supervision, especially in thefood coupon program, which is a new area for the Bank group; and (iii)uncertain sustainability of the PRAF food coupon programs beyond projectsupport; this risk would be reduced by: (a) assisting the GOH in securingdonor participation for the formulation and implementation of a long-termnational nutrition assistance strategy; and (b) attracting additional donorassistance for further support of the PRAF food coupon programs.

VI. AGREEMENTS REACHED AND RECOMMBNDATION

A. Agreements Reached

6.1. During negotiations, agreement was reached:

(a) that the Borrower, through the MOH, would: (i) formulate a long-term nutrition policy and present a draft policy statement to IDAby November 15, 1993; (ii) discuss that policy with IDA during thefirst annual review of project implementation, no later thanDecember 10, 1993; (iii) prepare an action plan, satisfactory toIDA, to implement the policy by January 31, 1994; (iv) commencethe implementation of the action plan immediately thereafter; and(v) complete the implementation of the action plan, in a mannersatisfactory to IDA, by December 31, 1995 (para. 4.4(a));

(b) (i) on PRAF's targeting criteria and expansion plan for the BMIand BMJF food coupon programs, satisfactory to IDA and that thesecriteria would be incorporated in PRAF's Operational Manual; and(ii) that PRAF would only modify its Operational Manual with priorIDA consultation and agreement (para. 4.4(b));

(c) On the criteria for:

(i) Selection of health centers to be rehabilitated and for thelocation of health centers to be constructed (para. 4.6(a));

(ii) Allocation of MOH's plan for incremental staffing in the BM1project area (para. 4.6(b)); and

(iii) Selecting localities for the construction of water supplyand sanitation systems (para. 4.8);

(d) that the MOH Project Unit would be headed by a qualifiedprofessional and assisted by qualified staff, satisfactory to IDA(para. 4.6(b));

50

(e) that the Borrower would present, no later than December 10 of eachyear, starting in December 1993, a schedule for the procurement ofdrugs under the project, satisfactory to IDA (para. 4.6(c));

(f) that the MOH would take all necessary steps to set tariffs for thewater supply and sanitation services to be charged by each JUNTAto the users of these services, at levels sufficient to cover theoperation and maintenance costs of such systems (para. 4.8);

(g) that: (i) prior to the initiation of the works of any watersupply and sanitation subprojects: (a) the MOH would enter into acontract with the JUNTA corresponding to the village where suchsubproject will be located; (b) each contract shall be on termsand conditions satisfactory to IDA, including, inter alia, thoseset forth in the Water and Sanitation Operational Manual; and (c)the MOH shall take all necessary steps for the expeditiousgranting of legal status to each JUNTA; and (ii) the Water andSanitation Operational Manual would not be amended without priorIDA agreement (para. 4.8);

(h) that the MOH would supervise the operation and finances of theJUNTAs and test the quality of the water, at least once a year, nolater than March 31 of each year and cause or take remedialaction, if necessary, starting in March 1994 (para. 4.8);

(i) that MOH would: (i) carry out a study of cost-recovery of healthservices by no later than December 10, 1993; (ii) discuss therecommendations of the study with IDA during the first projectimplementation review; and (iii) prepare an action plan,satisfactory to IDA, to implement these recommendations by January31, 1994; agreement was also reached that the MOH would commenceimplementation immediately thereafter, for completion by December10, 1995 (para. 4.9(c));

(j) that the SCES would contract, by January 31, 1993, a financialanalyst and the necessary technical staff to strengthen itsinstitutional capacity (para. 4.10);

(k) that PRAF would carry out the provision of food supplements,through food coupons, with due diligence and efficiency and inconformity with appropriate administrative, public health,technical, managerial and financial practices, and in accordancewith the PRAF Operational Manual, satisfactory to IDA (para.4.12(a));

(1) that, in the event the Borrower is not able to obtain additionalfinancing in the amount of US$3.5 million by September 30, 1993,the Borrower will provide in its 1995 annual budget, in additionto the corresponding amounts set forth in para. 4.16, an amount inLempiras equivalent to US$3.5 million, as incremental counterpartfunds for the PRAF food coupon component of the project (para.4.15);

51

(m) that the Borrower would make the following incremental allocationsin its annual budgets: (i) US$2.0 million in 1993, US$2.5 millionin 1994, and US$3.0 million in 1995 for PRAF food coupons; (ii)for NOH basic drugs, US$0.59 million in 1994 and US$1.79 millionin 1995 for MDH basic drugs; and (iii) US$0.35 million in 1994,and US$1.00 million in 1995 for MOH salaries and maintenance(para. 4.16);

(n) that SCES would: (i) coordinate the implementation of theproject, and (ii) hold monthly meetings with PRAF and the MOH toupdate project performance indicators (para. 4.27);

(o) that the SCBS would submit to IDA, no later than March 31 andSeptember 30 of each year: (i) a report concerning the progressin the implementation of the project in accordance with theperformance indicators satisfactory to IDA; and (ii) a financialreport which shall reflect: [a] for the semester preceding thedate of presentation of the report, a comparison between fundscommitted and funds used in carrying out the project, and thefunds used on recurrent costs under the project; and [b] afinancing plan, satisfactory to IDA, to be applied to the semesterfollowing the date of presentation of the report. The outline forthe reports and plan would be agreed upon during negotiations.(para. 4.27);

(p) that PRAF would contract private, independent external auditors,acceptable to IDA, to carry out: (i) the audit of PRAF operationsfrom July 1, 1991 through December 31, 1992; (ii) subsequentannual audits of PRAF operations, to be submitted no later thansix months after the end of each fiscal year; and (iii) specialquarterly audits of PRAP operations, no later than three monthsafter the end of each quarter (para. 4.34);

(q) that the MOH would contract private, independent externalauditors, acceptable to IDA, to carry out annual audits of therecords and accounts of the project, including those for theSpecial Account, and would present said audit report to IDA, nolater than six months after the end of the fiscal year (para.4.35); and

(r) that the Borrower would: (i) undertake annual projectimplementation reviews no later than December 10 of each year incollaboration with IDA; (ii) prepare an action plan, acceptable toIDA, by January 31 following each annual review; and (iii)thereafter implement the action plan in accordance with thetimetable included in the plan. Should this action plan not beimplemented satisfactorily, IDA may refrain from furtherdisbursements (para. 4.36).

6.2. The conditions of effectiveness would be that:

(a) a finalized Operational Manual, satisfactory to IDA, would havebeen approved and adopted by PRAF (para. 4.4(b));

52

(b) the Water Supply and Sanitation Operational Manual, satisfactoryto IDA, would have been approved and adopted by the MOH (para.4.8);

(c) a Subsidiary Agreement for making the funds available by theBorrower to PRAF, satisfactory to IDA, would have been enteredinto and authorized (para. 4.11);

(d) the agreement between the MOH and PHIS for administration of civilworks under the project would have been signed (para. 4.12(b));and

(e) agreements for total financing of US$13.5 million from otherdonors, satisfactory to IDA, would have been signed (para. 4.15).

6.3. The conditions for disbursement would be that:

(a) for the AIDS Control Program, the Borrower would provide IDA witha satisfactory AIDS Control Program for the 1993-1995 period and afinancing plan, satisfactory to IDA, for the implementation ofsuch program (para. 4.6(d)); and

(b) for the drugs component, a purchasing agreement between MOH andUNICEF for the procurement of drugs financed by IDA, satisfactoryto IDA would have been signed (para. 4.12(b)).

B. Recommendati

6.4. Subject to the above assurances and conditions, the proposed projectwould constitute a suitable basis for an IDA Credit of SDR17.8 million(US$25.0 million equivalent) to the Republic of Honduras on standard IDA termswith 40 years maturity, including 10 years of grace.

- 53 -

HONqDURAS

NUTRITION AND HEALTH PROJECT

LIST OF ANNEXES

1. Project Costs2. Financing Plan3. Disbursement Schedule

4. Project Area

5. Regional Organization of the Ministry of Health

6. Project Performance Indicators

7. Annual Project Implementation Reviews

8. Impact of the PRAF Food Coupon Programs

9. Improvements in the PRAF Food Coupon Programs to be Implemented Under

the Project10. PRAF Food Coupon Programs: Targeting Criteria and Expansion Plan

11. PRAF Organizational Chart12. Nutrition Education

13. Primary Health Care Centers

14. Human Resources Development of the MOH

15. Basic Drugs for the Primary Health Care Network

16. Environmental Health17. Terms of Reference for Studies18. Nutrition and Health Sector Policy Letter

19. Draft Outline of PRAF Operational Manual20. Draft Outline of Water Supply and Sanitation Operational Manual21. Selected Documents and Data Available in the Project File

- 54 -

[This page left blank)

-55- Annex PROJECT COSTS

HONDURAS

NUTRITION AND HEALTH PROJECT

TOTAL PROJECT COST ESTIMATES BY COMPONENT(US$ MILLION)

FOREIGN EXCHANGE | OF BASEAMOUNT AMOUN COSTS

I. NUTRITION ASSISTANCE

A. NUTRITION POLICY 0.10 90.0 0.09 0.2

B. PRAF FOOD COUPONS 30.00 30.0 9.00 59.6

C. PRAP TECHNICAL ASSISTANCE 0.96 64.0 0.61 1.9

D. NUTRITION EDUCATION0.73 39.7 0.29 1.5

E. NUTRITION SCHOOL CENSUS

0.24 10.0 0.02 0.5

II. HEALTH SERVICES

A. PRIMARY HEALTH CARE CENTERS 3.05 51.9 1.58 6.1

B. HUMAN RESOURCES DEVELOPMENT 2.73 1.8 0.05 5.4

C. BASIC DRUGS 6.46 90.3 5.83 12.8

D. AIDS PROGRAM 1.85 71.2 1.32 3.7

III. ENVIRONMENTAL HEALTH 3.18 34.5 1.10 6.3

IV. MONITORING, EVALUATION, 1.07 56.2 0.60 2.1

AUDITING

TOTAL BASELINE COSTS 50.37 40.7 20.5 100.00

PHYSICAL CONTINGENCIES 0.57 44.4 0.25 1.10

PRICE CONTINGENCIES 3.29 34.4 1.13 6.50

TOTAL PROJECT COST 54.23 40.3 21.87 107.70

- 56 - Annex 1PROJECT COSTS

PROJECT COSTS BY COMPONENT BY YEAR

(US$ MILLION)

[ |7 1993 1994 1995 TOTAL

I. NUTRITION ASSISTANCE

A. NUTRITION POLICY 0.10 0.00 0.00 0.10

B. PRAF FOOD COUPONS 8.90 10.10 11.00 30.00

C. PRAF TECHNICAL ASSISTANCE 0.68 0.17 0.11 0.95

D. NUTRITION EDUCATION 0.32 0.23 0.18 0.73

E. NUTRITION SCHOOL CENSUS 0.08 0.08 0.08 0.24

II. HEALTH SERVICES

A. PRIMARY HEALTH CARE CENTERS 0.88 1.27 0.90 3.05

B. HUMAN RESOURCES DEVELOPMENT 0.79 0.90 1.04 2.73

C. BASIC DRUGS 2.10 2.13 2.23 6.46

D. AIDS PROGRAM 0.08 0.89 0.88 1.85

III. ENVIRONMENTAL HEALTH 1.17 1.09 0.91 3.17

IV. MONITORING, EVALUATION, 0.33 0.38 0.36 1.07

AUDITING

* TOTAL BASELINE COSTS 15.43 17.25 17.69 50.37

PHYSICAL CONTINGENCIES 0.18 0.22 0.17 0.57

PRICE CONTINGENCIES 0.63 1.18 1.48 3.29

TOTAL PROJECT COST 16.24 18.64 19.34 54.23

- 57 -FINANCING PLAN

HONDURAS

NUTRITION AND HEALTH PROJECT

FINANCING PLAN(USS 000)

|| OF TOTAL FOREIGN EXCHANGEAMOUNT PROJECT l

COST AMOUNT

GOH 11.23 20.7 15.8 1.78

BENEFICIARIES 0.98 1.8 29.6 0.29

IDA 25.00 46.1 51.8 12.94

WFP 10.00 18.4 40.0 4.00

USAID 3.00 5.5 40.0 1.20

UNDP 0.33 0.6 57.6 0.19

UNICEF 0.11 0.2 0.0 0.00

PAHO 0.08 0.1 87.5 0.07

FINANCING GAP 3.50 6.5 40.0 1.40

TOTAL 54.23 100.0 40.3 21.871

FINANCING PLAN BY COMPONENT

(US$ 000)

ENVIRON- MONITORING,

NUTRITION HEALTH MENTAL EVALUATION, TOTAL ]SERVICES HEALTH AUDITING

GOH 7.59 3.64 0.00 0.00 11.23

BENEFICIARIES 0.00 0.15 0.83 0.00 0.98

IDA 7.80 12.79 3.17 1.24 25.00

WFP 10.00 0.00 0.00 0.00 10.00

USAID 3.00 0.00 0.00 0.00 3.00

UNDP 0.33 0.00 0.00 0.00 0.33

UNICEF 0.00 0.00 0.11 0.00 0.11

PAHO 0.00 0.08 0.00 0.00 0.08

FINANCING GAP 3.50 0.00 0.00 0.00 3.50

TOTAL 32.22 16.66 4.11 1.24 54.23

- 58Annex 2FINANCING PLAN

FINANCING PLAN BY YEAR

(US$ 000)

1993 1994 1995 TOTAL

GOH 2.02 3.43 5.78 11.23

BENEFICIARIES 0.31 0.33 0.34 0.98

IDA 9.66 9.11 6.22 25.00

WFP 2.90 4.60 2.50 10.00

USAID 1.00 1.00 1.00 3.00

UNDP" 0.27 0.06 0.00 0.33

UNICEF"' 0.00 0.11 0.00 0.11

PAHOl 0.08 0.00 0.00 0.08

FINANCING GAP 0.00 0.00 3.50 3.50

TOTAL 16.24 18.64 19.34 54.23

" Project financing by UNDP, UNICEF, and PAHO disbursed in 1992 are shown

as 1993 disbursements

-59 - Annex 3DISBURSEMENT SCHEDULE

HONDURAS

NUTRITION AND HEALTH PROJECT

DISBURS29wNTS

WITHDRAWALS OF THE PROCEEDS OF THE CREDIT

AMOUNT OF THECATEGORY LOAN ALLOCATED i OF EXPENDITURES

(EXPRESSED IN TO BE FINANCEDSDR EQUIVALENT)

(1) Food 4,270,000 34% of local expenditures up to anSupplements aggregate amount of SDR2,130,000; 20% of

local expenditures up to an aggregateamount of SDR3,550,000; and 9% of localexpenditures thereafter

(2) Medicines 3,050,000 100% up to an aggregate amount ofSDR1,420,000; 75* up to an aggregate amountof SDR2,560,000; and 30% thereafter

(3) Civil Works 2,840,000 100l

(4) Equipment,

tools, andVehicles

PRAF 200,000 100%

MOH 1,500,000 100%SCES 30,000 100l

(5) Consultants'

Services!'

PRAF 380,000 100lMOH 2,140,000 100%SCES 290,000 100%

(6) Salaries 1,140,000 100% of local expenses up to an aggregateamount of SDR500,000; 75% of local expensesup to an aggregate amount of SDR930,000;

and 30% of local expenses thereafter

Unallocated 1,960,000

Total 17,800,000

' Includes consultants' services for technical assistance, training, andstudies.

- 60 - Annex 3DISBURSEMENT SCHEDULE

DISBURSEMENT SCHEDULE(US$ MILLION)

IDA DISBURSED DISB. AS

FISCAL SEMESTER DURING CUMULATIVE PERCENTAGE BALANCE OF

YEAR ENDING SEMESTER AMOUNT OF TOTAL CREDIT

93 June 30, 1993 4.83" 4.83 19.3 20.17

Dec. 31, 1993 4.83 9.66 38.6 15.34

94 June 30, 1994 4.55 14.21 56.8 10.79

Dec. 31, 1994 4.55 18.76 75.0 6.24

1 95 June 30, 1995 3.12 21.88 87.5 3.12

96 Dec. 31, 1995 3.12 25.00 100.0 0.00

Includes the initial deposit of US$2.0 million to the Special Account.

- 61 - Annex 4PROJECT AREA

HONDURAS

NUTRITION AND HEALTH PROJECT

PROJECT AREA

MALNUTRITION INDICATORS

1991, 1992

HEALTH DEPARTMENT UNDERWEIGHT STUNTING ESTIMATED BMJF=AREGION < 5 YRS 6-9 YRS POPULATION

1991 (i) 1991 (e) 1992 BMI=B

4 Choluteca 50.4 28.2 346,833 A

2 Comayagua 67.3 39.1 274,959 B

5 Copan 62.0 49.7 257,695 A,B

3 Cortez 45.8 25.9 770,858 A

1 El Paraiso 49.5 32.5 298,625 B

0 Fco Morazan 30.6 24.8 955,113 A,B

2 Intibuca 67.3 61.8 142,602 A

2 La Paz 67.3 51.7 121,086 B

5 Lempira 62.0 61.5 201,510 A

5 Ocotepeque 62.0 41.6 84,942 B

7 Olancho 42.5 31.6 327,761 B

3 Santa Barbara 45.8 47.7 318,614 A,B

4 Valle 50.4 28.6 147,320 A,B

Sources: MOE, 1991 National Nutrition Census; MOH, 1991 National

Epidemiological and Health Survey; SECPLAN, R. HernandezCruz, "Honduras: Population Projections 1988-2050",

April 1992.

it For children aged 0-4 years, malnutrition rate is based on

weight for age, including light, moderate, and severe symptomsof malnutrition. Health Region rates are applied to specific

departments. For children aged 6-9 years, attending the 1st

grade, chronic malnutrition is measured as -2 standard

deviations from the median height for age of the reference

population.

