Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 46299-GT

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED DISASTER RISK MANAGEMENT DEVELOPMENT POLICY LOAN

WITH A

CATASTROPHE DEFERRED DRAWDOWN OPTION (CAT DDO)

IN THE AMOUNT OF US$SS MILLION

TO

THE REPUBLIC OF GUATEMALA

March 10,2009

Sustainable Development Department Central America Country Management Unit Lat in America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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REPUBLlC OF GUATEMALA - GOVERNMENT FISCAL YEAR

APL BCIE

CAFTA CAPRA CAT DDO CCRIF CCT CEA CEPREDENAC CFAA CODRED

COLRED

COMRED

CONE CONRED CORRED

CPS DDI DPL DPL DDO DRM DRMP DVW FDI GDP GFDRR GoG HFA IADB

January 1 -December 31 Secretaria Coordinadora Ejecutiva de la Presidencia

(Exchange Rate Effective as o f October 17,2008)

Currency Unit = Quetzal 1 Quetzal (QTZ ) = 0.1331 US Dollar (US$)

1 US$ = 7.51 QTZ

WEIGHTS AND MEASURES Metric System

ABBREVIATIONS AND ACRONYMS

Adaptable Program Lending Central American Bank for Economic Integration (Banco Centroamericano de Integracidn Econdmica) Central America Free Trade Agreement Central America Probabilistic Risk Assessment Catastrophe Deferred Drawdown Option Caribbean Catastrophe Risk Insurance Facility Conditional Cash Transfer Country Environmental Analysis Central American Coordination Center for Natural Disaster Prevention Country Financial Accountability Assessment Departmental Coordinator for Disaster Reduction (Coordinadora Departamental para la Reduccidn de Desastres) Local Coordinator for Disaster Reduction (Coordinadora Local para la Reduccidn de Desastres) Municipal Coordinator for Disaster Reduction (Coordinadora Municipal para la Reduccidn de Desastres) National Committee for Emergencies (Comite' Nacional de Emergencias) National Coordinator for Disaster Reduction Regional Coordinator for Disaster Reduction (Coordinadora Departamental para la Reduccidn de Desastres) Country Partnership Strategy Disaster Deficit Risk Development Policy Loan Deferred Drawdown Option for Development Policy Loans Disaster Risk Management Disaster Risk Management Program Disaster Vulnerability Reduction Program Foreign Direct Investment Gross Domestic Product Global Facility for Disaster Reduction and Recovery Government o f Guatemala Hyogo Framework for Action Inter-American Development Bank

1

FOR OFFICIAL USE ONLY

IBRD IDEA IEG IFC IFMIS IMF INFOM MSIVUMEH JICA L A C MAGA MARN M C E MDGs NFPS OECS OFDA PCN PFM P M L PND PNPMD

SAA

SEGEPLAN SIAM UNDP UN/ISDR WHO WMO

SE-CONRED

International Bank for Reconstruction and Development (Instituto de Estudios Ambientales, Universidad Nacional de Colombia) Independent Evaluation Group International Finance Corporation Financial Management Information System International Monetary Fund Instituto de Foment0 Municipal Institute for Seismic, Volcanology and Meteorological Services Japan International Cooperation Agency Latin America and the Caribbean Region Ministry o f Agriculture Ministry o f Environment Maximum Considered Event Millennium Development Goals Non-financial Public Sector Organization o f Eastern Caribbean States Office o f Foreign Disaster Assistance Project Concept Note Public Financial Management Probable Maximum Loss National Development Plan (Plan Nacional de Desarrollo) National Program for Disaster Prevention and Reduction (Programa Nacional de Prevencidn y Mitigacidn ante Desastres) (Secretaria de Asuntos Agrarios) Secretariat National Coordinator for Disaster Reduction Ministry o f Planning Mesoamerican Environmental Information System United Nations Development Program United Nations International Strategy for Disaster Reduction World Health Organization World Meteorological Organization

Vice President: Pamela Cox Country Director: Laura Frigenti

Sector Director Laura Tuck Sector Manager: Guang Zhe Chen

Task Team Leader: Joaquin Tor0 Landivar

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

.. 11

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

TABLE OF CONTENTS

I . Introduction ...................................................................................................................................... 1 I1 . Country Context ............................................................................................................................. 2

Recent Macroeconomic Developments and Medium-Term Outlook ............................................. 2 Macroeconomic Outlook and Debt Sustainability Analysis ........................................................... 4

I11 . Disaster Risk Management in the Government’s Development Agenda ...................................... 7 IV . Bank Support ofthe Government’s Program ................................................................................ 8

Collaboration with the International Monetary Fund (IMF) and Other Agencies ........................ 10

Lessons Learned ............................................................................................................................ 11

Link to Country Partnership Strategy .............................................................................................. 8

Relationship to other Bank Operations ......................................................................................... 10

Analytical Underpinnings ............................................................................................................. 12 V . Proposed DPL with a CAT DDO for Guatemala ......................................................................... 13

Operation Description ................................................................................................................... 13 V I . Operation Implementation .......................................................................................................... 24

Poverty and Social Impact ............................................................................................................. 24 Environmental Aspects ................................................................................................................. 26 Implementation, Monitoring, and Evaluation ............................................................................... 27 Fiduciary Aspects .......................................................................................................................... 30 Disbursement and Auditing. .......................................................................................................... 30 Risks and Risk Mitigation ............................................................................................................. 31

Annex 1 : Guatemala CAT DDO Policy Matrix ................................................................................ 32 Annex 2: Debt Sustainability Analysis ............................................................................................. 34 Annex 3: Fund Relations Note .......................................................................................................... 36 Annex 4: Disaster Risk Profile for Guatemala .................................................................................. 37 Annex 5: Organization o f the National Coordinator for Disaster Reduction (CONRED) ................ 46

Annex 7 : Letter o f Development Policy ........................................................................................... 53 Annex 8: Guatemala at a Glance ....................................................................................................... 62

Annex 6: National Plan for Disaster Prevention and Response ........................................................ 50

... 111

ACKNOWLEDGEMENTS

The World Bank Group greatly appreciates the close collaboration o f the Government o f Guatemala in the preparation o f this Development Policy Loan. This operation, and the overall program it supports, has been prepared by a team composed o f Joaquin Tor0 (Task Team Leader, LCSUW); Francis Ghesquiere, N ie ls B. Holm-Nielsen, Armando Guzman, Marcela Tarazona, Ana Maria Torres, Emma Phillips, Maricannen Esquivel, Osmar Velasco, and Violeta Wagner (all LCSUW); Waleska Garcia (LCSPE), and Antonio Blasco (LCSFM). This operation was undertaken under the general guidance o f Laura Frigenti (Country Director, LCC2C), Laura Tuck (Sector Director, LCSSD), Guang Zhe Chen (Sector Manager, LCSUW), and Gregor Wolf (Sector Leader, LCSSD). Peer reviewers were Alison Cave (ECSSD), Olivier Mahul (GCMNB), and Juan Carlos Mendoza (LCRVP).

i v

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

LOAN AND PROGRAM SUMMARY

Borrower Implementing Agency Financing Data

Operation Type

Main Policy Areas Key Outcome Indicators

Program Development Objective(s) and Contribution to Country Assistance Strategy (CAS) Risks and Risk Mitigation

Operation ID

Republic o f Guatemala Ministerio de Hacienda (Ministry o f Finance) IBRD Loan Terms: Fixed spread loan with a maturity o f 23.5 years including a grace period o f 8.5 years. US$85 million Development Policy Loan with a Catastrophic Risk Deferred Drawdown Option (CAT-DDO) Disaster Risk Management 0 Data fkom INSIVUMEH and the vulnerability analysis i s being used to

prioritize public investments. 0 SE-CONRED and SEGEPLAN are mainstreaming disaster risk

management considerations in key sectoral plans with respect to capacity building, training, and investments. New public buildings meet the terms o f improved building standards. Ministry o f Finance has improved response capacity to mobilize

0

0

resources in case o f disasters. The development objective o f the proposed operation i s to enhance the Government's capacity to implement its disaster risk management program for adverse natural events.

The proposed loan is considered to be of moderate risk. Although prior actions needed for this loan have been achieved, progress o f the overall program i s subject to risks fiom inter-institutional arrangements that need to continue to exist for multisector coordination, such as those associated with the decentralization o f responsibilities for disaster risk management actions. On the macroeconomic front, the main risks derive from the global crisis and more specifically from a deep and prolonged global deceleration. The current global situation i s expected to negatively impact Guatemala as credit to the private sector becomes tighter, remittances and foreign direct investment growth decelerate, and the US demand for Guatemalan products declines. This risk i s somewhat mitigated by recent steps taken by the authorities to enhance crisis preparedness including preparation and publication on January 15th o f the Emergency and Economic Recovery National Program which tries to coordinate and adjust the country's policies to better manage the current situation.

P112544

V

International Bank for Reconstruction and Development Program Document for Disaster Risk Management CAT DDO

to the Republic of Guatemala

I. Introduction

1. Sustainable development in Guatemala i s hampered by the country’s exposure to adverse natural events. Guatemala i s considered a hotspot for natural disasters. I t i s ranked as one o f the top five high-risk countries in the world in terms o f the vulnerability o f i t s gross domestic product (GDP) to three or more hazards: 83.3 percent o f Guatemala’s GDP i s located in areas at risk’. Between 1902 and 2005, Guatemala experienced 62 natural disaster events, which affected approximately 6 million peoples2 Since 1969 Guatemala has built significant disaster response capacity and institutions. However, building on lessons learned from this period and from innovations in disaster risk management from other countries, Guatemala has since 2005 taken the significant step to move from a reactive to a proactive approach to address disaster risk by investing in risk mitigation measures and by improving risk evaluation in planning and reconstruction activities. The current administration has elevated disaster risk management to one o f i t s main priorities.

