world bank documentdocuments.worldbank.org/curated/en/... · fise emergency social investment fund...

Document ofThe World Bank

Report No.: 17217-EC

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF A US$25.0 MILLION

TO THE

REPUBLIC OF ECUADOR

FOR AN

INDIGENOUS AND AFRO-ECUADORIAN PEOPLES DEVELOPMENT PROJECT

December 15, 1997

Environmentally and Social Sustainable Development Sector Management UnitColombia, Ecuador and Venezuela Country Management UnitLatin America and the Caribbean Region

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CURRENCY EQUIVALENTS(Exchange Rate Effective November 24, 1997)

Currenc Unit = Sucre (S/)US$1.0 = S/4219.5

FISCAL YEARJanuary I to December 31

ABBREVIATIONS AND ACRONYMS

CAF Andean Development Cooperation (Cooperacion Andina Financiera)CAS Country Assistance StrategyCNRH National Council of Hydric Resources (Consejo Nacional de Recursos Hidricos)CONAIE Confederation of Ecuadorian Indigenous Communities (Confederacidn de Nacdonalidades Indfgenas de Ecuaor)CONFENIAE Confederation of Indigenous Nationality of the Ecuadorian AndesCONPLADE-IN National Council of Indigenous and Afro-Ecuadorian Development (ConsejoNacional Je Planfcaceiy

Desarrollo de los Pueblos Ind(genasy Negros)ECUARUNARI Ecuador Runacunapac RiccharimuiFAO Food and Agriculture OrganizationFASBASE Second Social Development Project: Health and NutritionFEPP Ecuadorian Fund for the Progress of the People (Fondo Ecuatoriano Populorum Progresso)FINCA Foundation for International Community AssistanceFISE Emergency Social Investment Fund (Fondo de Inversion Social Emergencia)GDP Gross Domestic ProductGNP Gross National ProductGOE Government of EcuadorGOPP Goal Oriented Project PlanningIDB Inter-American Development BankIDF Grant Institutional Development GrantIERAC Ecuadorian Institute of Agricultural Reform and Colonization (Instituto Ecuatoriano de Reforrna

Agrariay Colonizacidn)IFAD International Fund for Agricultural DevelopmentIFI Intermediary Financial InstitutionsINDA National Institute of Agricultural Development (Instituto Nacional de DesarrolloAgrario)INEFAN The Ecuadorian Institute for Forest, Natural and Wildlife Areas (Instituto Ecuatoriano

Forestaly de Areas Naturalesy Vida Silvestre)LDP Local Development PlanLIB Limited International BiddingMEC Ministry of Culture and Ethnicity (Ministerio Etnicoy Cultural)NBF Not Bank-financedNBI Unmet Basic Needs (Necesidades Bdsicas Insatisfechas)NCB National Competitive BiddingNGO Non-Governmental OrganizationOSG Second-Tier Organization (Organizacion de Segundo Grado)OTG Third-Tier Organization (Organizacidn de Tercer Grado)PMU Project Management UnitPPF Project Preparation FacilityPRU Project Regional UnitSA Sponsoring AgenciesSB Superintendency of BanksSENAIN National Secretariat of Indigenous and Minority Issues (Secretaria Nacional deAsuntos Indigenasy

Minorias Etnicas)SOE Statements of Expenditures

Vice President Shahid Javed BurkiDirector, Country Management Unit Andres SolimanoDirector, Sector Management Unit Maritta Koch-WeserTask Manager Martien van Nieuwkoop

EcuadorIndigenous and Afro-Ecuadorian Peoples Development Project

TABLE OF CONTENTS

Project Financing Data ..................................................................... 1I

Block 1: Project Description ....................................................................... 21. Project development objectives ....................................................................... 22. Project components ...................................................................... 23. Benefits and target population ....................................................................... 34. Institutional and implementation arrangements .................................................................... 3

Block 2: Project Rationale ..................................................................... . 45. CAS objective(s) supported by the project ...................................................................... 46. Main sector issues and Government strategy ....................................................................... 47. Sector issues to be addressed by the project and strategic choices ....................................... 58. Project alternatives considered and reasons for rejection ..................................................... 59. Major related projects financed by the Bank and/or other development agencies ................610. Lessons learned and reflected in the project design .............................................................. 6I1. Indications of borrower commitment and ownership ........................................................... 812. Value added of Bank support ...................................................................... 8

Block 3: Summary Project Assessments ...................................................................... 813. Economic Assessment ...................................................................... 814. Financial Assessment ...................................................... 9...............91S. Technical Assessment ...................................................................... 916. Institutional Assessment ....................................................................... 917. Social Assessment ...................................................................... 1018. Environmental Assessment ..................................................................... 1119. Participatory Approach ................................................................................... I 120. Sustainability ....................... 1 121. Critical Risks ....................... I 122. Possible Controversial Aspects ....................... 12

Block 4: Main Loan Conditions ................................. 13

23. Effectiveness Conditions ................................. 1324. Other .................................. 13

Block 5: Compliance with Bank Policies ................................... 14

List of Annexes

Annex 1: Project Design SummaryAnnex 2: Detailed Project DescriptionAnnex 3: Estimated Project CostsAnnex 4: Cost Benefit Analysis SummaryAnnex 5: Financial SummaryAnnex 6: Procurement and Disbursement ArrangementsAnnex 7: Project Preparation and Implementation ArrangementsAnnex 8: Documents in the Project FileAnnex 9: Statement of Loans and CreditsAnnex 10: Ecuador at a GlanceMap: IBRD No. 29236

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Latin America and the Caribbean Regional OfficeCountry Department III

Project Appraisal Document

EcuadorIndigenous and Afro-Ecuadorian Peoples Development Project

Date: December 8,1997 [ ] Draft [X1 FinalTask Manager: See taskteam in Annex 7 Country Director: Andr6s SolimanoProject ID: 40086 Sector: SocialLending Instrument: Specific Investment Loan PTI: [X] Yes [ J No

Project Financing Data [X] Loan [] Credit Other [Specify]

For Loans/Credits/Others:

Amount (US$): US$ 25.0 millionProposed Term: [] Multicurrency [X] Single currency

Grace period (years) 5 []Standard Variable []Fixed [X] LIBOR-basedYears to maturity: 17Commitment fee: 0.75%

Service charge: 0.0%

Financing plan (US$): US$ 50 millionSource Foreign QiAIW

Government 6.0 6.0International Fund for Agricultural Development (IFAD) 15.0 15.0IBRD 23.5 1.5: 25.0Beneficiary Communities 3.7 3.7Private Sector Institutions 0.3 0.3Total 48.5 1.5 50.0

Borrower: Republic of EcuadorGuarantor: N/AResponsible agency(ies): Planning Commission for Indigenous and Afro-Ecuadorian Affairs (Consejo de Planifcaci6n deDesarrollo Indigenay Negro; CONPLADE-IN)

Estimated disbursements (Bank FY/US$M): 1998 1999 2000 2001Annual 5.6 6.0 7.0 6.4

Cumulative 5.6 11.6 18.6 25.0Expected effectiveness date: April 1, 1998 Closing date: September 30, 2002

Project Appraisal Document Page 2Country: Ecuador Project ritle: Indigenous and Afro-Ecuadorian Peoples Development Projed

Block 1: Project Description

1. Project development objectives (see Annex I for key performance indicators):Improve the quality of life of poor rural indigenous and afro-ecuadorian communities by providing improved accessto land resources and financing for investment subprojects, which are planned and in most cases implemented bylocal membership organizations and communities in accordance with existing cultural values, vision of developmentand capacity for self-management.

2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):Component Category Cost % of

TotalInstitutional Strengthening of Local Membership Organizations and consulting US$8.1 17%Communities services, millionThis component would strengthen second and third tier indigenous and afro- goods,ecuadorian membership organizations in the following areas: (i) subproject equipment,participatory planning, preparation, implementation, and maintenance; (ii) financial incr.management and administration; (iii) cultural patrimony and (iv) human resources operatingdevelopment, including basic legal training. In addition, the component includes costs,specific activities focusing on seven small ethnic groups in danger of extinction. The trainingproject would finance: training of technical and administrative staff of localmembership organizations, technical assistance, goods and equipment for financialmanagement and administration, and incremental operating costs of professional staffon a declining scale. Implementation of this component would enable indigenous andafro-ecuadorian communities and their organizations to take the process ofdevelopment in their own hands in accordance with their cultural norms.Support to the Regularization of Land and Water Rights consulting US$5.5 11%This component would include: (i) titling and regularization of land tenure rights in services, millionselected productive, forestry and protected areas; (ii) land purchasel; (iii) diagnosis goods,and elaboration of an action plan for community-owned irrigation systems; and (iv) equipment,support to a program of selected legal reforms. In addition, participating public sector land,agencies like INDA and INEFAN would be strengthened in accordance with terms and trainingconditions of inter-institutional agreements between these organizations andCONPLADE-IN. The project would finance training, technical assistance, goods andequipment, and the purchase of land. Implementation of this component wouldcontribute to improved and better secured access of the target population to land andwater resources.Rural Investments works, US$26.7 53%This component would finance demand-driveni small-scale investments, or goods, millionsubprojects, including: (i) natural resources management; (ii) community-based equipment,economic infrastructure; (iii) social infrastructure; (iv) training; (v) technical consultingassistance, including pre-investment studies; (vi) economic projects and (vii) micro- servicesenterprises. Financing of subprojects (i)-(v) would be on a grant basis matched bycommunity labor and municipal funds. Financing of subprojects (vi)-(vii) would bethrough a saving and credit program (financed by IFAD). Implementation of thiscomponent would increase access of indigenous and afro-ecuadorian communities toservices and markets and would diversify and/or intensify rural production.

Financed by IFAD and GOE. IFAD would finance land purchases only as a means of mitigating potential conflicts thatmight arise among communities during land titling activities.

OSO PAD Form: May 1997

Project Appraisal Document Page 3Country: Ecuador Project Title: Indigenous and AfroEcuadorian Peopls Development Project

Institutional Strengthening of CONPLADE-IN consulting US$9.7' 19%This component would strengthen CONPLADE-IN in the following areas: (i) services, millionfinancial management and admi-nistration; (ii) assistance to elaborate a program of training,selected legal reforms, policies and a national plan for indigenous and afro-ecuadorian goods,development and (iii) establishment of a Project Implementation Unit and offices in up equipment,to seven subregions of the country. The project would finance technical assistance, incr.training of CONPLADE-IN staff, goods and equipment, and incremental operating operatingcosts on a declining scale. Implementation of this component would enable the GOE coststo better formulate and execute policies directed at the indigenous sector. _

Total US$50 100%T______million

3. Benefits and target population:

* The project will increase the income and quality of life of about 81 5,000 poor indigenous and afro-ecuadorianpeoples.

* The project will concentrate its activities in 288 parroquias out of a total of 966 parroquias. These 288 parroquiashave been identified as predominantly indigenous or afro-ecuadorian, based on an Indigenous Poverty Map preparedby the Secretaria Tecnica del Frente Social.

* Besides its focus on poverty alleviation, the project will generate economic benefits associated with theimplementation of subprojects and more secured access to land resources.

* The project will create institutional capacity in indigenous and afro-ecuadorian organizations to identify, prepare andimplement subprojects and services to their member communities, thereby reducing the need for direct interventionsby state entities.

* The project will help rescue and strengthen the cultural patrimony of indigenous and black peoples.* The project will be instrumental in maintaining peace and stability, thereby indirectly contributing to a favorable

environment for private sector investments in Ecuador.4. Institutional and implementation arrangements:

The project aims to build on existing institutional capacity in both the public and private sector for projectimplementation through specific inter-institutional cooperation agreements (convenios) and contracts. Specific projectactivities and procurement of works, goods, and services would be agreed upon in Annual Operating Plans by November15 each year.

Executing agencies:

a) Institutional Strengthening of Local Membership Organizations:

* CONPLADE-IN would employ consultants, NGOs, etc. which meet pre-determined eligibility criteria.

b) Support to the Regularization of Land Rights:

* CONPLADE-IN would enter into convenios with the Instituto Nacional de Desarrollo Agrario (INDA); and theInstituto Ecuatoriano Forestal de Areas Naturales y Vida Silvestre (INEFAN);

* INDA and INEFAN for lands in their respective jurisdictions will contract eligible contractors for specific tasks.* Indigenous and afro-ecuadorian organizations assist through legal assistants.

c) Rural Investments Subprojects:

* Subprojects to be financed on a matching grant basis would be included in Local Development Plans elaborated bysecond and third tier indigenous and afro-ecuadorian membership organizations following a participatory planning

2 Includes PPF refinancing in the amount of US$1.45 millionOSO PAD Form: May 1997

Project Appraisal Document Page 4Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Project

process.* Subproject proposals to be financed on a matching grant basis would be presented to CONPLADE-IN's regional

offices, which includes economic feasibility, social viability, and environmental mitigation criteria.* Subproject implementation would be through eligible sponsoring agencies, including indigenous and afro-ecuadorian

organizations and NGOs on the basis of a tri-partite contract: CONPLADEIN-Sponsoring Agency-BeneficiaryCommunity.

* CONPLADE-IN would enter into contracts with established financial intermediaries for the execution of subprojectsfinanced under the rural credit program.

Project coordination, project oversight (policy guidance, etc.), accounting, financial reporting and auditingarrangements:, monitoring and evaluation arrangements:

* The Project Management Unit (Unidad de Gesti6n del Proyecto) in CONPLADE-IN would be responsible forproject coordination and monitoring and evaluation arrangements.

* The Comite Consultivo Nacional of CONPLADE-IN, consisting of the Executive Secretary of CONPLADE-IN andrepresentatives of national indigenous and afro-ecuadorian organizations would be responsible for project oversight.

* The Direcci6n Administrativa of the Project would be responsible for accounting, and financial reporting.* The Contraleria and external auditors would be responsible for auditing arrangements.* External auditors would also conduct performance audits of subprojects.

Block 2: Project Rationale5. CAS objective(s) supported by the project:Document number and date of latest CAS discussion: R97-38; March 25,1997

The project is consistent with the Bank's Country Assistance Strategy (CAS): Progress Report for Ecuador, as discussedby the Board on March 25, 1997, which identifies poverty alleviation as a key objective of the Bank's assistance inEcuador. The CAS recommends an effort to strengthen the assets of the poor and support for a strong and stable demandfor labor. These recommendations are based on the 1995 Poverty Report which notes that sustained labor-intensivegrowth is the single most important condition for poverty reduction because it creates employment opportunities andhigher incomes for the poor while providing the public sector with much needed resources to support social programsand targeted interventions. The Poverty Report also indicates that poverty is higher in rural areas where two out of threepeople live and poverty among the indigenous and afro-ecuadorian peoples is much higher than the non-indigenouspopulation. By focusing on the rural indigenous and afro-ecuadorian population, the proposed project is expected tomake an important contribution to achieving the Bank's objective of poverty alleviation.

6. Main sector issues and Government strategy:

Thirty-five percent of Ecuador's population lives in poverty with another seventeen percent highly vulnerable to poverty.Overall, the relationship between poverty, household characteristics, and social indicators varies considerably across, andeven within, regions and areas. Whereas, urban poverty is associated with low educational achievement, informal sectoremployment, rented (not owned) housing, and low rates of women's participation in the labor force, rural poverty isassociated with lack of education, little access to land, a low degree of market integration, and lack of employment in thevibrant off-farm rural sector. However, in both rural and urban areas, poverty and ethnicity are closely related:households in which an indigenous language is spoken are more likely to be poor than are Spanish-speaking households;and strongly indigenous and afro-ecuadorian cantons are worse off with respect to a wide variety of social and servicevariables, such as education level, malnutrition rate, and water connections. In parroquias where indigenous and afro-ecuadorian peoples represent a majority of the population, the incidence of poverty is approximately 85% taking intoaccount the consumption based poverty line of US$12 per capita per fortnight, which is respectively 14 and 32percentage points above the rural and national average.


Project Appraisal Document Page SCountry: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Development ProjectThe diversity in the causes of poverty among the regions and sectors has led to a Goverment strategy relying upon amultitude of social programs to address poverty. These programs are usually overly centralized and, because of the lackof coordination, often duplicate rather than complement each other. The biggest poverty oriented program, providingsubsidies for electricity and cooking gas (LPG), account for about 2 percent of the GDP but reach less than a quarter ofthe poor. Government social sector expenditures, equivalent to 4.2 percent of GDP in 1990, are low by LAC standards.Scarcity of public funds to adequately finance the whole range of social programs has led to outlays on education, health,water and sanitation, and rural development that lag behind others in Latin America. Moreover, public programsgenerally have not significantly affected the overall welfare or opportunities of the indigenous and afro-ecuadorianpopulation. To address this a government Secretariat specifically dedicated to the needs of the indigenous was formed in1994 but it had a very modest program and virtually no impact. Recently, this Secretariat has been replaced by a Councilto pursue similar goals but with indigenous leadership at the helm.

State policy regarding indigenous peoples has not yet been clearly defined and has numerous ambiguities, but certaingeneral trends may be distinguished. First, since the creation of Ecuador in 1830 following its separation from GranColombia, attempts have been made to integrate indigenous peoples into the general society by promoting acculturation;but on various occasions types of social exclusion have been maintained, such as limitations on collective indigenousprivate property, the exercise of their right to citizenship (for example, by not allowing illiterate persons to vote or beelected) and of their rights to own land and maintain their own forms of government. Since the 1980s, there has been agradual change towards a gradual openness to the interests and demands of indigenous peoples. The NationalConstitution has accepted the fact that Ecuador is a pluri-cultural country, and much progress has been made inacknowledging indigenous rights to land, although agrarian legislation has many gaps. Bilingual education has beenlegitimized, with autonomous management by indigenous organizations. Opportunities have been created for the trainingand legal recognition of second- and third-tier organizations, from community associations to provincial federations andregional and national organizations. Moreover, processes have definitely begun that will allow the inclusion ofindigenous peoples in national society, within the context of cultural diversity.

7. Sector issues to be addressed by the project and strategic choices:

The proposed project targets ethnicity: a dimension of poverty that spans the whole country. It articulates a new vision,sometimes called ethno-development, which challenges the conventional approach to the misconceived Latin American"Indian problem". This vision builds on the positive qualities of indigenous cultures and societies, including a sense ofethriic identity, close attachments to ancestral land, and the capacity to mobilize labor, capital, and other resources topromote local employment and growth. The willingness of the Ecuadorian government and the society to follow thisvision offers an opportunity to address sectoral issues of overly centralized programs, lack of indigenous assets includinlgland, and lack of labor intensive growth among the poorest.

8. Project alternatives considered and reasons for rejection:

Support for an agricultural project covering indigenous communities is rejected because it would not develop theindigenous peoples' access to the vibrant off-farm rural sector nor fully utilize and develop the indigenous and afro-ecuadorian organizations. A full-fledged land project or a fiscal decentralization effort to address broad-based ruralgrowth is considered premature given the present institutional structure and government's inability to undertakesweeping changes.

The idea of a Technical Assistance project, consisting of supporting the elaboration of a selected program of legalreforms and institutional strengthening activities aimed at indigenous and afro-ecuadorian organizations, was considered.However, taking into account the poor performance record of TA projects in general and given the insistence of theindigenous and afro-ecuadorian organizations on self-management as a principal element of the notion of ethno-development, this idea was rejected. Consequently, the project has been designed as an investment operation withsubstantial institutional strengthening activities, allowing indigenous and afro-ecuadorian organizations to fullyparticipate in all stages of the sub-project cycle.


Project Appraisal Document Page 6Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development ProjectAt first, when the interest that th e project would awaken among indigenous and afro-ecuadorian peoples was stillunknown, the possibility of working only with several organizations was considered. However, it was always thoughtthat CONAIE's participation (the most powerful national indigenous organization), or at least its non-opposition, wasvital. Fortunately, all national indigenous organizations, grouped in the Comiti del Decenio, formally decided tocooperate with the project.

As an alternative to strengthening public institutions, consideration was given to the possibility of focusing solely on theissue of state policies dealing with indigenous peoples, through which existing policy trends would be studied in greaterdepth and recommendations would be made on the types of policies to be followed in the future. Nevertheless, thecreation of CONPLADE-IN, in response to demands by indigenous and afro-ecuadorian peoples, and assigning it theduties of state policy formulation, planning, coordination and execution of development activities, has allowed thecomponent to expand, including support to CONPLADE-IN. Moreover, the alternative of not supporting other stateagencies is not a viable one because their collaboration is needed for the execution of other project components. In anycase, strengthening is carried out only for specific issues and insofar as these institutions support the achievement ofproject goals and objectives.

9. Major related projects financed by the Bank and/or other development agencies (completed, ongoing andplanned).

Early Bank-financed interventions to tackle poverty were agriculture related, for example, in livestock development,fisheries, seeds improvement, agricultural credit, and irrigation. In the 1980s, area-based integrated rural developmentprojects (with land titling and economic infrastructure components) were added to the portfolio of interventions. Theongoing Rural Development Project (Loan 3390-EC) is a project of this type with some coverage of indigenouscommunities. IDB's projects continue to address agricultural sectoral issues particularly in irrigation management. Inland management, USAID had financed a small land cadastre pilot which has not been followed up due to high costs perhectare. To meet the social infrastructure needs of the poor, the Bank with IDB assisted with financing and technic.alassistance in the creation of FISE, a social fund which has been replenished with IDB and CAF funds recently. Inaddition, Bank-financed ongoing projects, First Social Development Project and FASBASE, addresses basic educationincluding bilingual education (in the urban areas), and basic health services to the poor. IDB also has an ongoing basiceducation project (in the rural areas), PROMECEB. IFAD strategy in Ecuador addresses rural poverty by directlytargeting the economic situation specific to each social stratum of rural poor. Early IFAD projects in Ecuador identified threeprogramme areas of intervention according to the different assets and income sources of the rural famnilies: (i) fannactivities for households with sufficient land; (ii) non-farm income generating activities for households with insufficient landbased on rural linkages; and (iii) land reform and titling.

This strategy has been implemented in the two IFAD projects funded so far: (i) Upper Basin of the Caniar River RuralDevelopment Project; and (ii) the Saraguro-Yacuambi Rural Development Project. These projects have had in commonthe active participation of stakeholders in the design and implementation of the project; the provision of rural financialservices; the promotion and consolidation of peasant organizations to ensure the efficient provision of social andproduction support services, and the provision of innovative technological packages in order to promote and raise theproductive development of rural holdings while maintaining local cultural traditions.

10. Lessons learned and reflected in the project design:

Policy Framework. Experience in Ecuador and elsewhere indicates that rural development projects have greateropportunities for success when they incorporate components addressing the need to improve the policy environment, tostrengthen social organizations and to improve their access to assets and services. Policies regarding indigenous peo)lesrights are to be encouraged because traditionally in Latin America there have been legal and institutional barriers forindigenous and afro-ecuadorian peoples.

Institutional Strengthening. Building social capital is a basic condition of socioeconomic development in general. Theadoption of change requires education and training as well as mechanisms for mass diffusion, and the participation of


Project Appralsal Document Page 7Country: Ecuador Project Ttle: Indigenous and Afro-Ecuadorian Peoples Development Projectsocial organizations is essential for the spread of innovations. Although indigenous peoples in Ecuador have achieved arelatively high degree of organization, their technical capacity needs to be developed, particularly their ability to design,implement and evaluate community development projects. Strengthening of public organizations will be restricted tothree key institutions, i.e. CONPLADE-IN, INDA, and INEFAN consisting of technical assistance and training, supportfor the maintenance of data bases and some equipment. Because increased bureaucracy is resisted not only by the Bankbut by indigenous and afro-ecuadorian organizations as well, the increase in staff in public institutions would be minimal.

Support to Land and Water Regularization. Land and water rights are an immensely political matter. When a programinvolves some redistribution of rights, political opposition is likely to be intense unless compensation to thoserelinquishing those rights is considerable. The complexity of the land titling process has often been underestimated.Efforts in this field require considerable resources to institutional development so there are sufficient technical andhuman capacities available for efficient project implementation.

Rural Investments. Besides an adequate policy framework and a good base of social capital, poor people need to haveaccess to the factors of production, including the physical means (land and water) as well as financial and technicalresources. Therefore, the project includes a component of rural investments oriented primarily to improve small farmerand artisans production, processing and marketing. Investments with a predominantly public goods character would befinanced through matching grants, while investments with a predominantly private goods character would be financedthrough credit, thereby enabling the project to respond to a wide range of demands.

Matching Grants, Bank's regional experience in demand-driven investments stresses the following lessons. First,encouraging the active involvement of community groups, subprojects are much more likely to meet the community'sneeds than if they were chosen to reflect the priorities of a government agency. Second, once the communities developeda sense of ownership of a subproject, they are more willing and interested in sharing its costs and ensuring itsmaintenance. Third, once a community is given responsibility for implementing a subproject that it helped to choose andprepare, it has a great interest in ensuring that the private contractor executing the project does it wvell and honestly.Demand-driven subprojects could have potentially conflicting objectives. These are: (i) poverty targeting versuseconomic imperatives; (ii) demand-driven subprojects versus feasibility and sustainability; and (iii) efficiency andaccountability versus poverty targeting. The project design and corresponding Operating Manual reflect these lessons inthe following manner: (i) subprojects would be identified through a participatory planning process conducted at the locallevel, based on the methodology developed during the pilot project phase; (ii) indigenous and afro-ecuadorianorganizations as well as officials of CONPLADE-IN would be trained in relevant subject matter, incltudinig proctiieimentand have to meet minimum institutional eligibility criteria; (iii) subprojects have to comply with minimum economliceligibility criteria, while financial ceilings per family, ha or any other relevant unit should avoid the financing ofoverdimensioned subprojects; (iv) a widely disseminated publicity campaign should ensure transparency and properknowledge of the program's objectives and rules of the game by all stakeholders; and (v) technical assistance would beavailable to accompany implementation of subprojects.