- 62 - Annex 5REGIONAL ORGANIZATION

HONDURAS OF THE MOH

NUTRITION AND HBALTH PROJECT

REGIONAL ORGANIZATION OF THE MINISTRY OF HEALTH

The organization of the MOH by Health Region does not exactly match the

country's departmental division, since it takes into account epidemiological

zones and accessibility. The approximate correspondence between the two setsof geographic divisions is as follows:

HEALTH REGION DEPARTMENT NUMBERl________________ ____________________________I MMUNICIPALITIES

0 Francisco Morazan 3 of 35Metropolitan

1 El Paraiso 22 of 22

Francisco Morazan 28 of 35

2 Comayagua 28 of 28

Intibuca 18 of 19

La Paz 16 of 22

3 Cortes 16 of 16

Santa Barbara 28 of 30

Yoro 9 of 12

4 Choluteca 21 of 21

Francisco Morazan 4 of 35

La Paz 6of 22

Valle 11 of 11

5 Copan 24 of 24

Intibuca 1 of 19

Lempira 28 of 28

l_______________ Ocotepeque 16 of 16

6 Atlantida 9 of 9

Colon 11 of 11

Islas de la Bahia 4 of 4

Olancho 1 of 24

l _______________ Yoro 3 of 12

7 Olancho 23 of 24

8 Gracias a Dios 2 of 2

- 63 - Annex 6PROJECT PERFORMANCE

HONDURAS INDICATORS

NUTRITION AND HEALTH PROJECT

PROJECT PERFORMANCE INDICATORS

A. PROJECT IMPLEMENTATION TARGETS

Activities Start Date End Date I Unit | 1993 1994 | 1995 | Total

NUTRITION A8SISTANCE

Draft Nutrition Policy 03101/93 12/10/93 | r _____

Nutrition Action Plan 12/15/93 01/31/94

Nutrition Policy Implementation 02101/94 12/31/95 Percent 50 100 100

FAP technical assistance 03/31/93 12/31/96 Percent 70 88 100 100

BMI beneficiaries No. 85300 108000 124200 317500

BMJF beneficiaries No. 123700 127400 131300 382400

Nutrition staff training 03/31193 12131/96 Trainees 1779 3565 5170 10604

Annual nutrition census Date 02/15193 02/15/94 02/16/96

HEALTH SERVICES

Rehabilitation health centers 03131/93 12/31/96 Centers 32 49 49 130

Health centers built/equipped 03/31/93 12/31/95 Centers 0 15 15 30

Radio communication 03/31/93 12/31/95 Stations 10 1 5 15 40

Vehicles for supervision 03/31/93 06/30/93 Vehicles 21 21

Health staff training courses: 03/31/93 12/31/95 CoursesFood coupon administration 7 4 11New staff 8 3 3 14Supervisory nurses a 3 9Auxiliary nurses 10 4 2 16Health promoters 1 1

Supervision of health centers 03/31/93 12/31/95 Visits 800 1000 1000 2800

Incremental staff hired: 03/31/93 03/31/95 No.staffPhysicians 23 6 0 28Nurses 43 0 10 53Auxiliary nurses 88 30 50 168Health promoters 40 0 0 40Nursing instructors 6 0 0 6Laboratory techniciens 5 0 0 5

MOH Project Unit 01/31/93 12/31/95 No.staff 8 8 8 8

Procurement of medicines:MOH/UNICEF agreement 03/31/93 12/31/95GPO technical assistance 03131/93 12131/95Annual procurement schedule Date 12/10/92 12/10/93 12/10/94

AIDS Program:Action plan 1993-1995 03/31/93Financing plan 1993-1996 03/31/93Implementation 03/31/93 12/31/95 Percent 30 75 100 100Annual evaluation Date 12/10/93 12/10/93 12/10/96

Implementation cost recovery system 03101/94 12/31/95 Percent 50 100

- 64 - Annex 6PROJECT PERFORMANCE

INDICATORS

Activities Start Date I End Date I Unit 1993 | 1994 | 1996 Total

ENVIRONMENTAL HEALTH

Water Supply Localities 43 41 61 145JUNTAs established JUNTAS 43 41 61 145Latrines built Latrines 3100 2800 4100 10000MOH supervision Date 03/31/94 03/31/95Medical waste manual 03/31/93 08/15/93Staff training by department 09/16/93 12/31/95 Depts. 2 4 3 9

STUDIES

FAP institutional evaluation 03/31/93 11/30/93FAP food coupon evaluation 03/31/93 12/10/95 Percent 60 75 100Cost recovery of health services 03/31/93 12/10/93 Reports 11/15/93 11/15/94 11/15/96Operations research in public health 05/31/93 11/15/95HIV transmission via breast milk 03/31193 12/10/95Private sector generic drugs supply 03/31/93 08/31/93

B. PROJECT OUTCOME INDICATORS

Key Impact Indicators Target Groups in the Project Area and Baseline and TimeCountrywide Series

NUTRMON, HEALTH & POPULATION

Malnutrition prevalence (weight for age) Children under 5 1990 1993-1995Stunting prevalence (height for age) School children aged 6-9 yearsInfant mortality per 1,000 live births Children under 1 yearChildren mortality per 1,000 live births Children under 5Low birth weigh per 100,000 live births NewbornsMaternal mortality per 100,000 live births WomenMortality due to diarrheal disease per 1,000 deaths Children under 5; children 5-12; totalPercent births attended by health staff over total live births Total birthsPercent households with potable water Total householdsPercent households with latrines/sewerage Total householdsContraceptive prevalence (all methods) Women aged 15-49 in unionTotal fertility rate Births per women

PRIMARY EDUCATION

Gross primary school enrollment Male and Female Children 1990 1993-1995Net primary school enrollment Male and Female Children aged 6-12Dropout rate All primary school studentsRepetition rate All primary school students

AIDS

Percent HIV positive test results Risk group. and Total population by 1990 1993-1995Prevalence of sexually transmitted diseases sex, age, regionNumber reported AIDS cases per 100,000 population Total population by sex, age, regionDistribution AIDS cases by transmission mode Total population by sex, age, region

Total population by sex, age, region

- 65 - Annex 7ANNUAL PROJECT

HONDURAS IMPLEM8NTATION REVIEWS

NUTRITION AND HRALTH PROJECT

ANNUAL PROJECT IMPLEMENTATION REVIRWS

Obiectives

1. The purposes of the annual project implementation reviews are to: (i)evaluate project performance during implementation; (ii) provide managementwith immediate feed-back on project achievements as well as on areas needingimprovement; (iii) justify and orient eventual changes in project design; (iv)document the status of project execution thoroughly for the benefit of theBorrower and the financing agencies; and (v) assess compliance with theBorrower's nutrition and health policies. Upon completion of each review, theBorrower shall carry out or cause to carry out an action plan coveringcorrective measures satisfactory to the Association.

General Agenda for Annual Project Imolementation Reviews

2. Each review would include: (i) a detailed analysis of the previousyear's performance, attainment of targets, utilization of budgetaryallocations, functioning of implementation arrangements, main implementationissues and proposals to overcome them; (ii) review and approval of the workplan, targets and budget for the following year; (iii) adjustments to projectdesign and implementation schedule; (iv) progress in the FAP food couponprogram evaluation study (which is part of the long-term nutrition policy(item 3(a) below)), and status of funding for the FAP beyond the life of theproject; (v) procurement and credit disbursements; (vii) share of socialsector expenditures in the central government budget; and (viii) interimevaluation of the AIDS control program.

Special Tonics for the First Annual Project Imolementation Review

3. During the first annual project implementation review, analytical workand policy discussions would be focused on the following topics:

(a) Lone-Term Nutrition Policy including: (i) discussion of a draftlong-term nutrition policy, agreement on an action plan andfinancing plan for its implementation; and (ii) institutionalanalysis of FAP and recommendations for adjustments to FAP'sfood coupon programs that may emerge from such analysis;

(b) Cost-Recovery for Health Services including: (i) discussion ofthe assessment of the existing cost recovery system; (ii)recommendations for system improvement; and (iii) action plan toimplement improvements in the cost recovery system during the1994-1995 period;

(c) Cost-Recovery for Water Supplv and Sanitation Services includingtechnical and financial performance of the JUNTAS in ensuringsatisfactory operations and maintenance of systems built;

(d) Review of Social Sector Expenditures including: (i) discussionof the analysis of social sector budget allocations and

- 66 - Annex 7ANNUAL PROJECT

IMPTLEMNTATION REVIEWS

expenditures funded by the Japanese Grant Agreement dated Marc14, 1991; and (ii) recommendations for adjustments in publicexpenditures and budget procedures, including social sectorshare of central government budget;

(e) Amendment to the SIF Aareement for the administration of civilworks given prospects of termination (or extension) of the lifeof the SIF in March 31, 1994;

(f) Studies including: (i) performance of pilot radiocommunications stations and decision on possible expansion ofradio communications network; (ii) agreement on measures to betaken regarding the supply of generic drugs by the privatesector; (iii) evaluation of the results of operations researchcarried out by the Master Program in Public Health of theNational Autonomous University of Honduras and agreement of theresearch project for the following year; and (iv)recommendations for improvements in the procurement of drugs bythe MOH.

Special Topics for the Second Annual Proiect Implementation Review

4. During the second project implementation review, analytical work andpolicy discussions would be focused on the following topics:

(a) Nutrition including: (i) benefits accruing for the nutritioneducation program; (ii) progress in the implementation of thelong-term nutrition policy and assessment of the inter-relationships between the FAP food coupons program and otherforms of nutrition assistance;

(b) Primary health care including: (i) progress in adopting anintegrated primary health care model for service delivery; (ii)action plan for the implementation of the recommendations fromthe study on referral systems linking primary health carefacilities and hospitals based on or resulting from the study onsuch systems carried out under Part D.1 of the Project;

(c) Environmental Health including: (i) evaluation of the level ofprotection of water sources and the quality of the water servingthe communities were water systems were built; (ii) introductionof adequate medical waste disposal procedures in primary healthcare facilities;

(d) Social Sector Expenditures including a review of the adequacy ofcentral government budgetary allocations for the social sectors;and,

(e) Studies including an evaluation of the quality of the operationsresearch carried out by the Master Program in Public Health ofthe National Autonomous University of Honduras and agreement of

- 67 - Annex 7ANNUAL PROJECT

IMPLBMBNTATION RBVIBWS

the research project for the following year, under Part D.1 ofthe Project.

Special Topics for the Third Annual Prolect Imolementation Review

5. The third Project implementation review would focus on the evaluation ofthe impacts of the project on nutrition and health status and on lessonslearned from project implementation. In addition, agreements would be reachedregarding the preparation of the project completion report by the Borrower.Specifically, the following topics would be discussed:

(a) Nutrition including: (i) observed trends in child and maternalnutrition indicators in the project area and countrywide; (ii)coverage of nutrition programs in relation to the population atrisk of malnutrition, by program and recommended adjustments toprogram size and targeting criteria; (iii) special report onbeneficiaries that "graduate" from the FAP food coupons programand (iv) priority nutrition assistance needs, including the FAPfood coupon program, for the 1996-1998 period;

(b) Health including: (i) observed trends in child and maternalhealth indicators; (ii) quality of services delivered at primaryhealth care centers; (iii) performance of referral systems; (iv)performance of plant and equipment maintenance; (v) performanceof cost recovery system for health services; (vi) special reporton the availability of basic drugs at PHC facilities nation-wide; and (vii) priority needs for public health services duringthe 1996-1998 period;

(c) Environmental Health including: (i) status of operation andrepair of systems build under the project and performance ofcost recovery system; (ii) priority needs for water supply andsanitation services in rural areas for the 1996-1998 period;

(d) Study of HIV transmission through breast milk carried out underPart A.1 of the Project, recommendations to ensure safety ofmilk banks, and action plan to implement these recommendations;

(e) Proiect Comoletion Report: a work plan for the projectcompletion report, to be prepared by the Borrower, would bediscussed and agreed upon with IDA.

Organization

6. Schedule. The annual reviews consist of a period of about one weekduring which project monitoring and evaluation data would be reviewed andspecial topics requiring management action would be addressed in detail. Theannual review procedure consists of an initial period of approximately twoweeks when specialists contracted by the Borrower collect data and reviewinformation assembled by the Borrower, focusing on technical, administrative,and financial aspects of the project. Field visits to the project areas wouldbe part of this process. Following this fact-finding period, the review teamwould analyze the information collected, review progress against original

- 68 - Annex 7ANNUAL PROJECT

IMPLEMBNTATION REVIEWS

targets, and prepare a brief report highlighting strengths and weaknesses andmaking recommendations for management action. The annual review team thenjoins the project management to discuss its findings and recommendations, andarrive at concrete agreements regarding targets to be reached and changes tobe made in project management and implementation. The Borrower's annualreview report would be presented at the annual review meetings, which wouldtake place not later than December 10 of each year. The action plan for thefollowing your would be presented by the Borrower to the Association byJanuary 31 of each year, and implementation actions recommended in the planwould commence immediately thereafter, in accordance with the calendarapproved in each action plan.

7. Review Team. The composition of the mid-term review team shouldinclude: (i) an engineer to review health and water supply and sanitationinfrastructure; (ii) a nutritionist to review the food coupons program, thenutrition education program, and the implementation of the long-termintegrated nutrition assistance program; (iii) a public health specialist toreview progress in health indicators and quality of primary health careservice delivery, including application of an integrated primary health careservice model; (iv) a human resources specialist to review health stafftraining and supervision programs; (v) a management specialist, withexperience in management information systems, financial analysis, andprocurement, to review the administrative and financial aspects of theproject; (vi) an economist with extensive experience in project impactanalysis, to review the impact of- the project based on a sample survey andother data; and (vii) a statistician to assist in assembling and processingdata.

S. Sources of Data. The reviews would use data from administrative sourcesroutinely collected by the MOH, FAP, and the Ministry of Education; vitalstatistics; national epidemiological and health surveys; national height/agecensus of first year primary students; living standard measurement surveys;and national multi-purpose household surveys. In addition, the reviews woulduse special nutrition and health studies conducted by public and/or privateagencies, and a longitudinal study of a small sample of beneficiaries of theBMI and the BMJF food coupons program, to be financed under the project.

-69 - Annex 8IMPACT OF THE PRAF PROGRAMS

HONDURAS

NUTRITION AND HEALTH PROJECT

IMYACT OF THE PRAF FOOD COUPON PROGRAM

A. On Healt

Table 1. PERCENT CHANGE IN CONSULTATIONS FOR 23 HEALTH CENTERS

PARTICIPATING IN THE BMI (1991 COMPARBD TO 1990)

CONSULTATION URBAN CENTERS RURAL CENTERS TOTALBY CATEGORY (e) (e) (e)

Children under < 5 132 171 155New Pregnancies 108 11 46

Old Pregnancies 99 60 79

Post-Childbirth 56 6 34

Family Planning 6 -25 -8

TOTAL INFANT/MATERNAL 119 140 131

Source: Eduardo S. Atalah, "Evaluaci6n del Proyecto Piloto - Bono

Materno Infantil en Honduras" (World Bank, September 1991).

B. On Education

Table 2. PERCENT CHANGE IN ENROLLMENT. REPETITION. AND DROPOUT

RATES FOR 7 DEPARTMENTS PARTICIPATING IN THE BMJF

ENROLLMENT REPETITION DROPOUTDEPARTMENT (I) ( ) (pi)

1990 1991 1990 1991 1990 1991

Copan 1.7 6.8 12.2 11.7 4.1 3.4

Cortes 1.3 4.0 11.6 11.0 2.5 4.0

Choluteca 1.4 5.2 13.5 12.3 4.8 4.3

Fco. Morazan 2.1 3.5 14.1 12.5 2.8 3.0

Intibuca 2.3 22.7 14.2 12.1 3.5 2.6

Lempira 1.4 27.2 13.9 13.4 3.4 2.1

Valle 1.8 11.7 12.6 9.9 4.2 2.8

TOTAL 1.7 11.6 13.1 11.8 3.6 3.2

Source: Ministry of Education, February 1992.

- 70 - Annex 9IMPROVEMENTS TO PRAF

HONDURAS UNDER THE PROJECT

NUTRITION AND HEALTH PROJECT

IMPROVEMENTS IN THE PRAF FOOD COUPON PROGRAMSTO BE IMPLSMENTED UNDER THE PROJECT

1. The PRAF food coupon programs were evaluated by IDA on occasion of themid-term review of the FHIS-I Project. The evaluation found the programsgenerally sound by made a number of recommendations for program improvements.These recommendations were incorporated in the design of the proposed projectand are described below.

2. Based on this initial success and considering the large unmet need fornutrition assistance in Honduras, the Government now plans to expand the PRAFfood coupon program and is appealing to the donor community for financing.Nation-wide, the potential needy beneficiaries of the PRAF food coupon programare estimated at approximately 211,000 primary school children in grades 1-3and 430,000 children under five and pregnant and lactating mothers at risk ofmalnutrition. The Government is contemplating an expansion of the programover a three year period under the proposed project, benefitting on average255,000 poor children and pregnant and nursing mothers (Annex 11). Under thisplan, the two programs would reach from 25 percent at present to about 40percent of their combined target population three years later.

3. For this program to be successful, during the implementation of theproposed project, the Government needs to: (i) increase PRAF's administrativecapacity; (ii) strengthen primary health care; (iii) strengthen primaryeducation; (iv) provide the required resources to sustain the program; and (v)define a longer-term nutrition strategy aimed at ensuring the sustainabilityof the food coupon program, its expansion on a national scale, and therationalization of food distribution programs, in a comprehensive, long-termstrategy to reduce malnutrition.

4. Based on this review, the following recommendations are made to helpachieve these objectives:

(a) Develop a long-term nutritional straterv. The Government ofHonduras needs to develop a long-term nutrition assistance strategybased on an evaluation of how the coupon programs could be sustainedover time, an analysis of the effects and longer term impacts ofnutrition assistance and income generating activities, and arationalization of different types of nutrition interventions to form acomprehensive long-term nutrition program capable of promoting efficientand technically and financially sustainable improvements in thenutrition status of the Honduran population.

(b) Improve PRAF's Administrative Capabilities. The evaluation ofthe pilot program, the USAID management audit of PRAF and an analysis ofPRAF's administrative practices and organization structure have shownthat PRAF needs to improve its administrative capacity to properlymanage the food coupon program. For this, the following priorityactions are recommended:

(i) Strengthen the Food Coupon Distribution Networkthrough the use of private banks, in addition to the Central

- 71 - Annex 9IMPROVEMENTS TO PRAF

UNDER THE PROJECT

Bank network at present, to transfer the coupons from theCentral Bank to local areas, where MOE and MOH local staff cancollect the coupons and distribute them to the finalbeneficiaries;

(ii) SimDlify and Standardize Eliuibility Criteria usingthe malnutrition rates measured by the National School NutritionCensus as targeting criteria for both the BMI and the BMJF; thisCensus should be carried-out every year;

(iii) Increase Freauencv of BMJF Coupon Distribution to morethan twice a year, to maximize its use for food purchase andencourage school attendance, from 2 to 3 times per year;

(iv) Strengthen PRAF's monitoring and evaluation caDacityand carry-out impact evaluations. The PRAF should increaseefforts to evaluate the impact of the two food coupon programson nutrition, health and school performance indicators. Inaddition, household surveys should be undertaken to determinethe impact of the food coupons on family expenditures;

(v) Strengthen PRAP's auditing function. The PRAF needsto ensure full transparency of the program through more frequentand better auditing. It is recommended that PRAF establish aninternal auditing unit and contract with external auditors theconcurrent audit of its accounts and programs;

(vi) Imurove coordination with oarticipating agencies. Inorder to improve program efficiency, PRAF will need to establishbetter coordinating mechanisms with participating institutions,including the Central Bank, private banks, the MOH, MOE andmerchant groups;

(vii) Contract additional technical staff to fill keyfunctions such as legal counsel, financial analysis, monitoringand evaluation, auditing, inter-agency coordination, and investin additional computer and office equipment;

(viii) Imnrove the Amolication of the Bligibility Criteria.For both the BMI and the BMJF, the beneficiary selection processshould be improved and an appeals system established forfamilies who believe that they are unjustly excluded from eitherprogram. The malnutrition rate measured annually by theNutrition School Census should be used to determine theeligibility of new first graders to participate in the BMJFprogram. Likewise, the same census provides malnutrition ratesby municipality and these should be used by the MOH to determinepriority municipalities for the BMI expansion. Within highpriority municipalities, the MOH should select the poorestvillages within the catchment area of health centers forparticipation in the BMI. To reduce the occurrence of ad hocrationing in the BMI, community members should be more formallyinvolved in the inscription process to ensure that mothers andchildren not residing in the selected villages do notparticipate. In addition, to ensure that all qualifiedbeneficiaries may participate, the PRAF, in coordination with

- 72 - Annex 9IMPROVEMNTS TO PRAF

UNDER THE PROJECT

the MOH should allocate additional coupons to be issued onlywhere the situation demands it. Finally, in order to ensuremore equitable distribution of the coupon benefits, the PRAF'sinformation system should control for double registration inboth the BMJF and BMI programs in the municipalities of threedepartments where both programs operate simultaneously; wheredouble coverage occurs, preference should be given to continuethe BMI program.