2. Guatemala has requested the proposed operation to enhance the Government’s capacity to implement its disaster risk management program. The operation would support the country’s recent move toward pro-active disaster risk management rather than ex-post response. The preparation o f the operation reflects four decades o f disaster management experience in Guatemala, lessons learned from Guatemala’s active participation in regional disaster risk management initiatives, and in particular the experience acquired in the response to and rehabilitation after Hurricane Stan in 2005.

3. Guatemala’s National Program for Disaster Prevention and Reduction (Programa Nacional de Prevencidn y Mitigacidn ante Desastres, PNPMD) has been accepted by the Bank. The PNPMD and the prior actions leading to the development o f this Program were reviewed, and the Bank agreed that the Program contains a good foundation to start addressing the country’s exposure to disaster risk in a sustainable manner.

4. Development Objective: The overall development objective o f this DPL with a CAT DDO i s to enhance the Government’s capacity to implement i t s disaster risk management program for adverse natural events. This objective will be achieved by supporting policy and institutional reform in the following aspects o f disaster risk management:

0

0

Developing risk financing strategies.

Improving risk identification and monitoring; Increasing disaster risk reduction investments; Strengthening institutions and planning capacity for risk management; and

’ World Bank, Natural Disaster Hotspots, 2005, Table 7.2: Countries at Relatively High Economic Risk from Multiple Hazards, p. 89.

See Annex 6 for details on Guatemala’s exposure to natural hazards and the number o f reported disasters in Guatemala.

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11. Country Context

5. Guatemala, a lower middle-income country with a multiethnic population o f about 13 million people, and a per-capita GNI of US%2,610, i s the largest economy in Central America. Although a source o f cultural strength and rich historical heritage, Guatemala’s ethnic diversity has been accompanied by conflict and exclusion since colonial times. In the latter half o f the 20th century, long-standing socio-political and economic tensions sparked a debilitating 36-year civil war, which ended in 1996 after protracted negotiations led to the signing o f a set o f Peace Accords between the Government and guerrilla leaders.

Recent Macroeconomic Developments and Medium-Term Outlook

6. Growth has been strong in recent years, but slowed recently with the global economic crisis. The Guatemalan economy grew by 5.2 and 6.3 percent in 2006 and 2007, respectively, while in 2008 GDP i s estimated to have slowed to 4 percent. Although growth slowed in 2008 due to high oi l and commodity prices in the first half o f the year and the impact o f the global financial crisis in the second half o f the year, it was s t i l l relatively high compared to the average o f only 3.2 percent during 2003-04.

7. Exogenous factors-mainly the rise in global food and fuel prices-exerted substantial inflationary pressures on the Guatemalan economy in the first half of 2008. After having peaked at 9.2 percent in 2004, inflation moderated considerably in 2005 and 2006, when it fe l l to 5.8 percent. However, inflationary pressures reemerged in 2007 and 2008, as the consumer price index based inflation reached 14.2 percent and the food price index based inflation reached 19.4 percent in July. The second half o f 2008, however, witnessed a moderation in inflation as food and oi l prices abated and monetary policy tightening to stem inflationary pressures took effect. Preliminary estimates indicate that the 2008 end-year inflation rate was 9.4 percent.

8. T o date, the impact o f the global financial crisis has been moderate, but growth prospects are slowing. The Guatemalan financial sector was not directly exposed to the “toxic” financial derivatives that have impacted many countries and, hence, has not felt the first-round direct effects o f the global financial crisis. Yet, the credit tightening in global financial markets i s affecting the country (domestic credit to the private sector has been at 2007 levels in real terms over the second half o f 2008) as international credit lines are becoming more expensive and difficult to renew, and as banks are tightening lending standards and building up liquidity buffers. On the real front, the downturn in the United States has negatively affected remittances flows, which experienced a decline o f 8.5 percent in November 2008 compared to levels a year earlier.

9. Fiscal policy has remained prudent in recent years. Guatemala’s prudent fiscal conservatism has continued to serve the country well, especially during the current global slowdown. Preliminary estimates indicate that the fiscal deficit o f the central government was 1.6 percent o f GDP in 2008. The mirror image o f the country’s fiscal policy i s the low level o f public debt, which gives the authorities significant flexibility to address the new challenges created by the current external environment.

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10. Looking forward, a challenge for the country remains the approval and implementation of the government’s fiscal reform proposal. Despite the significant improvements in tax administration, including the passage o f an Anti-Tax Evasion Law in 2006, political opposition and unfavorable constitutional court rulings on taxes have kept tax collections as a share o f GDP relatively flat and below the Peace Accords target (13.2 percent o f GDP). In this regard, the Colom administration has been consulting with a wide array o f stakeholders since i t s f i rs t months in power in order to build consensus around a fiscal reform proposal. Originally intended as a single stage reform, the proposal was then divided into two phases to facilitate consensus and congressional approval. Actions considered in the f i rs t phase have included administrative measures to modernize the indirect tax system and customs, and approval by Congress o f the Solidarity Tax (ISO) to replace the temporary tax on income (IETAAP) which expired in 2008. Yet, lack o f progress with other planned measures such as a new tax on vehicles, as well as lower growth, are likely to lead to a decline in tax collections as a share o f GDP in 2008 and 2009. Against this background, the government i s continuing i t s efforts and i s now starting consultations on the second phase o f the reform program with the goal o f improving the tax system’s efficiency and fairness.

Table II.1. Guatemala Key Economic Indicators 2004-2008 (percentage o f GDP, unless otherwise indicated)

2004 2005 2006 2007 2008” Income and prices GDP growth (% change) GDP per capita (% change) Inflation (cpi end o f period YO change) Investment and savings Gross domestic investment Gross domestic savings Consolidated Public Sector Accounts Total revenues and grants

Total tax revenues Total expenditure Central Government primary balance Central Government overall balance Non Financial Public Sector overall balance Public debt Non Financial Public Sector total debt

Balance of payments Current account balance Trade balance

O/w External

Exports (including maquila) Imports (including maquila)

Foreign direct investment Remittances

3.2 0.5 9.2

20.8 15.9

12.3 11.5 13.4 0.3 -1.1 -0.6

21.9 15.5

-4.9 -15.2 16.2 31.4 1.1 10.8

3.3 0.6 8.6

19.7 15.2

12 11.2 13.7 -0.3 -1.7 -0.6

20.8 13.1

-4.5 -15.3 16.1 31.4 1.7 11

5.2 2.5 5.8

20.9 15.9

12.7 11.9 14.7 -0.5 -1.9 -1.2

21.7 13.1

-5 -16.1 16.6 32.7 1.8 12.1

6.3 3.1 8.7

20.4 15.4

12.9 12.1 14.7 -0.3 -1.8 -1.1

21.6 12.4

-5 - 16.2

18 34.2

2 12.5

4 1.3 9.4

20.5 15.1

12.2 11.4 13.7 -0.2 -1.6 -1.0

21 11.7

-5.4 -15.7 18.3 34 2.1 11.7

Memorandum item: Nominal GDP (billions o f US dollars) 23.9 27.3 34.3 37.8 41.1 1/ Preliminary Source: Ministry o f Finance, Central Bank and IMF and World Bank staff estimates.

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1 1. On the external front, Guatemala’s current account deficit has remained stable over the past few years-at about 5 percent o f GDP in 2007-and was financed to a large extent by high remittance inflows (11.7 percent o f GDP in 2008). Exports and imports increased considerably following the implementation o f CAFTA-DR in 2006. Indeed, exports grew by 20.8 percent and 14.3 percent in 2007 and 2008 respectively driven mainly by traditional exports (which experienced a growth rate o f more than 25 percent in 2007). Similarly, imports rose by 16.7 percent and 11.6 percent in 2007 and 2008, driven largely by the rising cost o f fue l in the later year. As a result o f these developments the trade deficit increased slightly between 2005-the year before CAFTA-DR became effective-and 2008 from 15.3 percent to15.7 percent o f GDP. Strong capital inflows, helped finance the current account deficit, as did the significant flow o f remittances from Guatemalans living abroad. Remittances have increased tenfold over the past ten years, displaying remarkable stability so far, although the downturn in economic activity in the U.S has started to weigh on inflows in recent months.

Macroeconomic Outlook and Debt Sustainability Analysis

12. The 2009-13 growth outlook for Guatemala i s broadly positive, but growth projections have now been revised downward as a result o f the continued global financial turmoil and the likely deeper economic slowdown in the US. Initial estimates had foreseen growth o f 5 percent in 2008 to be followed by a gradual slowdown to about 4.5 percent GDP growth over 2009-2013. However, in light o f the continued financial turbulence and economic slowdown in the US (the main commercial partner o f Guatemala), growth projections have been lowered. This reflects an expected decline in export performance, tightening domestic credit markets and slow down in remittances growth. GDP growth i s now projected to slow to 3 percent in 2009 and 3.5 percent in 2010 before recovering to about 4.0 percent in 2011 (Table 2). These figures could be further revised following a Fund mission expected to travel to Guatemala on March 16, 2009 (see paragraph 17).