Savings and Credit. This subcomponent will be entirely financed and supervised by IFAD; its performance will not beincluded in the Bank's rating system for loan supervision. The proposed project is consistent with IFAD rural povertyalleviation strategy and micro-finance Plan of Action which states that "under a variety of conditions, the poor are indeed'bankable,' even in the face of great adversity." Credit and deposit services properly managed to protect participants cancontribute to their economic and social advancement. Building on IFAD best practice on rural financial services, theproposed project would attempt to effectively and efficiently: (i) assess costs and risks; (ii) emphasize responsive servicestructures by placing a strong emphasis on client demand and beneficiary participation during project planning andimplementation; (iii) protect client's interests; (iv) improve borrower screening and loan appraisal; and (v) build onexisting institutional potential. The credit component is used as a mechanism to develop human and social capital bvcreating awareness among the target population about the benefits of using credit, obtained under market conditions, as atool for community development. The proposed project recognizes that lack of access to credit and savings services isonly one of the multi handicaps suffered by small and poor producers, and financial services in isolation are not enoughin themselves to advance the development of the rural poor who have a wide range of other needs that arecomplementary. Therefore, the project would provide links to wholesale financial services, improve the competitive


Project Appraisal Document Page 8Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Developmnent Projectedge of their production systems through access to technical assistance (improved technologies and better use ofresources), technical training, transportation networks and raw materials, as well as an enabling regulatory environment.Objectives, procedures and eligibility criteria of the credit subcomponent will be reflected in a separate OperationalManual.11. Indications of borrower commitment and ownership:

In response to fruitful dialogues with indigenous leaders, the Government through Presidential Decree created aMinisterial-level council (CONPLADE-IN) to oversee indigenous and afro-ecuadorian development whose leadershipwould come from the indigenous and afro-ecuadorian communities. In the Ecuadorian society, in general, the need fortargeted efforts to address indigenous and afro-ecuadorian development has been acknowledged. The commitment of thecurrent Government is demonstrated, among other, by its willingness to borrow resources (PPF) to finance projectpreparation. Besides commitment from the borrower, it is also important to note that the participatory preparationprocess has created a great sense of ownership among the indigenous and afro-ecuadorian organizations. They considerthe project as theirs rather than a government project for indigenous and afro-ecuadorian peoples.

12. Value added of Bank support:

As the principal institution engaged in a sustained, long-term partnership with the Ecuadorian Government to addresspoverty issues, the Bank is particularly well placed to support this innovative approach of tackling poverty through theethnicity dimension. The Bank has been able to establish trust with both the Government and the indigenouscommunities and their organizations. Subsequently, by bringing in its international experience of land issues, funds foreconomic activities, and institutional development, the Bank would ensure the highest quality of project implementation,and impact on poverty reduction.

Block 3: Summary Project Assessments13. Economic Assessment (see [ Cost-Benefit Analysis: [X] Cost [ OtherAnnex 4): NPV=US$ 47.5 million; Effectiveness [Specify]

ERR=38.5% for subprojects Analysis

Financial and Economic analyses have been finalized for the Rural Investments component (53 percent of project costs).Essentially the soundness of the overall analysis is based on the principle of community demand determining priorities:the beneficiaries know best how to use scarce resources to satisfy their needs. To elicit community demand properlywhich will limit narrow and vested self-interests, a participatory planning exercise will be used (a complete description ofthe participatory planning exercise is available in the annex on the Rural Investments component). Given the importanceof this participatory planning exercise, a pilot was carried out in seven provinces, involving 22 OSGs, and the resultswere used to prepare a detailed financial and economic analyses of selected subprojects. The analyses, conducted by theFood and Agriculture Organization-Cooperative Program (FAO-CP)3 , evaluated models of 28 subprojects which thecommunities had chosen during the pilot participatory planning exercise. The models, which are differentiated byecological region, have helped to define investment parameters of sound subprojects. The results of the analyses show awide range of economic and financial rates of return, ranging from 13 to 152 percent. It appears that the beneficiaries donot prioritize by rate of return alone, but take also other factors, such as equity and institutional sustainability, intoconsideration. The analyses of the 28 models were combined resulting in the following weighted averages: EconomicRate of Return (ERR): 38.5 percent; Financial Rate of Return: 34.8 percent.

Fiscal impact (for all projects):

* There is no private sector alternative to public provision of the proposed community sub-projects or the institutional

3 lThe FAO study is available in Project FilesOSO PAD Form: May 1997


development program to help the indigenous and afro-ecuadorian poor even after any conceivable regulatory orpricing policy changes. Moreover, because of the poverty focus, public provision of the project would actuallyimprove the overall quality of the public investment program. Furthermnore, assuming the distortionary cost fromtaxation to be in the twenty to thirty percent range, we estimate the project to have a positive net present value mainlybecause so little has been invested in these communities and because the beneficiaries are identifying theopportunities themselves.

During implementation GOE would contribute US$6.0 million of which US$1.9 million would be covered throughrecuperation of income and sales taxes. At completion, the project is expected to generate annual incrementalrecurrent costs, totaling approximately US$500,000 per year.

14. Financial Assessment (see Annex 5)* Advances of the loan funds will be deposited in a special account at the Central Bank of Ecuador or a commercial

bank4. Upon approval by the Project Management Unit, disbursements are made to public agencies for goods,services and works as specified in the corresponding cooperation agreements and to consultants, contractors, NGOs,and second and third tier indigenous and afro-ecuadorian organizations for purposes specified in managementservices contracts within the overall context of the Annual Operating Plan. Disbursements for communitysubprojects financed though matching grants and costing less than US$25,000 would be approved by CONPLADE-IN's Regional Offices.

* The disbursement mechanism for the credit component (financed by IFAD) will be as follows: advances of the loanfunds will be deposited by the financiers of the project in the Central Bank of Ecuador. GOE will transfer these fundsto second-tier or wholesale, private sector financial intermediary institutions. These institutions will on-lend to first-tier institutions, and through the first-tier institutions, credit will be granted to the project's target population. Thesecond-tier institutions will be responsible for: administering the funds; qualifying and categorizing the first-tier,retail financial intermediaries; analyzing the level of institutional development and preparedness of the first-tierinstitutions in order to establish appropriate lines of credit; providing institutional strengthening and training to thefirst-tier institutions where necessary; coordinating the periodic evaluations, including annual external audits, of tleoperations and financial status of these retail institutions.

15. Technical Assessment:* A detailed indigenous poverty map, elaborated by the Technical Secretariat of the Frente Social forms the basis of

the project's beneficiary targeting mechanism.* The methodology of the participatory planning process to identify and prioritize subprojects reflecting the needs of

indigenous and afro-ecuadorian communities was developed and verified in a pilot project which was implementedduring the project preparation process.

* Detailed farm models confirm the feasibility of typical subprojects to be financed under the project.* Standardization of subproject documents, technical designs and the use of unit costs simplifies subproject preparation

and evaluation, and facilitates the procurement of goods and works.* Training activities aimed at institutional strengthening of indigenous and afro-ecuadorian organizations were

identified, developed, and identified in a pilot project.* The methodology for land regularization activities to be financed under the project builds on innovative and proven

approaches developed by several NGOs in the recent past.

16. Institutional Assessment:

a. Executing agencies: CONPLADE-IN is a ministerial level public institution, ascribed to the Presidency of theRepublic. It is ruled by a Council headed by the Secretario General de la Administraci6n, where indigenous and afro-ecuadorian representatives are the majority. Its functions are to formulate policies, plan, coordinate and implement thedevelopment of indigenous and afro-ecuadorian peoples. Although CONPLADE-IN was created by Presidential Decreeon March 13, 1997, replacing two former competing entities ofthe government, its perfornance to date is positive as

4 Issue being discussed with the Government of Ecuador at the program levelOSO PAD Forrn: May 1997

Project Appraisal Document Page 10Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Projecidemonstrated by the agility with which it has processed existing project preparation funds and implemented the IDFcapacity building program. The project will mostly be executed by CONPLADE-IN, which will enter into cooperationagreements with other governmental and nongovermental organizations whenever necessary as mentioned in paragraph 4.

b. Project management: Under agreement with the main indigenous and afro-ecuadorian organizations of the country,CONPLADE-IN has formed a Management Committee (Conitg de Gesti6n) and a Technical Unit, which are expected tomerge into a Project Management Unit (PMU). The PMU will be in charge of day to day project operations, includingfinances, contracting, procurement, field monitoring and supervision. The project implementation arrangements at thesubregional level contemplate the creation of subregional offices of CONPLADE-IN, which, with representatives ofsecond-tier indigenous and afro-ecuadorian organizations, will set priorities and prepare annual operating plans and toapprove subprojects for community investments to be carried out.

c. Indigenous and afro-ecuadorian organizations: The indigenous population of Ecuador is highly organized. Atcommunity level, 2,325 grassroots organizations have been formed (communes, centers and cooperatives). These in turnhave formed 160 second-tier organizations (OSGs) that have various names (association, union, federation) and arefrequently affiliated with provincial, regional and national organizations, culminating in a coordinating organizationssuch as the Comite del Decenio and Consejo de Nacionalidades Indigenas. The communities are formally recognizedunder the Ley de Organizaci6n y Regimen Comunal, and entered in a Register managed by the Ministry of Agriculture.Alternatively, organizations can obtain juridical status by registering themselves in the Direcci6n de Asesoria Juridica ofthe Ministry of Social Welfare. With organization has come a great ability for social mobilization. As a result,indigenous - and to a lesser extent afro-ecuadorian - peoples can no longer be relegated as they once were and are beingtaken into consideration in matters of public decision-making. Moreover, their participation in politics has allowed themto achieve positions of representation in several local and regional governments, in the National Congress and in severalExecutive-branch agencies, as in the case of CONPLADE-IN.

d. NGOs: The term NGO is most commonly used to refer to developmental intermediary organizations that worlk withand channel resources to the poor, but do not represent them. They include voluntary organizations with a charitablefocus as well as research and advocacy organizations. Various sources estimate their number between 500 and 600,although no complete lists of surveys of intermediary NGOs in Ecuador exist. They have become increasingly importantactors in basic service provision and poverty alleviation in Ecuador. Where indigenous and afro-ecuadorian membershiporganizations lack institutional capacity, NGOs could act as sponsoring agencies for the identification, preparation, andimplementation of rural community investments. In order to ensure learning-by doing the project would stimulate theformation of partnerships between NGOs and indigenous and afro-ecuadorian membership organizations in such cases.Under the project, NGOs might also play an important role in the implementation of land regularization activities.Furthermore, CONPLADE-IN would contract eligible NGOs to carry out institutional strengthening activities ofindigenous and afro-ecuadorian membership organizations.17. Social Assessment:

Social assessment has consisted in the identification of stakeholders both at the institutional level (governmental andnongovernmental organizations) and at the level of social organizations (indians, afro-ecuadorians and other rural socialactors). During the design process, it has promoted stakeholder participation at all levels, especially of the beneficiaries.Thus, it has held innumerable consultation meetings with indigenous and afro-ecuadorian peoples organizations,including field visits, and three national level workshops with the participation of representatives of beneficiaryorganizations as well as of governmental and non-governmental organizations. In addition, it has carried out two keypilot activities: (i) a participatory planning program, with 22 OSGs and 7 NGOs, by which beneficiary demands havebeen gathered in 141 project profiles and 51 full proposals, and (ii) a participatory training program, with 70 OSGs, and 3NGOs, which have trained 80 representatives of beneficiary organizations in 12 teaching modules. Based on studiescarried out by consultants and workshops to disseminate and validate findings, it has made a detailed assessment of thebeneficiary or target population, which is estimated to be 815,000 people in areas where indigenous and afro-ecuadorianpeople predominate. Possible social impacts have also been analyzed and special efforts made to reduce adverse ones(for instance paternalistic tendencies and excessive centralization) and to enhance positive ones (for instance, communityself reliance and solidarity). The design of the project ensures that subproject implementation and the implementation of


Project Appraisal Document Page 11Country: Ecuador Project Title: Indigenous and Afro-Ecuadorlan Peoples Oevelopment Projectland regularization activities does not involve involuntary resettlement.

18. Environmental Assessment: Environmental 1 A [XI B [H CCategory

* 'Community-based investments to be financed under this operation, such as rural infrastructure, improvement of roadsand construction of small scale irrigation works, might result in environmental impacts requiring mitigatorymeasures.

* Community-based investments would be relatively small. The project would not finance investments related toopening or improvement of roads in sensitive forest areas, nor sub-projects involving resettlement.

* Procedures for preparation and evaluation of community-based projects would include an environmental screeningmechanism to minimize and adverse impacts from small-scale projects, following guidelines used by existinginvestmnents funds and/or national legislation, acceptable to the Bank Under the project, no community-basedinvestments of category A (strong environmental impact requiring full environmental assessment) would be carriedout.

* The Operational Manual would specify key environmental criteria and screening and enforcement procedures to befollowed and would be in line with the Environmental Guidelines for Social Funds in LAC.

* Land regularization activities will be subject to the elaboration of management plans as required by the AD Law.19. Participatory Approach: Identificationl Implmentaion pration

Preparation

Beneficiaries/community groups COL COL COLIntermediary NGOs COL COL COL

Academic institutions CON CON CONLocal govemment CON CON CON

Other donors COL COL COL20. Sustainability:

* The sustainability of this project is assured, first, by the fact that it responds to issues that have been for a long time apriority on the agenda of development of indigenous and afro-ecuadorian peoples of Ecuador. Project design reflectstheir demands. Second, as a consequence of the previous point, the project has been largely appropriated by theindigenous and afro-ecuadorian beneficiaries and by the government, since the former are highly represented in thelatter. Finally, its long term duration is covered by the focus on an enabling policy environment and building localpeoples capacity for development based on their own perspectives and relying on their own resources.

* Factors favoringthie sustainability of subprojects financed under the project include: (i) high degree of participationby communities in identification, preparation, contracting, and implementation; and (ii) required counterpartcontribution by beneficiaries.

21. Critical Risks (see fourth column of Annex 1):

Project outputs to developmentobjectives

Risk Risk Risk Minimization MeasureRating

* Ineffective targeting mechanism low * Establishment of transparent targeting mechanismwould prevent project from reaching * Publication of beneficiary eligibility criteriaindigenous and afro-ecuadorian * Implementation of participatory planning process atcommunities which are not well parroquia levelorganized, thereby failing to achievethe desired poverty impact

* Lack of institutional capacity in high * Institutional strengthening efforts financed under theprojectCONPLADE-IN, and INDA hamper * Contracting of executing agencies (NGOs etc.) for projectproject implementation implementation


Project Appraisal Document Page 12Country: Ecuador Project Tie: Indigenous and Afro-Ecuadorian Peoples Development Project

* Lack of institutional capacity in local high * Implementation of a training program focusing on financialmembership organizations to manage management and administrationresources would prevent project from * Local membership organizations which do not meetachieving the desired local self- institutional eligibility criteria should form partnerships withmanagement objective experienced NGOs

* Failure of financial success and social medium * Availability of technical assistance for pre-investments andviability of subprojects would prevent support to sub-project implementationthe project achieving its economic * Incorporation of subprojects in participatory Localbenefits Development Plans

* Demand-driven mechanisms and consequent beneficiaries'ownership

Project components to outputsRisk BiAk Risk Minimization Measure

Rating* Fragile coalition of GOE and medium * Project implementation through existing institutional

indigenous organizations could easily capacity in the public and private sector; core function ofbreak-down if next GOE is not CONPLADE-IN would be project coordinationcommitted. * Relatively low use of counterpart financing should lower the

impact of a less cooperative government on projectimplementation

* Institutional strengthening of local medium * Emphasis on distance-learning, thereby keepingmembership organizations will fail if professionals in their own working environmentprofessionals leave their organizationsafter completing training

* Resolution of land conflicts will fail if medium * Beneficiary population and their organizations should bethere are insufficient counterpart informed that financing of this activity depends heavily onfunds to finance the purchase of lands GOE cooperation

* Lack of clear policy and legal medium * Administrative procedures would be put in place to clarifyframework for land component, "unclear" framework and law is to be submitted to Congressespecially in forested areas for those lands not to be disposed of by the State (protected

areas)* Low beneficiaries ownership of medium * Transparent, predetermined set of rules, defined in broadly

subprojects because of paternalistic, disseminated Operating Manualsclientelistic, and political influence

Overall project risk ratingRU~~~~~Rs

Rating* Failure to achieve project objectives medium- see above for specific risks

high22. Possible Controversial Aspects:

* The project targeting mechanism, with its focus on indigenous and afro-ecuadorian peoples, might create somecontroversies with other groups which are excluded. However, by concentrating project activities in parroquiaswhich are predominantly indigenous or afro-ecuadorian and by executing project activities through local membershiporganizations, the potential impact of these controversies is likely to be minimal.

* The joint decision making participatory model of the project would not necessarily be acceptable to the nextGovernment, which will be elected in 1998. The potential impact of reversing the approach could be significant asindigenous and afro-ecuadorian organizations would not easily accept changes as the model is the outcome of a longnegotiation process.


Project Appraisal Document Page 13Country: Ecuador Project Trie: Indigenous and Afro-Ecuadorian Peoples Development ProjedBlock 4: Main Loan Conditions23. Effectiveness Conditions

* Approval of the operational manual of the project, which would include: (i) procurement procedures and biddingdocuments; (ii) sample letters for invitation, procedures for evaluation and sample contracts for consulting services;(iii) standard terms of reference for consultants; (iv) a procurement plan; (v) eligibility criteria for executing agencies;(vi) co-financing matrix; (vii) environmental checklist; (viii) draft agreements with communities; (ix) monitoringindicators; (x) terms of reference for auditors; and (xi) plan of accounts;

* Approval of the Annual Operating Plan for calendar year 1998 by the Bank.

24. Other [classify according to convenant types used in the Legal Agreements database.]

* Draft Annual Operating Plans and budgets would be made available to the Bank for review and approval byNovember 15 of each year; the Bank would receive a copy of the final plan and budget as soon as they are approved;

* A project information and monitoring system, with reports and format agreed to the Bank, would be maintainedthroughout the project period. The Bank would receive monthly information on disbursements of project funds, andmid-year reports on subproject activities and performance of project investments on January 31 and July 31 of eachyear;

* (i) The Special Account and the project accounts would be established, maintained, and audited annually inaccordance with appropriate auditing principles and by independent auditors acceptable to the Bank; (ii) with respectto withdrawals on the basis of SOEs, that such audits would contain a separate opinion as to whether the SOEs,together with the procedures involved in their preparation, support the related withdrawals; and (iii) certified copies ofaudited accounts and of the auditor's report would be submitted to the Bank within four months of the close of eachproject fiscal year.

* Monitoring and Implementation of the Project will be in accordance with Indicators acceptable to the Bank.

Disbursement Conditions

* Demarcation and Titling Activities of Productive Lands: signing of an Implementation Agreement betweenCONPLADE-IN and INDA and adoption of procedures for land demarcation and titling activities of lands underINDA's jurisdiction in ancestral possession by indigenous peoples.

e Demarcation and Titling Activities of Forest Lands: signing of an Implementation Agreement between CONIPLADE-IN and INEFAN, adoption of procedures for land demarcation and titling activities in forest areas and clarification ofinterinstitutional arrangements for land titling in forested areas through revision of Resolution 001 by INDA andINEFAN.

* Demarcation and Titling Activities of Protected Areas: signing of an Implementation Agreement betweenCONPLADE-IN and INEFAN, the Borrower's legislative framework authorizes the titling or recognition of usufructrights, as the case may be, of land in ancestral possession of indigenous and afro-ecuadorian peoples which is locatedin protected areas and adoption of procedures for land demarcation and titling activities in protected areas byINEFAN.

* Rural Investments: no disbursements for subprojects that IFAD finances under the Rural Investments Component5

Agreements reached during Negotiations

* CONPLADE-IN would use Bank standard bidding documents for LIB procurement and standard bidding documentsacceptable to the Bank for National Competitive Bidding;

* The annual implementation plan would be furnished to the IBRD not later than November 15 of each year duringProject implementation, but the presentation of a first year Implementation Plan would be made prior to the

Adoption of the final Operational Manual (credit by-laws) for private/individual investment will be a conditionfor disbursement of IFAD loan, as well as the signature of a subsidiary Loan Agreement between CONPLADE-IN and atleast one intermediary financial institution (IFI) selected as a second-tier credit institution to IFAD's satisfaction.


Project Appraisal Document Page 14Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Pmject

effectiveness of the Loan. Semestral monitoring reports would be furnished to the IBRD not later than January 31 andJuly 31 of each year during Project implementation, commencing July 31, 1998. Semestral monitoring reports wouldbe reviewed with the Bank by February 15 and August 15 each year, commencing August 15, 1998. In the review totake place by August 15, 2000, the management capacity of CONPLADE-IN and Indigenous and Afro-EcuadorianOrganizations in the implementation of the Project would be assessed.

* Following the Operational Manual, the Comite Consultivo Nacional of CONPLADE-IN, consisting of the ExecutiveSecretary of CONPLADE-IN and representatives of national indigenous and afro-ecuadorian organizations, wouldapprove Annual Implementation Plans.

* CONPLADE-IN before January 1, 1998, would contract an accounting firm or consultant to review and recommenddesign changes of the processes and system of management of funds using a decentralized structure which is able tomonitor project progress and disbursements following agreed project components, expenditure categories, sources offinancing and any other requirements following national standards. Once the Project would be effective,CONPLADE-IN would contract an independent private auditor under a multi-year contract acceptable to the Bank,which would assist the institution in further bringing the systems and processes in line with the required Bankstandards and subsequently perform the external audit under terms of reference agreed with the Bank.

Special Event of Default

* IFAD co-financing loan agreement for the project not effective by 10/30/99.

Block 5: Compliance with Bank Policies[X] This project complies with all applicable Bank policies.

Martien V ieuwkoop ano, LCC4C, EcuadorTask Manager Country Unit Director


Project Appraisal Document Page 15Country: Ecuador Project Title: Indigenous and Afo-ecuadorlan Peoples Development Project

Annex 1

ECUADOR: INDIGENOUS AND AFRO-ECUADORIAN PEOPLES DEVELOPMENTPROJECT

Project Design Summary

Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions andRisks

CAS Objective (CAS Objective to BankMission)

Poverty Reduction through * reduce percentage of target * indigenous poverty map of * macro-economic andStrengthening the Delivery of population below poverty Secretaria Tecnica Frente sector policies are notBasic Public Services line by 2 points per year Social biased against the poor

* reduce NBI deficit oftarget population by 5points

Project Development (Development Objectives toObjectives CAS Objective)

To improve the quality of life * consensus on * laws and regulations * political consensus aboutof poor indigenous and afro- constitutional reformns; and formulated the importance andecuadorian communities by new laws concerning: * agricultural census necessity of specificproviding improved access to decentralization and * participatory impact policies and programsland resources and funds for participation; evaluations focusing on the indigenousinvestment subprojects, which * cultural and * annual reports local and afro-ecuadorianare planned and implemented socioeconomic benefits membership organizations populationby local membership associated with the * audit reportsorganizations and communities implementation ofin accordance with existing subprojects and culturalcultural values, vision of heritage programdevelopment and capacity for * concept of ancestralself-management. possession has been

translated in concreteprocedures which allowfor active participation

* 110 local membership org.have increased access toresources

* 90% of participating localmembership organizationshave unqualified auditoropinion

* 75% of subprojectsachieve expected ERR

* at least 90% of subprojectsutilized after one year

* at least 90% of expectedcounterpart contributionsactually made available bycommunities and their

I organizations .

Project Appraisal Document Page 16Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Developmwen Project

Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions andRisks

Project Outputs (Outputs to DevelopmentObjectives)

1. Increased capacity of local * 90 "licenciados" trained * project monitoring reports * effective targeting ofmembership organizations to * 240 "bachilleres" trained * INDA files project beneficiariesprovide services to its * 178 local development * INEFAN files * sufficient institutionalmembers, both in the plans elaborated * CONPLADE-IN files capacity in participatingsocioeconomic and cultural * 40 cultural events public sector agencies toareas, and participate in the organized ensure effective projectformulation of state policies * 158 organizations implementationconcerning the indigenous and equipped * sufficient institutionalafro-ecuadorian population * 160,000 ha titled capacity in local

* 160 legal assistants trained membership organizations2. Improved and more secured * 40 management plans to manage resourcesaccess of the project target elaborated with INEFAN * financial success andpopulation to land resources * 240 titles adjudicated social viability of

* diagnosis and action plan subprojects3. Improved access to concerning water rightsservices, markets, and more completeddiversified and/or intensified * 800 subprojectsproduction systems through the implemented in 48implementation of subprojects cantones

* 150 community bank and4. Increased institutional 150 "cajas solidarias"capacity in the GOE to support arrangements informulate and execute policies placeand programs directed to the * CONPLADE-IN's strategyindigenous and afro- for indigenous and afro-ecuadorian population ecuadorian development

included in NationalSocial Plan

* 5 laws/policies formulated ..