(ix) Establish procedures for re-certification ofbeneficiaries (or exit criteria). PRAF food couponbeneficiaries are selected for one-year benefits. A necessarycomplement to this regulation is the establishment of proceduresin the Operations Manual of PRAF to review beneficiarycertification at the beginning of each year. The following exitcriteria will be included in the PRAF Operational Manualconcerning:

The BMI: [a] mothers who are no longer pregnant or nursingchildren aged less than 6 months; [b] children who become 5years old; and [c] mothers and children who no longerinhabit poor neighborhoods and villages;

The BMJF: [a] children who drop out of school; lb] childrenwho are promoted to the 4th grade of primary school; and [c]children who transfer to schools not covered by the BMJFprogram.

(x) Sustain the purchasing oower of the couoon. In realterms, the value of the assistance provided by the PRAF foodcoupons has been declining as a result of the decliningpurchasing power of the coupon which has a fixed nominal valuein Lempiras. Thus, consideration should be given toperiodically adjusting the value of the food coupon in order tomaintain the desired level of subsidy of the household foodbudget. Adjustment of the food coupon value, to safeguard itspurchasing power relative to the date of appraisal of theproject in July 1992, would be made in accordance with annualreviews of the fluctuations of the Honduran consumer priceindex. Adjustment measures may include either emission ofsmaller denomination coupons or redefinition of the standardcoupon denomination.

(xi) ExDand coverage in rural areas. All future expansionof the BMI should occur in rural areas, where approximately 75percent of the target population lives.

(c) Strengthen Primary Health Care Services. The experience withthe BMI program has highlighted the need for improvement of healthservice delivery by the MOH as well as better organization of the coupondistribution. There is need to increase the capacity of health centersto respond adequately to the increasing demand for health servicesgenerated by the food coupon program. An estimated 70 percent of thehealth centers are in a state of disrepair and should be rehabilitated.Some are too small and need to be expanded. There is also a need for a

73 - Annex 9IMPROVEMENTS TO PRAF

UNDER THE PROJECT

modest expansion of the network in the poorest regions, to serve thecurrently isolated population groups. In addition, there is lack ofmedicines and supplies, basic equipment and insufficient staffing,particularly trained nurses, auxiliary nurses, and health promoters.Auxiliary health staff need additional training to properly identifypregnancy and malnutrition risks. Besides improvement of physicalplant, equipment materials and pharmaceutical supplies, the MOH should:

(i) Allocate additional staff at the regional. area. andlocal levels and strengthen human resources in key centralfunctions. The composition and quantity of additional healthstaff should be determined based on actual productivity andtaking into account expect increases in the demand for healthservices generated by the food coupon program; in addition, theMOH should improve the ratio of nurses per doctor, andsupervisory nurses per auxiliary nurse in the project area;

(ii) Establish Staff Training Programs. MOH staffparticipating in the program, including doctors, supervisors,professional nurses, auxiliary nurses and health promotersshould receive on-the-job training designed to improve thequality of service delivered by all staff categories. Thesetraining programs should focus on maternal and child care,epidemiological surveillance, patient risk assessment, planningand administration of health services at the local level, healtheducation, family planning, nutrition education, monitoring andevaluation, and community participation. Special care should begiven to integrate the operation of the BMI with the delivery ofprimary health care services at the local level;

(iii) Strengthen staff suoervision. Training andperformance should be systematically reinforced by periodicsupervision of health personnel performance at the local level.A system of staff performance review should be created andlinked to salary incentives;

(iv) Imxrove Organization of Coupon Distribution to FinalBeneficiaries. To reduce waiting time in the health centers,local MOH staff should respect the Ministry's consultation normsand monthly visits should not be required of healthy childrenand mothers. The BMI coupon distribution process needs to bestandardized and streamlined to improve patient flow.Furthermore, the coupon should be distributed immediatelyfollowing the completion of the required check-up, and themother should not have to return a second time or wait severalhours to receive the coupon. To reduce the time demands onhealth center staff, community volunteers should be recruited tohelp in coupon distribution; and

(v) Increase Coordination between PRAF and MOH. The levelof adequate administrative support from the PRAF to the Ministryof Health should be increased.

(d) Strengthen Primary Education. The BMJF made evident the needfor complementary actions on the part of the MOE to enhance the impact

- 74 - Annex 9IMPROVEMSNTS TO PRAF

UNDER THE PROJECT

of the food coupon program on primary school enrollment and efficiency.Efforts in this direction have started, as the Honduran SocialInvestment Fund (FHIS) has financed 857 primary and pre-primary schoolprojects during 1990-91, including school rehabilitation, expansion, andnew facilities. The FHIS also supported another 172 education projectsinvolving repair and construction of school furniture. Additionalefforts by the MOE will be required to ensure that the increasedenrollment generated by the food coupon program will not exceed teachercapacity, and that primary schools have the supplies and the physicalconditions to accommodate the added students.

75 -annex 10PRAF TARGETING CRITERIA

HONDURAS AND EXPANSION

NUTRITION AND HEALTH PROJECT

PRAP FOOD COUPONS PROGRAMS: TARGETING CRITERIA AND EXPANSION PLAN

Criteria for Taraetina Benefits:

Women Head of Children enrolled in grades 1-3 of primary educationHousehold Coupon who are at risk of malnutrition. Expansion of thisProgram (BMJF): subprogram will cover children entering the first

grade of primary school as identified by the MOEannual nutrition census (height/age) in eightdepartments. In addition, at participating schoolswhere the results of the annual nutrition census showan incidence of malnutrition equal or higher than 60%,all first grade entrants would be consideredbeneficiaries of the BMJF.

Maternal Child Children under five years of age, pregnant mothers,Coupon Program and mothers nursing children aged less than 6 months,(BMI): in the poorest villages at municipalities where

average malnutrition index is above 40% as measured byschool nutrition census in six departments with thehighest average malnutrition index.

Nutrition The project would finance the nutrition censuses ofCensus: children aged 6-9 years old enrolled in the first

grade of primary schools nationwide. The MOE wouldcarry out these census under the supervision of theSCES.

COVERAGE: The BMI expansion will take place only in thosemunicipalities where there is no program fordistributing food in kind, and no BMJF food couponprogram.

Table 1. NUMBER OF BENEFICIARIES BY SUBPROGRAM BY YEAR

PROJECT YEARSSUBPROGRAM CURRBNT (%) 1993 1994 T1995 1 TOTALL (%)

BNJF 120,118 68 123,722 127,425 131,250 382,400 55

BMI 57,535 32 85,335 108,056 124,190 317,581 45

TOTAL 177,653 100 209,060 235,481 255,440 699,981 100

Table 2. TOTAL COST BY SUBPROGRAM & BY YEAR (US$ 000)

PROJECT YEARS

SUBPROGRAM : 1993 1994 1995 TOTAL _

BNJF 4,949 5,097 5,250 15,296 43

BMi 3,951 5,003 5,750 14,704 57J

TOTAL 8,900 10,100 11,000 30,000 100

- 76 - Annex 10PRAF TARGETING CRITERIA

AND EXPANSION

Table 3. UNIT COSTS BY SUBPROGRAM. YEAR. AND BENEFICIARY

[ COSTS ILI BMJF | BMI

COSTS L | _US$ | L US$ |__

Subsidy " 200.00 37.04 93 240.00 44.44 96

Emission 2/ 3.20 0.59 1 3.84 0.71 2

Administration 3/ 12.80 2.37 6 6.16 1.14 2

TOTAL Q 216.00 40.00 100 250.00 46.30 100

| Distribution per year 4 12

Coupons per Year 10 12

The denomination of the coupons is L20 (US$3.70) and would be adjusted

in case the consumer price index in Honduras changes by 30% or more.

Estimated as follows: number of coupons per year x LO.12 to coverprinting costs, plus 1 of the cost of the subsidy to cover bankingcosts.For the BMJF food coupon program, administrative costs would increase by

about four times, due to an increase from two to four in the number of

times the coupons are distributed per year.For both programs, the average overhead cost is estimated at 5.7%,

including emission and administration costs. For a three-year expansion

plan these costs are estimated as follows: BMJF (7.41V * US$15.3

million = US$1.13 million); BMI (4.0* * US$14.7 million = US$0.59

million); total (US$1.72 million/US$30.0 million = 5.73%).

Table 4. FINANCING PLAN

(US$ 000)

SOURCE PROJECT YEARS

FINANCING 1993 1994 1995 TOTAL | e

GOH 1,142 2,642 3,716 7,500 25.0

IDA 3,000 2,000 1,000 6,000 20.0

USAID 1,000 1,000 1,000 3,000 10.0

WFP 3,758 4,458 1,784 10,000 33.3

OTHER DONORS 0 0 3,500 3,500 12.0

(UNIDENTIFIED) l

TOTAL T 8,900 | 10,100 11,000 T 30=000 =0lo

- 77 - annex 11

PRAF ORGANIZATIONAL CHARTHONDURAS

NUTRITION AND HEALTH PROJECT

Presidency

ExecutiveDirector

Executive InternalCommittee Auditor

Procurement --- -.. . ....... Legal AdvisorlCommittee Edvisor

Public TechnicalRelations |---- -- -------------- . Advisor

Monitoring & Fnance AdministrationEvaluation Director DirctorDirector

[vatl1*don MIS Cfl~ ontrAccount- Budget Trasur Personnel Gnal

Food Coupon occupational Schol-Bag Training DirectorDirectr | Director

BMI bMJF Marketing

- 78 - Annex 12NUTRITION EDUCATION

HOINDURAS

NUTRITION AND HEALTH PROJECT

NUTRITION EDUCATION

1. Obiectives. This component aims to train health personnel and communityvolunteers to ensure that they know the practical and theoretical skillsnecessary to ensure adequate diet for the pregnant woman, exclusive breast-feeding during the first six months of life and an adequate complementary dietfor the child less than two years old. This component is a basic element ofthe practical focus of integrated mother-child care that the MDH is nowpromoting. Its implementation will help improve the nutritional condition ofthe mother and child during a critical period of their lives, which willreduce the risk of morbidity and morality associated with malnutrition, andwill improve the health of women of reproductive age.

2. Target GrouD. The direct beneficiaries of the proposed measures areapproximately 128,000 pregnant women and 112,000 children under two years ofagree in health regions 3, 4, 5, and Metropolitan.) In addition,approximately 5,000 people would be trained in appropriate feeding practices,including an estimated 685 health personnel, 5,250 community workers and 1,600nutrition counselors. Health personnel will benefit from training in the useof natural and inexpensive nutritional technology, and public healthinstitutions will save by spending less on artificial milk, bottle-feeding,medicine, and having fewer visits for morbidity.

3. Description. As part of the Health and Nutrition Project, thiscomponent will finance a nutrition education program with emphasis on nursingmothers. The contents of the training program would include: (a) nutritionrequirements of pregnant women; (b) nutrition requirements of nursing mothers;(c) appropriate breast-feeding practices; (d) appropriate weaning practices;(d) nutrition requirements of young children; (e) importance of micronutrientsupplements; (f) use of contraceptives; and (g) appropriate maintenance ofequipment. All these areas would be covered in the training program describedbelow.

(a) Training health Dersonnel including doctors, professionalnurses, auxiliary nurses, health promoters, community volunteers, andhospital managers and administrators through: (i) the preparation andexecution of a training plan for health region three and Metropolitanand later for regions 4 and 5, including the new hospitals and allcenters at other levels of care with a strong component on workmethodology with community participation; (ii) creation of two (2)training centers at the level of the two national hospitals, in whichhealth personnel and the graduates in residency receive the trainingnecessary in hospital practices and clinical management of lactatingmothers; (iii) staffing the hospitals and health centers of four healthregions to carry out the support breast-feeding and early childhoodnutrition activities; and (iv) preparing and introduction of teachingmodules in breast-feeding in the study program of the Faculty of MedicalSciences. Health personnel training will include information on the useand the importance of contraceptive practices during the post-natal

As defined in Annex 5.

-79 - Annex 12NUTRITION EDUCATION

period, to achieve and adequate spacing between pregnancies, which willcontribute to maintained the mother and child in satisfactorynutritional conditions.

(b) Supervision and evaluation which will permit documenting theexperience in the process of developing the nutrition education andbreast-feeding component at the community and institutional levels, andevaluate the completion of the "Ten Steps Toward a Happy Natural InfantFeeding" recommended by the World Health Organization and UNICEF in thepublic hospitals, in order that they are used as feed-back; and

(c) Operations research, focusing on a study of HIV transmissionthrough mother's milk, which would be used as an element to support thedevelopment nutritional education activities, breast-feeding and controlof the quality of hospital milk banks.

4. Implementation. The component will be executed by the Ministry ofPublic Health in collaboration with a specialist in NGO, the Breast-FeedingLeague of Honduras (BFLH) and UNICEF, over a 3-year period under a technicalassistance agreement satisfactory to IDA. Activities will begin in Regions 3and Metropolitan (1993-95), followed by Regions 4 and 5 (1994-95). Underparallel financing, carried out through the same NGO, training will beexpanded to the village level through a national system of breast-feedingcounselors and to support adequate feeding practices for mothers, infants andsmall children under age 2. This parallel program also contemplates thecreation of a Center for Orientation and Documentation in breast-feeding.This center will contribute to the training and up-dating of health personnel,share practical information with the public and in particular with lactatingmothers, supporting exclusively breast-feeding and adequate weaning practices,and contributing to the formulation of a national strategy for nutrition andmaternal lactation. Parallel financing will provided by USAID and UNICEF.

5. Estimated Costs. The cost of this component is estimated at US$0.9million, including contingencies, as follows:

1993 1994 1995 Total

A. Training 44.5 69.6 37.0 151.1B. Equipment 191.0 111.5 0.0 302.5C. Tech.Ast. 68.6 94.3 73.3 236.2D. Salaries 53.0 52.5 29.4 135.0

Total 357.1 363.0 208.4 928.5

6. The proposed IDA credit would finance US$0.8 million and the GovernmentUS$0.1 million. IDA financing for salaries would be on a declining basis, asfollows: 100% of local expenses in the first year, 75* of local expenses inthe second year, and 30% of local expenses thereafter.

- 80 - Annex 13PRIMARY HEALTH CARE CENTERS

HONDURAS

NUTRITION AND HEALTH PROJECT

PRIMARY HEALTH CARE CENTERS

The Primary Infrastructure ComDonent

1. The obiectives of the component are to: (a) improve quality in thedelivery of rural health services; (b) obtain operational benefits fromadequate physical facilities; and (c) contribute to the development of acomprehensive primary health and nutrition program to reach the poorestpopulation living in rural communities.

2. Criteria for Selection of PHC Centers. The selection criteria awardspriority to the rehabilitation of existing centers. This criteria is based onpressing rehabilitation needs and economic reasons. Rehabilitation has lowerinitial and incremental operating costs than new construction. Specifically,the criteria for selection of centers are the following:

(a) Rehabilitation: (i) existing centers at departments where theBMI program is expanded (BMI project area, Annex 5); (ii) rehabilitationworks should not exceed an limit equivalent to US$10,000 per center,except in justified cases; (iii) those center that are out of operationdue to poor physical condition; and (iv) those located in depressedareas with high morbidity and malnutrition. In cases that the BMIprogram is absent, the remaining criteria will prevail.

(b) New centers: location would be determined as follows: (i) inpriority areas in which the BMI program plans to expand; (ii) in acatchment area of around 1,500 to 3,000 people: and (iii) at a minimumdistance to the nearest health center of 5 to 10 km.

(c) For either new works are for rehabilitation, the proposedsolution would be the least cost solution or the only alternative.

3. Description. The component includes:

(a) the rehabilitation of about 130 PHC facilities;

(b) the construction of 30 new CESARs;

(c) medical, radio and laboratory equipment to properlyoperate these facilities;

(d) a fund for routine maintenance of buildings, equipment andvehicles to be established and capitalized by the MOH for use atthe Health Region level;

(e) feasibility study of a radio communications network, test with10 stations, and subsequent expansion with an additional 30stations; and

(f) vehicles (16) to facilitate supervision of operation of PHCservices.

-8S1A- _nex 13PRIMARY HEALTH CARS CR1IBRS

Cost of the Comwonent

4. The component cost is estimated at US$3.4 million as of june 30, 1990prices with price contingencies. The cost is based on updated prices in listof quantities of 32 final rehabilitation designs in the metropolitan area andin the departments of Valle and Copan. The estimated cost includes 10* forengineering and administration costs, 10* for physical contingencies in civilworks and 5% in medical and laboratory equipment. Community participation wasestimated at 9% of the cost of construction and includes the cost of fences,some painting work and minor repairs.

Proiect Preparation

5. At appraisal, 32 centers had final designs and are programmed forconstruction in 1993. A preliminary selection of sites was done torehabilitate 70 additional centers and continue with field surveys anddesigns. The selection of about 20 new centers has also been preliminarilyselected. A prototype of a new CESAR with about 100 square meters to housetwo clinics is under design. A list of medical, radio communications andlaboratory equipment has been prepared to equip the centers under the project.

Proiect ImDlementation

6. The component would be implemented by the Project Unit with theassistance of the Programa Nacional de Servicios de Salud (PRONASSA).PRONASSA is a vertical unit of the NOH in charged of the construction andrepair of hospital and primary health facilities. It also supplies medicalequipment to hospitals. Presently, PRONASSA carries out an investment programunder IDB and AID financing. These programs have contributed to improvePRONASSA's operational performance in construction management and supervision.

7. A civil engineer from the MOH Project Unit is acting as coordinator toprepare the component. The duties of the coordinator would be to: (a)identify and select the centers in accordance with established criteria; (b)appraise the physical condition of centers for rehabilitation; (c) supervisethe design work by private consultants; (d) prepare annual plans for designand construction; (d) coordinate activities between FHIS and the HealthRegions; (e) prepare and review specification and list of quantities forconstruction contracts; and (f) plan in advance operational conditions so thatthe centers undergoing rehabilitation may continue providing services duringconstruction.