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Table II.2. Guatemala Key Economic Indicators 2009-2013 (percentage o f GDP, unless otherwise indicated)

2009 2010 2011 2012 2013 Income and prices GDP growth (% change) GDP per capita (% change) Inflation (cpi end o f period % change) Investment and savings Gross domestic investment Gross domestic savings Consolidated Public Sector Accounts Total revenues and grants

Total tax revenues Total expenditure Central Government primary balance Central Government overall balance Non Financial Public Sector overall balance Public debt Non Financial Public Sector total debt

Balance o f payments Current account balance Trade balance

O/w External

Exports (including maquila) Imports (including maquila)

Foreign direct investment Remittances

3 0.3 6.5

19.6 15.9

11.7 10.9 13.9 -0.8 -2.2 -1.7

21.5 11.9

-3.7 -13.2 16.5 29.7 1.8 1 1

3.5 1.8 5.7

20.6 16

12.3 11.5 14

-0.2 -1.7 -1.2

21.5 11.4

-4.6 -14.4 16.5 30.9

2

4 1.3 4.9

21.2 16.7

12.3 11.5 14

-0.1 -1.7 -1.2

21.5 11.1

-4.5 -14.7 16.7 31.4

2

4 1.3 4.1

21.3 16.8

12.3 11.5 14

-0.1 -1.7 -1.3

21.6 10.7

-4.5 -14.9 16.8 31.7 2.2

4 1.3 3.9

21.4 16.9

12.3 11.5 14

-0.1 -1.7 -1.3

21.7 10.4

-4.5 -15 16.8 31.9 2.1

1 1 11.2 11.6 11.7 11.7 Memorandum item: Nominal GDP (billions of US dollars) 41.1 43.7 46.5 49.5 52.7

Source: Ministry o f Finance, Central Bank and IMF and World Bank staff estimates.

13. On the external front, the positive impact of lower prices for oil imports will likely more than offset the adverse impact of the global slowdown on dampening exports. Indeed the projections prepared in mid 2008 for the Fund’s Article IV Consultation, anticipated a trade balance deficit above 16 percent o f GDP and a current account deficit in the 5 to 5.5 percent o f GDP range. These projections have been revised downward in the new medium-term macroeconomic framework to a trade deficit in the 13 to 15 percent o f GDP range and to a current account deficit in the 4 to 5 percent o f GDP range over 2009-20 13,

14. On the fiscal front, Guatemala’s low debt and deficit levels open the possibility to countercyclical fiscal policy. As countercyclical fiscal policy i s implemented (particularly through increased targeted spending on the poor) the 2009 central government fiscal deficit may expand to a modest 2.2 percent o f GDP, up from 1.6 percent o f GDP in 2008. This larger deficit is expected to be financed with loans from the multilateral development banks. Beyond 2009, the government i s committed to maintaining the country’s ongoing fiscal restraint and hence the stock o f public debt is expected to remain (as a percentage o f GDP) at a level similar to the one in 2008. Fiscal outcomes will be somewhat driven by the Congressional approval o f the government’s Fiscal

5

Modernization Plan (supported by the Bank’s Fiscal and Institutional Development Policy Loan series).

15. The level o f public debt i s expected to be sustainable over the coming years. This assessment i s based on the debt sustainability analysis (DSA) contained in Annex 2. The DSA i s based on the medium term macroeconomic framework described above and shows that under the baseline scenario the ratio o f the stock o f public debt to GDP i s expected to remain at a level similar to the one in 2008. Debt levels would increase under less favorable alternative scenarios than the baseline including: (i) higher real interest rates (1 standard deviation or about 1.5 percent); (ii) lower growth (by 1 standard deviation or about 1.3 percentage points); (iii) a lower primary balance resulting from lower tax collection (1 standard deviation or about 0.4 percent o f GDP); (iv) a combination o f the previous three shocks using 0.5 standard deviation shocks; and (v) a sharp real depreciation o f the Quetzal in 2009 (25 percent). In all these alternative scenarios, however, the stock o f public debt would be at or below 27 percent o f GDP in 2013.

16. The banking sector in Guatemala remains liquid, though nonperforming loans (NPLs) have increased slightly with the economic slowdown (Table 3). As o f end-November 2008, banks maintained a ratio o f highly liquid assets to deposits o f 20 percent compared to 18.9 percent one year ago and standard profitability indicators (ROA and ROE) have been stable. At the same time, NPLs have increased from 1.9 percent o f gross loans to 2.7 percent. Perhaps more importantly in this context, new regulations have been approved to gradually increase provisioning requirements from the current 60 percent o f NPLs to 100 percent June 201 1.

17. Risks to the medium term outlook include the possibility o f domestic liquidity problems and/or lower remittances and export growth resulting from a worse than expected external environment. The Government o f Guatemala i s aware o f these risks and i s mitigating them. For example, the Central Bank i s already considering maintaining the credit windows opened temporarily during 2008 to increase the liquidity in the banking sector in both dollars and domestic currency. The Government has also requested the Bank to advance the planned FYlO Second Fiscal and Institutional Development Policy Loan to early in the fiscal year. More generally, Guatemala i s also exploring with the IMF the possibility o f a precautionary Standby Arrangement. To this end, an IMF mission i s scheduled to travel to Guatemala on March 16, 2009.

Table 11.3. Financial Soundness Indicators November 07 November 08

Capital Adequacy Capital to Asset Ratio 9.1 10.4 Profitability Return on Equity 19.39 18.81 Return on Assets 1.77 1.96 Asset Quality and Provisioning NPLs to Gross Loans 1.9 2.7 Liquidity Highly liquid assets to deposits 18.8 20.3

Source: Superintendence o f Banks

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18. On the whole, even though the economy i s entering a downturn and there are significant r isks to the short-term outlook associated with the difficult external environment, economic fundamentals are solid and provide an adequate basis for Bank development policy lending.

111. Disaster Risk Management in the Government’s Development Agenda

19. Guatemala’s economic and social development i s regularly interrupted by earthquakes, volcanic eruptions, hurricanes, flooding, and forest fires. Major disasters in Guatemala include the earthquake (1976), which resulted in more than 23,000 deaths and damages estimated at 17.9 percent o f GDP; Hurricane Mitch (1998), which caused estimated damages o f 4.7 percent o f GDP; and Hurricane Stan (2005), which caused damages estimated at 2.8 percent o f GDP. In all o f these events the Government had to interrupt ongoing development programs in sectors such as health and education to finance immediate needs for recovery and reconstruction.

20. The institutional setup for disaster risk management in Guatemala i s organized around the National Coordinator for Disaster Reduction (CONRED). The creation o f CONRED, under Law 109 o f 1996, introduced for the f i rst time the concept o f risk management in the country’s disaster management system. CONRED works as a coordinating mechanism providing a legal framework for disaster prevention and inter-ministerial coordination in cases o f emergency. CONRED i s supported by a Secretariat (SE-CONRED) employing 155 full-time staff organized around seven work areas: coordination, financial management, comprehensive disaster risk management, response, preparedness, mitigation, and logistics. SE-CONRED’S operating budget has gradually been increased over the last five years to an US$4 million in 2009. The structure i s replicated in regional (Regional Coordinator for Disaster Reduction - CORRED), departmental (Departmental Coordinator for Disaster Reduction - CODRED), municipal (Municipal Coordinator for Disaster Reduction - COMRED), and local (Local Coordinator for Disaster Reduction - COLRED) committees. These committees include representatives o f public agencies, private and civil society organizations, and are convened by the most senior government representative in the relevant locality. Delegates o f SE-CONRED support the committees, whose main functions are to: (a) coordinate disaster prevention and response activities; (b) relay information to the next level o f the system; and (c) implement actions relating to alerts, evacuation, security, and emergency shelter.

21. Learning from recent disasters, Guatemala has made progress towards a more proactive disaster risk management system. The legal basis for this change i s defined in two laws: the Social Development Law (Decree 42-2001), which includes the concept o f disaster vulnerability reduction and notions o f demographics and development planning as contributors to risk scenarios; and the Law o f Housing and Human Settlements (Decree 120-96), which mandates that all territorial entities take disaster risk into account in development planning. The implementation o f these two laws focus on vulnerability reduction. Actions taken include: (a) development by the Institute for Seismic, Volcanology and Meteorological Services (INSIVUMEH) o f Landslide Event Maps, to inform territorial planning, and substantial investment in upgrading and expanding monitoring networks; (b) creation o f risk evaluations by the Secretaria de Asuntos Agrarios (SAA) on land chosen for relocation o f families affected by Hurricane Stan, so as to ensure that famil ies would be relocated to safer areas; and (c) development by the Ministry o f

7

Planning (SEGEPLAN) o f a methodology for the inclusion o f disaster risk evaluations in territorial planning, and the development o f instruments for i t s implementation.

22. Following Hurricane Stan, Guatemala began to work on a National Program for Disaster Prevention and Reduction (Programa Nacional de Prevencidn y Mitigacidn ante Desastres, PNPMD). The PNPMD i s a coordination mechanism aimed at addressing disaster risk reduction in a comprehensive manner. Designed with support from the United Nations Development Program (UNDP), the PNPMD includes four l ines o f action: (i) improving risk identification and monitoring, (ii) investing to reduce risk, (iii) strengthening institutional and planning capacity for risk management, and (iv) developing risk financing strategies. Annex 6 details the four lines o f action, agencies responsible, and budget allocations. More than 25 government and private institutions participated in the drafting o f the PNPMD, ensuring a buy-in from important sector ministries. The current Government has validated the PNPMD through additional workshops and consultations, and through a CONRED resolution and budget appropriations for risk reduction investments in the 2009 national budget, new authorities have adopted it.