Project Appraisal Document Page 17Country: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Development Project

Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions. _____________________________ Supervision and Risks

Project Components (Components tooutputs)

1. Institutional strengthening of localmembership organizations* distance learning second-level

education program * delivery of inputs and services * progress reports* semi-formal training program as specified in contracts with executing agencies * trained persons stay* training of legal assistants executing agencies * project monitoring with their* strengthening of second third * goods: US$925,000 reports organizations

level membership organizations * nonreimb. funds:US$1,900,000 * sufficient* special program for ethnic groups * consulting services: counterpart funds to

in danger of extinction US$1,500,00 finance purchase of* cultural patrimony program * training: US$3,100,000 land

* funds of cultural patrimony * involvement ofactivities: US$665,000 community in land

regularization2. Regularization of land and water activities is trulyrights accepted* land titling program * inter-institutional working * project regional* support to land conflict resolution groups formed to study legal offices fully* diagnosis of community-based reforms operational

irrigation systems * delivery of inputs and services * institutional* support to a program of selected as specified in convenio continuity of

legal reforms related to land/water CONPLADE-IN and CONPLADE-IN isINDA/INEFAN assured

* land: US$2,000,000 a continuity of fragile* consulting services: coalition between

US$3,200,000 indigenous* goods: US$ 265,000 organizations and* training: US$45,000 GOE is assured

3. Preparation and implementation ofrural investments subprojects* training and technical assistance * 800 subprojects approved

in subproject identification, * reimbursable funds: US$preparation, and implementation 5,000,000

* pre-investments * non-reimb. funds: US$* matching grants for community 17,000,000

subprojects * training: US$2,400,000* credit for productive projects * consulting services: US$

(private goods) 2,000,000* goods: US$560,000

4. Institutional strengthening ofCONPLADE-IN* elaboration of a National * plan approved by Directorio

Development Plan for indigenous Nacional CONPLADE-INand afro-Ecuadorian population * goods: US$590,000and other selected reforms * works: US$100,000

* implementation of administration, * consulting services:control and accounting system US$5,100,000

* establishment of a project * training: US$425,000implementing unit and up to 7subregional offices


Project Appraisal Document Page l8Country: Ecuador Project ritle: Indigenous and Afro-Ecuadorian Peoples Develbpment Proet

Annex 2


Detailed Project Description

Project Component I - Strengthening of Indigenous and Afro-ecuadorian Peoples OrganizationsUS$8.1 million (total cost of component)

1. Indigenous and Afro-ecuadorian Peoples

Target population

The project is focused on approximately 815,000 persons of indigenous and afio-ecuadorian originsettled in rural areas of Ecuador. The definition of the termn "indigenous" is based upon self-identification, aperson's membership in a specific community or grassroots level organizations acknowledged as indigenous, andhis acceptance as such by members of that sociocultural unit. The definition of the term "afro-ecuadorian" isbased upon self-identification and a person's membership in a community acknowledged as afro-ecuadorian.

The indigenous and afro-ecuadorian population of Ecuador is concentrated in 48 cantons, which in turncontain 288 rural parroquias (226 indigenous and 58 afro-ecuadorian), representing 29 percent of the counltry'stotal rural parroquias. However, in nearly all cases, indigenous and afro-ecuadorian people live in areas wherethere is also a mestizo and white population; therefore, the percentages of the indigenous and afro-ecuadorianpopulation in these parroquias vary. The population of these groups is greater than 50 percent in 150 parroquias(of which 11 are indigenous and 39 are afro-ecuadorian).

The target population exhibits great cultural diversity, especially among indigenous peoples. Tlue ieosinumerous people are the Runa, Quichua speakers, in the Sierra which may be subdivided by areas of ethnicpredominance, thus including in the north the Otavalo, Carangui, Cayambi and Quito; and in the central-southregion the Panzaleo, Puruha, Caflari, Salasaca and Saraguro. Next in numbers of population are the peoples ofthe Amazon region, which includes the Shuar, Achuar, Runa, Quichua speakers of the lowlands, Huaorani, Cofinand Siona-Secoya. Finally, in the Costa are found the Awa, Embera, Tsachila, Chachi and peoples who have losttheir language but retain strong indigenous cultural features such as the Huancavilca, Manteffo and Puna.

Distinctive features of indigenous peoples, besides language, include solidarity and social unity, whichare evidenced in strong forms of social organization, a relatively defined geographical concentration, as well as arich cultural patrimony and the practice of uses and customs that distinguish them from a national society whosecultural patterns bear a strong western influence.



Target Population according to Ethnicity

Region Ethnicity/Location Population

1. Costa-Sierra/Afro- Eloy Alfaro 23,256ecuadorian Region

San Lorenzo 9,067Esmeraldas 86,653Chota-Mira 22,793

2. Amazonia Runa, Sucumbios 8,463Runa, Napo 25,470Runa, Pastaza 15,866Shuar, Upano 19,412Shuar, Transcutucu 11,011Shuar, Zamora 3,740Others (Huao, Siona, Secoya, Cofan) 3,221

3. Sierra North Runa, Otavalo-Carangue 63,726Runa, Cayambe-Quito 51,289

4. Sierra Center-South Runa, Cotopaxi 72,476Runa, Tungurahua 62,984Runa, Chimborazo 148,715Runa, Bolivar 35,086Runa, Cafnar-Azuay 62,447Runa, Saraguro 11,936

5. Costa Costa Seca (Huancavilcas, Manteflos, Punaes) 65,997Others (Chachi, Epera, Tsachilas, Awa) 9,892

TOTAL 813,500

Social Organization

The indigenous population of Ecuador is highly organized. Organizations formed along ethnic lines lhavetheir origins in the original peoples who inhabited this territory even before it was incorporated into the IncaEmpire, where they were certainly recognized. During colonial times, after some initial attempts to atomize anddestroy them, ethnic-community based organizations were in fact used by the Spaniards as vehicles for theextraction of taxes and labor. Since Ecuador's independence, these organizations were known either as senorios,capitanias orparcialidades indigenas. They were formally recognized and called comunas in 1937 with theapproval of the Ley de Organizaci6n y Regimen Comunal. The application of the Ley de Reforma Agraria in1964 and subsequent reforms in 1973 pronounced the presence of comunas in the Ecuadorian society. Originallycomunas managed jointly held land resources but in recent years there is a tendency for individualization.However, labor contributions for community enterprises, especially small infrastructure works are still common(mingas).

At community level, 2,325 grassroots organizations have been formed (communes, centers andcooperatives). These in turn have formed 160 second-tier organizations (OSGs) that have various names(association, union, federation) and are frequently affiliated with provincial, regional and national organizations.

Grassroots indigenous organizations are distinguished by a set of features: their members' sense ofbelonging to a community, communal territoriality, their own system of government and the practice ofsolidarity through collective works, joint celebrations and communal calendars, among other things.



The afro-ecuadorian population has a lesser degree of organization than that of indigenous peoples. Itsmain organization is a community or grassroots one (commune, compound, cooperative, committee, union) andit has recently begun to form more complex organizations. The main features of afro-ecuadorian grassrootsorganizations are: a sense of belonging, a recognizable territoriality, certain forms of self-government andcalendars of celebrations. More than community societies, afro-ecuadorian grassroots organizations are real orascribed family networks.

The beneficiaries of this project are members of grassroots community organizations which in turn haveassociated themselves with OSGs. This project will work mainly with communities, OSGs, and apexorganizations, including the Consejo de Nacionalidades Indigenas and Comite del Decenio. The community isconsidered the basic form of social organization whose legal capacity is recognized by the state, and as thenucleus of cultural and social reproduction for indigenous and afro-ecuadorian peoples. At the operational level,work with the OSG is favored because: (i) it brings grassroots organizations together; (ii) it brings together thepolitical and technical class of indigenous and afro-ecuadorian peoples with significant experience andmanagement capacity for development; (iii) it works on a microregional scope, a broader field than thecommunity one but at the same time suited to the organizations' institutional capacity, and allows for socialcoordination; and (iv) it has demonstrated the ability to work not only on political but also economic aspectswhich are generally faced by third-tier organizations.

Moreover, work with the apex organizations is favored because they facilitate the participation ofindigenous and afro-ecuadorian organizations, negotiations with the government and other social organizations,the overall design of the project and the adoption of general strategies.

Potential and Limitations

In characterizing the indigenous and afro-ecuadorian population, one should not only mention thelimitations or problems that need to be addressed so that these peoples can achieve better living standards, butalso the existing potential that will contribute to the project's success; among these is the fact that indigenous andafro-ecuadorian peoples, despite their very diversity, constitute one of the country's relatively more homogenoussectors; the existence of significant natural resources in their respective territories (land, water, forests, etc.); andtheir great organizational capacity and social capital, especially that of indigenous peoples. Additional keyelements could include: the decision to assume the challenges of development, especially of improving theirmanagement capacity; traditional knowledge; their capacity for negotiation and reaching agreement; and thecollective culture and identity of both indigenous and afro-ecuadorian peoples.

The development potential of these peoples is very high. At individual and family level, there is a greatpotential for improving the quality of life and developing human capital; at the level of social organizations andnetworks, there is a great potential for management and organizational culture; and on a broader level, there is agreat potential for reconfiguring the civic/social scope and changing social norms. However, it is also true that insocioeconomic terms indigenous and afro-ecuadorian populations have suffered the consequences of socialexclusion and are at disadvantage in Ecuadorian society. Thus, in 1994, 83 percent of the rural indigenouspopulation lived in indigenous villages, and 81 percent of afro-ecuadorians who lived in predominantly afro-ecuadorian areas were below the poverty line (per capita consumption less than S/45,466). In terms of unmetbasic needs, both the indigenous and afro-ecuadorian populations had higher rates than the rest of the population,in at least 6 of the 10 indicators selected, particularly with respect to lack of electricity, sewage disposal andavailability of bathrooms and sanitary services.


Project Appraisal Document Page 21Country: Ecuador Project Tdle: Indigenous and Afro-Ecuadorian Peoples Development Project

2. Basic Characteristics of Development with Identity

The view of development among the indigenous and afro-ecuadorian peoples of Ecuador has beenformulated by taking theoretical elements from the Latin American school of ethno-development and as a resultof their own experience in the context of national society. Until around 1990, the indigenous perspectiverevolved around four fundamental ethno-development propositions: (i) strengthening of one's own culture, (ii)identity as a people, (iii) self-determination and territoriality, and (iv) self-management.

In recent years, however, this perspective has been revisited on the following terms:

a) Inter-culturalism: Stemming from the need to strengthen one's own culture in order to have a clear identityas a people, it is considered necessary to "build a bridge of communication with mnestizo culture."b) Political economy and co-management: The principle of self-determination of peoples and territoriality hasprogressed to one of political autonomy, understood as being synonymous with decentralization in publicadministration and resource management, and to indigenous representation at national level.c) A "viable" development model: While insistence was previously made on the need for a suitabledevelopment model, there now exists the possibility of assuming elements of exogenous models, includingproject management and evaluation, new technologies and socioeconomic growth objectives, and theparticipation of multiple actors in the process.d) Generation of coordinated state policies: Confrontation has gradually given way to coordination, and short-term measures have given way to the adoption of long-term policies. One example is the case of bilingualeducation which has four general features: (i) the state delegates the management of education to indigenousorganizations; (ii) the government provides the operating funds; (iii) it has a long-term period of effectiveness;and (iv) teaching in native languages, as well as bilingualism and inter-culturalism, are institutionalized so as toensure communication with society in general.e) Prposal on a national scope: The new indigenous and afro-ecuadorian proposals are relevant for society asa whole as well as for the state. This change stems from the realization by indigenous and afro-ecuador ianorganizations that changes in favor of indigenous and afro-ecuadorian peoples are not possible withoutcoordination with non-indigenous peoples and that indigenous and afro-ecuadorian proposals may be beneficialfor non-indigenous societies provided they contribute to the construction of an alternative, civilizing proposal.f) Redefinition of identity: The original proposal defining the term "indigenous" as an individual'smembership in a specific ethnic group has led to a more flexible approach that keeps the idea of one'smembership in an ethnic group but also defines Indian-ness in terms of an indigenous-peasant continuum andacknowledges the existence of indigenous persons who do not belong to a specific ethnic group and do notexhibit ancestral symbols of identity.

3. Description of Project Activities

The objective of the project component is to strengthen the capacity of second and third tierorganizations to participate in the formulation of state policies, participate actively in development projectsfocused on the indigenous and afro-ecuadorian sectors of the population, and carry out their specific functions,especially the promotion of inter-culturalism, representation in external agencies, technical assistance tograssroots organizations, and provision of services.

Technical assistance and support to the functioning of key organizations and communities

Support for the organizational process will include activities aimed at legal recognition of the types oforganization of indigenous and afro-ecuadorian peoples and the concerted search for appropriate institutionalschemes aimed at self-managed development. Technical assistance to OSGs will cbntinue the activities startedunder the Pilot Project for Participatory Planning, and one of its objectives will be to create and/or strengthenliaisons between OSGs and communities, and between communities and local NGOs. This activity will alsoinvolve timely support for the operation of indigenous and afro-ecuadorian organizations that collaborate with



specific aspects and help to comply with project objectives; for example, the preparation of Local DevelopmentPlans, preparation of project proposals (pre-investment), and the execution of community development projects(investment). The organizations contemplated are second-tier organizations (OSGs), regional organizations, andthe highest coordinating bodies created by indigenous and afro-ecuadorian organizations. The types of supportwill meet the demand identified for participatory planning and project needs; but there will also be financialresources available for the creation or strengthening of technical units through the purchase of computers andbasic office equipment and assistance for hiring of technical staff.

Revitalization of peoples at risk

Support will also be included for the revitalization of at-risk indigenous peoples, defined as those who,due to their small numbers and disadvantaged status, are in danger of extinction; among these are the Huaorani,Siona-Secoya, Cofan, Chachi, Tsachila, Embera and Awa. This program will be of a comprehensive nature,since it is believed necessary to not only support the organizational process for development in terms of its initialoperation and compliance with activities allowing them to become consolidated as representative agenciesdealing with service and ethnic demands. Specifically, there will be a tendency toward validating existing data inthe field and formulating, with the full participation of interested peoples and the aid of specialized staff, anemerging service plan that covers organizational aspects, defense of the land, cultural demands, natural resourcemanagement and basic services, followed by implementation of such plans.

Education and training

Education/technical training will be carried out using traditional methodologies as well as workshops,short courses and seminars, and through the methodology of distance education and with the participation ofspecialized educational agencies. The first of these will be based on existing methodological experiences,especially from training projects recently carried out with World Bank support. Training issues will beestablished based upon demand expressed in pilot training and participatory planning projects.

There will be two types of education: a high school equivalency program, taught by specialized agencies,for persons selected by OSGs participating in the project, and a college degree program in communitymanagement and development, aimed at persons selected by regional organizations to support the process ofcommunity-level project preparation and management.

Prior to the formalization of contracts with educational institutions that may eventually be selected,agreement will be reached on the teaching modules that are of direct interest to the project; for example, theproject cycle, participatory management in community development, and specific technical aspects stemmingfrom the demand for investment activities (microenterprises, natural resource management, etc.).

As a complement to the above activities, support will be given to selected regional organizations andOSGs so that they can form technical units. They will receive on-the-job training, based on the system of"hands-on learning," to complement theoretical training through field practice of issues studied, particularly themanagement of community development projects. Finally, this activity will also establish relationships ofcooperation with other local and international agencies interested in the formation of human and social capitalamong indigenous and afro-ecuadorian peoples.

To support the implementation of the land regularization program and other components, the projectwould finance training of legal assistants (paralegales), who will subsequently work with indigenous and afro-ecuadorian organizations. The training program would include: (i) land tenure issues; (ii) communitymanagement; (iii) environmental issues; (iv) biodiversity; (v) ecotourism etc. Eligibility criteria for trainingparticipants include: (i) academic criteria: able to read and write in spanish; (ii) community involvement: activein community based organizations from the area; and (iii) personal skills and motivation. Training moduleswould follow the methodology established by CARE-Ecuador.


Project Appraisal Document Page 23Country: Ecuador Project Title: Indigenous and Afro-Ecuadoian Peoples Development Project

Cultural Patrimony

In accordance to the strategy of development with identity, there will be a series of activities designed to rescueand strengthen the rich cultural patrimony of indigenous and afro-ecuadorian peoples of Ecuador. They includethe identification and promotion of archeological and ritual sites, support for indigenous and afro-ecuadorianpeoples festivities, the preparation of audiovisual documents with ethnographic materials, contests to strengthenliving heritage and traditions (including traditional arts, handicrafts, cooking, games, etc.) events to discuss thetopic of development with identity, inter-cultural fairs; and publications of works produced by indigenous andafro-ecuadorian authors. For the successful implementation of this subcomponent, the project will require thefull involvement of indigenous and afro-ecuadorian peoples in all project sites and the collaboration ofgovernmental organizations such as the National Institute of Cultural Patrimony, the Casa de la CulturaEcuatoriana, key provincial and municipal governments as well as NGOs and the private sector. Selection andimplementation of this component will follow procedures included in the Operational Manual.

Expected results

The component is expected to have the following results after four years of implementation:

* A coordinating agency, three regional organizations, five sub-regional organizations and 48 OSGs operatingefficiently.

* Seven at-risk ethnic groups whose identity, organization and territorial protection and management havebeen strengthened.

* Persons from 150 OSGs trained in the participatory planning, design and execution of productive projects.- 178 Local development plans elaborated.- 90 Management and development graduates committed to OSGs to promote local development and assist

organizations in the preparation of final project designs.* 240 OSG leaders and promoters obtain their high-school equivalency, aimed at development, and are

committed to community work and assist community organizations in the preparation of project outlines anddesigns.

* Leaders of regional organizations receive training in the preparation of projects, programs, proposals for newlaws, state policies and practices for the development of indigenous and afro-ecuadorian peoples.

* Seven archeological and ritual sites are identified and revitalized.* Traditional festivities of indigenous and afro-ecuadorian peoples supported in seven intercultural areas (four

per area). Preference given to participation in on-going activities and to the promotion of cultural events thatdo not have negative effects on people's health and well being.

* Audiovisual documenting 13 indigenous and afro-ecuadorian peoples and 7 themes of key importance to thebeneficiaries.

* Traditional cultural manifestations of indigenous and afro-ecuadorian peoples incentivated by promoting1 00 contests in areas such as poetry, music, dance, cooking, and games.

* The concept of development with identity has discussed and further elaborated in 10 special events.* Pluricultural fairs organized in two occasions, promoting greater tolerance of cultural diversity in the

country.* After organizing 4 contests, the written works of indigenous and/or afro-ecuadorian peoples are published by

the project.



4. Institutional Arrangements for Implementing the Component

CONPLADE-IN will implement this component in close coordination with indigenous and afro-ecuadorian organizations. Legal and technical support to the organizations will be provided through a team ofconsultants hired, based on consultations with the project's beneficiary organizations and key governmentagencies such as the Ministry of Agriculture and the Ministry of Social Welfare, will seek the most appropriatemechanisms to achieve the legal recognition of those organizations and communities which lack it or which wantto change their legal status.

Support for participatory planning and the creation/strengthening of technical staff, preferably in regionalorganizations, will be provided through regional organizations having an ethnic focus: ECUARUNARI in theSierra, CONFENIAE in the Amazon region, and COISE in the Costa. These organizations will lead the processand, for matters of timely action, will hire the technical assistance of individual consultants or NGOs with provenexperience in working with these peoples and which are accepted by the beneficiaries.

Training will also be conducted by NGOs with experience in participatory training processes. Themodules developed both by the Indigenous Training Program for Community Development, financed by a WorldBank IDF grant, and by the Pilot Training Program carried out by the Indigenous and Afro-ecuadorian PeoplesDevelopment Project, will serve as the basis for preparing this activity. The main emphasis of training will bethe management of development from the viewpoint of Ecuador's indigenous and afro-ecuadorian peoples.

Formal, compensatory, distance education, both at high school and university level, will be carried outthrough contracts with suitable secondary and higher educational institutions, some of which have already beenidentified and contacted by the local project preparation team.

Cultural Patrimony activities will be carried out through contracts with indigenous and afro-ecuador ianorganizations and/or collaborative agreements with specialized government agencies or NGOs, taking intoconsideration the need to involve specific ethnic groups as well as the legal functions and comparative advantageof the agencies.



Project Component 2 - Land and Water Rights RegularizationUS$5.5 million (total cost of component)

Land Distribution

Ecuador has a very unequal distribution of land ownership. In the Sierra region, farmns consisting of 0-5ha include 80.2% of all farms, occupying 14.1 % of total lands. In contrast, the 1.6% farms over 100 ha include atotal of 42.9% of all lands. A similar pattern is found is in the Costa region, where the Gini coefficient for landowned is 0.89; which equals the corresponding figure for the Sierra region. Access to land is closely linked toliving standards in rural Ecuador. Households with lower per capita landholdings are at high risk of poverty andare highly represented among the extreme poor.

The evolution of Ecuador's agrarian structure has taken place in three distinguished periods: (i) prior tothe 1960s, landownership was concentrated in haciendas, depending on labor provided by workers in exchangefor small portions of land for their own subsistence (huasipungo); (ii) from 1964-79, the State, through theInstituto Ecuatoriano de Reforma Agraria y Colonizaci6n (IERAC) under two Agrarian Reform Laws (1964,1973) directly intervened in order to eliminate the existing pre-capitalist mode of production, includingprecarious forms of land tenure, and the excesses of the huasipungo system; and (iii) from the 1980s onwards, agradual shift towards a market-based mechanism for the allocation of land resources and an increasinglynarrowly defined role for direct State intervention within the legal framework of the Ley de Fomento yDesarrollo Agropecuario (1979) and the Ley de Desarrollo Agrario in 1994.

Until its disappearance in 1994, IERAC has adjudicated approximately 6.7 million ha. Most of these(53%) have been global adjudications to indigenous groups in the Amazon region, or titling of lands to settlers infrontier regions (34%). In terms of transferring lands from the latifundio to the smallholder sector, the impact ofthe state-led administrative land reform program, like in so many other countries, has been modest.

Ecuador - Land Reform 1964-1994

Region Agrarian Colonization BeneficiariesReform/GlobalAdjudications

Amazon 3,508,604 1,336,758 ?Sierra 597,155 - 89,693Costa 297,290 917,250 30,474TOTAL 4,403,049 2,254,008

Indigenous Perspective

Attachment to the land is one of the most important determinants of the indigenous cultural identity.Land is not seen as commodity which can be bought and sold in impersonal markets. Rather, in indigenouscultures, the land contains sacred meanings and can not be separated from social relationships and individualidentity. The same holds true for trees, plants, animals, water and fish which are integral elements of the socialand spiritual, life as well. Despite this fundamental importance of land for indigenous cultures, indigenouspeoples face serious problems in obtaining official recognition of their customary land and territorial rights. Atthe same time efforts of indigenous organizations have helped making some progress in this field in the 1960sand 1970s. Indigenous organizations played an important role in the promulgation of the Agrarian Reforrn Lawsof 1964 which increased access of indigenous peoples to land through the expropriation of haciendas. Underthese laws, the huasipungo or feudal service tenure system, which obliged indigenous peoples to provide freelabor to hacienda owners in exchange for a piece of land to cover subsistence needs, was also progressivelyabandoned. Indigenous organizations have also played an important role in off-setting the threat of massive



colonization of the agricultural frontier in the Amazon region. Their efforts have led to the granting ofcommunal land titles, which have protected existing indigenous territories from massive invasion. The mostvisible example in this case has been the granting of a communal land title of 1,771,870 hectares to the Huaoranipeople in 1990.

Indigenous organizations have successfully resisted attempts to completely phase-out activeinterventions in the distribution of land by the State on behalf of disadvantaged groups. The latest attempt tocompletely abandon state-led agrarian reform was in 1994. However, enormous pressure of the indigenousmovement forced the Government to amend the already approved Ley de Desarrollo Agrario and include aclause which opens the possibility to expropriate agrarian properties in areas of high demographic pressure. Theagreed amendment also explicitly requires that the Government allocates resources to finance theseexpropriations. Despite these provisions, the promulgation of the Ley de Fomento y Desarrollo Agropecuario in1979 and the Ley de Desarrollo Agrario in 1994 signify a gradual shift towards a market-based mechanism forthe allocation of land resources and an increasingly narrowly defined role for state intervention.

It is against this background that indigenous organizations continue pursuing their land rights agenda,which consist among other of the following elements:

* There is strong pressure to resolve second-generation land conflicts caused by earlier land reform efforts.* There is a high demand for the titling and demarcation of indigenous territories to ensure property rights. As

part of a general interest to promote respect of cultural, historical, and social values of the different ethnicgroups involved in agricultural activities, there is a specific interest to avoid privatization of communallands.

* As indigenous territories often include protected areas, which are under the jurisdiction of the EcuadorianInstitute for Forests and Natural and Wildlife Areas (Instituto Ecuatoriano Forestal y de Areas Naturales yde Vida Silvestre, INEFAN), indigenous organizations claim ownership of these areas or delegation of themanagement of these areas to their member communities.

Land Market

There are indications that existing land market constraints hamper access of small farmers to land. Theseinclude supply, demand, and transaction constraints. Regarding supply constraints, there is a strong pattern ofland market segmentation by both class and ethnicity, particularly in the Sierra. This pattern continued in themarket after the break-up of the haciendas. The growth of commercial agriculture and medium-size producersalso signifies increased competition for land between these two segments of the rural population. Although theshift from grazing to cultivation in the high altitude areas is an option allowing smallholders to accumulatenecessary land, it comes at a high cost to the maintenance of the watershed. In contrast to the decreasing supplyof land available for smallholders, demand is increasing due to population growth and degradation of the existingland base. Land pressure is resulting in further sub-divisions of existing holdings, more land rentals, andcultivation of fragile humid lowlands and paramos. Lack of access to credit by smallholders, and indications thatland prices have moved beyond the productive capacity due to land speculation are other demand constraintsfaced by smallholders. In terms of transaction constraints, the existence of both formal and customary propertysystems is of importance. Only 50% of the properties have been included in the property register, while themeans to provide clear and unambiguous identification of holdings through a geo-referenced multi-purposecadastre do not exist. The customary property system, whether indigenous in origin or community-based,operates under a different set of rules and logic to give legimitacy and security to land transfers within thecommunity. Given the high transaction costs in both time and money (notary costs, registry fees, traveling tocantonal offices, land transfer taxes etc.) smallholders have little personal benefit to legalize land transfers in theformal system.