8. The component would be implemented over a period of three years. Plansare underway to execute work during 1993 for rehabilitation of the first 32centers in the metropolitan area and departments of Valle and Copan. Theremaining works would be implemented in 1994 and 1995. The MDH intends toretain the services of FHIS as an intermediary to administer a great portionof the civil work contracts. The remaining initiatives would be carried outby PRONASSA when the activities of FHIS phased out.

9. FHIS tarticipation. The MDH would enter into an agreement with PHIS todelegate in FHIS the administration of part of the civil works under thiscomponent. This agreement is presently under negotiation between the partiesand scheduled to be signed as a condition of credit effectiveness. PHIS would

- 82 - Annex 13PRIMARY HEALTH CARE CENTERS

charge a 3% fee on the delegated portion of the component cost. The 3%administrative fee that would be charged by FHIS to the MOH corresponds to theaverage supervision cost for social infrastructure subprojects, recorded underthe FHIS-I project. It would work out in close collaboration with the ProjectUnit and the Health Regions. In the event that FHIS be phased out in 1994,the MOH project unit, through PRONASSA, would assume full responsibility inmanaging the contracts for the remaining civil works.

10. Community Participation. The component would have community supportmainly in preventive maintenance of physical facilities. The promotion workwould point to the creation of a community fund for preventive maintenance.About 25 promoters would work exclusively in promoting project activities,including maintenance of PHC facilities, health education, water supply andsanitation and the food program. A 2-month course for about 40 promoterswould be launched on October 1992 so that they would be in the field beforethe proposed IDA credit becomes effective.

11. Annual Reviews. IDA and the MOH would perform annual reviews of theprogram. At these occasions. MOH would adjust the work program to fit withthe integrated criteria of delivery services and with lessons learned duringthe previous year. The choice of initiating works for new centers orexpanding the rehabilitation of existing centers would be made at the time ofthe annual review. The construction of new centers would be conditioned tothe improvement in the delivery of health services in the primary system.

- 83 - Anln 14HUMAN RBSOURCBS

1iQIEMA DEVELOPMNWT OF MNM

NUTRITION AND HEALTH PROJECT

HUMAN RESOURCES DEVELOPMENT OF THE NOH

I. Obiectives

1. The Government's health sector policy (Annex 18) has, as one of its mainobjectives, the improvement of the quality and efficiency of primary healthservices. To achieve this objective, the MOH gives high priority to thedevelopment of human resources for the sector and stresses the importance ofappropriate deployment of personnel within the MOH structure, according toneed and skill-profile. Based on this policy directive, this component wouldhelp improve primary health services through:

(a) strengthening of the Planning Department and the Human ResourcesDivision at the central level;

(b) promoting the technical and administrative development of healthpersonnel in the project area;

(c) strengthening supervision of basic health services.

II. Description

2. Strengthening of the Planning Office and the Human Resources Division

3. The MOH has adopted the policy of administrative decentralized for theprovision of basic health services, with special emphasis on the local healthsystems. At the central level, the implementation of this policy requires theadministrative modernization of key units, particularly of the PlanningDepartment, and improvement of their planning capacity to institutionalize thereform and introduce new functions at the central, regional and local levels.Administrative decentralization also requires that the MOH Human ResourcesDivision develop the necessary leadership capacity to carry out the planningprocess for the allocation of human resources in accordance with the newpolicy.

4. The Human Resources Division is responsible for coordinating allpersonnel planning, development, monitoring, training, supervision andevaluation activities in the 8 health regions. Coordination of theseactivities should occur at both the central and the regional levels in orderto incorporate in the training and supervision plans and strategies a solutionto problems and specific requirements of basic health services at the locallevels.

5. In response to these needs, the proposed project aims at: (i)strengthening the planning and administrative functions at central level; (ii)carrying out in-service training and supervision of human resources; (iii)developing analytical capabilities to improve planning and allocation of humanresources using appropriate information systems as basis for decision-makingand improvement of the institutional coordination mechanisms.

- 84 - Annex 14HUMAN RESOURCES

DEVELOPMENT OF MOH

6. The strategies that would be used to achieve these goals comprise:

(a) recruitment of additional staff to strengthen the PlanningDepartment and the Human Resources Division;

(b) organization of seminars on methodological development inplanning, programming, and budgeting;

(c) preparation of special studies on human resources development inthe project areas, aiming particularly at gathering informationon staff selection criteria, distribution, productivity, andquality of care provided;

(d) organization of working groups for critical analysis of thestudies and preparation of new proposals;

(e) provision of technical assistance to improve the analyticalcapability and the use of computerized information systems;

(f) organization of workshops to develop methodological strategiesfor the leaders of the training and supervision process at thecentral and regional levels.

B. Technical and Administrative DeveloDment of Health Personnel in theProiect Areas

7. The oblectives of the in-service training to be provided by the proposedproject are to: Ci) strengthen the administration of basic health services inthe health regions; (ii) improve the technical capability of health personnelas to the content and strategies to be applied in the provision of basichealth care services, with emphasis on maternal and child care, familyplanning, nutrition, epidemiology, pharmacology, environmental sanitation andendemic diseases prevention programs in order to provide more timely andbetter quality services; (iii) integrate the BMI food coupon program with theactivities of the maternal and child care, nutrition and community educationprograms; (iv) train health professionals in social participation andcommunication strategies between users and providers; (v) broaden knowledgeand improve supervision techniques of the local and regional level staffthrough interdisciplinary training teams that would assist in identifyingtraining needs, encouraging productivity, improving the quality of servicesand promoting on the job learning; (vi) develop service programs in theproject area that address priority local health problems identified during thesupervision process.

8. The staff to be trained would be that allocated to the project area,comprising: (i) in the CESAMOs (health centers with a physician) an estimated100 general physicians responsible for health care, administration andsupervision; and an estimated 100 professional nurses responsible for healthcare, administration and supervision; (ii) in the CESARs (rural healthcenters) an estimated 500 auxiliary nurses responsible for basic healthservices and some 160 health promoters in charged of environmental healthdevelopment and community organization.

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DEVELOPMENT OF MOH

9. The training oroqram proposed comprises, in the first year of theproposed project, the following training events: 6 orientation sessions fornew staff (2 of them for professional level staff and 4 for auxiliary nurses),5 training sessions for professional staff on administration of the BMIprogram; 6 training sessions for professional staff responsible forsupervision at the regional and area levels; 3 training sessions for auxiliarynurses on appropriate use of drugs, and one training course for healthpromoters. In addition to the formal training events auxiliary nurses andsupervision teams would participate in training activities through monthlymeetings that would be organized at the seat of the health areas and regions.Taking into account the MOH policy of administrative decentralization, theresponsibility for staff training would be assigned to the health regions.

10. The methodolocv proposed for in-service training aims at promoting thebetter linkages between the training program and the health needs specific toeach particular region. Regional health needs would be identified throughhealth situation analyses and manifested demand from local health staff thatwould take place during supervision, thus promoting the integration of in-service training with the supervision process ("supervision capacitante"). Itis expected that this approach would improve the contents of both in-servicetraining and supervision. Specifically, the monthly meetings of thesupervising teams with the auxiliary nurses would provide the occasion forjoin analysis of training need and for the periodical changes in the trainingcontents in response to changing local health conditions.

11. The proposed contents of the training program, developed on the basis ofthe analysis of identified needs for the metropolitan regions 4 and 5, are thefollowing:

(a) Orientation session for Drofessional staff to familiarize thenew staff with the organization and administration of healthservices and the strategies adopted by the health system torespond to the regions' health problems; the subjects for theprofessional group include the structure and organization of thehealth system, planning and administration of services,strategies to achieve efficiency, efficacy and quality in theprovision of services, the comprehensive care approach, the roleof epidemiology, and the programs for the priority groups withemphasis in the maternal-child health care;

(b) Orientation session for auxiliary nurses covering: organizationof the national health system, the administrative responsibilityin the different levels of care, the CESAR as a component of thelocal health system, the functions and activities of assistantpersonnel within a CESAR, the health-disease process andidentification of priority groups for the care process,identification and prioritization of risk factors for eachpriority group and the epidemiology surveillance system, childhealth and growth and development care, immunization, food andnutrition. Comprehensive care for women, the reproductive andobstetric risks, contraceptive methods, pregnancy control, foodand nutrition during and after birth. Social participationstrategies and health education programs.

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DEVELOPMENT OF MOH

(c) Orientation session for SUoervisorv teams. The contents ofwhich were prepared on the basis of the evaluation of the healthactions undertaken in 1991, of training needs identified by theprofessionals and based on the conclusion of a supervisionworkshop carried out in April 1992 with those responsible forsupervision in the BMI pilot areas. The session would focus on:(1) diaano.is of the health situation, identification of healthprofiles for different population groups, analysis of therelationship between priority groups, services to be providedand the assignment of resources, epidemiological monitoring andsurveillance, the risk approach in maternal-child care, theinterventions made and the respective responses; (2) serviceadministration, including programming and administration of thematernal child care and BMI food coupon activities; (3) riskdetermination and related to control actions in the women'sprogram, with special emphasis on the detection and control ofsexually transmitted diseases with an indication to thephysicians regarding the need of examination for the earlydetection of uterine cervical cancer (which corresponds to 80Oof the cancer cases in women in Honduras) and tuberculosis,which tends to increase rapidly as a result of the spread ofAIDS; in addition, there will be discussions on the service'sorganization measures for AIDS detection activities whoseheterosexual characteristics spreads the disease to thematernal-child group; (4) communitv education, covering aspectsrelated to disease control, prevention and communityparticipation; (5) methods of supervision including strategiesand programming, monitoring and evaluation, communication andinteraction with users and continuing education strategies willbe presented and discussed at the monthly meetings; emphasiswill be giving to communication and interaction between healthproviders and users that would require a special commitment fromthe supervisory team to change the present practices of illtreatment, which is one of the reasons for low service demand.

(d) In-service training for auxiliary nurses. Training will takeplace in the project area with support from the MOH centrallevel staff, and under the direct responsibility of the regionalsupervisors. The contents for the woman and child programs arepractically the same as those for the supervisors with specialemphasis on the prevention and control techniques that can becarried out at the assistant level. with respect to women'scare, it will be insisted that patients showing signs andsymptoms that may lead to suspect uterine cervical cancer orAIDS be referred to the CESAMO. The training content givespriority to conunuity education with respect to the area'sserious health problems and includes social participation andlocal participation program modalities. Auxiliary nurses wouldalso receive specific training on appropriate handling andrational use of drugs to respond to problems identified at theCESAR level both on the administrative management and theprovision of drugs to patients, and would be advised ofenvironmentally safe disposal of waste.

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DEVELOPMENT OF MOH

(e) Training session on administration of the BMI for health staff.The content of this session oriented toward CESAMO Directors,physicians and professional nurses covering the objectives ofthe BMI within the context of the project, and the procedures,programming and distribution of the food coupons in the healthcenters. The Planning Department is currently revising themanual and the text used in the BMI pilot project stage incollaboration with PRAF.

(f) Course for health oromoters. The objective of this course is totrain, over a period of 60 days, 40 health promoters that willsupport the implementation of the rural water supply andsanitation component and other community organization actions ofthe proposed project. The course presents specific techniquesfor community organization, basic sanitation including solidwaste disposal systems, water supply, installation andmaintenance of water pumps, operation and maintenance of watersystems and latrines, epidemiology principles and vectorcontrol, food control, development of community maps, andplanning of sanitation and supply activities.

C. Strengthening of the Suoervision System

12. The purpose of strengthening the supervision system is to improveefficiency and quality in staff performance. The MOH will strengthen thesupervision process especially at the local and area levels through mechanismsthat integrate supervision to the training process and strategic surveillanceof health services.

13. The supervision model prepared by the MOH will be implemented with therevisions and changes made by the different regions with respect to thespecific problems of each area and the needs derived thereof. The modeltranslates into two basic supervision instruments for each region: one forsupervising CESARs and one for supervising CESAMOs. The training-supervisionapproach adopted by the MOH aims at (i) the control of the technical-administrative activities and, (ii) through the priority problemidentification technique, the development of the analytical and interpretationcapability of the health situation to reevaluate goals, strategies andestablished norms and their relation and adjustment to the identified needs.

14. Supervision would be carried out in two phases: the first one includesthe field supervision practice itself; the second would take place through themonthly meetings among supervisors and those supervised during whichprogramming and execution would be examined; problems would be discussed anddecisions would be made, guidelines would be prepared and there would beparticipation in a continuing education process.

15. The content of this process, that will be monitored through thesupervision practice itself, is described in the "Proposal for TrainingSupervisors" prepared by the MOH and available in the project file.Similarly, as part of the educational responsibility of the local levelsupervisor, the content related to the training of auxiliary nurses would bedeveloped by the supervisor during the monthly meetings with the help of

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DEVELOPMENT OF MOH

manuals and supplemented with individualized study in the participating healthcenters.

16. Each region would present its annual and quarterly supervision plans inwhich the components of the general plan will be included, establishingactivity priorities based on problems or priority needs.

17. The health regions, divided into health areas and localities, willprogram: (a) the supervision visits by CESAMO (8 visit days per year) andCBSAR (12 visit days per year); (b) the monthly meetings in the health regionsfor area supervisors; and (c) the monthly meetings in the area headquartersfor auxiliary nurses. At the same time, the MOH central level staff wouldmake visits every three months to the region, area or locality to monitor andevaluate the supervision process in accordance with the priority of thefollowing service program components: (i) comprehensive care; (ii) healthservices and SBI administration; (iii) continuing education; and (iv)community participation. The results would be discussed with the regionallevel staff responsible for supervision and would be communicated to thecorresponding divisions at the central level to feedback decisions on healthpolicies, the standardization process and the surveillance system.

18. Proopsed Sunervision Scheme for the Local Level. Each CESAR wouldreceive 12 supervision days per year and would send one auxiliary nurse to themonthly supervision meetings. The second auxiliary nurse allocated to theC-SAR would remain at the center so as not discontinue services provision.The auxiliary nurse participating in the meeting would be responsible forcoimunicating to his colleague the work content and proposals. The twoauxiliary nurses would alternate at attending the monthly meetings and thesupervisor would ensure that communication mechanisms between them functionwell, through monitoring actions at the CESAR and at the monthly meetings.For CESARs where only one auxiliary nurse works, participation in themeetings would depend upon arrangements being made by the area director toprovide a substitute for the day's work.

19. The monthly sutervision meetinas for auxiliarv nurses would focus onassessing performance of the following activities: i) analysis of activityreports and CESAR production data; (ii) detection of needs in relation to theavailable resources; (iii) coverage problems; (iv) care, disease preventionand control problems; (v) analysis of the community education program andself-administered community projects with health proposals; and (vi) trainingactivities in which the proposed content in the training program for auxiliarynurses is itemized. At the monthly sunervision meetings for the areasunervision teams, at the region level, the following activities would takeplace: (i) analysis of the problems detected in the areas; (ii) planning ofsupervision activities on the basis of identified problems; and (iii)identification of training activities that complement the training session forsupervisory staff.

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DEVELOPMENT OF MOH

20. Strategies for Staff Technical-Administrative Development and forStrengthening of the Suwervision Process. The basic strategies proposedinclude:

(a) organization and development of a multidisciplinary group at thecentral and regional levels under the coordination of the HumanResources Division to plan and conduct the training andsupervision processes;

(b) meetings of the central level group to design strategies ofcomprehensive programming with the Maternal-Child, Nutrition,Epidemiology, Sanitation and Human Resources subprograms;

(c) technical assistance from PAHO in the programming of thespecific contents in the Maternal-Child, Epidemiology andSanitation subprogram;

(d) working meetings of the central level team with the differentregional teams to identify the needs and jointly developsupervision programs;

(e) strengthening of the cooperation with the National Universitythrough joint activities in the Human Resources area. TheMaster's program in Public Health, that is being jointlydeveloped by the National University and the MOH could supportthe technical and administrative development of public healthstaff;

(f) follow-on seminars and evaluation of the training andsupervision processes involving central and regional levelstaff;

(g) production of training materials (2 manuals, training evaluationand monitoring guidelines) and improvement of the existingtraining instruments, as needed.

21. Cost of Supervision and Training Activities. The proposed project wouldfinance the training events, the production of materials, part of the fuel(gasoline) costs, and the per diem for the supervision visits and the monthlymeetings estimated at US$354,200, to be wholly financed by the proposed IDAcredit.

D. Additional Human Resources

22. On the basis of the inventory of health personnel needs carried out inthe metropolitan regions 4 and 5, the need to hire additional staff forprimary health care services was verified.

23. Allocation criteria for auxiliary nurses. The need for recruitment ofadditional staff is related to the expansion of the BMI and, in addition,responds to a more general criteria stating that (i) two auxiliary nursesshould staff each CESAR to achieve coverage and improve care quality and toavoid closing the locale during days of community work, vacations and leave,

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DEVELOPMENT OF MOH

and (ii) health personnel allocation should be based on the size of thepopulation within the catchment area of each facility, taking into account theconditions of accessibility.

24. Allocation of auxiliary nurses in PHC health facilities servina verysmall localities. The CESARs serving localities of less than 1,500inhabitants would be staffed with only one auxiliary nurse, since the level ofdemand for PHC services would not justify the allocation of two staff.However, as auxiliary nurses have to leave their post periodically to attendtraining or otherwise be on leave, provisions need to be made to ensure thatthese smaller PCH facilities remain open during the absence of the auxiliarynurse. Thus, a number of substitute auxiliary nurses would be made availableat the health area headquarters, ready to take over the functions of auxiliarynurses on leave at the smaller CESARs, as needed.

25. Allocation criteria for professional nurses. With respect toprofessional nurses for the supervision process, the criteria emphasizes theneed to strengthen the supervision process in the areas. The Human ResourcesDivision indicated that one supervisory nurse for each five CESARs was enoughfor ensuring efficient supervision.

26. Allocation criteria for medical staff. Additional medical staff isneeded in the poorest health regions, especially at the area level which tendsto depend, almost exclusively, on young physicians assigned to do theirobligatory social service duty, who tend to remain in the system for only oneyear. Allocation of physicians is also dependent upon the populationdistribution and the health situation of the area compared with the availablenumber of doctors.

27. Addition criteria for staff allocation. The inventory of staff needsshould also consider situations in which it is necessary to reorganize theservices in response changes in the demand, with better distribution of humanresources, as for example in the case of the upgrading of a CESAR into aCESAMO.

28. Allocation of staff to trainina schools for auxiliary nurses. Theproposed project would also strengthen the teaching capability of threeauxiliary nurses' training schools in the regions, financing the salaries ofsix additional teachers.

29. Allocation of additional laboratory staff. Given the high priorityassigned to the prevention of endemic diseases, particularly AIDS/STD,additional laboratory staff would be needed. The specific allocation of theadditional laboratory personnel would be determined by the Human ResourcesDivision, based on the design of the AIDS/STD prevention program and on theinventory of existing human resources.