23. The current Government has placed disaster risk management firmly among its development priorities. The Plan de la Esperanza 2008-2012, the policy program o f the administration, focuses on increasing growth and reducing poverty and inequality. I t articulates disaster risk management as a self-standing policy issue in the context o f securing productivity, demonstrating significant political commitment. The government i s aware o f the significant economic consequences o f business interruptions associated with the transfer o f funds to address a disaster caused by adverse natural events, along with acknowledging the importance o f poverty and inequality reduction.

IV. Bank Support of the Government’s Program

Link to Country Partnership Strategy

24. The Country Partnership Strategy (CPS) for the period of 2009-2012 presented to the Board on September 23, 2008, identifies three broad development priorities for Guatemala: (a) Enhancing Fundamentals (maintaining macroeconomic stability, expanding fiscal space for priority spending, and improving governance and transparency); (b) Promoting Sustainable Growth and Productivity (improving investment climate, rural development and productivity, sustainable energy, and disaster risk management); and (c) Expanding Opportunities (enhancing opportunities for vulnerable groups through improving access to, and use of, social programs) (Table IV.l). The Government has requested Bank Group support for these development goals. The World Bank program includes a mix o f Development Policy Loans (DPLs), this proposed Catastrophe Deferred Drawdown Option (CAT DDO), investment lending, and analytical and technical assistance. Total lending assistance under the CPS may reach US$1 .O billion.

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Table IV.1: CPS Program Objectives and Select Areas of Action Broad ob.kdves to which the CPS will contribute

Enhance Fundamentals Promote Sustainable Growth Expand Opportunitirs (Macroeconomic Stabiliry and and Productivity (Expanding Upporhrnixies for

Fiscal Refom, Govemunce and (Improving the Investment Vulnerable Groups, Education,

Pmductiviv, Sustainable Energy, Risk Management)

Transparency) Climate, Rum1 Devtlopmem and Health)

Selected Programs and Areadl of Suppart Enhance fiscal space for priority

Strengthen integrated public regional integration Develop monitoring and

Enhance investment climate in Support design and targeting for pubtic spending the context DR-CAFTA and new CCT program

financial management awl tax 0 Promote SME access to finance adminisvation and deepen micro-finance effective and transparent CCT

management of financial system

conuption

efficiency of public spending mads

monitoring and evaluation and Alliances results based budgeting

provide opportuniues for youth opportunities

evaluation framework for

e Strengthen supervision and risk market P m P m * Promote development of eco-

Improve quality and m e s s to water, sanitation, housing and

Promote Public Private

Promote rural productivity and

0 Improve access to and quality of

services, especidly among rural and indigenous populations. Mitigate impact on poor of high fuel and food pnces

0 Reduce opportunities for tourism industry basic health and education

* Enfiance transparency and

v Improve decenttafized

v Improve access to justice and expansion of economic

Support development of

*Manage the risk of natural

hydroelectric and alternative energy sources

Cross4nlp themes Facilitate discussion among country stakeholders on refom priorities (fiscal refom to expand fiscal space, governance and the anti-corruption agenda); and strenglhen institutional capacity for improved monitoring and evaluation of public expenditures.

25. This Disaster Risk Management DPL with a C A T DDO i s one o f the lending operations which the Government o f Guatemala explicitly requested for the CPS period. As indicated in the CPS, the CAT DDO would provide bridge financing in the event o f a disaster triggered by adverse events, enabling a quicker response to address emergency needs while supporting policies to mitigate risks.

26. The CAT DDO provides the government with a broader range of coverage for addressing external shocks. This DPL with a CAT DDO focuses on adverse natural events, complementing other DPLs in Guatemala, such as the Guatemala Fiscal and Institutional DPL, given that the objectives o f these programs are to maintain fiscal stability and provide support to the Government’s development programs.

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Collaboration with the International Monetary Fund (IMF) and Other Agencies

27. IMF Collaboration: The Bank maintains a regular dialogue with the IMF on macro policy in Guatemala. In addition to the continuous exchange o f views between the two institutions, staff have jointly reviewed specific financial sector issues identified in the recently completed Article I V Consultations. The IMF assessment o f the current macroeconomic situation i s contained in Annex 3, but this will likely be updated following the IMF mission scheduled for March 16,2009.

28. Other Partners: The Bank has an ongoing dialogue with various agencies dealing with disaster risk management in Central America, including the Central American Coordination Center for Natural Disaster Prevention (CEPREDENAC), the Organization O f American States (OAS), the United Nations International Strategy for Disaster Reduction (UN/ISDR) in Central America, the Inter-American Development Bank (IADB), the World Meteorological Organization (WMO), and the Provention Consortium. Key initiatives supported through these collaborations include the Central America Probabilistic Risk Assessment (CAPRA) and the Mesoamerican Environmental Information System (SIAM).

29. Guatemala has the support o f several development agencies to improve its DRM strategy. The National Institute o f Seismology, Volcanology, Meteorology and Hydrology (INSIVUMEH) recently started a US$12.5 million program financed by the Central American Bank for Economic Integration (BCIE) to upgrade i ts seismic, meteorological, hydrological, and volcanological networks. Guatemala was recently earmarked as a priority country by the GFDRR which should allow the Bank to provide additional Technical Assistance in selected areas. In addition GFDRR funds will support capacity building measures to ensure the implementation o f the PNPMD.

Relationship to other Bank Operations

30. The Government has requested support for various technical assistance projects related to Disaster Risk Management. Guatemala’s Vice-president’s Office, in coordination with the National Committee for Risk Management, i s implementing a “Technical and Scientific Information for Municipal Planning” project, with financing from the Global Facility for Disaster Reduction and Recovery (GFDRR). This project was prepared over a two-year period in a participatory process with institutions including INSIVUMEH, MAGA, SE-CONRED, SEGEPLAN, and relevant municipalities.

3 1. Guatemala i s participating in Central American Probabilistic Risk Assessment (CAPRA), a regional initiative led by CEPREDENAC and Central American Governments with support from the UNDSDR, IADB, and the World Bank. Part o f an ongoing effort to promote a pro-active disaster risk management strategy in the Central American region, CAPRA applies probabilistic risk analysis techniques to measure magnitude and likelihood o f occurrence o f hazards. This information i s combined with exposure o f assets and vulnerability data, to produce a comprehensive measure o f risk. The main CAPRA product i s a compendium o f risk maps that provide disaster risk specialists and policy-makers with the necessary information to manage future disaster risk.

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Lessons Learned

32. The design of this operation has taken into account the lessons learned from previous disasters in the country, and lessons from 25 years of Bank operations and programs in the area of disaster risk management. The World Bank Independent Evaluation Group (IEG) report, “Hazards o f Nature, Risks to Development: An Evaluation o f World Bank Assistance for Natural Disasters” (2005), recommends that the Bank assist its clients most vulnerable to natural disasters to shift f rom focusing entirely on disaster response to implementing programs and policies for comprehensively managing disaster risk. The most important lessons from these events and from the more than 500 projects that were evaluated are the following:

33. Disaster risk should be proactively managed rather than treated as an exogenous shock to development. This has been documented in a wide array o f studies and i s the underpinning o f the Hyogo Framework for Action (HFA), the international agreement adopted by 168 government^.^ Guatemala has acknowledged that hazard risk i s a manifestation o f development that is not adequately adapted to the environment, and that managing disaster risk i s good practice to achieve sustainable development. I t has consequently included disaster risk management in i t s national development program and long-term development vision.

34. Reconstruction after a disaster should be done in areas that are not vulnerable to adverse natural events. Experience after Hurricane Stan revealed the tendency to reconstruct in highly vulnerable areas, resulting in prolonging the stay o f affected families in temporary shelters, while more appropriate reconstruction sites were sought.

35. Disaster risk management i s most efficient when based on adequate risk identification. In recent years, the Ministry o f Agriculture (MAGA) has made some efforts to identify risk using geographic information system (GIS) tools on a very large scale. This has complemented the more traditional monitoring o f natural hazards work carried out by the INSIVUMEH, and the geographic and cartographic information produced by the National Geographic Institute o f Guatemala (IGN). MAGA has generated information on some hazards, but the standards and methodologies to measure vulnerability and identify actual risk are yet to be fwlly developed and agreed.

36. Local community capacity to prepare for, and respond to, disasters caused by adverse natural events should be improved and strengthened. During the last 10 years the response and preparation capabilities in Guatemala have increased. However, Hurricane Stan and the 2008 floods revealed that despite good response capabilities at the municipal level, CONRED response ski l ls were st i l l weak at the local level.

37. Ex-ante investments have a significant impact in reducing losses. Since Hurricane Stan, the Government o f Guatemala has been investing in river dredging resulting in a significant reduction o f risk, as well as promoting risk management education in primary schools and

The HFA was formulated as a comprehensive, action-oriented response to international concern about the growing impacts of disasters on individuals, communities, and national development. Based on a careful study o f trends in disaster risks and on practical experience in disaster risk reduction, and subjected to intensive negotiations during 2004 and early 2005, the HFA was finally adopted by 168 governments at the World Conference on Disaster Reduction, held in Kobe, Hyogo Prefecture, Japan, 18-22 January, 2005.