Land Regularization

Legal Framework. The main laws applicable to land regularization are: (i) Agrarian Development Law,Law No. 54 published in the Registro Oficial on June 14, 1994, as amended on August 15, 1994 (hereinafter ADLaw); (ii) Law of the Organization and Regime of the Agricultural Communities (coniunas campesinas), Law000, published in the Registro Oficial on October 5, 1976 (hereinafter Coniunas Law); (iii) Law of UnoccupiedLands (tierras baldias) and Colonization, Supreme Decree No. 2172 published in the Registro Oficial onSeptember 28, 1964 (hereinafter Tierras Baldias Law); and (iv) Forestry law and law for the conservation ofnatural areas and wildlife, Law No. 74 published in the Registro Oficial on August 24, 1981 (FL) and Regulationsapplicable to forest and natural and wildlife areas conservation, Executive Decree No. 1529 published in theRegistro Oficial on February 22, 1983 (FR).

Agrarian Development Institute. The Agrarian Development Institute (Instituto Nacional de DesarrolloAgrario, INDA), established by article 23 of the AD Law, to replace the priory existing IERAC, is the instituteauthorized to adjudicate State lands (mostly vacant or expropriated lands or those in possession of farmers for aspecified period of time). The AD Law authorizes INDA to issue titles under three different procedures, one(article 36, Legalization) exclusively applicable to the indigenous communities and the other two applicable toall citizens, including indigenous peoples (Articles 37, Adjudication, and Article 38, Other Adjudication). As tothe characteristics of the title issued/to be issued: (i) there is no limitation in the law as to the size of the plot byareas, type of land or otherwise. It is restricted only to the size of the area being exploited; (ii) the title is subjectto all the usually required restrictions of agrarian reform titles such as continued exploitation in accordance withthe agreed work plan and such restrictions are also applicable to subsequent owners. On the other hand, under theAD Law, the State guarantees the right to land ownership as recognized by the Ecuadorian Constitution. The:Constitution recognizes the right to property (in general terms under article 63) provided that such propertyfulfills a social function (funci6n social) and the right to land for productive purposes (article 66), further statingthat the policy of the State as to the structure of rural property will be geared to economic development, theraising of the standard of living, and the redistribution of wealth and income; and (iii) the title could beindividual or communal. The Constitution does not contain specific provisions for communal property, butcontains a provision (under Section III Property) that the communal and cooperative production will bepromoted. The Comzmas Law provides under Article 17 that the use and work of the land can be done in any ofthe following forms: individual, by family, cooperative, association, commune or company, provided thefimcionsocial is achieved. The communal land allocated to communities legally established under the Comnunas Lawcan be divided (in whole or in part) among its members by a resolution adopted in a two-thirds majority by theGeneral Assembly of the community (Article 22 of the AD Law). Requests for such partition are quite unusual.The lands that INDA is authorized to adjudicate are vacant lands (tierras baldias) under the Tierras Baldias Law.Pursuant to Article I of such law, vacant lands, and therefore as a matter of law, INDA's lands, are: (i) all landswithin the territory that are not owned by someone else; (ii) lands that revert to ownership by the State, (iii) landsthat remain uncultivated for 10 years (The AD Law, however, authorizes INDA to grant title to land to thepossessors/producers of lands after 5 years, as it is described below). INDA does not own the State's naturalareas within the jurisdiction of INEFAN. The legal division of responsibilities between both institutions is,however, not well defined. An interinstitutional arrangement was reached between INDA and INEFAN(Resoluci6n 001 described below) and will be improved for project purposes.

The procedures for the adjudication of lands are:

Legalization of indigenous lands (Article 36): Pursuant to the provisions of article 36 the State is to protectINDA's lands which will be allocated for the development of the montubias (coastal peasants), indigenousand afro-ecuadorian peoples and such lands will be granted through adjudication, free of charge, to thecommunities and ethnic groups that have been in their ancestral possession. Stich adjudication can be donesubject to the conditions that: (i) the traditions, cultural life, and social organization of such peoples arefollowed; and (ii) incorporating, in addition, under INDA's responsibilities, measures aimed at improvingtheir production systems, the ancestral technologies, recovering and diversifying the seeds and developing



other elements that would enable the indigenous groups to raise their standard of living. All the applicableprocedures and instruments to achieve the above, are to preserve the environment. The above described isone of the few provisions in the national legislation where specific rights of the indigenous and other ethnicgroups to their ancestral lands and traditions are recognized.

* Under Article 37 of the AD Lawv, INDA is authorized to grant title to lands to those in possession of the landfor an uninterrupted period of a minimum of 5 years, after payment of the applicable assessment price. Theexploitation of these lands also need to follow the approved work plan. This type of title cannot be grantedby INDA in respect of State forest or natural areas or in lands otherwise owned by INEFAN. It could beapplicable to lands expropriated by INDA from owners that were not utilizing the land in a manner thatwould show that the social function was achieved. Article 17 of the AD Law states that the social function isachieved when the land is in production and exploitation and the renewable natural resources are beingadequately preserved, the ecosystem is protected, and food for all Ecuadorians is guaranteed and excess isgenerated for exports.

* Under Article 38 of the AD Law, INDA is authorized to issue titles to other land that INDA may own tojuridical persons, cooperatives, enterprises, indigenous communities, associations and organizations, for anefficient production with a work plan that will not become a threat to the environment or the ecosystem. Noprior possession is required, it does not relate to ancestral rights, and a price is to be paid in cash for the landso granted. Farmers, indigenous peoples, montubias and afro-ecuadorians are, however, granted a 10 yearperiod (with 2 years of grace) to repay.

Ecuadorian Institute for Forests and Natural and Wildlife Areas. Ecuadorian Institute for Forests andNatural and Wildlife Areas (Instituto Ecuatoriano Forestaly de Areas Naturales y de Vida Silvestre (INEFAN)created by Law No. 8 of September 14, 1992 (the INEFAN Law) owns, under Article 12 (a) (c) and (d) of theINEFAN Law, the national forest patrimonium (Patrimonio Forestal del Estado) and the protected areas(Patrimonio de Areas Naturales). The Patrimonio Forestal del Estado is constituted by the forested lands thataccording to law are owned by the State, and the natural forests, and the flora and fauna therein. Forest lands thatare acquired, or revert to the ownership of the State would also be included (FL, art. 1). The Patrimonia de AreasNaturales are wilderness areas with a scientific, educational, scenic, touristic or educational value, alreadydesignated by law or to be designated in the future by INEFAN by resolution. National parks, ecological reserves,wildlife refuges, and biological reserves are among such protected areas (FL, articles 69/70). These areas areinalienable and imprescriptible and no real property rights could be vested on such areas (FL, art. 71). Private landsand the natural resources existing therein at the time the areas were declared protected are to be expropriated torevert to the State (FL, art. 73).

INEFAN is authorized to grant title to lands included in the Patrimonio Forestal del Estado:

* to legally established national timber companies in cases of national interest, through a public auction, andprovided a satisfactory management plan is implemented (FR, art. 65). The contract is rescinded if suchmanagement plan is not implemented (FR, art. 82);

* to rural organizations (cooperatives and other legally established agricultural associations), the main activity ofwhich is a forestry activity. Demarcations/adjudications are to the cooperative or other organization as such andthe title cannot be subdivided and/or disposed of to third parties (FR, articles 86/87). The adjudicationresolution sets forth the price and payment conditions for the land adjudicated and the. "communal" use of theforestry resources, the prohibition of sale and the obligation to maintain the resource (FR, art. 95). All costsassociated with the demarcation/adjudication are to be borne by the beneficiary. If the cooperative/organizationis dissolved, such lands revert to the State without any compensation (FR, articles 99/100);

* to indigenous and afro-ecuadorian communities, INEFAN will, free of charge, set the boundaries of the lands intheir ownership or possession and such lands will not be subject to any possession or adjudication to thirdparties. Such lands should have an area sufficient to enable the maintenance of an adequate standard of livingaccording to their ethnic, customary, religious and other values to allow for development of such communities(FR, articles 102/103).


Project Appraisal Document Page 29Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Deveopment Project

Issues and Challenges. Given the existing legal and institutional land regularization framework there are aseries of specific problems and challenges the project aims to address. These include the following:

* There are no specific provisions dealing with the titling/adjudication of lands by INEFAN in the PatrinionioForestal del Estado, only demarcation thereof. During the prior administration, however, INEFAN issuedResolution 001 published in the Registro Oficial of June 27, 1996 for the adjudication of such lands incooperation with INDA. In essence the resolution called for the demarcation by INEFAN and the titling byINDA of the indigenous communal lands.

* No title can be given to indigenous and afro-ecuadorian communities under the provisions of the existing law inthe Patrimonio de Areas Naturales. A proposal to amend the Forestry Law with provisions to acknowledgeindigenous and afro-ecuadorian peoples ownership is being considered. There would be a need to identifyways to secure better rights in respect of the community lands such as contractual arrangements under the CivilCode that would grant possession/usufruct rights to the lands for a long period of time. Such arrangementswould also require the preparation and implementation of management plans.

* There is an urgent need to define more precisely: (i) the notion of ancestral possession (as it stands nowalong the lines of pacific, unopposed possession by three generations); (ii) the evidence required to provethat the land is being exploited; and (iii) the work plan and other necessary procedures to be followed to meetthe requirements of Article 36 of the AD Law.

* INDA currently lacks the resources and personnel to undertake application of Article 36 of the AD Law.Currently, INDA's titling activities are restricted to finalizing agrarian reform titles in process when INDAreplaced IERAC. There is a back-log of 2,326 requests for the adjudication of lands, 3,000 expropriationrequests and a large number of unresolved land conflicts (285 in 1994-96 only). It is estimated that 50% ofall land owners do not have proper titles; a legal cadastre to ensure clear and unambiguous identification ofholdings does not exist in the country.

* Innumerable, complicated and costly requirements for legalizing lands that have beeni in contilntuouspossession for over five years or for carrying out land expropriations on the bases established in the Law(environmental degradation or demographic pressure). There is a need to issue regulations and proceduresfor the areas covered above and build on the experiences of various NGOs (CARE, FEPP) which havedesigned simple and participatory approaches for land titling and land conflict resolution. Such procedureswill be adopted by INDA/INEFAN before disbursement of the component expenditures for land titlingactivities.

* There is a strong lack of understanding in INDA and INEFAN of the indigenous and afro-ecuadoriansituation, especially on types of traditional management of their lands. CONPLADE-IN will trainINDA/INEFAN personnel to address indigenous and afro-ecuadorian issues.

Water Rights Regularization

Legal Framework. The main laws applicable to water rights are: (i) Water Law: Law No. 369, publishedin the Registro Oficial No. 69 of May 30, 1992 (WL); (ii) Regulations to the Water Law: Supreme Decree No. 40published in the Registro Oficial on January 26, 1973 (WLR); and (iii) Organization of the Water InstitutionalRegime: Executive Decree No. 2224 published in the Registro Oficial No. 558 of October 28,1994 (Decree No.2224). (Institutional Decree)

Institutional Framework. Pursuant to the Institutional Decree, policy formulation and regulatory functionsare vested in the National Council for Water Resources, (Consejo Nacional de Recursos Hidricos - CNRH (art. 1),powers to grant water use concessions are vested in CNRH's agencies, and powers to carry out, or engage/supervisethe carrying out of, infrastructure water works (major or complicated irrigation schemes), to be owned in prilcipleby the State are vested in the regional corporations (art. 8).

Water Use Concessions for Irrigation. All waters are deemed to be national property of public use and notsubject to trade, and the State dominion/ownership is inalienable and imprescriptible and not subject to possessionor other formns of appropriation by others (WL art. 2). Those that had "property" rights to the waters prior to such

OSO PAD Forn: May 1997

Projdct Appraisal Document Page 30Country: Ecuador Project Tile: Indigenous and Afro-Ecuadorian Peoples Development Project

law, are by law converted into "use" rights. Some recent efforts to privatize the waters have not yet prospered.Irrigation systems can be constructed and owned by individuals, communities or the State. The waterconcessionaire is obligated to build the works to receive, measure, use and control the water rights granted. Ifconstructed by the state the water fee will recover such costs. Riglhts to use (public) water for irrigation are grantedthrough concessions only for a fixed term. All water use rights must be registered with CNRH and, are subject tocancellation or suspension or change when used for ineligible purposes or inefficiently. The water concessions aregranted by the 12 water agencies under the jurisdiction of the CNRH geographically located in Quito, Guayaquil,Ambato, Cuencas, Riobamba, Ibarra, Loja, Machala, Portoviejo, Guaranda, Esmeraldas, and Tulcan (WLR, art. 14).Each such agency is headed by a waterjudge empowered to resolve conflicts. The waterjudge's decision can beappealed to the CNRH, and thereafter, the national administrative courts. Necessary rights-of-way (servitudes) arealso petitioned to, and granted by, CNRH.

The petition for a water use concession should contain the following (WL, art. 84):

* identification of the river or source and geographic/administrative location;* the amount, and capture location;* the known users' names and addresses;* the purpose, works and installations proposed;* the timeframe for construction of the works identified; andi the required technical studies (as deternined by the regulations).

Water tariffs are contemplated in Title VI of the WLR, are to be paid to the water agencies and in the caseof cooperatives or communes the tariffs of all the individual users are charged jointly to the President and Treasurerof such cooperatives of communes.

Water Users Associations. In all concessions where more than five users will have the riglht to use thewaters from a common source, the law requires that a Water Board (Directorio de Aguas) be established to managethe use of such waters. To structure such board, the CNRH or the interested parties call for a meeting of all users, toappoint a water council to manage the entity for one year (WL, art. 28) - Where the users are capturing waters fromaqueduct in a river or other source, such council is not required. Such councils must ensure that CNHR resolutionsand the applicable laws are complied with, set up turns in the use of water, plan and manage the operation andmaintenance of the water systems, and prepare the investments foreseen by the budget. The attendance to the-jmtameetings called by the council are compulsory to all users and subject to fines if not complied (WL, art. 43 (a)). '1helands benefiting from irrigation and drainage systems financed by the State may be administered by Irrigation andDrainage Commissions. Governmental approval of such commissions is subject to the review ofjustificationprovided from a technical and financial point of view, as well as of the need for its creation. All water managementand distribution plans of the irrigation and drainage commissions are subject to approval and monitoring by CNRH.

Issues and Challenges. Given the existing legal and institutional regularization framework there are a seriesof specific issues and challenges the project would aim to address through studies. These include the following:

* There is no recognition whatsoever concerning ancestral rights of indigenous and afro-ecuadorian peoples towater resources; small farmers have only access to 13% of all water resources in the country, while mediumand large producers disproportionally benefit from subsidies (only 4% of cost recovery in public sectorirrigation projects).

* Although water is an increasingly scarce resource in the Sierra region, with most indigenous peoples livingin the catchment areas, regulations on watershed conservation and watershed management plans regulatingwater use among competing needs of different actors do not exist.

* the exclusion of indigenous and afro-ecuadorian communities from agencies that manage water resources.



Project Activities

There remain approximately 2,500,000 hectares to be titled in Ecuador, of which 30% are in areas whichfall under the jurisdiction of INEFAN. Although the long-term objective would be to cover all of these areas, theproject aims to initiate some concrete activities in a few selected areas through: (i) a small program of legal reformsrelated to land issues; (ii) implementation of a land regularization program for lands in ancestral possession ofindigenous peoples; and (iii) a land purchase fund (to be financed by IFAD and GOE). In addition, the project willfinance a diagnostic study focusing on the availability of water resources and related water rights in the project areaand, based on the results thereof, elaboration of an action plan for community-based irrigation systems.

Legal Technical Assistance. The project would finance technical assistance to assist in the preparation ofthe following legal reforms:

(a) Revisions to Resolution 001 of April 24, 1996 with the aim to agree on a procedure to adjudicate lands in forestlands (patrimonio forestal del estado) while ensuring adequate management of natural resources.

(b) Revisions to Resolution 005 of INDA published on July 1, 1997, conceming the content of management plansand the definition of ancestral possession which should not only have a time and space dimension but should includenatural resource management requirements as well.

(c) Bring INDA's and INEFAN's requirements for management plans in line with each other in a single format, aspart of the respective procedures.

(d) Include provisions in the Ley Forestal y de Areas Naturales Protegidas, Vida Silvestre y Biodiversidad,currently under preparation, allowing adequate recognition of land property rights of indigenous and afro-ecuadorian communities in protected areas.

Land Regularization Activities. The project will finance regularization of: (i) lands claimed by indigenousand afro-ecuadorian peoples with rights of ancestral possession; (ii) other lands claimed by indigenous and afro-ecuadorian peoples for which payment of the land adjudicated is required; (iii) rights of indigenous and afro-ecuadorian peoples declared national forestry patrimonium (patrimonioforestal del estados) within the jurisdictionof INEFAN; and (iv) lands claimed by indigenous and afro-ecuadorian peoples in protected areas (patirimonio deareas naturales) declared by law or resolution of INEFAN. The titling activities contemplated under (ii) will befinanced by IFAD or by counterpart funds, as these involve payment of the land. The activities under (iii) will besubject to the revisions of Resolution 001 of April 24, 1996 and 005 as mentioned above. Likewise, the activitiescontemplated under (iv) will be subject to the of the enactment of the new Ley Forestal y de Areas NaturalesProtegidas, Vida Silvestre y Biodiversidad or any other legal or administrative arrangement authorizing indigenousand afro-ecuadorian peoples ownership of lands in protected areas.

Following the requirements indicated in the Ley de Desarrollo Agrario, the project will specifically financethe following regularization activities of lands within INDA's jurisdiction: (i) technical assistance to allowindigenous and afro-ecuadorian organizations and communities to obtain legal status, if needed; (ii) elaboration ofthe inspection report; (iii) demarcation activities; (iv) elaboration of management plans; (v) technical-assistance toobtain the certificate that the lands are not in INEFAN's jurisdiction; (v) technical assistance to obtain the certificateof the Direcci6n General de la Marina Mercante, if needed; (vi) inscription in the Property Registry; and (vii)elaboration of the socio-historic study to prove ancestral possession. Following the requirements indicated in theLey Forestal y de Areas Naturales, the project will specifically finance the following regularization activities oflands within INEFAN'sjurisdiction: (i) redemarcate lands declared national forestry patrimonium (patrimonio

forestal del estados) or protected areas (patrimonio de areas naturales), if necessary; (ii) technical assistance toallow indigenous and afro-ecuadorian organizations obtain legal status, if needed; (iii) demarcation of lands; (iv)elaboration of management plans; (v) elaboration of usufruct and management agreements in protected areas,



including the preparation of a socio-historic study concerning ancestral possession, a socio-economic census, and amanagement plan.

Based on demand for land regularization activities, presence of indigenous and afro-ecuadorian population,and environmental considerations, the project wvould initially focus its land regularization activities in the followingareas: (i) Esmeraldas; (ii) Sucumbios; (iii) Napo; y (iv) Pastaza.

Implementation of the land regularization activities would be governed by two implementation agreementsbetween CONPLADE-IN, INDA or INEFAN (depending on the jurisdiction of the lands) and contractors (includingNGOs).

Land Purchase Fund. Using IFAD and counterpart funds, the project would finance the purchase of land inselected areas within the context of conflict resolution. For this purpose CONPLADE-IN contract FEPP, an NGOwith considerable experience and a long established program in this field. Taking into account the incidence of landconflicts, the project will focus land purchase in the following counties (cantones): Ibarra, Cotacachi, Otavalo,Saquisili, Pujuli, Latacunga and Guaranda.

Water Rights. The project would finance the implementation of a diagnostic study and the elaboration of anaction plan for the approximately 2,000 community-owned irrigation systems in the country. The diagnosis wouldinclude an inventory of water resources, conflicts, water rights, water distribution, schemes, implementing agenciesetc.


Project Appraisal Document Page 33Country: Ecuador Project Tite: Indigenous and Afro-Ecuadorian Peoples Development Projed

Project Component 3 - Rural InvestmentsUS$26.7 million (total cost of component)

Rural Investments Component

1. The Rural Investments Component would finance demand-driven rural investments, or subprojects. Thiscomponent would be divided in two subcomponents, according to two types of subproject: (i) thepublic/community investments subcomponent, which would finance subprojects with a public/community goodnature; and (ii) the private/individual investments subcomponent, which would finance subprojects with aprivate/individual nature. The public/community investments subcomponent would finance subprojects thoughmatching-grants, while the private/individual investments subcomponent would finance subprojects throughloans that the final beneficiaries would reimburse to financial intermediaries. The private/individual investmentssubcomponent would be financed exclusively by IFAD. Examples of subprojects with public/community goodnature are: (i) natural resources management; (ii) community-based productive infrastructure; (iii) socialinfrastructure; (iv) technical assistance; and (v) training and institutional development. Examples of subprojectswith private\individual good nature are (vi) farm or livestock inputs; and (vii) micro-enterprises. An indicativesubproject classification is available in Table 3. According to the results of the participatory planning activitiesalready carried out during a pilot phase, productive subprojects are more demanded than social subprojects,because the objective of sustainable rural poverty alleviation and income generation is a priority compared toservice availability.

2. The objectives of this component are to: (i) respond to a demand felt by indigenous and afro-ecuadoriancommunities; (ii) involve beneficiaries into implementation, increasing their sense of ownership; (iii) diversifyand/or intensify rural production; and (iv) improve beneficiaries access to services and markets.

3. Two Operational Manuals (Reglamentos Operativos) detail the rules which manage the Rural InvestmentComponent: the Operational Manual for public/community investments and the Operational Manual forprivate/individual investments. As only IFAD is financing credit subprojects, IFAD will be responsible tosupervise the private/individual investments. Adoption of the final Operational Manual - acceptable to the WorldBank - for public/community investments would constitute a condition of effectiveness (as part of the ProjectManual).

4. The next four sections describes: (i) eligibility criteria for beneficiaries, implementing institutions, andsubprojects; (ii) organization and management at local and central levels; (iii) operational arrangements; and(iv) risks and mitigation measures.

Eligibility Criteria

5. Eligibility criteria for beneficiaries. Indigenous and afro-ecuadorian legally established communitiesliving in rural areas are the target group of the Rural Investment Component. This important factor guaranteeshigh poverty targeting and good level of organization of the beneficiaries. Non indigenous or afro-ecuadorianpeoples living in the surrounding areas could also partially benefit from this component.

6. Eligibility criteria for subprojects are based on the following principles: (i) focus on a specificgeographical area (see Table 1) and target group, as above defined; (ii) selection through participatory demand-driven mechanisms; (iii) possibility to be managed by beneficiaries or the designated Sponsoring Agencies(SAs); and (iv) technical, economic, social, and environmental feasibility and sustainability.



Table 1. Area of Intervention of the Rural Investments Component(Canton or Parroquia)

Region First Phase Second Phase Third Phase(1998) (1999) (2000-2002)

1. AFRO- 1. ESMERALDAS 1. ESMERALDAS 1. ESMERALDASECUADORIAN 2. CHOTA - MIRA 2. CHOTA -MIRA 2. CHOTA - MIRA

3. ELOY ALFARO 3. ELOY ALFAROI_________________ 4. SAN LORENZO 4. SAN LORENZO

2. AtAZOiVIA 3. QUICHUAS NAPO 5. QUICHUAS NAPO 5. QUICHUAS NAPO4. SHUAR DEL UPANO 6. QUICHUAS 6. QUICHUAS5. TRANSCUTUCU SUCUMBiOS SUCUMBiOS

(SHUAR, ACHUAR, 7. QUICHUAS PASTAZA 7. QUICHUAS PASTAZASHIWIAR) 8. SHUAR DEL UPANO 8. SHUAR DEL UPANO

6. NACIONALIDADES: 9. TRANCUTUCU 9. TRANCUTUCUHUAO, SIONA, (SHUAR, ACHUAR, (SHUAR, ACHUAR,SECOYA, COFAN SHIWIAR) SHIWIAR)

10. SHUAR DE ZAMORA 10. SHUAR DE ZAMORA11. NACIONALIDADES: 11. NACIONALIDADES:

HUAO, SIONA, HUAO, SIONA,I_____________ SECOYA, COFAN SECOYA, COFAN3. SIERR/A'ORTE 7. OTAVALO- 12. OTAVALO- 12. OTAVALO-

CARANGUES CARANGUES CARANGUES13. CAYAMBE- 13. CAYAMBE-

QUITEFOS QUITEROS4. SIERRA 8. QUICHUAS DE: 14. QUICHUAS 14. QUICHUAS

CENTRO SUR COTOPAXI DE:COTOPAXI, DE:COTOPAXI,9. TUNGURAHUA 15. TUNGURAHUA 15. TUNGURAHUA10. CHIMBORAZO 16. CHIMBORAZO 16. CHIMBORAZO

CAf4AR CAf4AR 17. CAIqAR,1 8. BOLiVAR19. AZUAY20. SARAGURO

5. COSTA 11. ETHNICAL GROUPS: 17. ETHNICAL GROUPS: 21. ETHNICAL GROUPS:CHACHI, AWA, CHACHI, AWA, CHACHI, AWA,EPERA, TSACHILAS EPERA, TSACHILAS EPERA, TSACHILAS

18. COSTA SECA: 22. COSTA SECA:MANTEROS, MANTE1qOS,HUANCAVILCAS, HUANCAVILCAS,

._______________ ._____________ __ PUNAES PUNAES

7. The project would finance up to a maximum of US$90,000 per subproject. With an equity objective, anannual limit of US$800 per beneficiary would be enforced, subject to review over time considering overallexpenditure of the component. The subprojects would be selected and prioritized according to participatorydemand-driven mechanisms carried out atparroquia, level. Subprojects would be approved by the ProjectRegional Offices (PRUs), with no-objection of the PMU for subproject costing more than US$25,000. To reducethe risk of pulverization, or lack of impact of small-scale investments, subprojects would respond to a strategy atlocal level, as defined in the Local Development Plan, covering the area of influence of the OSG, according topre-set budgetary limits. Detailed budgetary allocations byparroquia are still under evaluation; once agreed andfinalized, they will be notified in the Operational Manual, which is subject to World Bank approval. Theallocations are based on two criteria: (i) indigenous and afro-ecuadorian population; and (ii) poverty indicators.In the second year of activity, an indicator of implementation capacity would be added. Allocations are beingcalculated at the parroquia level because this is the smallest administrative unit for which statistical information-such as population and poverty-is available. However, participatory planning and prioritization would be carriedout by second-tier organizations (Organizaci6n de Segundo Grado, OSG) in the Costa and Sierra, and by third-tier organizations (Organizaci6n de Tercer Grado, OTG) in the Amazonia. These organizations cover an averageof two parroquias. It would therefore be necessary to add the allocation of the parroquias covered by the sameOSG to obtain the allocation per OSG.