30. Allocation of staff at the central level. It is necessary tostrengthen, at the central level, the Planning Department which is responsiblefor the general coordination of the proposed project, and the Human ResourcesDivision which currently does not have enough staff to carry out all thefunctions and activities it has been assigned.

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DEVELOPMENT OF MOH

31. Cost of Additional Staff for the MDH. The proposed project wouldfinance the costs of hiring staff for the Project Unit at the central leveland of three specialists for the Human Resources Division. The cost ofconsultants to be hired for the Project Unit is estimated at US$238,500, andwould be wholly financed by the proposed IDA credit. Incremental expendituresfor hiring staff to be allocated to the PHC network in the project area areestimated at US$2.8 million, of which the proposed IDA credit would financeUS$1.8 million on a declining basis.

- 92 - Annex 15BASIC DRUGS FOR

HONDURAS THE PHC NETWORK

NUTRITION AND HEALTH PROJECT

BASIC DRUGS FOR THE PRIMARY HEALTH CARE NETWORK

A. Current Procurement Practices

1. The MOH budget for procurement of drugs in 1991 was about L.54.3million, or about US$10.0 million equivalent, of which about US$3.5 millionwas allocated for drugs to be distributed to the PHC network. The MOH budgetcomprises the purchase of pharmaceutical products for its 33 administrativeunits throughout the country (8 regions and 32 hospitals). The MOH has abasic table (Cuadro Basico de Medicamentos) of 375 pharmaceutical products,all generic. Quantities required of each item in this list are updatedyearly, based on quarterly inventory reports prepared by every administrativeunit. This amount may increase in 1992 by 15% to 20%.

2. About 80% of the drug purchases are made at the central level and theother 20% at the unit level. Honduran law permits any purchase of less thanL30,000 (about US$6,000) to be done using the shopping method, obtaining atleast three prices from registered suppliers. This applies at both thecentral and unit levels. Purchases above the L30,000 threshold must be madeby public bid. This is usually done by the GPO, but under the project apharmaceutical procurement unit in the MOH, serving MOH and the IHSS, would beresponsible for drug procurement. In an emergency such as an epidemic, theGPO or the MOH is authorized by presidential decree to purchase specific drugsusing a private bid or the shopping method.

3. Administrative health units are allowed to buy up to about 20% of theirneeds using the shopping method via purchase orders of under L30,000 to solveshortfalls of drugs at certain times, mainly resulting from bad planning,bureaucratic delays, lack of funds and distribution problems. Unfortunately,the unit prices obtained by those shopping purchases are from about 20% to150W more expensive than when purchasing through competitive bidding. Theshopping method costs the MOH about L2.5 million per year and it is preciselyby using this method that many of the alleged abnormalities occur.

4. Once a year, each of the 33 administrative units at the MOH prepares alist of its pharmaceutical requirements. These lists are sent to MOHheadquarters where the Pharmacy Division analyzes the technical specifications(including composition, size, form, and presentation). The MOHfinancial/budget department reviews the estimated costs and compares it withthe available funds in the MOH budget. The approved list is then comparedwith the inventory of the MOH central warehouse (Almacen Central), before itis sent to the central procurement unit, currently the GPO.

5. The request by MOH is analyzed by the GPO Pharmacy Division, whichreviews the specifications and quantities in order to complete the technicalaspects of the bidding documents. The GPO legal department prepares thegeneral, administrative, and legal specifications of these documents. Oncethe bidding document is ready for sale to the bidders, the MOH, MOF, and theCBH are advised. The CBH has a critical role since it must reserve theforeign exchange needed for an international bid. This is an area which hasoften produced delays in the process of drug procurement.

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6. ICB bids are announced in the local press and sent to the embassies.After proposals are received, they are carefully analyzed by the GPO, withassistance from MOH personnel. By law, the award should go to the bidderoffering the lowest price bid. Once the award decision is taken, the winneris advised and a PO is issued to him after he has presented the specificperformance bond. Usually, the order is the only legal document given to thesuppliers.

7. The MOH would take over from the GPO the procurement of drugs. Underthe new institutional arrangements, the MOH's procurement capacity would haveto be strengthened in its technical, financial, and accounting aspects.Technical assistance would be provided under the project to help MOH establishefficient ICB and LCB procurement methods for pharmaceutical products (para.4.12).

8. Pharmaceutical products in Honduras were formerly bought in bulk formand repackaged. This was later abandoned because of complications in therepackaging process, especially contamination in handling. An assessment byIDA during project appraisal concluded that Honduras does not have, atpresent, the capacity to package eseential drugs for public sectorconsumption.

B. Main Procurement Issues

9. The main problems in the process of procurement of pharmaceuticalproducts in Honduras seems to be of an administrative and financial nature.The proceSs takes too long, sometimes the shipped/delivered product is not thesame as that specified in the bidding document, and the Central Bank oftendelays the process because of lack of foreign exchange. There is also morefrequent use of the shopping method in cases where packaging of purchases forLCB or ICB would have been preferable, as they would have reduced the cost ofdrugs. The main complaint about the GPO's performance is that it takes toolong to complete drug purchases.

10. The GPO usually does one large ICB and one LCB per year for drugprocurement. The two procurements done in 1991 took about 10 months from thetime the MOH requested the products until the suppliers began to deliver. Thedocuments were reasonably well done and could easily be amended to comply withIDA's procurement guidelines. However, they do not provide for effectivecontract packaging. A single bid included a total of 175 different items forwhich quotations were requested. Since products were not arranged in lots,many proposals were received, some for only a few items, increasing thedifficulties of bid comparisons. This approach encouraged the participationof the very small suppliers but discouraged the participation of the big andwell know pharmaceutical suppliers, generally resulting in bids higher thanaverage international prices.

11. Concerns were expressed about the quality of Honduras drugs procured forthe public sector. There does not seem to be a technically qualifiedlaboratory to inspect the products properly. Recently, import requirementsfor drugs were changed. Foreign products are no longer required to beregistered in Honduras, but they must have a certificate of free sale in thecountry of origin. Drugs to be procured under the project, financed by IDA,

- 94 -BASIC DRUGS FORTHE PHC NETWORK

would be procured from UNICRF, which ensures satisfactory quality standardswithout need for pre-shipment inspections.

12. None of the agencies dealing with procurement have any experience withIDA procurement guidelines, although they have had some experience with IDB-financed purchases. The GPO's Chief lawyer indicated that Articles No. 16-21of the Honduran Constitution allow for the local procurement law to beadjusted to International Financial Institutions guidelines, in the case ofinternationally funded procurement.

C. Procurement of Essential Drua r the Proco ad Prolect

13. The procurement of essential drugs to be financed under the proposedproject represent a relatively small fraction of the total annualrequirements of the MOH (para. 20). However, the project would provide themeans for achieving overall improvements in the drugs' purchasing system, boththrough institutional strengthening and through introduction of more efficientprocurement practices.

14. Essential drugs to be financed by IDA under the proposed project, wouldbe procured from UNICEF. The reasons why the GOH would not be given theresponsibility for handling IDA-financed procurement of essential drugs arethe following: (a) the GOH still needs institutional strengthening either atGPO or at MOH; (b) the drugs to be procured are essential generic drugs whoserelative price varies significantly depending on packaging requirements:prices for bulk purchases are significantly lower than for packaged supplies;and (c) considering that Honduras does not presently have the capacity forpackaging drugs and controlling their quality (as has been demonstrated in thepast when packaging was attempted by the NOH), the best available option toensure the lowest price is to utilize the procurement and packaging facilitiesof UNICEF. Procurement from UNICEF involves: (i) UNICEF procures essentialgeneric drugs in bulk, according to procurement procedures satisfactory toIDA, using pre-qualified laboratories that ensure their quality as suppliers;(ii) UNICEF pre-packages these drugs at the UNIPAC facility in Copenhagen,according to the specifications provided by the NOH; and (iii) UNICEFschedules shipments annually, according to supply schedules specified by theMOH. This procedure has been successfully used in other Bank and IDA financedproject, as for example in Nigeria.

15. The procurement of essential drugs that would be financed by the GOHunder the project, would be done by ICQ through the MOM, with technicalassistance from international consultants satisfactory to IDA. Funds would beprovided for pre-shipment inspections by independent laboratories, acceptableto IDA, to ensure conformance with quantity, quality and packaging standardsset out in the bidding documents. Technical assistance and staff trainingwould be provided to the NOH to improve the efficiency of the procurement ofdrugs through standardized bidding documents and contract award procedures,improved bid packaging, and computerixed control of the procurement process.Attention would be given to improving contract packaging into lots that willencourage better competition and simplify bid evaluations. Special attentionwould also be given to assisting the MOH in shortening the time required forthe procurement process, improving coordination with the NOF and the CentralBank to ensure the timely availability of foreign exchange for contract

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payments. During the first year of project implementation, considerationwould be given to the desirability of procuring all essential drugs requiredby the MOH and the IHSS from UNICEF.

D. Description of the ComDonent

16. The proposed project would finance: (a) essential drugs procured fromUNICEF for the primary health care system of the MOH nationwide, on adeclining basis; and (b) consultants' services to provide technical assistanceto the GOH to improve the efficiency of the procurement process and accompanythe ICB procurement yearly during project implementation.

ESTIMATED BASS COSTS OF MOH ESSENTIAL DRUGS(US$ MILLION)

| LEV8L OF SERVICES USING ESSENTIAL DRUGS__

PHC HOSPITALS TOTAL PERCENTAGE

Base Year (1992): 3.5 6.5 10.0 100.0

Proiect Years:

Total 5.5 6.5 12.0 100.0

Project 2.0 0.0 2.0 16.7

IDA 2.0 0.0 2.0 16.7

1994Total 5.6 6.5 12.1 100.0

Project 2.1 0.0 2.1 17.4

IDA 1.6 0.0 1.6 13.0

Total 5.7 6.5 12.2 100.0

Project 2.2 0.0 2.2 18.0

IDA 0.7 0.0 0.7 5.4

(a) Essential Druas. The procurement of drugs to be financed under theproposed project would increase the amount of drugs procured for thePHC network countrywide from an estimated US$3.5 million in 1992 toUS$5.5 million in 1993, US$5.6 million in 1994, and US$5.7 million in1995. Project costs for this component reflect only the costs of theincremental drugs purchased, and assumes that the MOH budget wouldcontinue to cover a minimum of US$3.5 million for PHC drugs,throughout project implementation. Thus the total cost of thiscomponent, before contingencies, is estimated at US$6.3 million ofwhich the proposed IDA credit would finance approximately 66% (US$4.2million) on a declining basis: 100I up to an aggregated amount ofUS$2.0 million; 75% up to an aggregated amount of US$3.6 million; and30% thereafter. Based on these estimates, the proposed project wouldfinance approximately 18t of the total MOH supply of medicines forthe public health sector and about 38% of the supply used in PHCservices. Similarly, the proposed IDA credit would coverapproximately 17% of all NH drugs in 1993, 13% in 1994, and 5 in1995. These figures are summarized below:

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(b) Technical Assistance. As agreed between IDA and the GOH duringproject preparation, the technical assistance would be provided tothe MOH in two phases. Phase A, financed by the Japanese GrantAgreement of March 14, 1991, was completed during project preparationand consisted of a 5-day training curse by two internationalconsultants selected by IDA, for 20 participants, including 15 fromthe GPO and 5 from the MDH division of pharmacy. During their stayin Honduras, the consultants helped specify the additional computerequipment and software requirements to improve efficiency of drugprocurement, and funds from the Japanese Grant Facility wereallocated to procure the necessary equipment. Phase two, to befinanced under the project, would consist of:

(c) training of MOH staff in the use of the computer equipment for drugprocurement purposes, estimated at about $21,600;

(d) three-year technical assistance to MOH, comprising approximately 20staff/days per year, estimated at $117,000, focusing on:

- preparation of standard bidding documents for ICB for drugs;- preparation of annual ICB procurement, including technical

specifications to be included in the bidding documents; bidevaluation methodology; bid award recommendations; contractadjudication; monitoring of contract fulfillment; and inter-agencycoordination between the MOH, Ministry of Finance, and the CentralBank of Honduras.

- 97 - _ann-s 1ENVIRONMENTAL HEALTH

HLONDURAS

NUTRITION AND HEALTH PROJECT

ENVIRONMENTRA LTH

Current Water Supplv and Sanitation Service Levels

1. Water supply and sanitation service levels, in 1989, in Honduras werereported as follows:

POPULATION SERVED

Total Urban Rural Ttail glU= Rural(Thousand Inhabitants) (Percentage Served)

Water SuoolvInternal Plumbing & Yard Taps 2936 1760 1176 59 so 42Standpipe 278 110 168 6 5 6

Total Water 3214 1870 1344 64 85 48

SanitationWater-borne Systems 1440 1188 252 28 54 9Latrines or Septic Tanks 1694 770 924 34 35 33

TOTAL SANITATION 3134 1958 1176 62 89 42.

2. The largest unserved gap is in the rural areas, where the majority ofthe population still uses contaminated water sources and inadequate sanitationpractices. Water service is highly rationed especially during the dry season.Tegucigalpa and other major urban centers are only partially served withwater-borne sewerage. Rural water systems are also highly rationed in partbecause of poor promotion.

Environmental Asoects

3. Intense deforestation of watersheds has gradually impaired the quantityand quality of the surface water resources. Urban areas, includingTegucigalpa, that depend mostly on surface supplies suffer from declining dryweather flows. Water quality is low. An estimated 751 of the water supply isdegraded by turbidity and pollution. This situation has created a competitionfor water leading to indiscriminate water uses due to lack of regulation andcontrol over water resources. The environmental impact is more acute in ruralareas where soil fertility is declining and stream pollution on the rise.

4. The responsibility for protecting the environment is fragmented amongseveral policy leading agencies including the National EnvironmentalCommission (CONANA), the MOH, the Ministry of Agriculture, and SRCPLAN.CONAMA is now coordinating national environmental efforts but it lacks theresources to do an effective job. The Health Code decree 65-91 of May 1991is a positive step to preserve natural resources to ensure public health andgeneral welfare. An MOH commission is presently working on its by-laws.

Sector Organization

5. The sector is composed primarily of the Servicio Nacional de Agua yAlcantarillado (SANAA), the Ministry of Health (MOH) through its Division

- 98 - Annex 16ENVIRONMENTAL HEALTH

Saneamiento and the Municipalities. Other agencies that promote water andsanitation development are the Banco Municipal and the FHIS. The Secretariade Planificaci6n (SECPLAN) appraises and approves investment plans andcoordinates sector agencies. Overall, the sector lacks coordination and issometime duplicitous. An institutional overview of sector agencies is asfollows:

(a) SANAA is responsible for providing water and sanitation servicesto communities with more than 500 people. It is an autonomouspublic entity headed by a seven member board presided by theMinister of Public Health.

(b) The Municivalities, 289 in total, are responsible, by virtue of aMunicipal Law of January 1991, for all their basic services. Thismeans, inter alia, building, operating and maintaining water,sewerage and drainage systems. In response to this law, SANAAplans to gradually divest the water and sewerage systems itcurrently owns to the respective municipalities. Some 1,000systems have already been transferred.

(c) MOH works through its Sanitation Division in rural water andsanitation in communities of 2000 and less. Its main functionsare normative, including: supervision of sanitary norms, designreviews, construction supervision, water quality control andcoordination with other sector agencies.

Sector Operational Issues

6. A brief diagnosis of sector issues summarizes as follows: (a) absenceof a leadership to take initiatives for sector development; (b) lack ofpolicies for sector investment and operational efficiency; (c) lack ofcoordination among public and private agencies; (d) weak institutional andfinancial performance; (e) lack of an information system on operationalassets, service levels and water sources; and (f) low levels of communitypromotion. These issues are addressed in the project, within the sphere ofresponsibility of the MOH, through enhanced cost-recovery activities,appropriate supervision and intensive community participation initiatives.

The Rural Water SuDoly and Sanitation SubcomDonent

7. The water and sanitation component would help address the lack of watersupply and sanitation in rural areas. Communities would be organized asprivate entities with legal status to manage their systems. The componentwould be implemented in the departments of Choluteca, Valle, Intibuca andLempira with the lowest water and sanitation coverage and where the actions ofother programs are limited. Overall, the rural population suffers from a highincidence of water-borne diseases and prevalent malnutrition. The componenthas been designed under a criteria of simple systems based on gravity supply,shallow dug wells with hand-pumps, and latrines.

8. Obiectives. The component would: (a) contribute to the development ofa comprehensive primary health and nutrition program focused on the poorest

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population living in rural communities; (b) organize the communities as legalentities and help them undertake system construction, operation andmaintenance; and (c) strengthen operational and supervision capabilities ofthe health regions to help rural communities properly manage rural watersupplies and sanitation schemes.

9. Service Levels. The component would provide a service level thatcommunities could choose according to their willingness to contribute. Otherfactors affecting service levels include the degree of house dispersion andwater sources limitations. The service level options that would be offeredare:

(a) for water supply: (i) wells with hand-pump; (ii) water systemwith public standpipes; and (iii) water systems with patioconnections; and

(b) for sanitation: (i) dry latrines; (ii) water-seal latrines; and(iii) septic tanks.

10. At any level, the final design has to be the least cost solution or theonly alternative.

11. Criteria for Selection of Communities. The NOH has the responsibilityto: (a) formulate the national sanitary policy and oversee itsimplementation, which it does through the application of the Health Code ofMay 1991; and (b) supply small rural communities of 200 to 2,000 inhabitants,with basic water supply and latrines. Thus, under the proposed project, theenvironmental health component, to be implemented by the MDH, would benefitonly rural communities with population between 200 and 2,000 inhabitants.Among these, subprojects would be located in specific communities selectedaccording to the following criteria:

(a) The community has to demonstrate its intent and readiness to forma Local Water and Sanitation Board (Juntas Administradoras deAgua, JUNTAs) to take responsibility for the construction,operation and maintenance of the systems. This requires communitycommitment and ability to contribute, in-kind or cash (land,labor, and materials) to construction and to pay an adequate feefor water use and system operation and maintenance;

(b) Communities with poor sanitation and health (prevalence ofgastroenteritis, parasitosis, cholera, and other water relateddiseases);

(c) Surface water sources available by gravity or, for welldevelopment, ground water must be available at shallow depth of upto 25 meters; in both cases, ease of development would be animportant consideration;

(d) Communities must agree that latrines would be installed in ruralhomes simultaneously with the waterworks; in shallow welldevelopment, latrines would be installed in houses to be serve bythe wells; and,

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(e) Communities generally located nearby all-weather or dry-weatherroads; in some instances of lack of nearby roads, the communitywould play an important role in implementing the project sincethey would be asked to transport materials from the nearest townto the site.

In the process of selecting communities for inclusion in the proposed project,the MOH would take care to assure that the communities are not listed in theportfolios of other ongoing or proposed programs.