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community awareness in the rural areas. These investments will have to be integrated with the National Plan for Disaster Prevention and Reduction in Guatemala under the leadership o f CONRED and SEGEPLAN.

38. Ex-ante risk financing helps limit the interruption of ongoing development programs. Such interruptions have occurred in Guatemala because the current financing arrangements require the Government to tap into i t s development program resources during an emergency. This practice hampers the implementation o f those programs, represents an administrative burden, and impairs an effective disaster response. The C A T DDO will establish the basis for a more ex-ante approach, will become part o f the country’s risk financing strategy, and consequently allow for uninterrupted developmental progress in the country.

39. Rapid and flexible financing i s critical for early recovery. On average, 50 percent o f the economic losses associated with large natural disasters occur in the post-disaster period. Guatemala and other countries have experienced the critical need for immediately available liquidity in the aftermath o f a disaster event to ensure that the Government can reestablish crucial services as fast as possible. If the Government has access to untied liquidity, it will be possible to accelerate recovery, minimize business interruption, and secure the operation o f critical public facilities, such as health services.

40. Ex-ante investments in local capacity building are necessary to prevent lack of coordination and leadership during major disasters. During Hurricane Stan, existing Emergency Operations Centers (COEs) were not prepared or able to coordinate (Cruz Avi la 2008). This exposed a larger problem for the country: the lack o f clear institutional responsibilities and sectoral roles, and the need for ex-ante investments to build local capacity.

Analytical Underpinnings

41. The general framework for the analysis and preparation of the four lines of action in the National Program for Disaster Risk Reduction was based on a number of key documents and publications, including the following:

> The Hyogo Framework for Action (HFA, 2005). This document endorsed by the Government o f Guatemala at the World Conference for Disaster Reduction in 2005 provides the guidelines for comprehensive disaster risk management actions. Guatemala used the framework for organizing the Identification and Monitoring o f Risks, Reduction o f Disaster Risk, Institutional Strengthening and Planning, and Risk Financing Strategies in the PNPMD, to ensure a more efficient and systematic implementation o f i t s disaster risk reduction strategies.

> The Central American countries’ Regional Disaster Risk Reduction Plan (Plan Regional de Reduccibn de Desastres, PRRD) (CEPREDENAC 2008). This document was instrumental for outlining key elements for Reduction o f Disaster Risk in the PNPMD. It provided the Government with a regional framework to work from, while also indicating the Government’s support o f the Disaster Risk Management Framework that i s promoted by CEPREDENAC, the Central American regional organization.

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> “Indicators of Disaster Risk and Risk Management,” and the “Guatemala Case Study,” published by the IADB in 2004. The first paper provides an important source o f information for the identification and monitoring o f risk and disaster risk reduction in the PNPMD by providing Guatemala with an understanding o f i t s own risk profile, while also providing the country with a comparative analysis on where it stands relative to other countries in the region. The “Guatemala Case Study” provides the Government with an overview o f the country’s main achievements in disaster risk management and indicates areas that need improvement.

> “Definition of State Responsibility, Exposure to Natural Disasters and the Design of Mechanisms to Cover Residual Risk’ (DeJnicibn de la responsabilidad del Estado y su exposicibn ante desastres naturales y e l diseAo de mecanismos para la cobertura de 10s riesgos residuales del Estado), published by Evaluacibn de Riesgos Naturales (ERN) in 2005. ERN i s a consortium o f academics and professional specialists in disaster risk management. ERN’S work provided information for Institutional Strengthening and Risk Financing Strategies in the PNPMD. The document outlines the importance o f the legal aspects o f disaster risk management with regard to the extent o f government responsibility (including concepts such as moral hazards), while also indicating the various mechanisms available to finance residual disaster risk.

V. Proposed DPL with a CAT DDO for Guatemala

Operation Description

42. The overall development objective of the proposed operation i s to enhance the Government of Guatemala’s capacity to implement its disaster risk management program for adverse natural events.

43. The DPL with a CAT DDO i s a new financial product, which was approved by the Bank’s Board of Directors on March 5, 2008. The DPL with a CAT DDO can help address Guatemala’s immediate liquidity needs in the aftermath o f a catastrophic disaster. The DPL with a CAT DDO i s a flexible and prompt financial tool to address risks to which the country i s prone. I t will enable the Government o f Guatemala to focus on emergency response measures in the aftermath o f a disaster, rather than spend valuable time and resources for fund-raising activities.

44. The Government will be able to access funds from the facility upon the declaration of a state of emergency as a result o f an adverse natural event. The maximum amount o f DPL with a CAT DDO funding constitutes 0.25 percent o f the national GDP o f the country, which in the case o f Guatemala wi l l be about US$85 million. Loan pricing i s in line with standard IBRD terms, which include a 0.25 percentage point front-end fee. The funds may be drawn down over a three- year period, which may be renewed up to four times for a total o f 15 years. The signing o f the DPL with a CAT DDO i s contingent upon Guatemala maintaining a sound macroeconomic policy framework and the existence o f a disaster risk management program.

45. The DPL with a CAT DDO instrument i s designed as a “bridge financing” mechanism in the event of disaster generated by adverse natural events. In discussions with the GoG, the Bank clarified that the DPL with a CAT DDO wi l l help reduce the GoG’s fiscal vulnerability in the event o f a catastrophic natural event. Also, in line with the Bank’s Catastrophe Risk Financing

13

Framework, the GoG was advised that small-scale natural disasters should be covered by the Government’s own reserve funds, while this instrument covers less frequent and more severe disaster events. To make this more explicit, the Bank shared with GoG officials a brief note on the DPL with a CAT DDO and the Bank’s risk financing framework for natural disasters.

46. Drawdown condition, financial features, and renewals are as f01lows:~

Drawdown Triggers. Funds may be drawn upon the declaration o f a national and/ or regional state o f emergency’ (Estudo de Culumidud Pziblicu), by Presidential Decree, under the Public Order Law 7, Article 14. The National Congress must ratify the declaration of the state o f emergency. FinanciaZ Features. The financial features o f the DPL with a CAT DDO are similar to those available for the Deferred Drawdown Option for Development Policy Loans (DDO DPLs), with one exception: the DPL with a CAT DDO would have a revolving feature; that is, amounts repaid prior to the closing date would be available for drawdown. Drawdown Period and Renewals. The drawdown period for this operation wi l l be three years. The DPL with a CAT DDO may be renewed up to four times. Renewals require that the original program remain largely in place: the adequacy o f the macroeconomic framework and a disaster risk management program will be reconfirmed and updated upon renewal. Renewal wi l l take place no earlier than one year, and no later than six months, before the expiry date.

47. The process for declaring a state o f emergency. According to Public Order Law 7, Article 14, a state o f emergency at national and/or regional level can be declared when the disaster i s o f such a magnitude that special measures are required for an effective response to the situation. There i s a legal system for CONRED’s assessment o f whether an alert i s severe enough to be declared a national or regional state o f emergency. Once CONRED suggests the declaration o f emergency to the Executive branch, the Public Order Law allows for mobilization o f economic resources and services to respond to the disaster. The process for declaration o f a State o f Emergency i s described in table V. 1.

“Memorandum fiom the President to the Executive Directors, Subject: Proposal to Enhance the IBRD DDO and to 4

Introduce a DDO Option for Catastrophic Risk (CAT DDO),” Document No. 42396, World Bank, January 29,2008. ’ According to the country’s Preliminary Regionalisation Law, Decree 70/86

14

Activity National Emergency Coordination Center o f Operations (COE), branch o f CONRED, suggests the declaration to

the Executive branch

The President declares a State o f National Emergency by Presidential Decree in a meeting with the Council o f

Ministers

The National Congress ratifies the Presidential Decree

The Presidential Decree i s then published in the official gazette to be acted upon immediately

4

4

4

48. During the last 50 years, five national and one regional states o f emergency have been declared. National states o f emergency include: the Guatemala earthquake 1976, Hurricane Mitch in 1998, floods in 2000, forest f i res in the northeast in 2003, and Hurricane Stan in 2005. The regional state o f emergency was the Tropical Depression 16 in October, 2008. A historical outline o f the declarations i s described in further detail in Annex 4.

Average Historic Timing

48 hours after the event

Up to 24 hours

From 24 hours of declaration to 8 days

Day after the ratification

49. and the status of progress i s illustrated in Table V.2.

The relationship among the policy area supported by this program, the prior actions,

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Table V.2: Disaster Risk Management DPL with a CAT DDO Government of Guatemala’s Prior Actions

Policy Area and Legal Framework

J Disaster risk management becomes a development priority for the Government by its inclusion as a se l f standing pillar in the National Development Plan 2008-201 1.

J The mandate and obligation to identify and reduce population at risk, i s defined in the Social Development Law, Decree 42-200 1, which provides the legal support for corrective action such as investments in disaster risk reduction.

J The mandate and obligation to include disaster risk evaluation as a parameter in territorial and infrastructure planning, which provides the legal support for prospective disaster risk management, i s defined in the Law o f Housing and Human Settlements, Decree 120-96.

Prior Action and Acti

The Government has developed and validated in a participatory process a National Program for Disaster Reduction and Prevention and included budgetary appropriations in support of the Program in the 2009 National Budget.

I Areas

Improving risk identification, assessment, and monitoring.

Strengthening institutions and planning capacity for risk management.