OSO PAD Formn: May 1997


8. A measure characteristically used to ensure ownership is beneficiaries' participation in subproject financewhich they can contribute in labor, cash or kind, between 10 and 30 percent of the subproject costs (see Table 2).These differences in cofinancing contributions have been designed as an incentive for institutional strengthening,technical assistance, and environmental subprojects.

Table 2. Cofinancing Matrix

Type of Subproject Project Contribution Beneficiary- E (%); ;: f 7 j Contribution

(%)Community Productive 70 30InfrastructureSocial Infrastructure 80 20Training, TechnicalAssistance, and Pre- 90 10InvestmentEnvironmental and Natural 90 10Resources ManagementInstitutional Strengthening 90 10

9. Eligibility criteria for Sponsoring Agencies (SAs). The project would have the possibility to channelfinancial resources through SAs, such as OSGs, OTGs, NGOs, cooperatives, farmer associations, and, in case ofneed, Government agencies. The SA must meet the eligibility criteria detailed in the Operational Manual whichinclude technical and financial capabilities and experience with the beneficiary community and region. The SAcan be a public or private institution, with legal status, capable of implementing investment subprojects. The SAwould accompany local communities through the Participatory Planning process, and from projectconceptualization to implementation (see below). SAs would help the communities identify and rank investimeitneeds, formulate Local Development Plans and present the investment needs to the appropriate funding agenciesfor consideration. SAs would possibly be the same OSGs (OTGs in the Amazonia). In those cases when theOSGs do not fulfill the requirements, an agreement with a local NGOs would be necessary. If the OSG does nothave previous experience in subproject implementation, the size of the first subproject would be limited toUS$25,000.

Organization and Management

10. The Project Management Unit (PMU) and seven deconcentrated6 Project Regional Units (PRUs) wouldbe involved with different levels of responsibility in subproject selection, appraisal, approval, implementation,disbursement, technical follow-up, monitoring, and evaluation. However, given the demand-driven characteristicof this component, beneficiaries will be the primary responsible for the quality of subprojects. Beneficiaries willbe guided through a participatory planning exercise during which they will be helped to utilize their knowledgeto achieve quality subprojects (see paragraph on participatory planning)

11. The responsibility to evaluate whether subproject proposals respects the principles set in the OperationalManuals would be deconcentrated at the maximum extent. Given the modest experience at local level, theevaluation of subproject costing more than US$25,000 would be revised by the PMU, who will verify that theevaluation done by the PRUs is sound. The operational management of this component would be shared by thePMU and PRUs, which would be responsible for the funds' overall operation. Three specialists--a specialist innatural resources, an engineer, and a specialist in credit--would be hired for the day-to-day operations, and they

6 The staff of the regional offices would be selected at central level, so the definition of deconcentrated rather than decentralizedoffices.



would be responsible for the overall administration and operation of this component. The Operational Manualwould distinguish functions and responsibilities between the central and regional levels.

Participatory Planning

12. This is a process designed to seek the active participation of the rural population in planning, design,negotiation, execution and supervision of rural investments. Participatory Planning is designed to facilitatecommunity and grassroots organizations to be effective players in their own development. The objectives of thisplanning process are to: (i) contribute to the decentralization of decision-making; (ii) stimulate grassrootsparticipation in local planning and demand generation; (iii) help rural communities formulate developmentstrategies and investment plans; and (iv) increase investment sustainability by intensifying stakeholders'commitment in the execution and supervision of rural investments.

13. The Participatory Planning methodology has been developed drawing on the practical experiences invarious countries, and has benefited from the procedures developed by the Nicaraguan Rural MunicipalitiesProject, the Bolivian Fondo de Desarrollo Campesino, the Latin American Faculty for Social Sciences, and theGTZ's Goal-Oriented Project Planning (GOPP). It consists of the organization of community and districtworkshops over the course of several weeks. At the workshops, project field promoters and SponsoringAgencies (SAs) help the communities formulate a development strategy, by applying methods of groupsdynamics. Workshop participants are community delegates, representatives from development organizations,and interested individuals. After each workshop, time is allotted for the community delegates to return andinform the community of the workshops proceedings, and receive community feedback. As some communitiesdecisions are taken by consensus, this process can be lengthy. The duration and cost of this process are variableand depend on: (i) maturity of the local organizations; (ii) homogeneity of the rural communities; (iii) timeavailability of community members, which is a function of interest, cropping seasons and employment patterns;and (iv) SA capabilities and commitment.

14. The Participatory Planning would be carried out in the area of influence of the OSG, in average twoparroquias, and has seven stages:

(a) Preparatr p2ha. PMU staff would participate in the selection and, eventually, training of NGOs and otherSA to explain the programs and procedures detailed in the Operational Manual;(b) Prornotion. The NGOs would disseminate project's purposes and methodology and in particular: (i) theeligibility criteria for subprojects; (ii) the processing steps for eligible subprojects identified in theircorresponding Local Development Plans, including sample documentation and approximate times of processing;and (iii) execution and supervision mechanisms;(c) Self diagnostic. To help the communities better perceive their economic and social strengths and weaknesseswith a view to formulating achievable socio-economic goals. Participatory rural appraisal techniques-such asparticipatory mapping and seasonal calendars-would be used to assist the community in the identification ofconstraints, causes and solutions;(d) Preparation of a Local Development Plan (LDP). A LDP is a ranked list of subproject ideas screenedaccording to development strategy, requirements, technical feasibility, and funds availability or potentialsuitability for funding (from this project or other sources). In the Costa and Sierra each OSG would prepare theLocal Development Plan for its area of influence. Given the fact that OSG are very small in the Amazonia, in thisregion Local Development Plans would be prepared by OTGs;

(e) Plan adjjustment; and

(f) Subproject formulation to transform subproject ideas into financiable proposals.

15. The participatory rural appraisal techniques and tools would include, among others: (i) interviews,whose flexible agendas permit the participants guided discussion topics; (ii) participatory mapping exercises,which positions socio-economic information on a map, creates consensus and facilitates communications;

OSo PAD Form: May 1997


(iii) seasonal calendar, showing rainfall patterns, crop sequencing, seasonal labor demand and availability;(iv) historical profiles and time trends, concerning changes in social organization, income opportunities andnatural resource use; and (v) short, simple questionnaires, concerning socio-economic situation to be completedby the whole community before the following workshop.

16. The subproject preparation consists of three stages:

(a) SubproJect Profile/Idea. This is a first description of the subproject, its rationale and an approximation of itscost;(b) Subproject Proposal. It is an economic, social, environmental, and financial evaluation of the subproject,with a detailed estimation of its costs. The format of the proposal is suitable for presentation to funding agencies,and prepared according to various formats available in the Operational Manual; and(c) Subproject Design. It is a detailed technical description of the subproject. The design is necessary only fortechnically complex subprojects, such as agroindustries or irrigation systems.

The preparation of subproject profiles begins in parallel with the preparation of the Local DevelopmentPlan, as the ranking process requires an approximation of the costs and feasibility of various subproject options.The final development contains aprofile for every proposed subproject.

17. The Subproject Cycle. In parallel with the development of Local Development Plan (LDP), theprocessing procedures for subprojects would start. The processing can divided in the following nine phases:

(a) Tdentification. the project would process subprojects originating from: (i) Local Development Plans; and(ii) eligible SA. All proposals should demonstrate community participation and consensus in the prioritizationand identification of the subprojects.(b) Formulation. The primary responsibility for subproject formulation lies with the SA. The SA would not beasked to enter into a priori framework agreement with the PMU, or sign any letter of intentions. This is to le.t thedemand develop autonomously, on the basis of the incentive that matching-grants would be approved only if therequirements of the Operative Manual are met. The preparation process may take one of three possible courses:(i) the subproject profile is duly prepared according to requirements and guidelines and requires no further workprior to appraisal; (ii) the subproject profile complies with general eligibility criteria but requires a detaileddesign; this design would be financed as a technical assistance subproject; and (iii) the subproject profile doesnot meet eligibility criteria, requiring the SA to redesign it with guidance from PRU or PMU.(c) Appraisal. The PMU or PRUs appraise the subproject, including discrepancies between proposed unit costsand standard costs by project category. Subproject appraisal takes into account the subproject's prioritizationprocess, cost-effectiveness, poverty focus, and sustainability. In addition, the institutional capacity of the SA andthe significance of the counterpart contribution are evaluated. Approval criteria includes analysis of alternatives,social impact and multiplier effect. Some subprojects require an environmental analysis (see below). The PMUor PRUs could, if necessary, be supported by external specialists. A subproject may be rejected only if it did notrespect the requirements defined in the Operative Manuals.(d) Approval. Subprojects are approved by the Project Regional Unit. Subproject costing more than US$25,000would be reviewed by the PMU, who will verify that the evaluation done by the PRUs is sound. Approvedsubprojects are then included in the project annual operating plan.(e) Executiin. The responsibility for subproject implementation is divided between the SA and the community.Subproject implementation rules include: (i) the PMU signs a tri-partite contract with the SA and theparticipating community. In the contract, among other, the SA and the community commit itself to followproject procurement procedures; (ii) the target community approves the hiring of external consultants/sub-contractors by the SA; (iii) for those subprojects which require a contractor (such as most infrastructuresubprojects), the tri-partite contract would also involve the contractor or supplier of goods or services; and (iv)the SA would ensure proper subproject supervision as per its contractual obligations(f) Disbursement, Disbursements would be made against the tri-partite contract signed between the PMU, theSA, and the community. Under the provisions of this contract, disbursements would be based on a disbursement


Project Appraisal Document Page 38Country: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Devekpment Project

plan--which is part of the tri-partite contract--with a maximum advance of three months. The maximumimplementation period of a subproject is one year.

(g) Subproject supervision and technical follow-up. Responsibilities for these activities are divided amongbeneficiaries and PRU. Participatory supervision and social monitoring are the pillar of the project approach.However, given the difficult technical aspects in some subprojects (e.g. irrigation), the involvement oftechnically prepared professionals would be essential. In these cases, the coordination with existing governmentagencies would be sought. In few cases, additional contracts between an independent supervisor and the PMUmight be required.

(h) Monitoring. The monitoring of the subproject is shared by the SA, the target community, and the project(PMU and PRU), in a pre-determined written arrangement. All three parties issue an approval and formalcertification of due and proper project subproject performance. The PMU has a planning, monitoring, andevaluation system detailing the specific instruments and the responsibilities. The long term objective of theproject is to emphasize ex-post monitoring, though at the beginning a more intense follow up would benecessary. A list of monitoring indicators was agreed upon during Negotations.(i) Operation. Maintenance and Ex-post Evaluation. The target community holds the primary responsibility forsubproject operation. However, the SA would maintain a presence throughout this phase to ensure due andproper subproject operation, the provision of technical assistance services if required, maintenance and ex-postevaluation. In addition. CONPLADE-IN would contract external auditors to evaluate the success of investmentsfinanced by the project, in terms of their achievement of specific subproject objectives, and the quality,efficiency, and sustainability of the subprojects.

OSo PAD Form: May 1997


Table 3. Subproject Classification and Examples

Public/community investments, to be financed through matching grants

Productive Agriculture Technical Assistance, training, andinstitutional strengthening for agriculture,livestock, forestry, or fisheries

Natural Resources Natural Resource Management (TA, training,Community forestry, nurseryWatershed managementSoil, pasture improvement

Infrastructure Rehabilitation or spot improvement of ruralroads (not opening)Micro-irrigationRural electrificationMarketing (rural markets, centro de acopio)Post harvest community infrastructure

Social Training Training centers, schoolsTraining events and activities

Health Water supplySewerage, latrinesHealth centers

Institutional Local developmentstrengthening

Technical assistance, training, goods andequipment for local institutionsCommunity centersCultural heritage

Private\individual investments, to be financed through credit by IFAD(only productive subprojects)

Agriculture Agriculture Agricultural inputs, such as seeds, fertilizers,pesticides (credit) and TA (matching-grant)

Livestock Inputs (credit) and TA (matching-grant)Private forestry Inputs (credit) and TA (matching-grant)

Micro-enterprises Agriculture Micro-processingSmall agro-industryPost harvest private infrastructure

Handicraft Cottage industriesServices

Risks and Mitigation Measures

18. The following are the specific risks of the rural investments component: (i) low subproject quality;(ii) political interference in operational decisions; (iii) excessive emphasis in private\individual investments;(iv) generation of negative environmental impact; and (v) given that the SA would not be asked to enter into apriori framework agreement with the PMU, or sign any letter of intentions, the SA will have no legal obligationsuntil the tri-partite agreement is signed. Several measures have been incorporated in the project design tomitigate this risks: (i) investments would be accompanied by several forms of technical assistance, such as theinstitutional strengthening component, and the requirement that each subproject is required to have specifictechnical assistance. Furthermore, the participatory planning would combine beneficiaries knowledge to the


Project Appraisal Document pg 40Country: Ecuador Project Mtle: Indigenous and Afro-Ecuadorian Peoples Devalopnmnt Poec

technical appraisal of the project units; (ii) political interference would be reduced by the transparency anddissemination of the set of rules defined in the Operational Manuals. Among these rules, an important one wouldbe the impartial allocation of resources by parroquias; (iii) it is expected that the strict requirements for approvalof private\individual investments, such as detailed economic and financial analysis, would discourage anexcssjye-demand. In case initial implementation would demonstrate that these strict requirements are notsufficient as obstacle, stricter requirements would be introduced; (iv) the next paragraphs and tables providesome example of environmental impact and mitigation measures; and (v) the subproject appraisal will not onlybe result based, as the process would be an important element of evaluation. Therefore the SA wvould have nobenefit if it does not follow the rules set in the Operational Manual.

19. Environmental Impact and Mitigation Measures. The project would contribute to the implementationof various kinds of subprojects, some with possible negative impact on the environment and others with clearpositive impact. The rehabilitation of rural infrastructure such as access roads, small scale irrigation works,processing and market facilities, etc. could create localized environmental problems. Subprojects of integratedwatershed management, reforestation, soil improvement, pasture management, etc., would generate a positiveenvironmental impact.

20. Environmental aspects of all subprojects would be reviewed during feasibility studies and, whenappropriate, mitigating measures would be designed for implementation. EAs would prepare an environmentaldescription of every infrastructure and production support subproject. This information would be reviewed bythe PMU, which would be responsible for the screening and which would assign the subproject to one of thefollowing categories: (i) full environment assessment required; (ii).specific environment assessment required;(iii) although an environment assessment is not required, environmental analysis is suggested; and (iv) noenvironment assessment or environmental analysis required. Besides, subproject identification and preparationthrough the participatory community-planning process would help avert negative impact on hulman and socialenvironment, including involuntary resettlement.

21. Access Road Rehabilitation. The project would finance only rehabilitation and spot improvement ofexisting roads. A simplified environmental analysis would be carried out for each subproject of this kind,because the roads are already in existence. This analysis would take into account not only the disturbance tonatural environment caused by soil erosion, changes to stream and underground water, interference with animallife, deforestation on the road blade, but also the increases in agricultural production. These consequences areinherent with agricultural growth and intensification. Access roads would not be rehabilitated in forest wesei'vesand other environmentally sensitive areas or where they would encourage new settlement.


P roet Appraisal Document Page 41Country: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Development Project

Table 4. Environmental Impact of Access Road Rehabilitation Subprojects

Impact Likelihood of Occurrence Mitigation MeasuresNatural Environment

Borrow-pits in the vicinity of Likely: but with labor intense Includes the contract theroa-ds construction methods, the pits necessity to re-vegetate

are shallow and small. borrow pits and practice soilstabilization in areas withsteep slopes (valleys).

Soil erosion through water Likely if appropriate Provide adequate siderun-off. procedures are not followed. drainage and dispersion of

drains by means of culverts inappropriate areas. Correctcamber placement to improvelocal run-off.

Opening of environmental Not likely No financing of such roads.sensitive production areas.

Increased agrochemical Likely Extension services for farnersapplication for the in (i) application and storageintensification of crop and of chemicals; (ii) Integratedlivestock production Pest Management (IPM); and

(iii) organic agriculture

Deforestation to increment Not likely Only rehabilitation of existingagricultural production. access roads.

Human and Social EnvironmentInvoluntary settlement or None The participatory micro-resettlement planning would resolve this

problem in advance.

Encroachment of historical- Nonecultural areas

22. Micro Irrigation. As only small-scale irrigation would be introduced, the subproject would not have asignificant environmental impact. However, some problems, such as water quality degradation because ofchemicals used in the more intensive irrigated agriculture, might occur at the local level. In Table 5 thelikelihood of occurrence and eventual mitigation measures are highlighted.


Project Appraisal Document Pae 42Country: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Development Projec

Table 5. Environmental Impact of Micro-Irrigation Subprojects

Impact Likelihood of Occurrence Mitigation MeasuresNatural Environment

Disruption of river hydrology None: subproject are small-scale (max. 100 Ha, average 30Ha).

Reduction of downstream Likely The effect is positive asflood flows and consequent conserving water in rainyreduction of low lying areas season would improveflooding downstream flows in dry

season.Waterlogging and salinity Not very common in Drainage networks whereproblems highlands and valleys necessary. Control of water

quality at feasibility.

Water quality degradation Likely: but the effect is Extension services to trainthrough chemicals minimal because of small- farmers in application and

scale storage of chemicalsEncroachment into forest or None: irrigable areas haveswamp land been already under rain-fed

cultivation

Soil erosion Likely: only localized erosion Proper constructionduring construction procedures

Free-ranging livestock causing Very likely. Perimeter fencing allowed indamage to dikes, canal and subproject designcrops

Change in wildlife and bio- Not a major problem becausediversity of small scale. Minimal

improvement of vegetation.

Water borne disease Possible in areas with high Drainage systemI temperatures

Human and Social EnvironmentImpediments to movement - Very little The participatory micro-transportation. planning would resolve this

._______________________ problem in advance.

Involuntary settlement or NoneresettlementConflict with existing water Likely, but not a major The participatory micro-users problem because of small- planning would resolve this

scale problem in advanceEncroachment of historical- Nonecultural areas

23. Processing and Market Facilities. Environmental problems related to these kinds of subprojects aremainly health and sanitation related: water supply, refuse collection, sewerage, and clean-up facilities. Poorhygiene and lack of water supply can turn out into food contamination and health hazards. Some kind ofprocessing, such as cheese processing, could produce polluting sewerage, while others, such as brick production,might cause borrow-pits. In all these cases, appropriate mitigation measures would be a condition of financingthe project.


Project Appraisal Document Page 43Country: Ecuador Project Tile: Indigenous and Afr-Ecuadorian Peoples Development Project

Savings and Credit Subcomponent7 - Economic Sub-projects

General Aspects of the Credit Funds

The credit funds will be composed of IFAD resources and the moneys derived from loan recovery, otherfinancial transactions, and the own funds of intermediary financial institutions' (IFIs) involved in the Project.The Project will contract one or more Banks or other IFIs under the supervision of the Superintendency of Banks(SB). These IFIs will act as second-tier financial structures of the proposed credit system. The IFIs will deliverloans to first-tier financial intermediaries that will also deliver credit directly to project clients. It is not forbiddento IFIs to directly deliver loans to individuals.

Regulations to Operate the Credit Funds

The operating mechanism will be as follows:

* IFAD's credit funds will be deposited in the Central Bank of Ecuador. The account will be in US dollars andin the name of the Project.

* The CONPLADE-IN will sign "subsidiary loan agreements for the transfer of funds, rights and obligations"with one or more financial institutions supervised by the SB.

* After signing the subsidiary loan agreements, CONPLADE-IN will open a credit line for the signatories of theagreement. These IFIs will manage the discounted funds according to the provisions of the credit by-lawspreviously agreed upon between the CONPLADE-IN and IFAD.

* Adoption of the final Operational Manual (credit by-laws) for private/individual iivestment iiwill be acondition for disbursement of IFAD loan.

Some of the main provisions of the Private/Individual Investment Operational Manual will be as follows:

* Banks and/or IFIs interested in operating with project resources will have to share the risk of ciredit operatiolnsby contributing with their own resources in installments at least greater than the rate of the arreais portfoliowhich each bank has as part of its credit operations.

* Banks' - IFIs clients will be informal financial institutions and/or indigenous and afro-ecuadoriancommunities (first-tier financial institutions).

* First-tier financial institutions will be savings and loans cooperatives, communal banks, Solidarity Funds("Cajas Solidarias") or non-governmental organizations (NGOs) with experience in managing rural credit. Thesupervised banks or IFIs --second-tier institutions-- will control and will be responsible for the operations of thefirst-tier ones.

* Second-tier institutions will share operating risks with first-tier IFIs. The latter will receive guarantees fromtheir own clients.

* Co-participation of risks mechanisms could include bidding for resources, compulsory guarantee rescves andfinancial ceilings for the organizations involved. Those responsible for credit coordination will negotiate thecorresponding procedures with banks and first-tier IFIs.

This subcomponent is entirely financed by IFAD.OSO PAD Form: May 1997

Pmoject Appraisal Document Page 44Cournry: Ecuador Project TiUe: Indigenous and Afro-Ecuadorian Peoples Development Project

* Direct clients who obtain credit for productive investments should belong to the project target group. At thesame time, the Operational Manual (which include Credit-by-Laws) will establish regulations regarding purposeof loans and maximum amount by family.

* The project will transfer funds to second-tier financial institutions at an interest rate that will assure thepurchasing power stability of the revolving fund. This interest rate could be established according to (i) the levelof market passive rates, (ii) the devaluation of the Sucre vis-a-vis hard currencies or (iii) the inflation rate.

* Second-tier banks will transfer their operating costs through the interest rate charged to their clients.Contracting more than one bank will facilitate competition, contributing to better service and reducing costs.

* First-tier banks will transfer operating costs to the interest rate charged by the second-tier banks. First-tierIFIs have a reduced volume of operations and each operation involves a small amount, therefore, this has astrong effect on fixed costs. Also, they lack trained staff, efficient operating procedures and enough equipment.

* The project has an institutional strengthening component for first-tier institutions. This component will beused as an incentive to improve management techniques, and reduce intermediation spreads so as to reduceinterest rates which is in line with project goals. These incentives will be subject to reducing the cost of moneyfor project clients.

Participating Institutions

Participating financial institutions are classified as follows:

* Savings and loans banks and cooperatives supervised by the Bank Superintendency. They could operate asfirst- and second-tier institutions. Some of them, such as Finagro, Banco Solidario and Banco de Pichincha,have already been contacted and have shown their interest in participating in the project.

- NGOs with experience in rural credit and proven efficient methodologies. Among the most important onesare: FEPP, ECLOF, CRS and FINCA. These institutions will work as first-tier banks and will have to agree onfinancing lines with second-tier institutions. Each one has its own specific experience, clientele and operatingprocedures. The project will act as a facilitator and promoter of businesses.

* Loan and savings cooperatives. They are more heterogeneous, less willing to work in rural areas and withgreater supervision difficulties. However, they could be very important in certain areas. A survey of theseinstitutions is currently underway in order to have a better understanding of their strengths and weaknesses.

* Solidarity Funds ("Cajas Solidarias"). The project will promote the creation of Solidarity Funds in order toencourage the creation of savings and micro-credit institutions at the local level. Their main mandate is to reachout to women groups or to establish seed experiences in isolated locations where there are no financialinstitutions. These funds will be made up of local savings and non-reimbursable allocations from the Project andfinanced by IFAD.

The appraisal mission has agreed on the main guidelines for the Private/Individual Operational Manualas follows:

* Solidarity Funds need to submit statutes showing the creation of the fund, credit by-laws, establishedauthorities, and member lists.* Members should have a minimum limit of obligatory savings.* The project will contribute with seed capital twice the amount of the saved portion by the members.* The funds should show --for example every six months-- information about their portfolio and financialstatements.


Project Appraisal Document Page 45County. Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Project

* The project will provide financial management, accounting, record keeping and portfolio managementtraining.* FINCA, FEEP and CRS, among others, will be requested to submit infonnation on their statutes and by-lawsas samples to be used by the project.

* The second-level and third-level peasant organizations (non-financial institutions) interested in acting as first-tier IFIs will have to establish similar regulations as proposed for the Solidarity Funds ("Cajas Solidarias").

Finally, the project will establish a credit coordination mechanism that will have a normative, planning,evaluating role and it would serve as a promoter of financial institution participation, it will seek to level offinterferences and take advantage of business opportunities in accordance with project objectives.

Non-specifically Allocated Funds

Non-specifically allocated funds will be available to support or strengthen future fornal financialinitiatives that facilitate the expansion and improvement of rural financial services, particularly, those thatprovide services to the indigenous and Afro-Ecuadorian rural populations.

Among the initiatives that are being elaborated and that could be eligible for these funds are:

- Support to the creation of an indigenous and afro-ecuadorian peoples fund.