12. Design Criteria

(a) The target population for each village is the population in thenext 15 years, at the region's rate; for villages with limitedwater sources, the design period may be 10 years or be based onpublic standpipes instead of patio connections;

(b) The per capita consumption in liters per day for users with accessto:

(i) Hand-pumps 20(ii) Water systems with standpipes 30(iii) Water systems with patio connections 60

(c) Factors of average daily demand(i) Maximum day 1.3(ii) Maximum hour 2.3

(d) Storage (% of daily demand) 35

(e) Minimum pressure in meters 5

13. Description. The proposed component would be flexible in project scopewithin the above criteria. It includes the construction of the followingfacilities:

(a) approximately 40 gravity water systems (30 with patio connectionsand 10 with public standpipes;

(b) about 300 dug shallow wells with hand-pumps;(c) nearly 10,000 latrines of the pit and water-seal types;(d) tools for community's operation and maintenance;(e) a program of community promotion to the beneficiary communities,

including their participation in project construction, operationand maintenance of the systems and protection of water sources;

(f) engineering studies to prepare a second stage of a water andsanitation component within a second health and sanitationproject; and

(g) medical waste disposal at PHC facilities, including situationanalysis and development of a training module for PHC staff; theterms of reference for this study are presented in Annex 17.

14. CoaDonent Cost. The estimated component cost is US$4.11 million,including price contingencies, including: (a) US$4.08 million for watersupply and sanitation; and (b) US$0.03 million for preparation of a medical

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waste training manual. The costs for the water supply and sanitationsubcomponent are based on final design prices of 11 water systems and updatedcost of modular designs for dug wells and latrines. The estimated costincludes 6' engineering and administration costs and a 10% physicalcontingency. Community participation was estimated at 20% of the cost ofconstruction, in accordance with regional wages and contribution in localmaterials. The average current cost for both water and sanitation systemsresults in a per capita for water and sanitation services of US$56. Thecomponent also includes a US$0.1 million for engineering studies for secondstage water and sanitation rural development, to be financed by UNICEF as agrant to MOH.

15. Imolementation This component would be executed by the MOH Project Unitwith the assistance of the Sanitation Division in accordance with a Water andSupply and Sanitation Manual satisfactory to IDA. A sanitary engineer fromthe Project Unit has been assigned to be coordinator for this component. Theduties of the coordinator would be to: (a) promote the continuity ofcommunity identification through the Health Region's promoters; (b) supervisethe design work by private consultants; (c) prepare plans for designs,construction and community promotion; (d) prepare a training course for thepromoters involved in promoting the component; (e) coordinate engineeringstudies for a second stage project and prepare progress reports of thecomponent; (f) contract and supervise subproject construction; and (g) overseethe preparation of the medical waste disposal study.

16. Health Region Participation. The Health Regions would haveresponsibility for community promotion. A crew of 15 trained promoters wouldwork in selected communities under the direction of the head regionalpromoter. Promoters would: (a) preselect prospective communities inaccordance with selection criteria; (b) organize a JUNTA in selectedcommunities; (c) assist the JUNTA in meeting MOH requirements; (d) impart on-the-job health education on hygiene practices and use of latrines; and (e)serve as intermediary between the community and the Project Unit.

17. A two-month course for about 40 promoters would be launched in Cholutecain October of 1992 so that they would be in the field before the creditbecomes effective. The project would provide a modest financial facility tomobilize the promoters to the villages. An operational manual of the componenthas been prepared and would be available to the promoters.

18. Cormunity Promotion. A community promoter would visit each community todiscuss health needs and survey available water resources. If the village ischosen to be part of the project a consultant would be sent to the field tostudy the least cost solution and estimate the system cost. The healthpromoter would organize a JUNTA. A construction aareement would be signedbetween the MOH and JUNTA before the initiation of construction works. Afterthe works have been completed, a transfer agreement would also be signed bywhich the MOH transfers the property of all assets and lands and right-of-waysto the committee.

19. Legal Status of JUNTAs. The MOH has agreed to expedite the legal statusof the local boards by serving as an intermediary to process theirapplications to the Ministry of Interior (Ministerio de Gobernaci6n). TheMOH's legal department would take charge of this processing and contacts have

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been made with Gobernaci6n. SCES would exert supervision of the legalprocess. It has already prepared the legal prerequisites that need to be sentto the Ministry of Interior for approval. The MOH has agreed that the legalstatus of community boards would be a condition to signed the constructioncontract. In special cases, the NOH would allow that the legal status beobtained during the construction period and before the transfer of the systemsto the communities.

20. Operation and Maintenance. Under the transfer agreement, the communitywould commit to operate and maintain the system and to charge a monthly fee tobeneficiary families to pay for expenses, as well as to create a small reservefor expansion. Decree 100-90 authorizes local boards to set tariffs with acharge of L4.00 per month per house connection. Local tariffs would beadjusted periodically to ensure coverage of the cost of operation andmaintenance requirements of each local system. The JUNTA would followoperational and accounting procedures as set forth in the MOH's manual foroperation and provision of services. The MOH would periodically supervise theoperation, but not less than once a year.

Control of the Oualitv of the Water

21. The MOH, through its Health Regions, would be responsible for testing

the quality of the water supplied by the systems built under the project.These tests would be carried out at least once a year, no later than March 31of each year. The MOH would also be responsible for taking any remedialaction as necessary to ensure adequate quality of the water supplied.

Medical Waste Disposal Subcomponent

22. To address the need of appropriate disposal of medical waste, includingcontaminated waste such as used needles, the NDH would contract consultant'sservices to: (i) carry out a review of current waste disposal conditions atPHC centers in the project area; and (ii) prepare training instruments thatwould be used to train PHC staff on appropriate medical waste disposalpractices. The terms of reference for this study are presented in Annex 17.

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HONDURAS FOR STUDIES

NUTRITION AND HEALTH PROJECT

TERMS OF REFERENCE FOR STUDIES

These terms of reference were discussed and agreed upon duringnegotiations. The terms of reference for the long-term nutrition policy (itemA below) and for the cost-recovery of MOH health services (item B below) areattached to the legal documents as a Supplemental Letter to the CreditAgreement.

A. LONG-TERM NUTRITION POLICY

1. Objective. The objective of this study is to formulate a comprehensivelong term nutrition policy capable of promoting efficient, technically andfinancially sustainable improvements in the nutrition status of the Honduranpopulation.

2. Terms of Reference

(a) Nutrition Trends

(i) Prevalence of nutritional deficiencies by type, populationcategory, socioeconomic group, region, and other relevantcategories. Cross-sectional data for the latest yearavailable, and time series when feasible;

(ii) Analysis of major nutritional problems facing Honduras andof target groups for interventions; identification of keyvariables and vulnerable groups to be addressed to resolvethe problem;

(iii) Analysis of food security issues in the context of aggregatemacroeconomic policies;

(iv) Analysis of food aid policies of the Government and of majordonors, and impact of these on the design of nutritionprogram; description of prospects for future aid flows andconstraints on their utilization; and

(v) Analysis of patterns of food insecurity and compensatingstrategies used at the household level.

(b) Nutrition and Food Aid Program

(i) Background, objectives and brief description of each programin terms of: (1) program objectives, including scale andmix of types of nutrition/food assistance; (2) number,classification and distribution of intended and actualbeneficiaries (coverage ratios); (3) target groups andtargeting mechanisms used for beneficiary selection; (4)mechanisms used for delivering assistance and criterialinked to selection of these mechanisms; (5) linkages ofmain delivery mechanism to other nutrition promotingactivities; (6) coverage, total and unit costs, and programfinancing arrangements; (7) design and actual impact onnutrition problems of target beneficiaries; and (8)

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implementing agencies and degree of community andbeneficiary participation;

(ii) Analysis, taking into account the interactive impact ofpoverty, illness and ignorance on nutritional status, ofcoverage and nutritional impacts on selected vulnerablegroups, of the existing nutrition assistance programs;identification of problems of efficiency and distributivefairness in current programs' coverage patterns; inparticular, analysis of the extent of overlapping whichmight exist between nutrition assistance programs, and theextent to which programs detract from the central objectiveof reducing malnutrition;

(iii) Analysis of institutional arrangements for the provision ofnutrition assistance, including public/private mix, andidentification of issues related to institutionalarrangements and support from non-governmental agencies;

(iv) Institutional analysis of FAP; and

(v) Analysis of sources of data related to nutrition,especially, anthropometric measurements and measurementsused in child growth monitoring, regarding: (1) validityand reliability of the collection of basic weight, heightand age data by the MOH at primary health care facilities;(2) methods of data processing and the flow of data from thelocal to the central level of the M0H; (3) capacity for dataanalysis at the local, regional and central levels of theNDH and FAP, and their utilization in decision-making; and(4) feedback of findings to the local level aimed atimprovements in nutrition assistance and maternal and childhealth care.

(c) Recommendations for a lona term nutrition oolicv

(i) Recommendations to improve coverage of vulnerable groupsfairly and efficiently through the implementation ofnutrition assistance programs, including recommendations tobetter coordinate public and private nutritional services,and to eliminate undue overlaps of benefits among programs;

(ii) Recommendations on nutrition education programs;

(iii) Recommendations for coordinating food aid programs withdelivery of other social services that interact strongly onnutritional outcomes: (1) primary health care services,especially maternal and child health care; (2) day-care,pre-school and primary education; and (3) communitydevelopment programs;

(iv) Recommendations for policy adjustments in othercomplementary sectors to provide a satisfactory and enablingenvironment for reducing the incidence of moderate andsevere malnutrition; these complementary sectors are: (1)environmental health, including water supply and sanitation;(2) food commodities regulations, inspection and

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marketing/advertizing practices; (3) diarrhea and intestinalparasite control programs; and (4) community socialservices; and

(v) Recommendations for adjusting externally assisted food aidand food coupon programs with the long term nutritionpolicy.

(d) Evaluation of the FAP food coupon vrogram comprising of ananalysis of the impact of the food coupon program on maternal andchild health status, improvement of which is the main objective ofthe proposed project. Data for this evaluation would be collectedfrom the Project Area and from a comparable non-project area thatwould be used as control. The evaluation would focus ondetermining the program's impacts on:

(i) the nutrition status of pregnant women, including weightgains during pregnancy;

(ii) maternal mortality;

(iii) frequency of low weight baby-births; and

(iv) weight and height of children, including school andpreschool children.

3. OrQanization and Timetable. The study would be carried out over aperiod of 6 months and would require an estimated 10 months of consultants'services, estimated at US$100,000, which would be wholly financed by theproposed IDA credit. The terms of reference for this consulting assignmenthave been confirmed at negotiations; choice of consultants and contractsignature would be completed by March 31, 1993; execution of the assignmentwould be completed by November 15, 1993; discussion of policy recommendationswould take place during the first annual review by December 10, 1993; theimplementation plan would be completed by January 15, 1994; and implementationwould commence immediately thereafter and would be completed by December 31,1995. The consultants' team, including a food security economist, andnutrition specialists, would travel to Honduras twice for a three-week period,to collect data in the field. Based on the analysis of the data collected,the consultants' team would prepare a comprehensive report, includingrecommendation, to be presented to the Government and to the donor community.During a third trip, the consultants' team would lead a two or three dayworkshop to discuss the policy recommendations. The study would becoordinated by the MOH.

B. COST-RECOVERY OF MOH HEALTH SERVICES

4. Background. The MOH started a pilot cost-recovery program in 1989through user fees charged for curative services at hospitals and PHCfacilities with the objective of recovering 25k of the operating costs(excluding salaries), that is, almost 12% of total operating costs. The MOHhas developed a sophisticated management information system to controlrevenues recovered and their use by local facilities. This information systemis a major asset for the proposed study. The major issues affecting theperformance of this cost recovery system are: (a) the incentive for

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recovering costs provided by local retention of most of the costs recovered by1OH facilities may be revoked by the GOH, once the agreement signed with USAIDexpires in 1995; (b) a preliminary analysis of the performance of the MOH costrecovery system indicates that: (i) cost recovery incentives need to betailored to PHC facilities, because only curative services are charged whilePHC services are predominantly preventive; (ii) cost recovery agreementsbetween MOH and the Honduran Social Security Institute for shared services,are not in place; (iii) differential fees for privately insured patients havenot been established; and (iv) the MOH needs an action plan to improveperformance and expand coverage of its cost recovery system.

5. Obiectives. The proposed study aims at providing the MOH with thenecessary management tools to maximize cost recovery at hospitals and primaryhealth care facilities while expanding access and use of primary health careservices, and guiding the MOH in the implementation of a more equitable andefficient system nationwide.

6. Terms of Reference

Phase I - Diacnosis

(a) Institutional Analysis;

(i) Legal framework and regulations governing cost recovery ofhealth services;

(ii) Inter-institutional framework (MOH and the Honduran SocialSecurity Institute) and its implications for the MOH costrecovery system; and

(iii) Insurance systems, including private systems, and theirimplications for the MOH cost recovery system;

(b) Analysis of the MOH Present Cost Recovery System;

(i) Basic characteristics;

(ii) Performance at the hospital service level;

(iii) Performance at the PHC service level;

(iv) Structure of user fees and its equity impact;

(v) Analysis of cost recovery performance at the level of healthregions;

(vi) Main inefficiencies of the current system; and

(vii) Constraints to system reform.

(c) Presentation of Preliminary Report;

Phase I - Recommendations

(i) Recommendations for system reform;

(ii) Cost benefit analysis of proposed reform;

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(iii) Specification of cost recovery targets by health regions,distinguishing between hospital and PHC services; and

(iv) Technical, material and financial requirements for theimplementation of the proposed reforms.

(d) Presentation of Final Phase I Report;

(e) Workshop to discuss the report and reach agreement on policyreform and implementation plan;

Phase II - Implementation

(f) Pilot implementation in 2 or 3 health regions;

(g) Review of the results of the pilot implementation, and adjustmentsto the system; and

(h) Program for expanding the cost recovery system nationwide.

7. Organization and Timetable. The activities under this study to becarried out by the MOH include a fist phase directed at assessing thesituation and recommending measures to improve the present cost recoverysystem, and a second phase when the recommendations of the study would beimplemented in two or three health regions. The study would be conducted byspecialized consultants (either individuals, or firm) over a period of threeyears. During the first year, the Phase I study program would be completed.During the second and third year, implementation of the improved cost recoverysystem would take place in the health regions. The proposed study isestimated to require approximately 38 months of consultants' services,estimated to cost US$380,000, and would be wholly financed by the proposed IDAcredit. The terms of reference for this consulting assignment have beenconfirmed at negotiations; choice of consultants and contract signature wouldbe completed by March 31, 1993; execution of the assignment would be completedby December 10, 1993; discussion of policy recommendations would take placeduring the first annual project implementation review; the action plan wouldbe completed by January 31, 1994; implementation and technical assistance tosupport implementation, would commence immediately thereafter and would becompleted by December 31, 1995.

C. Medical Waste Disposal Study and Trainina Module

8. Backoround. A preliminary evaluation of the conditions under whichbiosecurity equipment and materials and their final disposal is handled at theMOH PHC facilities, indicates lack of safe disposal methods and facilities.For disposal purposes, medical waste is not separated from common solid wasteand is dumped in the same unprotected garbage pile. In CESAMOs that havelaboratories, test vessels are disposed off in common garbage cans. The pooroften retrieve syringes from these garbage cans for resale, some are used astoys by children, and even used cotton balls are retrieved from the garbage byalcoholics. Moreover, most health staff do not have access to biosecuritymaterials such as rubber gloves and masks. Clearly, there are seriousenvironmental and health threats associated with the inadequate medical wastedisposal practices in MOH primary health care facilities.

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9. Obiectives. The proposed study would help achieve the followingobjectives:

(a) Analyze the conditions under which medical waste is disposed offat the MOH PHC facilities, and estimate the needs for biosecuritymaterials, equipment and building repairs and their investment andrecurrent costs, to ensure adequate protection to staff andpatients and safe disposal of medical waste;

(b) prepare a training manual, tailored to auxiliary nurses andlaboratory technicians, on biosecurity norms for handling anddisposing of hazardous materials, including techniques forcollection, transport and final disposal of medical waste; and

(c) design and implementation of a training program for auxiliarynurses, laboratory technicians and waste collection and disposalpersonnel.

10. Activities. The study would involve three specialists duringapproximately 4 months, or 12 months of consultants' services, and would beconducted in three phases, comprising the following activities:

Phase I - Diacrnosis specifying for primary health care facilities:

(a) needs for biosecurity materials, equipment and building repairs toensure adequate protection to staff and patients and safe disposalof medical waste:

(b) procedures to improve the system of collection and disposal ofmedical waste at the CESAMOs;

(c) cost estimates (investment and recurrent costs) for the executionof civil works, installation of equipment, and provision ofbiosecurity materials;

Phase II - Development of a Training Manual. Organization of a workinggroup consisting of an specialist in biosecurity materials, a publichealth specialist and a cytologist to:

(d) analyze, based on site inspections, the handling and disposal ofmedical waste, health personnel practice, and local behaviorpatterns associated with the handling of medical waste;

(e) define the functions and activities of the staff responsible forhandling medical disposal equipment, and the internal and externalcollection and disposal of medical waste;

(f) prepare a training manual on disposal of medical waste,comprising: (i) description of contents of the training program;(ii) program format; (iii) didactic materials; and (iv) practicalexamples of adequate handling and disposal of medical waste;

(g) presentation of a preliminary report and training manual;

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Phase III - Review and Imolementation

(h) the training manual would be submitted for validation to two orthree specialist who would not have taken part in the study;

(i) test of the first version of the manual in primary health carefacilities located in the project area, with staff responsible forhandling hazardous materials and disposing of medical waste, andreview of the manual; and

(j) preparation and implementation of a training program for healtharea supervisors on the use of the manual at the primary healthcare facilities, and how to incorporate the manual in the regulartraining program for primary health care staff.

11. Organization and Timetable. The study and training manual would becontracted by MOH to local consultants, satisfactory to IDA, involvingapproximately 12 months of consulting services at an estimated cost ofUS$34,000, to be wholly financed by the proposed IDA credit. The terms ofreference for this consulting assignment have been confirmed at negotiations;choice of consultants and contract signature would be completed by March 31,1993; execution of the assignment would be completed by August 15, 1993; andtraining would commence by September 15, 1993 and continue thereafter.

D. Operations Research

12. Obiective. Implement specific studies on maternal and child health careand nutrition programs in the project area (para. 12) in order to designspecific options for improvements.