Investing to reduce risk.

Developing risk financing strategies.

Progress as of January 30,2009

INSIVUMEH has started a program for strengthening volcanological, meteorological, and seismic monitoring networks designed and National budget o f U S $ l O million for 2009 secured.

0 Program for analysis o f vulnerability o f critical public buildings (schools, hospitals, administrative buildings, f i re stations) in place.

~~

0 National Council for Reduction o f Disasters has approved a National Program for Disaster Reduction and Prevention through an interinstitutional participatory process.

0 SEGEPLAN has published and started disseminatiodtraining programs on a methodology for inclusion o f risk evaluations in territorial planning.

0 SE-CONRED’s program for school rehabilitation / retrofitting that takes adequate risk assessment into account in place.

Regulation for the Law o f CONRED which specifies that all public buildings must be constructed in accordance with seismic building standards has been approved by the relevant authorities and been forwarded to the President o f Guatemala.

0 Ministry o f Finance has a budget appropriation procedure for use of the CAT-DDO in place.

Under the current ex-post risk financing strategy the budget appropriation for the National Emergency Fund i s secured.

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50. I f at any time during the drawdown period the Bank concludes that the disaster risk management program i s not being implemented in a manner satisfactory to the Bank, the Bank will promptly advise Guatemalan authorities of the need for a subsequent review to confirm that the program i s implemented satisfactorily before it would be able to grant any request for drawdown. In this case, follow-up monitoring would be more frequent until a review confirms that the program i s back on track. Once the Bank i s satisfied that drawdown conditions are again in place, the Bank would inform the borrower that its eligibility to submit disbursement requests has been restored.

Toward a Comprehensive Disaster Risk Management Policy

51. The prior action agreed on with the Government i s consistent with the five good practice principles on conditionality, as identified by the Bank’s 2005 review and its updates. Box V. l describes how this disaster risk management DPL with a CAT DDO i s aligned with each o f these principles.

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Box V.1: Operational Consistency with Bank Good Practices Principles on Conditionality

Principle 1: Reinforce ownership

0 Alignment with government goals: This operation i s driven by the Government o f Guatemala (GoG) and enjoys solid ownership in the country. The disaster risk management DPL with a CAT DDO supports the National Program for Disaster Reduction and Prevention and i s aligned with the Government’s National Development Plan. This operation recognizes the priority given to disaster risk management by the GoG.

0 Timely and demand-driven analytical support: With the support o f UNDP, the PNPMD was developed during 2006-2007 and has been validated by the new government in 2008-09. Furthermore, the ongoing GFDRR-funded TA Grants on Technical and Scientific Information for Municipal Planning (TSIMP) and the Central America Probabilistic Risk Assessment (CAPRA) have and wi l l serve as inputs for relevant policy implementation.

Principle 2: Agree up-front with the Government and other financial partners on a coordinated accountability framework

The proposed loan i s based on a coherent framework o f expected outcomes that i s based on the Government’s program and has been coordinated with the IMF.

Jointly designed policy matrix: The Bank and the Government have prepared an operational policy matrix, agreeing on the prior action for Board approval and expected program outcomes drawn fiom the Government’s National Development Plan 2008-20 12.

Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances

In addition to supporting the Government’s development o f i t s integrated financial management system (SIAF) and e-procurement system (Guatecompras), the Bank i s also providing ongoing support for civil society activities to help build capacity to evaluate government information, increase transparency, and build public sector accountability. The Bank has been working closely with donor groups (for example, USAID, IADB, UNDP, Norway, the Netherlands) on enhancing governance, and on supporting various dialogues on social auditing with a range o f civil society organizations.

Principle 4: Choose only actions critical for achieving results as conditions for disbursement

CAT DDOs are approved for 3 years and unlike with other Bank budget support operations the CAT DDO only requires the adequacy o f the macroeconomic framework to be established at effectiveness and reconfirmed at renewal.

Funds may be drawn down upon occurrence o f an adverse natural event resulting in a declaration o f a state o f national or regional emergency, or an Estado de Calamidad P2iblica, by Presidential Decree, in accordance with Public Order Law 7, article 14. The National Congress wi l l have to ratify the declaration o f the state o f emergency. Such drawdown i s conditioned on continued satisfactory implementation o f the National Program for Disaster Reduction and Prevention in the four areas o f action.

Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support

The policy matrix contains outcomes that have been defined by the borrower and are closely linked to the supported policy actions. This wi l l help the Bank and government review progress during project implementation.

52. Two subsequent Governments have taken critical steps toward institutionalizing comprehensive disaster risk management rather than relying only on disaster response, as had historically been the case. The development and validation o f a National Program for Disaster Reduction and Prevention following commitments stipulated in the Social Development

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Law, Decree 42-200 1 , i s a significant accomplishment that provides an implementing mechanism for comprehensive disaster risk management in Guatemala. This Program was developed through a consultative process with the support o f UNDP during 2006-07. The program has been approved by the National Council for Reduction o f Disasters in January 2009. To further strengthen the integration o f disaster prevention and risk mitigation in the country’s development framework, the Government included disaster risk management in i ts current development strategy, Plan de la Esperanza 2008-2012.

53. The National Program for Disaster Reduction and Prevention outlines four areas of action: (i) improving risk identification and monitoring, (ii) strengthening institutions and planning capacity for risk management, (iii) investing to reduce risk, and (iv) developing risk financing strategies. O f the four areas, most advances have been made on risk identification, and some recent advances have been made on risk reduction and strengthening institutional capacity. Guatemala’s current financing strategy relies on ex-post budget allocations. An increased allocation to the country’s emergency fund combined with the resources made available through this CAT DDO i s a step towards a more efficient ex-ante risk financing strategy.

54. The Government and the Bank will maintain a close policy dialogue during the implementation of the PNPMD throughout the drawdown period. The Bank will have two supervision missions per year, where the Disaster Risk Management framework will be reviewed. This has been agreed with the government authorities and i s included in the PNPMD. Close coordination will also be maintained with other international organizations actively assisting Guatemala in the area o f post-disaster recovery and mitigation, including UNDP, IADB, the Office o f Foreign Disaster Assistance (OFDA), the Japan International Cooperation Agency (JICA), and the Government o f Spain.

55. Through GFDRR funds, the Bank will support the Government o f Guatemala with capacity building. One o f the components o f the GFDRR i s capacity building at the municipal and institutional level, which will ensure the successful implementation on the PNPMD.

First Area of Action: Improving Risk Identi$cation and Monitoring

56. Guatemala has made good progress towards risk identification and monitoring systems. Disaster risk management starts with the identification and analysis o f risks. The challenge o f risk identification i s to provide decision-makers with knowledge about disaster risk that enables them to take efficient decisions on how to manage the risk. To support risk identification and monitoring, CONRED counts on the support o f the Science Council. The INSIVUMEH presides over the Science Council. The council draws on information produced by public and private scientific entities. Some o f the specific projects carried out for risk identification and monitoring include the following:

INSIVUMEH: The institute has developed an inventory o f Historical Landslide Event Maps; implemented an early-warning alert system for flooding in six water basins; and conducted hydrological studies in the six basins, while preparing various educational facilities for the technical study o f monitoring and prognostic elements o f the systems. Secretaria de Asuntos Agrarios (SAA): In 2006, risk evaluations were made on 250 geographic areas earmarked for relocation o f fami l ies affected by Hurricane Stan. The

19

Gerencia de Riesgo, a professional risk evaluation group, worked with SAA in evaluating a further 50 geographic areas that are affected by land- and mudslides. SE-CONDRED: An “Early warning alert system for the Fuego Volcano to reduce the risk in Escuintla, Sacatepuez and Chimaltenango Departments”, developed by CONRED , has been supported by the Japan International Cooperation Agency (JICA). MAGA: This institution, responsible for basic cartography, has produced hazard maps for volcanic eruptions, developed at a scale o f 1 :50,000 with the support o f the JICA.

0

57. Guatemala i s working to strengthen risk identification at the municipal level in order to integrate this knowledge into territorial development planning. This activity, funded by a GFDRR grant, will help hazard-prone municipal governments to include risk considerations in their territorial development process. The project wi l l help: (a) develop scientific information on hazards, vulnerability, and risk; (b) provide specific risk information for land use and urban zoning; and (c) provide scientific information for Emergency Plans. The information provided wi l l help local authorities place appropriate controls to avoid the future generation o f risks and wi l l aid in the design o f risk mitigation programs.

58. Guatemala i s working with CEPREDENAC, the UN-ISDR, IADB, and the Bank to develop the Central American Probabilistic Risk Assessment (CAPRA) platform. CAPRA will help facilitate a comprehensive understanding o f risk and risk management. The platform wi l l enable governments and scientific communities to identify and evaluate the sources o f potential losses (both geographically and by sector) from disasters, risk reduction investment opportunities, and government capacity to finance and manage recovery operations. This knowledge wi l l provide the basis to the formulation o f strategies and policies to strengthen the national risk prevention and emergency management system, and to develop a risk finance strategy. Local community capacity to prepare for, and respond to, disasters caused by adverse natural events should be improved and strengthened. During the last 10 years the response and preparation capabilities in Guatemala have increased. However, Hurricane Stan and the 2008 floods revealed that despite good response capabilities at the municipal level, CONRED response sk i l ls were s t i l l weak at the local level.