* Support to the purchase or creation of a savings and loan cooperative controlled by the Superintendency ofBanks. This initiative is being considered by eleven NGOs with ample experience in rural credit in the country.

* Support to the restructuring and strengthening of the Credit Retro-Guarantee Corporation (Fondo ANacioinalde Retrogarantias Crediticias).



Project Component 4 - Institutional Strengthening of CONPLADE-INUS$9.7 million (total cost of component)

1. State Policy Relating to Indigenous and Afro-ecuadorian Peoples

Historical perspective

State policy regarding indigenous peoples has not yet been clearly defined and has numerousambiguities, but certain general trends may be distinguished. First, since the creation of Ecuador in 1830following its separation from Gran Colombia, attempts have been made to integrate indigenous peoples into thegeneral society by promoting their acculturation; but on various occasions types of social exclusion have beenmaintained, such as limitations on collective indigenous private property, the exercise of their right to citizenship(for example, by not allowing illiterate persons to vote or be elected) and of their rights to own land and maintaintheir own forms of government.

The constant pressure of dominant groups over the resources of indigenous peoples has made the formerpredominant in urban centers and the more fertile valleys, displacing the latter to the slopes of the cordillera ortropical lowlands and, in general, to disadvantaged geographical areas with sloping land and difficult access toirrigation.

Advanced forms of social organization were practically destroyed by the process of domination thatbegan with the Spanish conquest; however, remnants of indigenous self-government remained with chieftanshipsand parcialidades, some of which were ruled by an indigenous council (cabildo). In 1937, after over onehundred years of independence, the Law on Communal Organization and Regulations formally recognized theright of parcialidades to adopt a form of social organization, the commune or cabildo, which, being of Spanisiorigin, had been adopted by indigenous peoples since the colonial period. Later, in 1946, indigenousgovernments were established among the Tsachilas and Chachis, recognizing, albeit to a limited extent, thepeoples' right to have extra-community types of government. In recent decades, other legally recognized optionsfor social organizations have been created, such as cooperatives, centers (as an altemative to communityorganization), etc., and these grassroots social organizations have proliferated.

Current Legal Context

Like said before, Ecuador's legal context has been based on a constitutional norm favoring principlesaimed at disintegration of the indigenous culture and the adoption of policies favoring the integration of the4"marginal" indigenous population in mainstream society. The principles of the Constitution are based on thenotion that all citizens are equal, implying that by growing out of poverty indigenous peoples will graduallyacculturate. State policies and existing legislation have not been able to respond to the recovery of theindigenous cultural identity and associated demands, but have merely attempted to deal with these on anindividual basis or as demands of marginal groups.

More recently, since the 1980s, there has been a change from a predominantly exclusive policy to one ofgradual openness to the interests and demands of indigenous peoples. The National Constitution has acceptedthe fact that Ecuador is a pluri-cultural country, and much progress has been made in acknowledging indigenousrights to land, although agrarian legislation has many gaps. Bilingual education has been legitimized, withautonomous management by indigenous organizations. Opportunities have been created for the training andlegal recognition of second- and third-tier organizations, from community associations to provincial federationsand regional and national organizations. Moreover, processes have definitely begun that will allow the inclusionof indigenous people in national society, within the context of cultural diversity.



With regard to access to resources, goods and services for development, the most important expressionsof state policy toward the rural-peasant sector have been made through the Agrarian Reform Program of theEcuadorian Institute of Agrarian Reform and Colonization (IERAC), the Rural Development Fund for theMarginalized (FODERUMA) of the Central Bank of Ecuador, the Integrated Agricultural Development Programs(PIDA). of the Ministry of Agriculture, and the Integrated Rural Development Programs of the Sub-Secretariat ofRural Development (SEDRI) of the Ministry of Social Welfare. Although these projects were specificallyconceived or executed for indigenous and afro-ecuadorian peoples, their target population is rural, agriculturalpeoples, largely comprising the above-mentioned peoples. These programs' efforts are aimed especially atmeans of production, but they also incorporate the provision of basic social infrastructure (classrooms, healthposts), support for social organization, support to women and children through daycare centers, etc. Ambiguitiesin policy continue, however. Therefore, recent structural adjustment policies have favored the govemmenteconomic sector and jeopardized the social sector. Social investment has dropped to 4.2 percent of the grossdomestic product, one of the lowest in Latin America. The predominantly rural indigenous and afro-ecuadorianpopulation has also been affected by the low level of agricultural investments, decreased credit, interruption ofagrarian reform, and relative inaction with regard to irrigation policy. In summary, the state policy regardingindigenous and afro-ecuadorian peoples has lacked an integrating focus aimed at recognizing and protecting thebasic rights of these peoples, mainly the right to development from their own viewpoint.

CONPLADE-IN

The creation of CONPLADE-IN on April 13, 1997, with the direct representation of the majority ofindigenous and afro-ecuadorian peoples' organizations, constitutes a milestone in the development of state policyon this sector. It is a dream come true for indigenous and afro-ecuadorian peoples to have an agency whichrecognizes the national organizations that represent these peoples, and which is in charge of generating statepolicies in their benefit, executing programs and projects, and coordinating efforts with other state agencies,according to their own viewpoints and types of management. CONPLADE-IN's main types of work are: (i)intercultural development in Ecuadorian society, (ii) political, legal and administrative reform of the State, (iii)comprehensive and sustainable development, and (iv) affirmation of bilingual and intercultural identity, cultureand education.

2. Description of Project Activities

The objective of this component is to strengthen CONPLADE-IN in the following areas: (i) suppolri fbithe institutionalization in terms of improved information systems; (ii) assistance to elaborate a system of projectplaning, monitoring and evaluation, including the formulation of an indicative national plan for indigenous andafro-ecuadorian development; (iii) assistance to formulate a program of selected legal reforms and publicpolicies, in a concerted effort with indigenous and afro-ecuadorian peoples, focusing on preparation of theindigenous peoples development law and its regulations, the new communes law and its regulations, the law forthe recognition of indigenous health systems and the law on indigenous peoples cultures; (iv) establishment of aProject Management Unit in Quito and implementing offices in up to seven subregions; and (v) development ofcapacity to review legal reforms from an indigenous viewpoint. The main activities to be carried out areincluded in the areas of technical assistance and training, creation/maintenance of data bases and minimumequipment.

Technical assistance and training will be aimed at the adoption of efficient administrative and financialsystems for project execution. The preparation of the most suitable legal and institutional framework will besought, taking into account limitations in terms of time and existing resources, in order to facilitate thedevelopment of indigenous and afro-ecuadorian peoples in the context of cultural diversity.



3. Institutional Arrangements for Implementing the Component

CONPLADE-IN will implement this component. In order to carry out activities aimed at its institutionalstrengthening, local or foreign consultants with experience in the specific fields to be dealt with will be hired. Astrong legal assistance component is expected for the study of the situation and the fonrmulation of billsconsidered necessary by indigenous and afro-ecuadorian peoples and by CONPLADE-IN as mentioned in theprevious paragraph.


Project Appraisal Document Page 49Country: Ecuador Project Title: Indigenous and Afro-Ecuadonan Peoples Development Projed

Annex 3


Estimated Project Costs

Project Component Local Foreign Total--------------------- US $ million--

1. Institutional Strengthening of Local Membership Organizations8 6.4 0.7 7.12. Support to Regularization of Land and Water Rights 4.9 0.2 5.13. Rural Investments 22.4 22.44. Institutional Strengthening of CONPLADE-IN 6.9 0.4 7.35. PPF 1.4 1.4

Total

Total Baseline CostPhysical Contingencies 4.3 0.1 4.4Price Contingencies 2.2 0.1 2.3

Total Project Cost 48.5 1.5 50.0

Including Cultural Patrimony ActivitiesOSO PAD Form: May 1997

Project Appraisal Document Page 50Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development ProjWct

Annex 4


Cost Benefit Analysis Summary

(Indicate currency, units, and base year)

Present Value of Flows Fiscal ImpactEconomic FinancialAnalysis Analysis Taxes Subsidies

BenefitsNA9

CostsNANet Benefits: $47.5 M $40.5 MIRR: 38.5% 34.8%

Financial and Economic analyses were carried out for the Rural Investments component (53 percent of projectcosts). Essentially the soundness of the overall analysis is based on the principle of community demand determiningpriorities: the beneficiaries know best how to use scarce resources to satisfy their needs. To elicit community demandproperly which will limit narrow and vested self-interests, a participatory planning exercise will be used (a completedescription of the participatory planning exercise is available in the annex on the Rural Investments component). Giventhe importance of this participatory planning exercise, a pilot was carried out in seven provinces, involving 14 OSGs, andthe results were used to prepare a detailed financial and economic analyses of selected subprojects. The analyses,conducted by Food and Agriculture Organization-Cooperative Program (FAO-CP)10, evaluated models of 28 subprojectswhich the communities had chosen during the pilot participatory planning exercise. The models, which are differentiatedby ecological region, have helped to define investment parameters of sound subprojects. The results of the analysesshow a wide range of economic and financial rates of return, ranging from 13 to 152 percent. It appears that thebeneficiaries do not prioritize by rate of return alone, but take also other factors, such as equity and institutionalsustainability, into consideration. The table on the next page summarizes the results of the analyses of the 28 subprojects.The analyses of the 28 models were combined resulting in the weighted average of Net Benefits and Internal Rate ofReturn (IRR) which is shown in the table above.

Main Assumptions:According to the Ministry of Agriculture, fiscal distortions are insignificant in all agricultural inputs and

products (a few exceptions, such as chicken meat, do not influence the selected subproject portfolio). With the exceptionof labor, shadow prices were equivalent to 100 percent of costs. In the case of labor, a conversion factor of 80%. wasestimated. The use of this shadow price caused the difference between financial and economic analyses.

A discount rate of 12% was used to calculate the Net Present Value (NPV). The frequency factor was estimatedon the basis of the demand during the pilot phase. The resulting weighted average is an estimation of the whole projectportfolio.

9 Separated benefits and costs are not available because the flows of the 28 subprojects were added as net flows.10 The FAO-CP study is available in Project Files


Project Appraisal Document Page 51Country: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Projed

Al prices were estimated at the farm gate, in May 1997. Estimations were done during participatory subprojectassessment exercises. During these exercises, the prices published by the Market Prices and News Service unit of theMinistry of Agriculture were compared with the prices provided by the same beneficiaries. Similarly, yields andproductivity were estimated comparing data of the National Institute of Agricultural Research (Instituto Nacional deInvestigaci6n.4gropecuaria, INIAP) with the information provided by beneficiaries and local technical staff. Minordifficulties were caused by different measurement units, which have been converted into the metrical system in the FAOQCP report.

Table I - Summary of Financial and Economic Analyses of Subprojects

Subproject 'requency 8eneficiar 'I'otal Cost minancial Ecnomic Fminancial M =n5micies (US$) NPV (US$) NPV (USS) IRR IRR

I Carcnm - community sihops =9 , / I 3 z 1T - -T32 Carchi - soil improvement TooU% -- W -- 5T3 -- IT3, --- T7:2 U -26.w 25.4%3- -CFHi1or-azo - Camelidos -2.80U% 2ut 1,397 -4DS 1,966 24.3% 37.3%/4 Chimborazo - mrrigation horticulture 1147o --- 270,W0 1211 5u3o79uu 1T7% 1T97;

3 Chimborazo - irrigation milk 5.o% I U 7U,W0 5S 12,U46 13% 1t8%6 Chimborazo- Wool marketing - 5.75Yo 4UU 3,500 6660 70,1 4X:T% 32:7%7 Cotopaxi - Meat cottage tactory * T.7U%o IZU 3-4,667 1 14,933 1T92.)o 19.1T/0

t Cotopaxi - Milk cottage tactory 4.7U/o 9U 30,487 73,375 74,S95 4 53% 51.t OY9 bsmeraldas -Banana crop T.03%o --- 16,U26 ----967 26,924 34 :Wo 39V3ff

TU issmeraldas - Cocoa investigation -I?U3% --523U- 15,769 :94939 4,546 1e207o -17T.U%I I Esmeraidas- Community orestry j 3.5U%j 15U 38,78T 13,T74 19,9T1 17.5% ZL.1%1 IZ smeraldas Tree Nursery 50U%o 1 3 7 9 - ,o42 - 7T944 3 137 95.3J/

E13 Esmeraldas - Health nutrition impr. 0U7/ 00 38,841 Z,797 -- 2,797 T34% M TIX%E14 smneraldas - River transport --3% 40W 2S7IUo T72-B69.% Tr72 ro%Imbabura -Alternative crops T3V5F IZU 4,767 10,849 IZ,478 4---- -TU2

16 imbabura- Fish production 2X0% ZUU 8,46Z Z75U 29Z4 17:?i -17Imbabura- Flandicratt 8.:u/o -4U --,718- 9,oU7 -/,3T -232%6 27.5TTIf imbabura - MiIIK production T3U% 3w U 19,487 JT18 3,7U4 I T I 9Vo 1lW%Th Morona - Cinnamon improvement U.4(/b oOT 13359U 14870 17,172 o2.407o 3.8X%2tU Morona-aEcofourism - =7201: o- -39U --9---2- 6-4,Z41 2IX7% .7V7o

2U1 Morona - ivestock impro-vement- 6UWo - -23,U77 1,73U T1,443 16.6% - 2| Morona - Naranjilla produaion w- - 3-- 5:t 34>43T 30 9oSJ4429 327.2% -- 3TYU.TI o23 Morona - Kiver transport U093% 4UU 33,W0 73,6UI 77,448F 43.% 49Z2F Morona - Kural road U,93%/0 25U 38,462 5,690 6,027 14 4 141.6

'3 I ungurahua - Community torestry -5U-T. Io TUU- 39U 376 20U1 U.3% z21o

26 'I ungurahua - Irrigation berffes 36o 1/TU 74,T154- -39-Z 742,465 1327% -- 152 UT%W

Tu-n I'ungurahua- Irrigation onion J.68%- 17UT 74714 T 134,442 T9T,9JU 423% 49.7/o7g I ungurahua-- Wool livestock s2 ZXOfo 0 43 *37845 -2E;2o 3U,US IZ4:9% I3II%

Weighted average IU.UUffo 13 3U,536 46,361 54,337 347.5% 3X395%

I taI Kural Investments comp. (USS million) X74 S26.7 S4U.5 S47. W5% 3X3%

Subprojects to be financed by IFAD


Project Appraisal Document Page 52Country: Ecuador Project Tre: Ind 4enous and Afro-Ecuadodan Peoples Devel_opent Pjet

Annex 5


Financial Summary

Years Ending March 31(in million USS)

Implementation Period Operational Period"

1998 1999 2000 2001 Total 2002 2003 2004 2005 2

oject CostsInvestment Costs 10.5 11.7 13.4 12.4 48.0Recurrent Costs 0.6 0.5 0.4 0.5 2.0 0.5 0.5 0.5 0.5

Total 11.1 12.1 13.9 12.9 50.0

Financing Sources (% of totalpjet costs)

IBRD 11.1% 12.1% 13.9% 12.9% 50.0%IFAD 6.7% 7.3% 8.3% 7.7% 30.0%Government 2.6% 2.8% 3.3% 3.0% 1 1.7% 0.5 0.5 0.5 0.5Beneficiaries 1.7% 1.8% 2.1% 2.0% 7.6%Private Institutions 0.1% 0.2% 0.2% 0.2% 0.7% ___

Total 23.6% 24.2% 27.1% 25.1% 100%

t"tOperational costs of CONPLADE-IN's officesOSO PAD Form: May 1997

Project Appraisal Document Page 53Counbty: Ecuador Project rdle: Indigenous and Afro-Ecuadoran Peoples Deveapment Proje

Annex 6

ECUAD.OR: INDIGENOUS AND AFRO-ECUADORIAN PEOPLES DEVELOPMENTPROJECT

Procurement and Disbursement Arrangements

Procremm

Table A summarizes the project elements, with cost estimates, and proposed procurements methods. Allprocurement under the project will be carried out in accordance with Bank guidelines dated January 1995 andrevised in January and August 1996.

Table A: Project Costs by Procurement Arrangements

(in US$million equivalent)

Expenditure Category _ Procurement Method lICB NCB Other N.B.F Total

1. Works - - ( 0.1_____________________________ ________ ~~~~(0. 1) ____ (0. 1)

2. Goods and Equipment" . 0.6 1.8- 2.4(0.6) (0.9) (1.5)

3. Land -- - 2.0 2.0

4. Services" _ _ _ _ _ _ __ _ _

a. Consultantsl° 12.0 12.0l ____________________________ ________ ________ (6.5) _ _ _ (6.5)

b. Training _ . 3.6 . 3.6________ _________ (3.0) _ _ __ (3.0)

c. Management Services Contracts 2.8 2 2.8_____ ~~(2.0) __ _ (2.0)

5. Rural Investments X -a. Grants Community Subprojects _ 18.8 . 18.8

(9.4) (9.4)

b. Credit 5.0 5.06. Incremental Operating Costs (I 1.9 1.9

_________ (1. 1) ___ _ (I. 1)7. PPF 1.4 1.4

_________ __________ (1.4) ________ (1.4)

Total 0.6 42.4 7.0 50.0(0.6) (24.4) (25.0)

Note: N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the Bank loanTotal Cost including contingencies

12 Three quotations3 Including Vehicles14 Limited Intemational Bidding for vehicles (US$600,000) and international or national shopping for other goods (US$300,000)

According to Consultants Guidelines1 Including Pre-investments studies


Project Appraisal Document Page 54Country: Ecuador Project rdle: Indigenous and Afro-Ecuadonan Peoples Development Proje

The Bank would finance: (i) rural community subprojects consisting of works, goods and equipmenttechnical assistance, and agricultural inputs, (ii) goods and equipment for CONPLADE-IN, INDA, INEFAN,and financial intermediaries (financed by IFAD); (iii) consulting services; (iv) training; and (iv) non-salaryincremental operating costs. Procurement would be carried out by CONPLADE-IN and eligible sponsoringagencies under the guidance of CONPLADE-IN. For this purpose CONPLADE-IN would be strengthened by aprocurement specialist and administrative officers in each of the regional offices, who, among other, would trainexecuting agencies in purchasing goods, equipment and agricultural inputs for rural community investmentsthrough shopping.

Works: Only small works (all estimated to be below US$ 30,000 per contract) are expected to befinanced under the loan. These would be procured under lump sum, fixed price, contracts awarded on the basisof quotations from at least three qualified domestic contractors.

Rural community investments. Procurement for community based projects would be done by eligiblesponsoring agencies (including contractors and NGOs) with support from CONPLADE-IN and in accordancewith the guidelines specified in the Operational Manual. Financing of rural community investments would belimited to US$90,000 per subproject. Therefore, all works would be procured under lump sum, fixed pricecontracts awarded on the basis of quotations from at least three qualified contractors in response to a writteninvitation. Similarly, goods, equipment, and agricultural inputs needed for the implementation and operation ofthe investment would be procured through national shopping. Due to the small size and isolated nature of sub-projects national shopping procedures may not be feasible in many cases. Therefore, for sub-projects belowUS$25,000 procurement of goods, works and services for subprojects would be done through a system of directcontracting, up to an aggregate amount of US$ 10,600,000

Goods and equipment. CONPLADE-IN would purchase vehicles, motorcycles and computer equipmenltfor an amount of US$2,400,000 equivalent, including goods and equipment for INDA, INEFAN, and financialintermediaries (financed by IFAD) as specified in corresponding Cooperation Agreements. The purchase ofvehicles would be packaged and done through Limited International Competitive Bidding. Procurement of allother goods and equipment, not exceeding US$50,000 per contract up to an aggregate amount of US$ 1.2 millionwould be done through international or national shopping among suppliers with established service andmaintenance facilities in Ecuador. Contracts for all other goods and equipment would be procured tliougli NCB.

Consulting Services. The services consist of: (i) consulting assignments for individuals providing directtechnical assistance to CONPLADE-IN, INDA, INEFAN, and indigenous and afro-ecuadorian membershiporganizations for, inter alia, project implementation, monitoring, evaluation, land and water regularizationactivities, preparation of legal reforms; and (ii) technical assistance and studies by eligible executing agencies(firms, NGOs) under contracts specifying concrete outputs, inter alia for the implementation of a diagnosticstudy on community-managed irrigation systems, and preparation and implementation of subprojects under theRural Investments Component of the project. Consulting services would be procured in accordance with the1997 Bank Guidelines for the Use of Consultants.

Training. Training consists of workshops, study tours, and (degree) courses, including the cost of thetrainers' and trainees fees and scholarships, rental of training facilities, per diem of trainees or scholarships andmaterials required for the training activities. The services would be procured in accordance with the 1997 BankGuidelines for the Use of Consultants.

Management Services Contracts. The services consist of: (i) land titling and demarcation activities inproductive, forested, and protected lands by eligible executing agencies (including contractors, NGOs); and (ii)organization of cultural events within the context of the cultural heritage program financed under the project.The services would be procured in accordance with the 1997 Bank Guidelines for the Use of Consultants.



Table B summarizes the Thresholds for Procurement Methods and Prior Review. Prior reviewarrangements have been minimized in favor of post-review efforts which would be incorporated in the projectauditing arrangements. The Bank would include a prior review of: (i) the first two contracts of works for ruralcommunity investments exceeding US$25,000;(ii) each contract for vehicles; (iii) the first two contracts for othergoods and equipment costing procured through (inter)national shopping; (iv) all contracts for other goods andequipment procured through NCB; (v) consultant selection documentation (terms of reference, shortlists,selection, draft contract, etc.) for services with an estimated contract amount of US$1 00,000 or more for firnsand US$50,000 or more for individuals; (vi) terms of reference for all consulting services contracts; and (vii) allconsultants contracts based on a single source or of a critical nature. The Bank would carry out a post-review ofprocurement by eligible indigenous and afro-ecuadorian organizations on a sample basis during supervision.CONPLADE-IN would recruit auditors who would not only examine financial implementation but alsoprocurement procedures and physical implementation in the field. These auditors would carry-out annual auditson the basis of a sample not lower than 50% of the Bank-financed investments in the first two project years and40% in the remaining years.

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review

1. Works 30,000 and less a Three quotations First two contracts2. Rural Community Investments 25,000 and less Direct Contracting None

25,001-90,000 b/ National Shopping First two contracts

3. Goods and Equipment vehicles LIB All50,000 and less (Intern)national Shopping First two conitracts

over 50,000 NCB All

4. Consulting Servicessc/ Selection according toConsultants Guidelines

- Firms/NGOs/Universities 100,000 and less TORs onlyover 100,000 All

- Individual 50,000 and less TORs onlyover 50,000 All

a/ No works above USS 30,000 is expected to be financed under the loan.b/ No rural community investments above USS90,000 is expected to be financed under the loan.c/ No consultant assignments over USS200,000 are expected to be financed under the loan


Project Appraisal Dowment Pag 50Country: Ecuador Project ritle: Indigenous and Afro-Ecuadorian Peoples Development Project

Table C summarizes the Selection Procedures for Consultants which will be followed under the projectfollowing the 1997 Bank Guidelines for the Use of Consultants.

Table C: Consultant Selection Procedures

(in US$ million equivalent)

Selection Method Total Cost(includingcontingencies)

Consultant QCBS LCS CQ SS OtherCategoryA. Firns 8.2" 0.6" 0.62. 11.8

(5.0) (0.4) (0.5) (1.2) (7.1)B. 6.6 6.6Individuals (4.4) (4.4)

TOTAL 8.2 0.6 0.6 2.4 6.6 18.4(S.0) (0.4) (0.5) (1.2) (4.4) (11.5)

Note: QCSB = Quality and Cost-Based SelectionLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsSS = Single SourceFigures in parenthesis are the amounts to be financed by the Bank Loan

"7 For small assignments (less than US$ 100,000), the short list may consist entirely of national consultantsIs For accounting assignments costing less than US$150,000'9 Only for contracts of less than US$100,00020 Only for services requiring substantial involvement and knowledge of local issues, community needs, and,or participatoryapproaches


Poject Appraisal Document Page 57Country: Ecuador Project Title: Indigenous and Afro-Ecuadoran Peoples Development Project

D sbDrsement

The proposed Bank loan would be disbursed over a period of four years, beginning the fourth quarter ofFY98 through the end of the third quarter of FY2002. The project is expected to be completed by March 31,2002, and the project's Closing date is September 30, 2002. The allocation of loan proceeds by disbursementcategory is shown in Table D; the sources and uses of project funds in Table D.