13. Priority Topics. A preliminary list of priority topics would be asfollows:

(a) The information system at the local level (CESAR and CESAMO),including rationalization and simplification of the forms whichare used by auxiliary personnel, of the registration of data, ofdata flows from the facility to higher levels of MOHadministration, development of data analysis capabilities;development of information feedback arrangements reaching thelocal level, and procedures for using the data for decision-makingat all levels of the MOH administrative system;

(b) Referral system from CESARs and CESAMOs to the health area andarea hospitals, focusing on birth attendants' referrals,communications, transportation and resolution capacity at thehealth area level (emergency rooms, maternities, blood banks andsurgery facilities);

(c) Indicator(s) for better measuring the integration of the deliveryof primary health care services at the CESARs and CESAMOs;

(d) Impact analysis of the institutional capacity of FAP to addressnutrition problems; and

(e) Use of sentinel sites to measure changes over time, through impactindicators (such as infant mortality rate, maternal mortality

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rate, nutrition status, low birth weight rate), and to monitorlinkages between impact indicators and other performanceindicators, such as access to primary health care services bymothers and children, percentage of children immunized,availability of essential drugs, and accessibility of referralinstitutions.

14. Organization and Timetable. The operations research proposed would becarried out by the MOH during the three years of project implementation,through the Master's Program of the School of Public Health of the NationalAutonomous University of Honduras. Master students would be assigned specifictopics to research at health areas with which they are most familiar. Thisformula offers reasonable assurances of success, for the following reasons:(a) most of the students in the Master's Program are chief of health areas,including the areas that are part of the proposed project; (b) students wouldcontinue to perform their MOH functions during the course, and (c) studentsare required to continue in their present functions, once they graduate.Priority for assignment of topics would be given to those aspects of theprimary health care system that are not working properly at the present time.The MOH would be responsible for entering into a consulting contract with theUniversity, and for supervising the operations research activates. Thecontract between the University and MOH would be signed by May 31, 1993; theannual study program would be approved by MOH in consultation with IDA duringthe annual project implementation reviews; research activities would becarried out between April 1 and October 31 of each year; and technical reportson each study would be presented by November 15 of each year.

15. Cost estimates. The cost of the operations research to be carried outunder the proposed project is estimated at US$150,000 and would be whollyfinanced by IDA.

E. Study of the SupplV of Generic Drugs through the Private Sector

16. Background. In the private pharmacies of Honduras, the predominant typeof drugs offered for sale are brand-name drugs, which are sold at relativelyhigh prices. Typically, the private pharmacies have few lower-income clients.To date, generic drugs constitute a very small share of total drugs sold byprivate pharmacies. This situation would need to be changed if the privatepharmaceutic sector were to effectively contribute to improving the healthstatus of the majority of Hondurans who cannot afford brand-name drugs.

17. Oblectives. The study aims at increasing access, for the majority ofthe population, to essential drugs that are of high quality and low price,through the analysis of ways in which the private pharmaceutic sector wouldincrease its procurement and distribution of generic drugs throughout thecountry.

18. Terms of Reference. The study would focus on the following constraintsto the marketing of generic drugs by the private pharmaceutical retailindustry:

(a) legal and regulatory;(b) organizational;(c) marketing;

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(d) economic;(e) financial;(f) information on suppliers;(g) quality control safeguards; and(h) procurement methods.

19. Reporting. The consultants engaged for this study would: (a) prepare apreliminary report for discussion with the Cooperative of PrivatePharmaceutical Product Retailers at the end of the 6th month of the study, (b)incorporate their comments, and (c) present a final report at the end of the7th month of the study.

20. Organization and Timetable. Consultants' services would be contractedby the MOH to provide technical assistance to the Cooperative of PrivatePharmaceutical Product Retailers, aiming at producing specific recommendationsfor the expansion of private supply of generic drugs through the local retailmarket. The study would require approximately 8 months of consultants'services. The cost of these consultants' services was estimated at US$72,000and would be wholly financed by IDA. The terms of reference for thisconsulting assignment have been confirmed at negotiations; choice ofconsultants and contract signature would be completed by March 31, 1993;execution would commence immediately thereafter and a final report would bepresented by August 31, 1993; discussion of policy recommendations would takeplace during the first annual implementation review, when measures to be takenwould be approved by the MOH in consultation with IDA.

F. Technical Assistance to the Ministrv of Health (NOH) for the Procurementof Drugs. The terms of reference for this consultant assignment is presentedin Annex 15, Section D.

G. Radio Communications Feasibility Study and Pilot Program

21. Background. The MOH network of primary health care facilities is devoidof means of communication, particularly in the rural area, lacking bothtransportation and telecommunications. This circumstance precludes primaryhealth care staff to: (i) efficiently refer cases to higher level MOHfacilities, and (ii) receive guidance when facing emergency situations. Thiscommunication gap could be bridged through the use of radio communications atrelatively low cost. The MOH has already successfully experienced the use ofradio communications during the emergency campaign to control the choleraepidemic. The Red Cross of Honduras has had extensive experience with radiocommunications and equip all its ambulances with a packet-radio. Both ofthese experiences augur well for the introduction of radio communications atthe CESAR and CESAMO facilities of the MOH.

22. Obiectives. The feasibility study of radio communications services theMOH network of primary health care facilities in the project area that lacktelephones, aims at: (i) determine what type of equipment would best suit theneeds of these facilities; (ii) design the appropriate network to operate thesystem; (iii) specify maintenance arrangements needed to keep the system ingood operating conditions; (iv) design a training program for auxiliary nursesto operate the system; (v) analyze the costs and benefits of the recommendedsystem, and estimate the component of recurrent costs; (vi) install a pilot

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radio network consisting of 10 stations and one hub-station, to test thesystem in practice; (vii) assess the results of the pilot experience; and(viii) design the expansion of the system to an additional 30 local stationsand the required number of hubs.

23. Scope of Work. The work would be performed in four phases, schedule asfollows: Phases I, II and III, during the first year of projectimplementation; Phase IV during the second and third year of projectimplementation. The estimated number of stations to be installed by year is:10 in the first year, 15 in the second year and 15 in the third year. Theactivities to be carried out in each phase include:

Phase I - Feasibility Study

(a) Information needs analysis;

(b) Hardware selection and procurement;

(c) Network design;

(d) Legal authorizations, export licenses;

Phase II - System Integration and Testing: Pilot Network of 10 Stations

(e) Technical assistance for system installation;

(f) Training of local operating and maintenance staff;

(g) Supervision of initial operation;

Phase III - Assessment of Pilot Exoeriment

(h) System performance evaluation;

(i) Preliminary design of network expansion;

Phase IV - Installation of Expanded Network of 30 Stations

(j) Detailed design of network;

(k) Procurement of hardware;

(1) Installation;

(m) Training of local staff for operation and maintenance; and

(n) System's integration and testing.

24. Reoortin . Following the completion of each phase, the consultant wouldpresent a progress report to MOH. In addition, at the end of Phase III, theconsultant would present a comprehensive report on the results of theexperimental stations, for discussion during the first annual projectimplementation review.

25. Choice of Consultant. A specialized NGO would be contracted to preparethe feasibility study, conduct the pilot experiment, its assessment, andinstall the expanded network. The Government has agreed to contract TheVolunteers in Technical Assistance (VITA), of Arlington, Virginia, to carryout these activities. VITA has extensive experience in communication

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technologies applied to the health sector, including radio, telephone, andcomputerized satellite communications. VITA's experience in developingcountries is impressive, including in two Central American countries. Itslist of completed and on-going projects includes: Argentina, Cuba, Djibouti,Gambia, Ghana, Guatemala, Indonesia, Jamaica, Kenya, Mozambique, Nicaragua,Nigeria, Pakistan, Philippines, Sierra Leone, Sudan, Somalia, Tanzania,Uganda, Zaire, Zambia and Zimbabwe. VITA's expertise in packet-radiocommunications has been successfully tested in the Sudan, where it installed asix-station solar-powered packet radio network linking a number of healthcenters; in Ethiopia, where it assisted CARE in helping solve fieldcommunications problems during the 1985 famine relief efforts; and in Jamaica,following Hurricane Gilbert, in 1988, where VITA helped establish a packet-radio network for Jamaica's Office of Disaster Preparedness.

26. Organization and Timetable. VITA would be contracted by MOH, as part ofthe proposed project, to prepare the feasibility study, provide initialtechnical assistance and training for installation of the pilot network,assess the results of the pilot experiment, design the expansion of thenetwork, and provide technical assistance and training for the expandednetwork. Overall, the work is estimated to require about 16 staff/months.The cost of the study, including equipment for the pilot stations, wasestimated at US$160,000 that would be wholly financed by IDA. The cost ofequipment for the expanded network is estimated at US$0.3 million for 30additional stations, and is included in the project cost tables as part ofequipment for primary health care centers and would be wholly financed by theproposed IDA credit. The terms of reference and the choice of consultants forthis consulting assignment was confirmed at negotiations; the consultant'scontract would be signed by March 31, 1993; the feasibility study would becompleted by June 30, 1993; a pilot network of ten stations would have beeninstalled by September 15, 1993; an evaluation of the pilot network would becompleted by December 10, 1993; MOH would decide on the expansion of thenetwork to comprise an additional 30 stations, in consultation with IDA duringthe first annual project implementation review; if the decision is positive,procurement of the hardware for the expansion of the network would have beencarried out by MOH immediately thereafter; and installation of the additionalstations would be completed at least by the following dates: 15 additionalstations by December 31, 1994 and all 30 additional stations by December 31,1995.

H. School Nutrition Censuses

27. The Ministry of Education has conducted nutrition censuses of firstgrade primary school students aged 6-9 years in 1987 and 1991, with technicalassistance form the Institute of Nutrition for Central America and Panama.The Ministry of Education presently has all the necessary expertise to conductsuch censuses without further technical assistance. Under the proposedproject, the SCES would be responsible for the implementation of annual schoolnutrition censuses carried out by the Ministry of Education. The cost ofconducting three nationwide school nutrition census is estimated atUS$270,000, to be wholly financed by the proposed IDA credit.

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HONDURAS SECTOR POLICY LETTER

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SECRETARIA DE HACIENDA Y CREDlTO PUBLICO

REPUBLICA DE HONOURAS S-226Tegucigalpa, D.C. Novenber 18, 1992 No

Mr. Lewis T. PrestonPresidentThe World Bank1818 H. Street. N.W.Washington, D.C., 20433

Dear Mr. Preston:

1. Since 1990, the Government of Honduras has started acomprehensive program to support human resources in parallel withits structural adjustment program. In the short term, priority hasbeen given to poverty alleviation through the execution of thesafety net programs managed by the Honduran Social Investment Fund(SIF) and the Family Assistance Program (FAP). These programs aretargeted to the most vulnerable members of society and are intendedto prevent a deterioration in the already precarious livingstandards of the poorest groups during the adjustment period.Through the SIF and FAP programs, the Government has been able torespond rapidly to a critical poverty situation, until the ministryline have been strengthened and project activities may bereintegrated into normal ministry operations. More generally, toprotect social sector programs from the full impact of theausterity measures underway, it is the Government's intention to atleast maintain the share of social expenditures in the budgetroughly constant in real terms, at one-third of public spending andabout 11% of GDP, during the remainder of this Administrationending in December 1993. To assist in the transition to the nextAdministration, during 1993, the Government plans to undertake- acomprehensive review of social sector expenditures, with supportfrom the Japanese Grant Facility. Based on the results of thisreview, we will recommend to the next Administration a socialsector adjustment operation that will include appropriate budgetaryreforms and adjustments to the share of social sector expenditures,in support of a long-term program of human resources development.

2. SIF assistance is viewed as temporary, and is scheduled to endby March 1994. Program activities include financing forrehabilitation of schools and health centers, construction oflatrines and wells, provision of teaching materials and healthsupplies, training for social personnel, and credit for informal

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sector activities. The SIF has worked closely with the Ministriesof Health (MOH) and Education (MOE) and with local communities toensure that these entities would provide staff and financeoperating expenses and maintenance on a recurrent basis for socialinfrastructure rehabilitated or constructed with SIF. financing. Todate, approximately 3,415 subprojects have been financed throughthe SIF for a total cost of US$56,4 million, and an additional2,500 subprojects are planned for 1993. In parallel to the SIFprogram, nutrition assistance is being provided to the mostvulnerable groups at risk of malnutrition through the FAP foodcoupon program. FAP's assistance is given, in collaboration withthe MOH and MOE, through the targeted distribution of food couponsto poor, pregnant and nursing women, poor primary school attenders,and poor children under five. To date this program has benefittedapproximately 160,000 women and children in the poorest areas ofHonduras with highest malnutrition rates. The program has workedwell and it is the Government's intention to expand it with donorsupport.

3. To consolidate the achievements in the nutrition and healthsectors recorded during the first three years of thisAdministration, the Government of Honduras has decided to placespecial emphasis on policy reforms and rationalization measuresthat are still needed to improve sector efficiency. Three mainareas will be covered. First, the Government will promote foodsecurity and provide nutrition assistance to the most vulnerablegroups by consolidating FAP's achievements in the short term anddesigning and implementing a long-term nutrition policy. Second,it will increase accessibility to public health services, withrenewed emphasis on primary health care services. And third, itwill expand the supply of potable water and basic sanitationservices to rural areas and in marginal urban areas that are notcurrently served. Through these reforms, the Government expects toredirect scarce resources toward the country's neediest groups andachieve economies that will help improve social services. Thepurpose of this letter is to present the Government's policies innutrition, public health, water and sanitation, which have a directincidence on health. It also presents the monitoring systemincorporated in the Government's program to measure progress,including the impact of social programs on the welfare of Honduranfamilies.

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Tegucigalpa, D.C. Noverber 18, 1992-o... No.22..

Nutritional Services

4. The Government plans to improve and expand nutritionassistance provided by FAP and the MOH by: (a) expanding the FAPfood coupon program to at least 250,000 beneficiaries per year,including young children and pregnant and nursing mothers at riskof malnutrition by 1995; (b) strengthening the links betweennutrition assistance and the provision of basic health andeducation services; and (c) expanding nutrition education programsthrough the MOH, including education on breast feeding, weaningpractices and feeding of small children at public health facilitiesand at the community level, in collaboration with local non-governmental organizations.

5. Given the magnitude of the need for nutrition assistance inthe country, significant reduction in malnutrition can only beachieved through the implementation of a long-term program. Forthat reason, the life of FAP, originally limited to four years, wasextended indefinitely by Congress in October 1992. There is alsothe need to enaure complementarily between the FAP food couponprogram and other in-kind food distribution programs, review theefficiency of these programs and ensure that their targeting isadequate. To that effect, by November 15, 1993, the Governmentwill prepare a draft long-term national nutrition policy to:(i) asseas the optimal mix of nutrition interventions, and placeemphasis on the most efficient programs; (ii) review to whatextent monetization of food aid currently distributed in-kind couldbe increased; (iii) conaolidate the institutional framework for thedelivery of nutritional services, by strengthening PRAF'sadministrative capacity to manage an expanded food coupon program;(iv) improve coordination among donor institutions providingnutrition asaistance ; and (v) ensure the long-term sustainabilityof targeted nutrition assistance programs through progressiveincrease of the Government's share in program financing fordiscussion with the Association. Implementation of this long-termnutrition policy will commence on February 1, 1994.

6. During the 1993-1995 period, the Government will continue itsefforts to mobilize additional funding from the donor community tohelp suatain the FAP food coupon programs beyond the life of theproposed Nutrition and Health Project, thus ensuring thesustainability of these programs and the implementations of its

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nutrition policy over the long term. Specifically, the Governmentplans to pursue initial discussions with: (i) the Inter-AmericanDevelopment Bank regarding a US$30.0 million soft loan to assistthe FAP programs; (ii) the World Food Program regarding a follow-upgrant of US$10.0 million equivalent in monetized food aid; and(iii) the rJnited States Agency for International Development,regarding the possible monetization of a larger share of its foodaid to Honduras.

Public Health Services

7. To address the health problems facing the Honduran populationof the short and medium-term, the Government has started to takea number of measures to strengthen the MOH institutional capacityin the areas of personnel administration, financial management, andmanagement of pharmaceutical supplies. The Government will aloointroduce specific reforms in the delivery of hospital and primaryhealth care services, carrying out specific studies upon whichthese reforms would be based, as necessary. Finally, the Governmentwill improve the MOH system of epidemiological surveillance tofurther reduce the incidence of transmissible diseases. Thissector's specific objectives are described below.

(a) Tncreese the efficiency of the MOH ersonnel administration.by: (a) increasing the number of nurses, dentists,microbiologists and masters in public health by 1995, in orderto improve the mix of human resources in the sector;(b) expanding the supply of auxiliary nurses and healthtechnicians, including laboratory, X-Ray, anesthesiology, andenvironmental health promoters trained each year by the MOH,stabilizing the number of graduated auxiliary nurees at 600per year by 1993; (c) modernizing and intensifying in-servicetraining programs; td) further develop the computerizedpersonnel registry system; (e)continuing to reallocatepersonnel according to service priority needs and individualskills; and (f) proceed to evaluate the MOH system ofpersonnel administration in the context of the new Law ofModernization of the State;

(b) Tncrease the efficiency of the MOH financial Adminintrationthrough: (a) further decentralization of the budgetary

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process, by expanding the management information system (MIS)to include the modules pertaining to financial administration,administration of materials and pharmaceutical supplies, andadministration of personnel at the region and central level;(b) preparation and implementation of a budgetary reform forthe MOH; (c) rationalization of personnel compensation policythrough implementation of salary adJustments conducive toreducing the gap between doctors' salaries and those paid fornursing and auxiliary nursing services have been introduced in1992 and incorporated in the 1992 MOH budget; (d) evaluationof the performance of the cost recovery system and preparationof an action plan to introduce improvements in such system byDecember 6, 1993 and implementation of such plan during 1994-1995; (e) extension of the computerized system of productivitycontrol, resources and costs, developed for 9 hospitals to all26 hospitals of the country by 1994;

(c) rncreame nccessibilitv and auality of Drimarv health careservices (PHC) provided by the MOH. through:(a) consolidation of local planning and communityparticipation; (b) implementation of the new supervisionsystem that combines field supervision with group meetings by1993; (c) implementation of an integrated service deliverymodel in parallel with quality improvements; (d) increases inthe number of staff allocated to PHC services by posting oneadditional auxiliary nurse at each CESAR serving more than1,500 people and by allocating a permanent doctor. to eachCESAMO; and (e) improvement in the efficiency of referral andcounter-referral systems through better communication linksbetween service units at all levels;

(d) Imorove the gualitv and efficiency of hobDital services.through: (a) extension of the system of aelf-evaluation andaccreditation from 10 to 26 hospitals; (b) completion of theprogram of repairs on buildings and auxiliary facilities by1993; (c) preparation and implementation of a systematichospital maintenance plan, including supply of necessary spareparts for fixed and mobile equipment and vehicles;(d) strengthening of systems aimed at improving hospitalproductivity, particularly accreditation, cost control, and

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cost recovery; and (e) periodic revision and adjustment tostaff training programs;

(e) Tmorove the Drovision of medicinea And health siruvliesnationwide through: (a) applying rigorously the new SanitaryCodes for the control of pharmaceutical products that areimported, produced, or sold in the country; (b) increasingthe proportion of generic drugs over total drugs procured bythe public sector; and (c) promote the production of criticalhealth supplies within the country; this is planned to beimplemented by 1994;

(f) Consolidate and exoand the MOH svstem of e2idemiologicalsurveillAnce through expansion of the computerized system ofepidemiological surveillance to all areas of the variouashealth regions of the country;

(g) Continue Ane exnend tht- cntrol of trmnsmih1gl diseese-through intensification of control activities targeted todiseases that account for the highest incidence of morbidityand mortality, especially diarrhea, acute respiratoryinfections, malaria, tuberculosis and sexually transmitteddiseases, particularly AIDS; and,

(h) Mobilize mmunity D tinn for health through furtherdecentralization of health and nutrition services at theregional and municipal levels, directly involving localcommunities.