59. The National Program for Disaster Reduction and Prevention in Guatemala aims to significantly augment the effort to improve risk identification and monitoring over the next three years. The program includes projects that wi l l advance methodologically the identification o f hazards, vulnerability, and risk, while strengthening national capacity in identifying and monitoring risk. Subprograms include: (i) a space to exchange existing methodologies on the analysis o f risk and vulnerability, while creating new methodologies in a participatory manner; (ii) the production o f hazard risk studies on landslides and flooding, and vulnerability risk studies, especially analyzing the vulnerability o f the most important water basins to determine population, infrastructure, and economic vulnerability; and (iii) the construction or strengthening o f existing observation networks, particularly the technical and scientific capabilities o f INSIVUMEH. For this end INSIVUMEH has secured U S $ l O mill ion for i t s budget during 2009.

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Second Area of Action: Strengthening Institutions and Planning Capacity for Risk Management

60. The creation of CONFWD introduced disaster prevention in the disaster management system in Guatemala for the first time. CONRED works as a coordinating mechanism providing a platform and legal framework for inter-ministerial coordination in cases o f emergency and to deal with disaster prevention.

61. The Government has recently taken steps to strengthen its institutional setup for more systematic investments in risk reduction. In Ministerial Accord 1686 o f 2007, the Ministry o f Communications, Infrastructure, and Housing decided to use, in every public investment, the minimal technical norms applied by the Ministry. Another important recent development i s the creation o f an integrated water resources management program, which includes flood protection and prevention. Under Government Agreement 204-2008, the Water Cabinet has been created. The Cabinet will be responsible for coordinating government efforts on design and management o f policies, plans and budgets on the water sector, to contribute to the achievement o f the national development objectives. This Cabinet i s a multi-sectoral body and i s coordinated by the Vice Presidency, with a technical secretariat in SEGEPLAN. Six interinstitutional commissions have been created, and one o f them, Water and Human Development (Comisidn de Agua y Desarrollo Humano), i s formed by the Ministry o f Health (MPSyAP), the Ministry af Agriculture (MAGA), the Ministry o f Environment (MARN), the Ministry o f Culture (MCD), the Ministry o f Education (MINEDUC), the Secretaria de Seguridad Alimentaria y Nutricional (SESAN), and CONRED. This commission wi l l be in charge o f developing the disaster risk management plans related to water.

62. However, the Government i s not yet in a position to identify or monitor needs for and investments in risk reduction across sectors, or to provide a strategic overview o f hazard exposure o r contingent risk for the country or for different sectors. To address this challenge, the Government has drafted a new regulation to strengthen the mandate o f CONRED, SE- CONRED, CORRED, CODRED, COMRED, and COLRED to document and monitor disaster risk as well as to promote prevention and mitigation activities. In addition, the new regulation for the Law o f CONRED has been prepared and requires that all public infrastructure investments must comply with seismic building codes. The regulation i s ready for the President’s signature and if approved, it could have a significant positive impact on risk reduction in future investments.

63. Disaster risk management i s not yet explicitly part of the territorial planning processes, but authorities are working towards a screening process for public and private investment. SEGEPLAN has developed a methodology that wi l l help territorial entities integrate disaster reduction and recovery into territorial planning. This i s a significant first step for developing the instruments and capacities that wi l l allow the territorial entities to manage their development planning in a way that reduces the construction o f new risk.

64. The National Program for Disaster Prevention and Reduction in Guatemala aims to significantly strengthen institutions and planning over the next three years. Programs include: (i) the formulation o f the National Policy for Disaster Risk Management, which involves all sectors, the Program being the f i rs t step toward the development o f this policy and that o f a National Strategy for Disaster Risk Management. It will be coordinated by SE-CONRED, involving both public and private institutions; (ii) the strengthening o f SEGEPLAN’s planning systems to

21

incorporate risk concepts in public investments, including: the National System for Territorial Strategic Planning-I (SINPET-I); the National Pre-Investment System (SINAPRE); and the Sistema Nacional de Inversidn Pziblica (SNIP). To ensure development projects are more secure SINPET-I and SEGEPLAN wi l l develop Departmental and Municipal Development Plans that include the risk as a variable, and in SNIP, pre-investment and public investment instruments will be identified; (iii) the implementation o f territorial planning in 13 municipalities by an inter-institutional committee involving SEGEPLAN, Ministry o f Environment (MAW), and Municipal Development Institute (INFOM); and (iv) the establishment o f a roundtable, with private, academic, and international cooperation, which will be coordinated by the Vice President’s Office and SE-CONRED , convening at least twice a year and supported by the UNDP and the World Bank.

Third Area of Action: Risk Reduction

65. Guatemala does not have a systematic investment program for risk reduction. Interventions in risk reduction are generally done ad-hoc. The government does not track or monitor investments in risk reduction across sectors. This means that there i s l i t t le understanding o f the significance or effectiveness o f these investments in reducing the disaster risk exposure o f the country or even o f specific geographical areas o f the country, making it hard to show results in terms o f reducing risk. Nevertheless, some o f the ad-hoc activities represent significant investments and represent good starting points for reducing the countries disaster risk.

66. SE-CONRED has recently developed and disseminated better construction standards according to risk assessment methodologies. In the aftermath o f Hurricane Stan, SE-CONRED developed a methodology in coordination with line ministries responsible for reconstruction as well as rehabilitation and retrofitting o f public buildings. The aim i s to introduce construction standards that result in better and safer buildings on the basis o f risk assessment methodologies. The methodology has been passed onto implementing agencies that may use it for reconstruction and rehabilitation activities, although SE-CONRED does not have the capacity to supervise the processes or to monitor to what extent the methodology i s being followed.

67. COVIAL i s overseeing the implementation of investments in river dredging and the strengthening of river banks to prevent significant adverse impacts of natural events on road infrastructure. The investment decisions are made on the basis o f documented cost for road maintenance. In areas where COVIAL experiences significant recurrent costs o f rehabilitation o f the road network due to the impacts o f floods, the agency invests in flood prevention as a cost minimizing strategy. Over the last 5 years COVIAL has dredged more than 150,000 cubic meters o f rivers and canals per annum.

68. The National Program for Disaster Prevention and Reduction in Guatemala aims to significantly augment investments in risk reduction over the next three years. The main subprograms o f the Plan regarding investments in risk reduction include: (a) developing national standards for including disaster risk assessment in construction planning; (b) elaborating National Regulation for the Construction o f Schools and guidelines for i t s application; (c) the implementation o f a public infrastructure auditing program through the National General Auditing Agency “Contraloria General de Cuentas ”; (d) two pilot programs in Guatemala City to transform high risk zones into secure zones; and (e) identification o f mitigation works in vulnerable areas (such as river basins).

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Fourth Area of Action: Developing Risk Financing Strategies

69. Until recently Guatemala has relied on ex-post budget allocations to respond to disasters caused by adverse natural events. In the past, financing for disaster response and reconstruction was almost entirely appropriated after the disaster event through two mechanisms: (1) the National Emergency Fund, coordinated by CONRED and financed according to the guidelines provided by the National Plan for Disaster Prevention and Response (each year the Emergency Fund receives US$2 from the national budget [Presupuesto General de Ingresos y Egresos del Estado]; and (2) on an event-by-event basis CONRED coordinates the implementation o f reconstruction with additional funding via budget reallocations by the Ministry o f Finance. The funds are generally channeled to three entities that are responsible for implementing and managing rehabilitation and reconstruction projects after disasters: the Unidad de Conservacidn Vial (COVIAL), which manages the funds allocated to the maintenance o f the road network; the Fondo Nacional para la Paz (FONAPAZ), which develops and implements projects to eradicate poverty and extreme poverty (communal buildings, halls, sport fields, and recreation, education, and nutritional programs); and the Secretaria Coordinadora Ejecutiva de la Presidencia (SCEP) / Unidad de Convoyes Regionales, a unit specializing in the implementation and management o f construction and maintenance projects o f rural roads.

70. The Ministry o f Finance (MEF) i s preparing a comprehensive strategy for covering contingent liabilities, which will include adverse effects of natural events. The preparation o f the CAT DDO will be one o f the elements in this strategy. The National Program for Disaster Prevention and Reduction in Guatemala outlines three specific areas where the Government wi l l advance towards this strategy over the next three years. The objective o f these activities i s to improve the government capacity to mobilize and efficiently execute resources in case o f disasters. The three specific areas are: (a) viability studies for a tag system in the budget by the Ministry o f Finance, identifying in the budget resources that may be dedicated to disaster risk management; (b) an analysis o f the fiscal exposure to adverse natural events, which wi l l also determine in which way investments lost after a disaster may be recovered; and (c) a study that would determine the feasibility for the Ministry o f Finance to maintain a contingency fund for disasters.

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Box V.2: Catastrophe Risk Financing Strategy

A risk financing strategy should differentiate between a range o f higher-frequencyllower-cost events and lower- frequencyihigher-cost events. Lower layers o f risk (higher-frequencyllower-cost events) can generally be financed through reserve mechanisms, special budget appropriations, and budget reallocations. These sources o f funds are rarely sufficient to face higher layers o f risk for which other risk financing instruments are generally needed. This CAT DDO operation has been designed to provide liquidity in case o f medium-size (or cumulative) disasters that cannot be funded with the internal reserves and to provide bridge financing while other sources o f funding are being mobilized in case o f major disaster.

strategy I Inshment

Low High

Contingent Loans: CAT DDO

Reserves: National Emergencies Fund

Hieh Low

Source: World Bank, Financial and Private Sector Development - Global Capital Markets Development - Non-Bank Financial Institutions Unit (FPD-GCMNB), 2008.