Table D: Allocation of Loan Proceeds

Expenditure Category Amount of the Loan % of Expenditures toAllocated be financed

(in USS million)

1. Works 0.10 85%2. Goods and Equipment 1.50 85%3. Consulting Services and Training 9.00 90%4. Service Contracts 100%

a. Titling/Demarcation Productive Lands 0.80b. Titling/Demarcation Forested lands 0.27c. Titling/Demarcation Protected Areas 0.18d. Cultural Patrimony Activities 0.70

5. Subproject Grants for Rural Investments 7.50 100% of theamount of the

Grant6. Incremental Operating Costs 1.10 90/o until

withdrawals underthis Category have

reached anaggregate amountof $650,000 and

70%/O thereafter7. Refunding of Project Preparation Advances 1.60 Amounts due8. Unallocated 2.25

Total 25.00


Project Appraisal Document Page 58Country: Ecuador Project Title: Indigenous and Afro-ecuadonan Peoples Development Project

Table E: Sources and Uses of Project Funds (Totals Including Contingencies)

Expenditure Category Project Cost in Financing Percentage Financing Financing Amount inUS$million (Bank) Percentage Percentage US$million

(IFAD) (GOE) (Bank)

1. Works 0.10 85% 0% 15% 0.092. Goods and Equipment 1.80 85% 0% 15% 1.503. Land 2.00 0% 20% 80% 0.004. Consulting Services:

a. Indigenous and Afro-ecuadorian 1.50 90% 0% 10% 1.30Organizations 4.00 70% 0% 30% 2.80

b. PMU 1.10 30% 0% 10% 0.35c. CONPLADE-IN 1.10 90% 10% 10% 0.90d. Water Rights

5. Service Contractsa. Titling/Demarcation Productive Lands 1.60 50% 0% 50% 0.80b. Titling/Demarcation Forest Lands 0.30 90% 0% 10% 0.18c. Titling/Demarcation Protected Areas 0.20 90% 0% 10% 0.27d. Cultural Patrimony Activities 0.80 90% 0% 10% 0.70

6. Training:a. Indigenous and Afro-ecuadorian 3.10 90% 0% 10% 2.80

Organizations 0.05 90% 0% 10% 0.04b. INDA and INEFAN 0.40 30% 0% 70% 0.12c. CONPLADE-IN

7. Rural Investmentsa. Grants for Community Subprojects 18.80 50% 30% 0% 9.40b. Credit 5.00 0% 100% 0% 0.00c. Pre-investment and impl. 2.40 50% 50% 0% 1.20d. Technical assistance to financial intermed. 1.90 0% 90% 0% 0.00e. Goods for financial intenned. 0.50 0% 85% 0% 0.00

8. PPF 1.45 100% 0% 0% 1.459. Incremental Operating Costs 1.90 60% 25% 15% 1.10

Total 50.0 50.0% 30.0% 11.7% 25.0

21 Communities and Private institutions finance 7.6% and 0.5% of total project costs respectively.

Project Appraisal Document Page 59Cointry: Ecuador Project Title: Indigenous and Afro-ecuadonan Peoples Development Project

Consulting services include contracts to carry out: (i) training; (ii) support to land regularizationactivities; (iii) preparation of legal reforms; (iv) pre-investments studies; (v) support to subprojectimplementation; (vi) monitoring and evaluation; (vi) accounting, control, and management information studies;and (vii) project coordination. Training, consisting of workshops, study tours, and (degree) courses, includes thecost of the trainers' and trainees fees and scholarships, rental of training facilities, per diem of trainees orscholarships and materials required for the training activities. Grants for community subprojects would includecivil works, goods, equipment, and agricultural inputs for eligible beneficiaries. Goods and equipment undergrants for community subprojects include, inter alia, basic construction goods, tools, spare parts, basic machineryand furniture. Incremental operating expenditures include expenditures for travel, office rental, office materialsand supplies, utilities, office and equipment maintenance, field materials and per diems. The term agriculturalinputs means seeds, fertilizers and a positive list of chemicals to be included in the Operational Manual.

Once a grant for a community subproject is approved, a tri-partite contract would be signed betweenCONPLADE-IN, the sponsoring agency (including contractors, NGOs) and the participating communities. Thecontract would specify the works, goods, equipment, inputs to be purchased as well as the contribution of thecommunities to the investment. After signing of the tri-partite contract, CONPLADE-IN would disburse a firstpayment under the provisions of the tri-partite contract based on the agreed disbursement schedule into asubproject account of the sponsoring agency. The community contribution would be computed as part ofcounterpart finance of the project. Simple, standard records, whose format would be included in the OperationalManual, would be completed by a designated community representative. They would be used to record cashcontributions, materials and labor inputs and would be subject to project and audit procedures.

Disbursements would be made on the basis of full documentation for all expenditures made undercontracts requiring prior Bank review as indicated in Table B, and amendments to contracts raising the value ofsuch contracts above the prior review limits. For all other expenditures (goods, works and individual consultingservices with a contract value below US$50,000, and consulting services provided by firms/NGOs/Universities,with a contract value below US$100,000) disbursements would be made against Statements of Expenditure(SOE) for which supporting documents would be maintained by CONPLADE-IN and would be available forBank staff review. Special efforts would be made for the selective review of SOE documentation by visitingBank missions and auditors.

A Special Account in US dollars would be opened at the Central Bank of Ecuador or a commercial bankacceptable to the IBRD. The Special Account would have an authorized allocation of US$2.5 million. Theauthorized allocation would be limited to US$1 million until the withdrawals have reached US$ 5 million. TheBank would replenish the Special Account for the amount of withdrawals on account of eligible expenditures atthe request of the Borrower on a monthly basis.

The disbursement mechanism for the credit component (financed by IFAD) will be as follows: (i)IFAD's credit funds will be deposited in the Central Bank of Ecuador or a commercial bank acceptable to theAdministrator. The account will be in US dollars and in the name of the Project; (ii) CONPLADE-IN will sign"subsidiary loan agreements for the transfer of funds, rights and obligations" with one or more financialinstitutions supervised by the SB; and (iii) after signing the subsidiary loan agreements, CONPLADE-IN willopen a credit line for the signatories of the agreement. These IFIs will manage the discounted funds according tothe provisions of the credit by-laws previously agreed upon between the CONPLADE-IN and IFAD.

The advance for 2 project preparation advances (PPF) in the aggregate amount of US 1,450,000 would berefinanced from the proceeds of the loan. Retroactive financing of up to US$2.5 million would be permitted foreligible expenditures made in accordance with procurement procedures agreed under the project from September1, 1997, provided that the loan is signed not later than September 1, 1998. If the loan is signed at a later date, theinitial date for eligibility of expenditures for retroactive financing would be modified so that the period coveredby retroactive financing would be no more than one year. Retroactive financing is recommended to ensure that

Project Appraisal Document Page 60Country: Ecuador Project Tile: Indigenous and Afro-Ecuadorian Peoples Developmnt Proect

participatory planning efforts and institutional strengthening activities of implementing agencies both from thepublic and private sector can go ahead for project effectiveness.

Financial Management

Organization. A small administrative unit, consisting of a project administrator and treasurer, hasalready been operating in a satisfactory manner since the early stages of project preparation. Under the project,the Project Management Unit would include a sub-unit which will be responsible for all financial managementaspects of the project. The sub-unit would be headed by a coordinator whose qualifications will be in line withrequirements of the Contraloria General del Estado and who will be selected following a competitive process.In addition, the sub-unit would include an accountant, a treasurer and a budget person. Each regional office ofCONPLADE-IN would employ one administrator/accountant who would be responsible for administrativeaspects at the regional level under the guidance of the project central office in Quito and the regional projectcoordinator. Detailed TORs of all positions related to the financial management aspects of the project have beenincluded in the Operational Manual.

Budgeting. It was agreed during Negotiations that CONPLADE-IN would present by November 15 ofeach year an Annual Operating Plan for the subsequent year to the Bank for review and approval. The AnnualOperating Plan would include an annual budget specified according to project components, expenditurecategories and disbursement accounts, including counterpart funds. The budgeting process would be essentiallybottom-up. Based on progress achieved and in collaboration with the Comites Consultivos Regionales,CONPLADE-IN's regional offices would submit budget proposals to the Project Management Unit in Quito.The PMU would consolidate the proposals in a single Plan to be presented and discussed with the ComiteConsultivo Nacional. The Project Cost Tables would be used as a point of reference in the budgeting process.

Accounts, CONPLADE-IN will establish and maintain project accounts to record all project transactionsfrom the commencement of project execution. The accounts shall be maintained in accordance withinternationally and locally recognized accounting principles and practices satisfactory to the Bank. Theaccounting system will be divided by project component, expenditure category, and disbursement account andwill consolidate these accounts to prepare financial reports. CONPLADE-IN would also maintain a register ofassets purchased with project funds. The supporting documentation will be kept by CONPLADE-IN for at leastone year after the last disbursement of funds for the project and until it has been examined by the project'sauditors. The information will be available at any time for review by the Government, World Bank Missionsand/or independent auditors.

CONPLADE-IN has already built up an accounting system on a modified accrual basis for theadministration of two PPFs and one Japanese Grant during the project preparation process. A recently performedaudit by the Contraloria General del Estado following Ecuadorian norms, which are comparable to the normsrecommended by the International Federation of Accountants, gave an unqualified opinion regarding financialstatements, Special Accounts, and SOEs as well as the standards of record keeping and internal controls.However, the present accounting system needs to be upgraded to cover the expanded scope of activitiescontemplated under the project. For this reason it was agreed during Negotiations that CONPLADE-IN beforeJanuary 1, 1998, with resources from the on-going PPF, would contract an accounting firm or consultant toreview, recommend and start implementing design changes of the processes and system of management of fundsusing a decentralized structure which is able to monitor project progress based on agreed indicators anddisbursements following project components, expenditure categories, sources of financing and any otherrequirements. These changes would include steps to further computerize the current accounting system. Oncethe project would be effective, CONPLADE-IN would contract an independent private auditor under a multipleyear contract acceptable to the Bank, which would assist the institution in further bringing the systems andprocesses in line with the required Bank standards and subsequently perform the external audit under terms ofreference agreed with the Bank.



Intemnal contrIol The internal controls which are already in place under project preparation have provento be adequate. These include among other: (i) a clear separation of functions between the project coordinatorand the administrative subunit and among the personnel within the administrative subunit; (ii) detailedspecification of required documentation to authorize payments; (iii) verification of budget allocation andavailability of funds before payment authorization; (iii) the functioning of a procurement committee; and (iv) areduced number of persons authorized to sign checks. The internal control already in place will be consolidatedunder the project. As the scale of operations under the project expands so will the number of administrativepersonnel, allowing for an even more refined division of responsibilities than was the case during projectpreparation. As part of the annual reporting requirements, CONPLADE-IN would also conduct a physicalcounting of assets on hand and comparing these with the accounting records. The establishment of ComiteConsultivos at the regional and national level, consisting of representatives of indigenous and afro-ecuadorianorganizations, provides for an important social control mechanism within the project.

Reporting. It was agreed during Negotiations that CONPLADE-IN would prepare a mid-year and annualreport by July 31 and January 31 during the project period. The reports would provide a clear linkage betweenfinancial accounting information and the project monitoring indicators included in the Supplemental Letter to theLoan Agreement. Financial accounting information included in the reports would indicate source and applicationof funds during the current financial year and cumulatively since the start of the project. Comparisons of actualexpenditures would be shown against budgets agreed upon in Annual Operating Plans at the beginning of eachfiscal year and explanations would be provided for significant variations.

Aud.its CONPLADE-IN would hire independent private auditors satisfactory to the Bank under amultiple year contract to audit on an annual basis the financial statements, the Special Account and SOEs. Inaddition, the auditors would prepare a (long-forn) report on project management. The audit reports wouldconvey the auditor's opinion and comment as necessary on the methodology employed in the compilation of theSOEs, their accuracy, the relevance of supporting documents, eligibility for financing in terms of the project'slegal agreements and standards of record keeping and internal controls related to the foregoing. Copies of theaudit reports would be provided to the Bank within four months of the end of each state fiscal year. The finalversion of the Operational Manual will include detailed terms of reference for the auditors, following theguidelines included in the World Bank's Financial Accounting Reporting and Auditing Handbook.

In addition, CONPLADE-IN would contract external auditors to evaluate the success of investmentsfinanced by the project, in terms of their achievement of specific subproject objectives, and the quality,efficiency, and sustainability of the investments. For each subproject in the sample, the audits would focus onthe following points: (i) the adequacy of the physical design in relation to the subproject's objective; (ii) thequality and cost of subproject execution; (iii) the efficiency of procurement procedures used, including thetransparency of the process and the quality of the documentation to complete SOEs; and (iv) the targeting ofproject beneficiaries. The physical performance review would provide an indication of the effectiveness ofcommunity-based procurement, compliance with and/or needed adjustments to cost indicators, physical/financialindicators and to the formats included in the operational manuals, and the quality of project investments and theprofile of distribution of project benefits. The annual physical performance review would be conducted annuallyon the basis of TORs agreed with the Bank and included in the Operational Manual.


Project Appraisal Document Page 62Country: Ecuador Project tle: Indigenous and Afro-Ecuadorian Peoples Development Project

Annex 7


Project Preparation and Implementation Arrangements

A. Project Preparation

Project preparation formally started in FY95 following a request from the Ecuadorian Government for aloan which would specifically benefit the poor indigenous and afro-ecuadorian population of the country. Thefirst year of project preparation was mainly characterized by working out the terms, conditions, and institutionalarrangements under which the GOE and indigenous and afro-ecuadorian organizations would work together toprepare the project. After a long negotiation process, in which the Bank played an important intermediary role, aGovernment-Indigenous Project Management Committee was established (Comite de Gesti6n). Based on theparticipatory model ofjoint decision-making, this Committee has been fully responsible for the strategic andoperational aspects of the project preparation process. Project preparation really started in FY96 with theimplementation of a series of studies and the launching of a pilot project, reflecting the proposed activities to becarried out under the project.

During the project preparation process, the institutional framework has undergone major changes. Thesechanges themselves have prolonged the project preparation process. Initially, overall coordination for projectpreparation was the responsibility of the Secretaria Nacional de Asuntos Indigenas y Minorias Etnicas(SENAIN). Under the Duran Ballan Government, SENAIN was located in the Office of the President. It wasnever fully recognized by the indigenous and afro-ecuadorian grassroots organizations. The BucaramGovernment created the Ministerio Etnico Cultural (MEC). Although SENAIN remained responsible forcoordinating project preparation, it mainly focused to define its role vis-A-vis MEC during this period, therebyslowing down project preparation. The establishment of the current interim Government with the help of theindigenous leaders in Congress paved the way for the creation of the Consejo Nacional de Planifi caci6n deDesarrollo Indigenay Negro (CONPLADE-IN). Building on the institutional structure of the Comitd de Gesti6n,CONPLADE-IN is governed by a joint Government-Indigenous Directorate under the Presidency of theSecretario Nacional de Administraci6n. At the operational level CONPLADE-IN is managed by a SecretarioEjecutivo, appointed after nomination by the indigenous and afro-ecuadorian organizations. CONPLADE-IN isfully recognized by the indigenous and afro-ecuadorian organizations and has the full support of the currentgovernment.



B. Project Processing Schedule

Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 18 30First Bank mission (identification) 06/01/1995 06/01/1995Appraisal mission departure 08/01/1996 08/04/1997Negotiations 11/01/1996 11/10/1997Planned Date of Effectiveness 01/01/1997 04/01/1998

Prepared by:

until February 1997: National Secretariat for Indigenous and Afro-ecuadorian Affairsfrom March 1997: National Council for Indigenous and Afro-ecuadorian Development

Preparation assistance:

first PPF: US$350,000; supplemental PPF: US$1,100,000;Japanese Grant: Yen 43,700,000; International Fund for Agricultural Development

Bank staff who worked on the project included:

Martien Van Nieuwkoop LCSESSurajit Goswami, LCSESJorge Uquillas, LCSESMaurizio Guadagni, LCSESMarta Molares-Halberg, LEGLA

Peer Reviewers for the preparation of the project are:

Shelton Davis, Principal Sociologist, ENVSPThomas Wiens, Principal Economist, LCSESCharles Kleymeyer, Sociologist, Inter-American Foundation

C. Project Implementation

The implementation of the project includes the following organizations: (a) indigenous and afro-ecuadorian membership organizations; (b) the National Planning Council for Indigenous and Afro-ecuadorianDevelopment (Consejo Nacional de Planiflcaci6n y Desarrollo de los Pueblos Indigenas y Negros,CONPLADE-IN); (c) the National Institute for Agrarian Development (Instituto Nacional de DesarrolloAgrario, INDA); (d) the Ecuadorian Institute for Forests and Natural and Wildlife Areas (Instituto EcuatorianoForestaly de Areas Naturalesy de Vida Silvestre, INEFAN). In addition, the project provides for the contractingof NGOs and Universities to assist in project implementation.

Indigenous and afro-ecuadorian membership organizations. These organizations which operate at thelocal, regional and national level are the legitimate representatives of the beneficiaries of the project. There exist2,325 grassroots organizations at the community level, 160 second-tier organizations and 6 nationalorganizations of which the Confederacion de Nacionalidades Indigenas de Ecuador (CONAIE) is the mostpowerful one. Without loosing their independence, national organizations have formed an umbrella organizationcalled the Comite del Decenio. Indigenous and afro-ecuadorian organizations can obtain juridical status throughregistration in the Registro de Comunas, managed by the Ministry of Agriculture or in the Registro de



Organizaciones de la Sociedad Civil, managed by the Ministry of Social Welfare. The project will only benefitand cooperate with organizations organized into legally-constituted entities. The project will provide technicalassistance to legally register indigenous and afro-ecuadorian organizations which do not have juridical status

Under the Ley de Organizaciony Re'gimen de las Comunas ( published in the Registro Oficial No. 558 onAugust 6, 1937), the leadership of community-based organizations consists of the Executive body (Cabildo), andthe General Assembly (Asamblea General). The Cabildo comprises the President, Vice-President, Secretary,Treasurer, Sindico, and the Coordinators of any special working groups within the community. These officialsget elected by the Asamblea General for a period of one year. The Cabildo legally represents the community inall official acts and has the authority to sign contracts on behalf of the community. It meets on a monthly basisand in case important decisions have to be taken, matters will be discussed in the Asamblea General.Alternatively, community-based organizations can register themselves in the Ministry of Social Welfare asCentros with a similar characteristics and provisions as described above. However, since the procedure to obtainlegal status as a Centro is relatively straightforward, a large number of indigenous communities, particularlyamong the Shuar, have obtained juridical status as Centros.

Second and third tier indigenous and afro-ecuadorian organizations usually obtain juridical status byregistering themselves in the Registro de Organizaciones de la Sociedad Civil of the Ministry of Social Welfare.The leadership of these organizations consists of the Congreso, the Asamblea de Delegados and the Comiteejecutivo. The Congreso has the highest authority in the organization and consists of two delegates and twoalternates of all affiliated associations. The Asamblea de Delegados consists of one principal delegate and onesubstitute. The Comite Ejecutivo is elected by the Congreso for a period of two years and consists of thePresident, Vice-President, Treasurer, Secretario de actas y comunicaciones, Secretario de conflictos, Secretariode Organizaci6n, Secretario de deportes, Secretario de prensa y propaganda, and the Secretario de auxilio ysocorro.

Given their existing institutional capacity, experience and orientation, the project would particularlycooperate with second-tier organizations as sponsoring agencies for sub-project identification, preparation andimplementation. These organizations would be responsible to organize a participatory planning process amongtheir member communities to formulate and prioritize ideas and submit sub-project proposals to the RegionalProject Committee of CONPLADE-IN for approval. The Cabildos, after having consulted with their respectiveAsambleas Generales, should sign off on these proposals, thereby indicating the commitment of the communitiesto provide the required counterpart contribution of the sub-project. Once a sub-project has been approved, a tri-partite contract would be signed between the second-tier organizations, the participating Cabildos andCONPLADE-IN. Subsequently, the funds to implement the sub-project are passed to the second-tierorganization, which would be responsible for all procurement and record-keeping during the implementation ofthe sub-project. The contract also binds the cabildos and/or second-tier organizations to provide the necessarycounterpart contribution to implement the sub-project and the future operation and maintenance of the sub-project.

In order to assume the above described responsibilities, the second-tier organizations should meetspecified minimum institutional eligibility criteria. Organizations which do not meet these requirements couldteam up with an NGO which does meet them. Second-tier organizations lacking institutional capacity alsoqualify for institutional strengthening efforts financed under the project.

Given their orientation, the project would particularly work with the third-tier organizations, organized inthe Comite de Decenio, in the areas of policy and legal reforrns. For this purpose, CONPLADE-IN would enterinto contracts with these organizations. The contracts would specify expected outputs and the participatoryprocess to be followed to reach consensus on selected policy and legal reforms.

National Council for Indigenous and Afro-ecuadorian Development (CONPLADE-IN). CONPLADE-INwas created by Presidential Decree of March 13, 1997 (CONPLADE-IN Decree) as the successor to the National



Secretariat of Indigenous Affairs and Ethnic Minorities (the Ministry of Cultural and Ethnic Affairs that had a verylimited "life" was disestablished on February 28, 1997). CONPLADE-IN was granted juridical personality and isformed by the General Secretary of Public Administration (who will preside it) and a representative each of theindigenous and afro-ecuadorian national organizations. There are six national indigenous organizations and asmaller number (not yet clear) of afro-ecuadorian organizations. The Executive National Secretary has ministerialrank and legally represents CONPLADE-IN. CONPLADE-IN's powers are defined in article 4 of theCONPLADE-IN Decree and include among others, in respect of indigenous and afro-ecuadorian peoples ofEcuador: (a) policy formulation; (b) execution of development programs; (c) coordination of projects andprograms; (d) ensuring the participation of other sectors and institutions in their development; and (e) relatedpromotion, studies and projects.

CONPLADE-IN's principal tasks under the project will include: (i) project planning and coordination atthe national level through the preparation of the Annual Operating Plan; (ii) promotion of the project andencouraging participation of the indigenous and afro-ecuadorian organizations; (iii) preparation of projectimplementation reports, following organization of monitoring and evaluation exercises; (iv) ensuring timely andadequate provision of loan and state counterpart funds; (v) appraising and approving subproject proposals; (vi)entering into sub-project contracts with sponsoring agencies and cabildos; (vii) entering into cooperationagreements with INDA and INEFAN, to implement the project's land regularization activities; (viii) overseeing allmonitoring and supervision activities under the project to gauge compliance with project guidelines and to improvethe quality of sub-projects and project interventions, ensuring that environmental guidelines are followed; (ix)preparing statements of expenditures (SOEs) and applications for reimbursement; and (x) ensuring that the Bank'srequirements concerning procurement, disbursement and auditing procedures are followed.

Under the project CONPLADE-IN would be strengthened to carry out these tasks. For this purpose aProject Management Unit would be established, consisting of four sub-units reflecting the four main components ofthe project and a project administration unit. Up to seven regional offices of CONPLADE-IN would bestrengthened to assist in the implementation of the Institutional Strengthening of Local Membership OrganizationsComponent and the Rural Investments Component. Each regional office would have a project coordinator,administrative officer, procurement specialist and a mobile team, consisting of 4-6 professionals, responsible forsub-project implementation assistance, monitoring and evaluation. A Comite Consultivo Regional will be created ineach region to facilitate close interaction with regional indigenous and afro-ecuadorian organizations. In addition,training in specific areas will be organized for staff of CONPLADE-IN under the Institutional DevelopmentComponent of the project. To guide the project at the strategic level, CONPLADE-IN will create a ComiteConsultivo Nacional del Proyecto which consists of a representative of CONPLADE-IN and one of all indigenousand afro-ecuadorian organizations operating at the national level. The Comite Consultivo will meet once everytrimester. It will provide strategic input in the elaboration of the Annual Operating Plans and give recommendationsto follow-up on the findings of Monitoring Reports. The representatives of the national indigenous and afro-ecuadorian organizations in the Comite Consultivo will inform their membership organizations about projectprogress.

National Agrarian Development Institute (INDA). INDA, established by article 23 of the AgrarianDevelopment Law, to replace the priory existing IERAC, is the institute authorized, among other, to adjudicateState lands (mostly vacant or expropriated lands or those in possession of farmers for a specified period of time).The AD Law authorizes INDA to issue titles under three different procedures, one (article 36, Legalization)exclusively applicable to the indigenous communities and the other two applicable to all citizens, includingindigenous peoples (Articles 37, Adjudication, and Article 38, Other Adjudication). Article 9 of the ReglamentoOrgdnico y Funcional del INDA (Resoluci6n No. 2 RO/745 of July 25, 1995) provides a detailed description ofall the functions of the Institute.

The institutional structure of INDA is made up of the following bodies: (i) Board of Directors (ConsejoSuperior); (ii) Executive Directorate; (iii) four functional Directorates; (iv) four Support Units; and (v) three lineDirectorates. The Board of Directors includes representatives from the Ministry of Agriculture, the Ministry of


Project Appraisal Document Page 6BCountry: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development Project

Industries, the National Council for Development, Banco Nacional de Fomento, Federaciones Nacionales deCdmaras de Agriculturay de Ganaderos del Ecuador, and national indigenous, afro-ecuadorian ororganizations. The line Directorates include: (i) the Directorate for Land Regularization; (ii) the Directorate forRegistration and Property Information; and (iii) Regional Directorates in four regions: Central, Occidental,Centro Oriental, and Austral. In addition to the four Regional Directorates, INDA comprises 16 ProvincialOffices. In reality, INDA currently lacks the personnel and the resources to carry out its mandate established bythe Agrarian Development Law of 1994. There is a serious back-log in the adjudication of lands. In order toattend the most pressing cases, ONGs like CARE and FEPP have stepped in with their own resources to performfunctions of INDA.

Under the project CONPLADE-In would enter into specific implementation agreements with INDA forthe carrying-out of land regularization activities in selected areas. The implementation agreement, inter alia,specifies final outputs, intermediary products, and the methodology (adopted before or at the time of theagreement) to be followed. Field activities of the land regularization program would be carried out by selectedcontractors (i.e surveyors) or NGOs under contract with CONPLADE-IN. INDA would be responsible tomonitor the implementation of these contracts and based on the defined intermediary products adviseCONPLADE-IN on payment of installments specified in the contracts with these NGOs. To allow INDA tocarry-out these monitoring and evaluation activities some selected provincial offices would be strengthened and asmall unit of staff would be established in INDA's head office.

Ecuadorian Institute for Forests and Natural and Wildlife Areas (INEFAN). Ecuadorian Institute forForests and Natural and Wildlife Areas (Instituto Ecuatoriano Forestal y de Areas Naturales y de Vida Silvestre(INEFAN) created by Law No. 8 of September 14, 1992 (the INEFAN Law) owns, under Article 12 (a) (c) and(d) of the INEFAN Law, the national forest patrimonium (Patrimonio Forestal del Estado) and the protectedareas (Parrimonio de Areas Naturales). INEFAN is authorized to demarcate lands included in the PatrimonioForestal del Estado for indigenous peoples.