Water SuD1pY and Sanitation Services

B. The three main institutions active in the water supply andsanitation sector are the National Water and Sewerage ServiceCompany (SANMAA), the MOH and the municipalities. Through SANAA, theGovernment plans to continue improving and expanding coverage ofwater supply and sewerage services in urban areas, aiming atachieving the following physical targets during the 1993-95 period;(a) completion of water production works associated with theTegucigalpa dam; (b) improvement of water treatmentfacilities in Tegucigalpa; (c) improvement of the waterdistribution network in Tegucigalpa to expand coverage, reduce

A^

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REPUBLICA DE HONDURASTegucigalpa, D.C. Noventer 18, 1992 No. X.-226

losses and ensure appropriate quality control standards; (d)completion of water supply systems that were initiated in 5intermediary cities and preparation of engineering designs for anadditional 20 cities; and (e) completion of sewerage works in onemedium-sized city.

9. The National Water and sewerage Service Company's (SANAA)medium-term investment policy is supported by the paralleldevelopment of the sector's institutional organization throughadministrative decentralization, whereby the operation andmaintenance of the water supply and sewerage systems is transferredto local entities, either municipalities or Local Water Boards(Juntas Admnistradoras de Agua - JUNTAS), based on legalinstruments already in place that ensure adequate cost recovery andorganization at the local level.

10. Through the MOH, the Government plans to expand the supply ofrural potable water and sanitation services with communityparticipation by: (a)construction of simple water supply systems,shallow wells, latrines, septic tanks and small sewerage systems inpriority rural and marginal urban areas currently unserved,benefitting and additional 300,000 inhabitants by December 31,1995; (b) intensification of education and promotion activitiesfocusing on environmental health; (c) improvement in the qualityof the water of existing systems through water treatment andperiodical teats; and (d) continuing training local JUNTAS torecover costs from the beneficiaries ensuring uninterrupted serviceoperation and maintenance.

11. The municipalities are progreasively taking over from SANAAthe responsibility for building, operating and maintaining theirwater, sewerage and drainage systems. Formally, responsibility forbasic services has been transferred to local governments through aMunicipal Law approved by Congress in 1991. In practice, over athousand water systems and some 40 sewerage systems have alreadybeen transferred to municipal authorities for operation andmaintenance. The Government plans to continue thisdecentralization process at the same time it provides the necessarytechnical assistance to strengthen local capacity to administer andoperate the syatems.

12. However, the sector still lacks overall coordination and,

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sometimes, agencies exerciae overlapping activities. Thus, theGovernment recognizes the need to restructure the water supply andsanitation sector and to further promote its institutionaldevelopment. To this end, in 1993, the Government Plans toundertake a study to analyze the main sector iasues, decide onappropriate solutions, taking into account the new municipal law byDecember 31, 1993, and start implementing appropriate measures byFebruary 1., 1994. Specifically, the study would focus on: (a) thesector organization; (b) the policies that guide' the supply ofpotable water and sewerage services, including criteria forensuring protection of critical watersheds and attention todownatream water quality; (c) the aector investment policies; (d)the atrategy and appropriate mechanisma for the transfer of waterand saewerage syatems to the municipalities; (e) the development andimplementation of more efficient financial. accounting, collectionsand auditing systems, and (f) establishment of norms regulatingcost recovery for water and sewerage services throughout thecountry ao aa to guarantee efficiency and financial stability inthe sector. In parallel, the National Water and Sewerage ServiceCompany will continue ita program to improve its centraladministration, especially in the financial and commercialmanagerial areas, completing the updating of users' registry, andimproving medium level managerial staff through in-servicetraining.

Monitoring Syetem to Meaurpe Progress in SociAl Service Delivery

13. The Government of Honduras haa expanded its regular datacollection program through the creation of special module tomonitor the impact of its social programs on the welfare of theHonduran population. Specifically, the multiple purposes householdsurvey has been expanded to incorporate a Living StandardsMeasurement Survey, including key social variables and consumptionpatterna in addition to basic demographic, employment and incomeinformation. This survey was introduced as a component under theSIF-I project with aupport from IDA. At present, improvements areneeded to effectively tranaform the survey into a useful monitoringtool to aosist the Government in adjuating its social sectorpolicies according to measurable reaulta. Improvements will beintroduced to strengthen data reliability and analysis anddisseminate survey results more broadly, specifically, data

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REPUBLICA DE HONDURASTegucigalpa, D.C. No.°-

NOVember 18, 1992

analysis and dissemination will be facilitated through improvedcomputer technologies that make the survey data accessible to usersof small computers and reliability of survey results will beimproved by improved sampling techniques combined with a continuoussurveying schedule. These improvements are being planned and wouldbe completed by early 1993. The analyses based on the survey datawill be coordinated by the SCES and their results will betransmitted to the appropriate social agency for policy or programadjustment, as needed.

Social Cabinet Executive Secretariat

14. The Social Cabinet Executive Secretariat was created in 1991with the basic objective of providing technical assistance to theSocial Cabinet on human resources development. The Secretariat hastwo major functions which help the Government implement its socialsector policy reforms: (i) it helps coordinate the Government'ssocial sector policies and programs undertaken by various ministryline and agencies; and (ii) it monitors the achievements of theGovernment's targets for the social sectors, analyzes theeffectiveness of social programs and provides feedback to theSocial Cabinet. During the implementation of the Nutrition andHealth Project, the SCES's coordinating function and itsinstitutional capacity will be reviewed as part of the project'sannual reviews.

The Nutrition and Health Project

15. The Nutrition and Health Project. for which the Government hasrequested IDA assistance and which will require donor support, isfully consistent with the Government's human resources developmentstrategy, focusing on actions to increase access to primary healthservices, promote food security and nutrition assistance, andexpand potable water supply and sanitation in order to reachtargets specified within that project and agreed with IDA. Theplanned review of the Government's nutrition assistance policy willtake place during the first year of implementation of that projectand the actual phasing of nutrition assistance reform actions willbe discussed with IDA and confirmed at the first annual project

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Tegucigalpa, D.C. Novenber 18, 1992 No

implementation review in December, 1993. During the annual projectimplementation reviews, we will also review the share of socialsector expenditures based on the recommendations of the socialsectors' budget study carried out during 1993.

Sincerely yours,

Benjamin V anue-=, \~~~~~~

- 124 - Anngx 19DRAFT OUTLINE OF

HONDURAS PRAF OPERATIONAL MANUAL

NUTRITION AND HEALTH PROJECT

DRAFT OUTLINES

PRAF OPERATIONAL MANUALS

BMI FOOD COUPON PROGRAM

Chapter 1. IntroductionChapter 2. Basic ElementsChapter 3. Criteria for Selection of BeneficiariesChapter 4. Operational Procedures

4.1 General Planning4.2 Operations:

- Identification of Beneficiaries- Emission of Coupons

- Classification and Transfer of Coupons- Distribution of Coupons to Health Centers- Distribution of Coupons to Beneficiaries- Reprogramming of Coupons

- Marketing: identification, training and supervision ofparticipating merchants- Information to Beneficiaries- Redemption of Coupons

- Administration

Annexes

BMJF FOOD COUPON PROGRAM

Chapter 1. IntroductionChapter 2. Basic ElementsChapter 3. Criteria for Selection of BeneficiariesChapter 4. Operational Procedures

4.1 General Planning4.2 Operations:

- Identification of Beneficiaries- Preparation of Lists of Beneficiaries- Emission of Coupons

- Classification of Coupons- Marketing: identification, training and supervision ofparticipating merchants- Information to Beneficiaries- Distribution of Coupons to Beneficiaries- Redemption of Coupons

- Administration

Annexes

January 1992

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HONDURAS & SANITATION OPER. MANUAL

NUTRITION AND HEALTH PROJECT

DRAFT OUTLINE

OF WATER SUPPLY AND SANITATION

OPERATIONAL MANUAL

A. Model of request for legal registration of a JUNTA

B. Model of contract between the MOH and a JUNTA for the construction ofrural water supply subprojects

C. Model contract agreement between the MOH and a JUNTA for theadministration, operation and maintenance of rural water supply systems

D. Basic engineering norms for the construction of rural water supplysystems

E. Implementation plan for the construction of rural water supply systems

F. Selection criteria and sample of communities selected for the executionof water supply and sanitation subprojects

G. Regulations for services to be provided by water supply systems

H. Regulations for the administration, operation and maintenance of watersupply systems, to be adopted by a JUNTA

I. Model private contract agreement for the right of way for water supplysystems

J. Model consultanta' contract for engineering services for the design ofrural water supply systems

K. Prototype engineering designs for rural water supply and sanitationsubprojects

L. Basic tools to be provided to a JUNTA for the operation and maintenanceof rural water supply systems

- 126 - Annex 21SELECTED DOCUMENTS AND DATA

HONDURAS AVAILABLE IN PROJECT FILE

NUTRITION AND HEALTH PROJECT

SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE

1. Agua para el Pueblo (APP). Proarama de Organizaci6n v Capacitaci6n deJuntas Administradoras de Provectos de Aqua Potable v AlcantarilladoSanitario Financiados oor el Fondo Hondurefio de Inversi6n Social FHIS,Noviembre 1991 (12 p.).

2. AID. Programa de Asignaci6n Familiar - Reoorte Financiero. No.91.Oficina de Contraloria, August 1991.

3. Alves de Brito, S. A. Honduras: Provecto de Reestructuracion del SectorSocial: Sistema de Analisis de Cayacidad Institucional, (Annexos) Agosto1991.

4. Atalah S., E. Evaluaci6n del Provecto Piloto: Bono Materno Infantil enHonduras, Septiembre 1991 (30 p.).

5. Baume, C'.; Zeldin, L.; Rosenbaum, J; Academy for EducationalDevelopment, Breast-feeding and Weaning Practices in Honduras; NutritionCommunication Proiect - Baseline Study, 1991 (60 p.).

6. Clara Noguera C., M. Asesoria al Proarama de Asignaci6n Familiar (PRAF)en el Area de Organizaci6n v Administraci6n de sus Provectos, Enero 1992(40 p).

7. Escoto, Dr. L. R., MOH. Modelo de Supervisi6n Realizada por Personal deSaneamiento Ambiental del Ministerio de Salud en los Provectos de Aqua vSaneamientQ, Febrero 1992 (5 p.).

8. Franklin, R.; Parillon D.,C. Suggestions for a Nutritional Strateov forThe United States Agencv for International Development Mission toHonduras, November 1989 (30 p.).

9. Franklin, R. Targeting Poverty Groups in Honduras: Some PreliminarvEstimates and Scenarios, May 1990 (30 p.).

10. Garcia U., M.; Norton, R. D.; Cambar, M. P.; van Haeften, R.Agricultural Development Policies in Honduras: A ConsumotionPerspective, U.S. Department of Agriculture with USAID, February 1988(200 p.).

11. Girardi, S. N. Estudio de Personal de Salud en Honduras, January 1992(30 p.).

12. GOH. Plan Nacional de Acci6n: Desarrollo Humano. Infancia v Juventud.1992-2000, 1991 (70 p.).

13. Grosh, M. Analysis and Recommendations for the Bono Materno Infantil andBono Madre Jefe de Familia. Annex 5. Aide Memoire, IdentificationMission for Health and Nutrition Project, Tegucigalpa, September-October1991.

- 127 - Annex 21SELECTED DOCUMENTS AND DATAAVAILABLE IN PROJECT FILE

14. Grosh, M. (ed.). From Platitudes to Practice: Targeting Social Programsin Latin America. Latin America and Caribbean Technical DepartmentRegional Studies Program No. 21, September 1992).

15. IDA. Honduras: Proposed Health and Nutrition Proiect - Progress Reporton Proiect Preparation, Prepared for the Consultative Group Meeting forHonduras, Washington, D.C. March 1992.

16. IDB. Ex-Post Evaluation of the National Health Services Program(PRONASSA), Loans 441/SF &1/NF, April 1987 (232 p).

17. INCAP. Evaluaci6n Inicial del Programa de Asicmnaci6n Familiar (PRAF),Marzo 1992 (30 p.).

18. Kawas, C.M., et al. Estudio de la Percepci6n cue los Usuarios vProveedores tienen de los Servicios de Atenci6n Primaria en Honduras,Tegucigalpa, March 1992.

19. Management Sciences for Health. Olson, C. Informe de la Asesoria - ElSuministro de Medicamentos Para el Ministerio de Salud P(iblica:Recommendaciones Anteriores. Adcruisiciones v Medicamentos en Hospitales,Abril 1990 (40 p.).

20. Management Sciences for Health. Bates, J. Informe de la Asesoria -Proceso Para el Meioramiento del Sistema de Suministro de Medicamentos,Febrero 1991 (50 p.).

21. McGinn, N.; Soto, M. C.; Lopez, S.; Loera, A.; Cassidy, T.;Schiefelbein, E.; Reimers, F. Estudio sobre Repitencia v Deserci6n enHonduras: Asistir v Awrender o Renetir v Desertar (Un estudio sobre losfactores cue contribuven a la repitencia en la escuela nrimaria enHonduras, Junio 1991 (40 p).

22. MOH, Dept. de Estadistica. Informaci6n Basica de los Municipios deHonduras, 1991 (40 p.).

23. MOH, Encuesta Nacional de Nutrici6n: Cuadros de Frecuencia por Repionesde Salud v Nacionales, 1987 (140 p.).

24. MOH, Encuesta Nacional de Nutrici6n: Reci6n de Salud, No. 1; No. 3, 1987(140 p. ea).

25. MOH, Programa de Saneamiento Basico. Salud: Derecho v Deber de Todos,Proyecto: Capacitaci6n de Juntas de Agua Comunitarias de Area Rural paraOperaci6n y Mantenimiento de los Sistemas de Agua Potable, Septiembre1989.

26. MOH, Programa de Saneamiento Basico. Salud: Derecho v Deber de Todos,Perfiles de Proyectos - Area Saneamiento Ambiental, 1991.

27. Musgrove, P. Feeding Latin America's Children: An Analytical Survey ofFood Programs. Latin America and the Caribbean Technical Department,

- 128 - Annex 21SELECTED DOCUMENTS AND DATA

AVAILABLE IN PROJECT FILE

Human Resources Division, Regional Studies Program, World Bank,Washington, D.C.: November 1991.

28. Noguera, Maria Clara C. Asesoria al Proqrama de Asiqnaci6n Familiar

(PRAF) en el Area de Organization v Administraci6n de sus Provectos,PRAF working paper, Tegucigalpa: January 1992.

29. Ochoa, M. Plan Piloto Dara el Provecto de Bono Materno Infantil, PRAFworking paper, August 1990.

30. Ochoa, M. Plan de Expansi6n Nacional Dara los Provectos de Bono MulerJefe de Familia v de Bono Materno Infantil 1992-1994, PRAF working

paper, January 1992.

31. PAHO; WHO. La Mortalidad de la Nifiez en las Americas: Tendencias vDiferenciales - AnAlisis de Casos, 1991 (70 p.).

32. PRAF. Executive Summary, March 1992.

33. PRAF. Maternal Food Coupon Program (BMI) Progress ReDort: December 1990- December 1991, March 1992.

34. PRAF. Women Head of Household Food Coupon Program (BMJF). Impact on

Elementary School Enrollment; Goals and Coverage, March 1992.

35. PRAF, MOH; RUTA. Plan Piloto para el Provecto de Bono Materno Infantil,Agosto 1990 (70 p.).

36. Roschke, M. A. Analisis de los Proaramas de Salud Plan - InteQrado SaludEducaci6n v Provecto PRODERE: Provecto de Salud v Nutrici6n en Honduras,Noviembre 1991 (20 p).

37. Sant'Anna, A. FHIS: Provecto Preoaraci6n Report on the Water andSewerage Sector, October 1990 (60 p).

38. SECPLAN. C&lculo de la Canasta Basica de Alimentos Nivel Nacional. 1992,Tegucigalpa: May 1992.

39. SECPLAN. Criterios para la Filaci6n de la Politica de Salarios enHonduras, Marzo 1991.

40. SECPLAN. Niveles de Fecundidad v Politicas de Poblaci6n, Agosto 1991,Honduras (100 p).

41. Tenorio M., L. A.; Elvir O., R.A. Cuantificaci6n v Caracterizaci6n de laParticipaci6n de los Padres de Familia v Oraanizaciones Comunales enADovo a la Educaci6n Primaria, Junio 1991.

42. UNICEF; UNDP; World Bank; PAHO; WHO. Identificaci6n Mission to CentralAmerica of the Collaborative Program for the Water & Sanitation Sector,August 1991.

- 129 - Annex 21SELECTED DOCUMENTS AND DATA

AVAILABLE IN PROJECT FILE

43. UNO y UNO Consultores. Las aue Traba-jan Mas Para Ganar Menos: Las

Muieres v la Crisis en los Noventa, Tegucigalpa: UNO, August 1991.

44. Vargas, V. Recommedations for a Nutritional Research Strategy Based on a

Food Programs Evaluation, January 1992 (20 p.). Note: Sant'Anna

Reviewed.

45. Vial, I. Evaluaci6n Rapida v Preliminar del Provecto: Bono Muier Jefe de

Familia de Honduras, Septiembre 1991 (30 p).

46. Winter, Carolyn. Women's Country Assessment Paper: Honduras, Draft

Report No. 11035-HO, World Bank, Washington, D.C., September 1992 (28

p).

47. World Bank. Honduras: Prospects for Public Sector Reform, Volume 1:

Summary of Main Findings and Recommendations, Volume 2: The Main Report,

No. 10318-HO, April 1992.

48. World Bank. Honduras: Second Social Investment Fund Project, No.10451-

HO, May 1992.

49. World Bank. Honduras: Social Investment Fund Projects, No. 9148-HO,

February 1991.

50. World Bank. Honduras: Social Investment Fund Proiect (Credit 2212-HO)

Mid-Term Review, No. 10281-HO, January 1992.

51. World Bank. Honduras: Social Sector Programs, No. 9093-HO, November 1990

(70 p).

52. World Bank. From Platitudes to Practice: Targeting Social Programs in

Latin America (2 Vols.), No. 10720-LAC, Washington, D.C.: June 1992

53. Winter, Carolyn. Labor Legislation and Women's Employment and Pay in

Honduras, Draft Report No. 10992-HO, World Bank, Washington, D.C.: July1992 (26 p.).

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