INEFAN is an autonomous institution linked to the recently created Ministry of Environment. Itssources of funding are the national treasury and revenues it receives from park entrance fees, tariffs from tourismoperators, and fines for illegal logging and hunting. The INEFAN Law allows it to keep these revenues and touse them in the operation and maintenance of the reserve areas system. As an autonomous entity, INEFAN hasthe faculty to sign contracts with other entities and/or individuals to carry out its mandate. Organizational unitsat headquarters include: (i) the Executive Directorate; (ii) three line Directorates: Forestry, Wildlife andProtected Areas; and Training and Research; (iii) three functional Directorates: Planning, Legal, and Budget andManagement; and (iv) administrative support units. The Board of Directors is composed of five ministers(Environment, Agriculture, Energy and Mines, Tourism and Defense) and two private sector representatives(from timber industry and NGOs). An Advisory Board to the Board of Directors is made up of representativesfrom indigenous communities, small industries, and national biology and forestry associations. In addition,INEFAN has seven regional offices which are allowed to make every day decisions. Each district coordinatesthe management of forestry activities and of protected areas within its jurisdiction. It also oversees, identifiesand implements conservation, development and recuperation programs for natural resources within itsboundaries. Districts also provide technical assistance to local communities and collect monitoring data forprojects within its jurisdiction. The organization structure of each district includes: a district chief, and advisoryboard, a technical coordination board, a project's technical unit, and a legal and administrative support unit. Theadvisory board is a coordination unit which includes representatives from provinces' governors, indigenouscommunities, army, education directorates, agriculture centers and timber industry.

Under the project CONPLADE-IN would enter into specific implementation agreements with INEFANfor the preparation and implementation of participatory management plans in forestry and protected areas. Thecooperation agreement, inter alia, specifies final outputs, interrnediary products, and the methodology to befollowed. Implementation of cooperation agreement would be the responsibility of INEFAN, which for thispurpose would be strengthened in selected regional offices and at headquarters.



NGOs. The term NGO is most commonly used to refer to developmental intermediary organizations thatwork with and channel resources to the poor, but do not represent them. They include voluntary organizationswith a charitable focus as well as research and advocacy organizations. Various sources estimate their numberbetween 500 and 600, although no complete lists of surveys of intermediary NGOs in Ecuador exist. They havebecome increasingly important actors in basic service provision and poverty alleviation in Ecuador.

The relationships of NGOs with the State in Ecuador can best be described as "coexisting"; the attitudeof NGOs towards Government has been critical but seldom antagonistic. There appear to exist two modes ofoperation: (i) partial substitution in which NGOs attend to the needs of certain social groups not covered bygovernment programs; and (ii) complementing regular government services in which NGOs have beencontracted by state agencies to perform certain functions. In general, these NGO-State relationships are stillcharacterized by a certain degree of distrust. State agencies want NGOs for specific short-termn implementationtasks while NGOs generally seek longer-term more complete involvement in projects, including identification,design and monitoring. Governments are reluctant to pay for NGO overheads or administrative costs.

The overall implementation capacity of NGOs varies greatly and remains largely untested. Thedemonstrated strengths of NGOs in Ecuador include: (i) use of participatory approaches to and beneficiaryinvolvement in implementation; (ii) knowledge of local context and willingness to experiment with alternativetechnologies which can be ecologically sustainable; (iii) orientation to poor and specific vulnerable groups; and(iv) the demand-driven orientation and concern for good governance. These strengths tend to be tempered withshortcomings in the areas limited coverage, lack of efficiency in economies of scale, little or no impact on widerpolicy issues, spotty monitoring and evaluation procedures, and in many instances, weak management andadministrative procedures, NGOs generally do not evaluate and learn from their projects and often remainunaccountable to their beneficiaries. They have difficulties in developing longer-range institutional goals andplans.

Where indigenous and afro-ecuadorian membership organizations lack institutional capacity, NGOscould act as sponsoring agencies for the identification, preparation, and implementation of rural communityinvestments. In order to ensure learning-by doing the project would stimulate the forrnation of partnershipsbetween NGOs and indigenous and afro-ecuadorian membership organizations in such cases. Under the project,NGOs will also play an important role in the implementation of land regularization activities. For this purposethey would enter into contracts with CONPLADE-IN, while implementation of these contracts would bemonitored by INDA. Furthermore, CONPLADE-IN would contract eligible NGOs to carry out institutionalstrengthening activities of indigenous and afro-ecuadorian membership organizations.

D. Project Monitoring and Evaluation

The demand-driven character of most project activities makes the ex-ante determination of keyparameters difficult, thereby increasing the need for effective ex-post control. The objectives of the projectmonitoring system are to: (i) provide information regarding the progress of the project and the status of thesubproject cycle in its different stages (subproject approval, procurement, implementation and disbursement; and(ii) verify that project activities are consistent with the guidelines included in the operational manuals.

The project would set-up an in-house monitoring and evaluation system, which would collect dataconcerning: (i) physical and financial information for each subproject; (ii) financial management, allowing thegeneration of Statements of Expenditures (SOEs); and (iii) project management, allowing the generation ofproject reports specified according to expenditure category, component, source of financing, and geographicalregion. The system would work as a network to facilitate deconcentrated operation and use.



The monitoring indicators would be divided into: (i) input indicators to track project activity progress;(ii) output indicators; (iii) effect indicators; and (iv) impact indicators, following the model presented in sectionE. below.

The information input in the system would come from various sources including: (i) a subproject datasheet containing basic information from the subproject proposal and the tri-partite contract; (ii) a supervisiondata sheet verifying information on the subproject data sheet, identifying implementation problems and possiblemitigating measures and reporting relevant effects; and (iii) implementation progress of contracts andcooperation agreements concerning institutional strengthening activities of indigenous and afro-ecuadorianorganizations and support to land and water regularization activities. The system will provide the basis toimprove project implementation and provide information facilitating the elaboration of Annual Operating Plans.

In order to evaluate project effects and impacts, CONPLADE-IN would be responsible to carry out thefollowing activities. First, CONPLADE-IN would contract external auditors to evaluate the success ofinvestments financed by the project, in terms of their achievement of specific subproject objectives, and thequality, efficiency, and sustainability of the investments. For each subproject in the sample, the audits wouldfocus on the following points: (i) the adequacy of the physical design in relation to the subproject's objective;(ii) the quality and cost of subproject execution; (iii) the efficiency of procurement procedures used, includingthe transparency of the process and the quality of the documentation to complete SOEs; and (iv) the targeting ofproject beneficiaries. The physical performance review would provide an indication of the effectiveness ofcommunity-based procurement, compliance with and/or needed adjustments to cost indicators, physical/financialindicators and to the formats included in the operational manuals, and the quality of project investments and theprofile of distribution of project benefits. The annual physical performance review would be conducted annuallyon the basis of TORs agreed with the Bank and included in the operational manual. Second, CONPLADE-INwould contract eligible NGOs to conduct participatory evaluation through focus group discussions concerningthe implementation of local development plans. These will be provide qualitative data on the effect ofparticipatory planning activities executed under the project. Third, CONPLADE-IN would enter into anagreement with the Secretaria Tecnica del Frente Social to ensure that the project area is adequately covered byfuture poverty studies, which will enable to measure the poverty alleviation impact of the project.



E. Project Performance Indicators and Implementation Plan

Component Indicator Year I Year 2 Year 3 Year 4 TotalOutput

Inst. Strengthening 1. no. of local dev. plans 57 57 57 7 178of Indigenous and elaboratedAfro-Ecuadorian 2. no. of "licenciados" 90 90Organizations trained

3. no. of bachilleres trained 80 80 80 2404. no. of publications I 1 1 1 4S. no. of legal assistants 40 40 40 40 160trained6. no. of concourses 20 20 20 20 807.noofvideos 4 4 4 4 168. no. oftechnicianstrained 121 121 121 121 4849. no. of cultural events 10 10 10 10 4010. no of org. equipped 58 50 50 158

Support to Land and 1. no. of management plansWater Rights (INEFAN) 10 10 10 10 40Regularization 2. no. of titles adjudicated 80 80 80 240

3. no. of legal reformselaborated 2 1 34. no. of irrigation systemscovered by diagnostic study 250 250 250 250 1000

Rural Investments 1. no. of subprojectsfinanced (matching grants) 100 200 250 250 8002. no. of community bankssupport arrangements 25 50 50 25 1503. no. of "cajas solidarias"support arrangements 25 S0 50 25 150

Institutional 1. no. of laws/policiesStrengthening of formulated 2 1 1 1 5CONPLADE-IN

2. national ind. planelaborated and up-dated I I I 1 4

3. no. of workshops 19 19 16 16 70

4. no. of forums 2 2 2 2 8

5. no. of regional offices 3 3 1 7established


Project Appraisal Document Page 70Country: Ecuador Project Title: Indigenous and Alro-Ecuadorian Peoples Development Project

Component Indicator Year 1 Year 2 Year 3 Year 4 TotalEffects

Inst. Strengthening 1. no. of org. which haveof Indigenous and capacity to elaborate localAfro-Ecuadorian development plans 20 30 30 20 80Organizations 2. % of subprojects included

in local dev. plans 20% 40% 60% 80%3. no. of organizationswhich have received supportfor cultural patrimony 25 25 30 30 110activities

Support to Land and 1. no. of org. with capacityWater Rights to elaborate land/forestRegularization NRM plans I 1 1 1 4

2. no. of org. benefitingfrom land regularization 20 20 20 20 803. no. of org. which haveparticipated in thediagnostic and contributedto water management action 20 20 20 20 80plan

Rural Investments l.no. of families benefittingfrom subprojects (matching 5,000 10,000 12,500 12,500 40,000grants)2. no. of families benefittingfrom cajas solidarias 500 1,000 1,000 500 3,0003. no. of families benefittingfrom community banks 500 1,000 1,000 500 3,000

Institutional 1. elapsed time betweenStrengthening of subproject presentation and 4 months 3 months 3 months 2.5CONPLADE-IN approval (average) months

2. elapsed time betweensubproject presentation andapproval (% of cases 50% 40% 30% 20%exceeding 4 months)3. No. of PAOs approved by 0 7 7 7CCR



Component Indicator Year 1 Year 2 Year 3 Year 4 TotalImpacts

Inst. Strengthening 1. no. of org. with increasedof Indigenous and access to resourcesAfo-Ecuadorian 2. closer link between 20 30 30 30 110Organizations demand and investments (%

counterpart contr. actually 60% 70% 80% 90%contributed3. % of org. with favorableaudit opinion 60% 70% 80% 90%

Support to Land and 1. Concept of ancestralWater Rights possession translated in acuerdoRegularization concrete procedures which pubi.

allow for activeparticipation of indigenousand afro-ecuadorian org.2. Follow-up project oncommunity water project inmanagement under pipelinepreparation based on resultsof diagnosis

Rural Investments 1. % of subprojectsachieving expectedeconomic returns 60% 60% 75% 75%2. reduced poverty (% 2 2 2 2 8points)3. % utilization ofsubprojects (matchinggrants after one year) 85% 85% 90%4. % increase in localsavings 10% 10% 10% 10% 40%

Institutional 1. CONPLADE-IN Plan forStrengthening of Ind. Dev. included in Carta I 1 I 1 4CONPLADE-IN Social

2. Favorable audit opinion I I I 1 43. Level of disbursements 85% 90% 90% 95%


Project Appraisal Document Pag 72Country: Ecuador Project Title: Indgenous and Afro-ocuadoran Peoples Development Proect

F. Project Supervision

Responsibilities and Reporting. Three types of reports would be generated and presented to theBank: (i) status of project implementation following the indicators mentioned in section E and an updated list ofsubprojects with their physical, procurement, and disbursement status, provided on a monthly basis; (ii) a mid-year project progress report, using standard formats agreed with the Bank including disbursements per categoryof expenditure, component, source of financing and region, to be presented by July 31 of each year of projectimplementation; and (iii) an annual report to be presented by January 31 of each year of project implementation,using standard fonnats from the mid-year report but also a comprehensive review of project output, effect, andimpact indicators as mentioned in section E above.

World Bank Supervision. The Bank will carry out at least two regular supervision missions per year.Regular supervision will entail: (i) review of mid-year and annual reports; (ii) a discussion of projectimplementation problems identified by CONPLADE-IN; (iii) field visits to a random sample of communitysubprojects, land and water regularization activities and local membership organizations included in the project'sinstitutional strengthening component; and (iv) review of project administration, management of accounts, SOEs,procurement documentation, and disbursements request. In view of the diversity of community sub-projects,consultants of different expertise would be contracted to provide occasional input and advice to bank missions.

Two full supervision reports would be issued annually. The schedule of project supervision is asfollows:

* by July 31 and January 31 of each year, presentation of mid-year and annual reports from CONPLADE-IN tothe Bank;

- by August and February I of each year, full Bank supervision missions completed; and= by November 15 of each year, presentation of Annual Operating Plan for the subsequent year to the Bank for

review and approval.

Two years after effectiveness, the Bank would carry out a mid-term Review to evaluate the performanceof the project. Two months before such review would take place, the Government and the Bank would agree ondetailed terms of reference and staffing of the mid-termn Review team. In addition to the items included in theTORs of regular supervision missions as mentioned above, the mid-term review team would particularly look atthe management capabilities of indigenous and afro-ecuadorian organizations and CONPLADE-IN for theimplementation of the project and identify any changes that might be required.


Annex 8


Documents in the Project File*

A. Project Implementation Plan

Diseflo del Proyecto de Desarrollo de los Pueblos Indigenas y NegrosAnexo 1: Etnicidad y pobreza en el EcuadorAnexo 2: Poblaci6n indigena y negra por regi6n y proyecciones hasta el 2002 y matriz de seleccion de las

parroquias de intervenci6n del PRODEPINEAnexo 3: Mapa de las regiones etnicas del EcuadorAnexo 4: Recursos de inversi6n de beneficio publico por region y cant6n segun poblaci6n, pobreza y NBI:

general y anualAnexo 5: Manual Orginico, Estructural y Funcional del ProyectoAnexo 6: Manual de Contrataciones y procedimientos para pagos y desembolsos de recursos del Proyecto

tanto de su nivel central, como de los Comites de Gesti6n Regionales y LocalesAnexo 7: Reglamento de Inversiones Publicas y ComunitariasAnexo 8: Reglamento de CreditoAnexo 9: Manual de Preparaci6n de ProyectosAnexo 10: Manual de Seguimiento y Evaluaci6n de ProyectosConvenio CONPLADE-IN; INDA; INEFANConvenio CONPLADE-IN; DINEIBConvenio CONPLADE-IN; STFS

B. Bank Staff Assessments

Economic and Financial Analysis of Rural InvestmentsSocial Assessment/Indigenous Poverty mapDetailed Project Costs Tables

C. Other

Modelos de Gesti6n, Microempresas y Servicios de Apoyo al Desarrollo ComunitarioCaracterizaci6n de BeneficiariosPoliticas Estatales sobre Pueblos Indigenas y Negros del EcuadorPlan de Manejo de la Unidad de Produccion y Determinaci6n del Tamafno Ideal de la FincaInventario y Clasificaci6n de Proyectos en EjecucionRegularizaci6n Tenencia de Tierras y Aguasdraft FIDA Appraisal Document: Componente de CreditoEstudio sobre demanda, adjudicaci6n, y legislaci6n de tierras en el Ecuador.Informe de Auditoria a los Estados Financieros del Proyecto de Desarollo de los Pueblos Indigenas y Negrosdel Ecuador, parcialmente financiados por el Avance de Credito PPF-269-0-EC y la Donacion JaponesaBIRF-05-2937-6-EC.

*Including electronic files.



Annex 9Statement of Loans and Credits

Status of Bank Group Operations in EcuadorIBRD Loans and IDA Credits in the Operations Portfolio

Original Amount in US$ MillionsLoan or Fiscal

Project ID Credit Year Borrower PurposeNo. IBRD IDA Cancellations Undisb

Number of Closed Loans/credits: 54

Active LoansEC-PE-36056 IBRD40660 1997 MINISTRY OF FINANCE JUDICIAL REFORM 10.70 0.00 0.00EC-PE-7131 IBRD40750 1997 GOVERNMENT AG RESEARCH 21.00 0.00 0.00EC-PE-7128 IBRD39980 1996 GOV'T OF ECUADOR ENV MANAGEMENT PROJ 15.00 0.00 0.00EC-PE-7132 IBRD38210 1995 GOVT. OF ECUADOR PUB ENT REP (TA) 12.00 0.00 0.00EC-PE-7136 IBRD38220 1995 GOVT. ECUADOR TA MDRN OF STATE 20.00 0.00 0.00EC-PE-7105 IBRD37300 1994 GOVT OF ECUADOR R IRRIG TA 20.00 0.00 0.00EC-PE-7106 IBRD37070 1994 GOVERNMENT OF ECUADOR SOC INV FUND 30.00 0.00 0.00EC-PE-7129 IBRD36550 1994 GOVERNMENT TA MINING 14.00 0.00 0.00EC-PE-7087 IBRD35100 1993 GOVT OF ECUADOR R SOC DEVT II/HEALTH&N 70.00 0.00 0.00EC-PE-7107 IBRD34250 1992 REPUBLIC OF ECUADOR SOC DEWV I/ED & TRG 89.00 0.00 0.00EC-PE-7115 IBRD33900 1992 REPUBLIC OF ECUADOR RURAL DEV 84.00 0.00 0.00EC-PE-7100 IBRD32760 1991 REPUBLIC OF ECUADOR GUAYAS FL'D CNTL 59.00 0.00 0.00EC-PE-7123 IBRD32850 1991 GOVERNMENT OF ECUADOR MUNIC DEV I 104.00 0.00 0.00

Total 548.70 0.00 0.00 2

A4^ctive Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 321.70 1,466.86 1,788.56

of which has been repaid: 25.85 837.70 863.55Total now held by IBRD and IDA: 522.85 730.86 1,253.71Amount sold 0.00 3.21 3.21

Of which repaid : 0.00 3.21 3.21Total Undisbursed : 227.00 101.71 328.71

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590). Following the FY94 Annual Review of

Portfolio performance (ARPP), a letter based system will be used (HS = highly Satisfactory, S . satisfactory, U .unsatisfactory, HU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance RatingMethodology (SecM94-901), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.



EcuadorSTATEMENT OF IFC's

Committed and Disbursed PortfolioAs of 30-Sep-97

(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1969/73/77/81/82/87 COFIEC 0.00 .31 0.00 0.00 0.00 .31 0.00 0.001993 Tripetrol 4.40 0.00 0.00 0.00 4.40 0.00 0.00 0.001993 REYBANPAC 8.36 0.00 0.00 0.00 8.36 0.00 0.00 0.001997 Agrocapital 3.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00

Total Portfolio: 16.26 .31 0.00 0.00 16.26 .31 0.00 0.00

Approvals Pending Commitment

Lm Equity Quai Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00


Project Appraisal Document Page 76.Countr: Ecuador Project Title: Indigenous and Afro-Ecuadorian Peoples Development ProSect

Annex 10Ecuador at a glance

Latin Lower-POVERTY and SOCIAL America middle-

Ecuador & Carib. Income Developmentdiamond

Population mid-1996 (millions) 11.7 485 1.125 jGNP per capita 1996 (USS) (Atlas) 1,530 3.710 1,750 Lfe expectancyGNP 1996 (billions USU) 17.8 1,799 1.967

Average annual growth, 1990-96

PopulaSon ) 2.2 1.7 1.4 GNPLabor foren e) 3.2 2.3 1.8 J rpm

per ,-

Most recent estimate (lafest yearavailable sinCe 1989) capita /enrolment

Poverty, headcount index (% of populaion) 35Urban population (% of total population) 58 74 56Lif expectancy at birth (years) 69 69 67Infant mortality (per 1,000 Eve births) 36 37 41 IChid malnutrition ('A of children under 5) 45 Accss to ah waterAccess to safe water (% of population) 70 80 78 illiteracy (9S of population age 15+) 10 13 .- s|

Gross primary enrollment (% ofschool-ge population) 123 110 104 EcuadorMale 124 O. 105 Lower-niddineome groupFemale 122 .. 101 t

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1996 1996Economic ratios'

GOP (bilons USS) 4.3 12.1 18.0 19.2Gross domestic investment/GDP 26.7 18.2 18.7 17.3 OpennssoteconomyExports of goods and services/GOP 26.2 26.8 29.7 30.5Gross domestic savings/GDP 20.3 24.1 19.7 24.4Gross natonal savings/GDP 18.7 16.7 14.6 16.4

Current account balance/GOP -5.1 0.0 -4.1 -1.1Interest payments/GOP 0.7 6.1 4.6 4.8 Savings InvestmentTotal debttGOP 21.0 71.7 77.7 76.6Total debt service/exports 8.5 33.0 26.7 27.5Present value of debtUGOP .. .. 70.1Present value of debt/exports .. .. 237.3 .. lndebtedness

197546 1966-96 1995 1996 1997.05(average annual growth) - cuadorGOP 3.9 3.2 2.3 2.0 4.3 1GNPpercapita 0.3 1.0 0.6 -0.2 1.8 - Lower-mide-income grupExportsofgoodsandservices 2.3 7.6 5.2 3.6 4.0

STRUCTURE of the ECONOMY

(S6of GOP) 1975 1985 1995 1996 Growth rates of output and investment (%)Agriculture 17.9 13.3 11.9 11.9 ,TIndustry 33.9 40.7 36.4 36.9 2t

Manufacturing 16.0 18.9 21.1 21.6 I /Services 48.2 46.0 51.6 51.2 0

Private consumption 65.2 64.5 67.7 63.9 .e -

General govemment consumption 14.5 11.5 12.6 11.8 GD -O-GoPImports of goods and services 32.7 20.9 28.6 23.4

17STS 1986-96 1995 1996 G -(average annual growth) Growth rate of export *nd Import (%)Agriculture 1.7 3.8 3.2 35 20 .Industry 4.8 2.7 2.4 1 0

Manufacturing 5.2 1.6 2.2 3.3 toServices 3.9 3.3 1.9 2.6

Private consumption 4.4 2.5 2.2 1 9General-govemment consumption 3.0 -0.7 1.9 -1.0 i O 93

Gross domestic investment -0.9 1.7 8.5 -11.6 1 .Imports of goods and services -0.6 3.5 9.8 .9 - EoGross nafional product 3.1 3.4 3.1 2.0

Note: 1996 data are preliminary estimates. Figures in italics are for years other than those specified.' The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, tMe diamond wil

be incomplete.OSO PAD Form: May 1997

Project Appraisal Document Page 77Country: Ecuador Project ritle: Indigenous and Afro-Ecuadorian Peoples Development Project

PRICES and GOVERNMENT FINANCE1975 198S 1995 1996

Domestic pries It (%)(5 change)C onsumer prices 15.4 2B.2 22.9 24.3

40-Implicit GOP deftor 10.0 30.9 23.2 29.4 i30Goven,nent ttnattce Is(% of GDP) 5,Current Revenue 267 22.5 21.7 91 n2 93 n4 f5Current budget bance 6.6 4.1 4. 6 0 CPtOveral supualddft 1.6 -2.5 .3.0 d

TRADEt975 1985 1995 1996-

enillons USS) 1976 1985 195 1996 Export and import levells mil. USS)Totulexports(fob) 2.905 4,411 4,890 5 °°

Fuel 1.927 1.560 1.776 4.500'Bananas 220 857 973 Manufacte 156 890 836 8 3t

TOtW imports (a)f . 1,766 4.153 3.724 2-n Food .. 94 442 478 tan0Fuel andeonerg . 196 241 160 I.OOC.Capita goods 526 1,376 1,111 s o

Exportprimeindex(1987 100) 113 116 112 go ei 92 3 94 t 9N iImport priceindex(1987e100 es 88 116 126 ;osExports a ImponsTermsoftrade (1987.100) .- 128 100 69

BALANCE of PAYtENTS1975 1985 1995 1996

ms7jons USS) Current account balsnce to GOP ratio%)Export of goods and seW vkes 1,110 3.302 5.348 5.641 ; .Impo"ts of goods *nd serices 1.295 2,247 S.155 4.487 92 I iz 1 9 94 ! isResourc bslance .165 1.055 193 1.354 INet incorme -87 -1,059 .1,159 -1.857 -2Netcumrenttransfers 32 0 231 290Current account blance. ' I!before official capital transfers -220 -4 -735 .213 - iFinancing items (net) 156 211 565 487 iChanges in net reseres i(*ncrsie) 64 .207 170 -274 4. LJM em o: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _Reserves induding gold (mitlt US$) 307 854 1,779 2.011Conversion rate (t/oeaWSS) 25.0 91.5 2,564.5 3,189.5

EXTERNAL DEBT and RESOURCE FLOWS1975 19S5 1995 tS96 ~(millions IJSS) 1975 1985 1996 1996 Composition of total debt, 1996 (mill. USS)

Total debt outstanding and disbursed 907 8.703 13.957 14,674 AIBRO 43 269 1,082 980 G _a_IDA 28 35 27 25 1313 25 C

Totaldebtservice 96 1.098 1.416 1t573 ,IBRO 8 47 167 194 /2778IDA 0 1 1 1

Composition of net resource flowsOfficial grants 3 25 69 EOfficial creditors 45 184 378 447Private creditors 196 201 726 404 F 2237Foreign direct investment 95 62 470 447 7191Portfolio equity 0 0 t

World Bank programCommitments 4 0 312 26 A.IBRD E ailateralDisbursements 17 40 319 89 3 -lA O.Other muttateral F F PrWalePrincipal repayments 4 25 99 120 C -IMF G0 Short-termNetflows 13 1S 220 -31Interest payments 3 22 69 75Net transfers 10 -8 151 -106

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