VI. Operation Implementation

Poverty and Social Impact

71. The Disaster Risk Management DPL with CAT DDO i s expected to have a significant positive poverty and social impact. Disasters triggered by natural events have a disproportionate impact on the poor. Improvements in national disaster risk management and vulnerability reduction strategies are expected to benefit the poor. Ninety-nine percent o f people affected by approximately 6,000 large-scale natural disasters registered worldwide between 1970 and 2002 were in developing c o u n t r i e ~ . ~ The World Bank 2009 Poverty Assessment for Guatemala (PA) finds that the Hurricane Stan disproportionately impacted the poor. This i s because the poorer segments o f the population often l ive in the most vulnerable locations and in inadequately constructed housing.6 In addition, the poor have l imited labor skills, fewer assets, and little or no savings. They have l i t t le opportunity

International Monetary Fund, Fund Assistance for Countries Facing Exogenous Shocks (Washington DC, 2003,

World Bank, Caribbean Economic Overview 2002: Macroeconomic Volatility, Household Vulnerability, and

5

available at http:l/www.irnf.orgiexternalinplpdrlsustain/200310808O3 .pdf).

Institutional and Policy Response (Washington, DC: World Bank Report No. 24 165-LAC, 2003).

6

24

for risk diversification and have restricted access to credit. Because o f this, they are less able to cushion the impact on consumption or disruptions to income. Exogenous shocks can also increase poverty indirectly through the effects o f lower economic growth, higher inflation (the poor are more vulnerable to inflation), and through consequential lower government spending for social services.’

72. According to the PA, poverty and extreme poverty are significantly higher among indigenous populations. Overall poverty rates among indigenous households remain over 75 percent (50% higher than the national average) and extreme poverty i s almost double the national average. Furthermore, declines in poverty in Guatemala have not been uniform: non-indigenous populations have experienced a decline in poverty, while indigenous populations have not.

73. Distribution of wealth i s a national concern and the Plan de La Esperanza has taken this into consideration focusing on increasing growth and reducing poverty and inequality. The recommendations from the PA will be taken into consideration during project implementation. It i s important to recognize that exogenous shocks can also increase poverty indirectly through the effects o f lower economic growth, higher inflation, and through consequential lower government spending for social services.

74. The proposed operation supports policies that will make investments to alleviate poverty more sustainable by strengthening risk evaluations in territorial planning. Moreover, given that the CAT D D O reduces the risk o f interruption and diversion o f resources from the other pillars o f the national development plan, the prior actions taken by the Government are expected to al low the continued implementation o f poverty and social programs.

75. While safety nets such as welfare, unemployment benefit, healthcare, minimum wage, and public services can be used after a disaster they are limited and weak in Guatemala. While the ’GoG i s strongly supporting their improvement, such i s the Mi Familia Progresa *conditional cash transfer initiative, the link with the disaster risk management program i s something that the CAT D D O will promote during project implementation and successful cases from other regions may be introduced in the country. The CAT DDO will be complemented by other Bank operations which are under preparation in support o f the governments efforts to expand the social safety net.

76. The disruption of public utilities, such as potable water o r sewage systems, communications, and transportation infrastructure during a disaster increases the probability that the poor and other vulnerable groups will suffer from increased gastrointestinal and other illnesses. The inclusion o f budgetary appropriations for investment elements o f the National Program for Disaster Reduction in the 2009 National Budget, a prior action supported by this operation, will reduce the probability that the poor and other vulnerable groups will suffer from increased gastrointestinal and other illnesses. The Secretary o f Public Works i s already working with public and private water utilities to build their capacity and improve disaster risk management capacities.

International Monetary Fund, Fund Assistance for Countries Facing Exogenous Shocks (Washington DC, 2003, available at http://www,imf.org/externa~np/pdr/sustain/2003/080803.pdf).

Guatemala’s Mi Familia Progresa program focuses on 45 out o f 332 municipalities. Depending on the household composition, transfers are conditioned on children’s attendance of elementary school and on taking children to health services.

7

25

77. A country’s disaster risk management framework can substantially alleviate, if not completely eliminate, adverse impacts of natural disasters on vulnerable people. It i s for this reason that in developing disaster risk frameworks, governments should take into account not only measures to prepare for disasters and reduce their damaging impact, but also to ensure that ex-ante or post-disaster response activities are thought through carefully, keeping in mind the needs o f vulnerable sections o f the population.

78. In the wake of Hurricane Stan, Guatemala i s implementing two disaster prevention programs that have a pro-poor bias. The neighborhood improvement program “Mejorarnos Nuestros Barrios ” targets the poorest neighborhoods in Guatemala City for mitigation investments including erosion control, slope stabilization and drainage all to prevent landslides. In another program with support from the Inter-American Development Bank, the Government i s investing in landslide prevention in the poorest neighborhoods o f Guatemala City, Mixco and Villanueva.

79. The implementation o f the Disaster Risk Management DPL with a CAT DDO i s expected to have a significant positive impact on reducing poverty and will positively address other social issues in Guatemala. The operation supported disaster risk management program will specifically follow up on one of the recommendations in the upcoming Guatemala Poverty Assessment (World Bank 2009, p. 103), which i s for the Government to improve its disaster prevention. In addition, since this CAT DDO supports the policies in the national development plan and the validation o f the national program for disaster reduction and prevention, i t s implementation i s expected to have a positive impact on poverty reduction and social welfare.

Environmental Aspects

80. The CAT DDO i s expected to have significant positive impact on the environment and natural resources through the country’s Disaster Risk Management Program. Good disaster risk management integrates sound environmental management practices, such as those related to river basin management and slope stabilization; in Guatemala good practices include awareness campaigns aimed at educating the public in the relevant aspects o f environmental management. Moreover, the critical funding provided through this operation will support the implementing measures that reduce environmental degradation and i ts adverse consequences on the population. In particular, this operation’s prior action wi l l help the Government o f Guatemala support and strengthen the following action areas: (a) risk identification, assessment, and monitoring capacities by enhancing i t s institutional framework; (b) strengthening institutions and planning capacity for risk management, by validating the f i rst National Program for Disaster Reduction and Prevention, and finalizing a methodology for risk reduction in territorial planning; and (c) investing to reduce risk by rebuilding schools with infrastructure less vulnerable to disasters, and regulating the CONRED law so that buildings are constructed in accordance with seismic building standards.

81. Guatemala has recently passed a new National Environmental Policy (Politics de Conservacidn, Proteccidn y Mejoramiento del Ambiente y 10s Recursos Naturales). This policy i s in part based on the recommendations from the 2006 Country Environmental Analysis (CEA). Furthermore the Government i s committed to improve environmental management as reflected in the National Development Plan 2008-2012.

26

82. The CAT DDO operation places particular emphasis on assuring improved transparency and accountability of social and environmental issues with respect to governmental oversight and the decision-making process. In compliance with OP 8.60, the regulations in place for reducing adverse effects and enhancing positive effects have been reviewed. All risk prevention activities are subject to environmental impact assessments, and even if the emergency response, rehabilitation, and reconstruction activities are in principle exempt from an ex ante assessment, a report on any impact i s often prepared and filed. Thus, social, economic, and environmental considerations are taken into account by the GoG during an emergency situation, and steps such as emergency allocations, shelter placements, rehabilitation, etc., are taken during an emergency, as regulated by law.

Implementation, Monitoring, and Evaluation

83. Three agencies are involved in the coordination and monitoring of the proposed program. While the Ministry o f Finance i s the main counterpart o f the Bank for this disaster risk management D P L with a C A T DDO, implementation o f the program i s a shared responsibility among the Vice President’s Office and SE-CONRED. For the implementation o f the program, an institutional arrangement described in Figure VI. 1 i s in place.

Figure VI.1: Implementation Arrangement for the National Program Disaster Prevention and Mitigation

Implementation Arrangement for the National Program Disaster Prevention and Mitigation

Technical Coordination

Vice Presidency Ministry of Finance

CGC ClAAPlClV

COVlAUClV IGN/MAGA

INFOM INSIVUMEH

MARN MFP

MINEDUC MSPAS

SEGEPLAN UCEElClV

SE-CONRED

84. Bank staff will assist the Government in monitoring the progress of the implementation of the proposed operation during the entire drawdown period. Given the characteristics o f the DPL with a C A T DDO, the Bank is responsible for monitoring both the

27

macroeconomic environment and the implementation o f the program supported by the DPL during the drawdown period (a period o f three years, which can be extended for up to four additional three-year periods, subject to satisfactory program implementation and a sound macroeconomic policy framework at the time o f extension). This wi l l be done through frequent visits to the country and regular communication with the Ministry o f Finance, the Vice President’s Office, and SE- CONRED. Table VI.l summarizes the targets that the Government i s working toward. These targets are drawn entirely from the Government’s existing program o f actions to reduce risks resulting from adverse natural events. The targets do not constitute conditions for either disbursement or renewal o f the DPL with a CAT DDO.

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Table VI.1: Selected Government Targets for Ongoing Country-Bank Dialogue

Policy Area and Legal Framework

J Disaster risk management becomes a development priority for the Government by i t s inclusion as a s e l f standing pillar in the National Development Plan 2008-201 1.

J The mandate and obligation to identify ant. reduce population in risk i s defined in the Social Development Law, Decree 42-200 1, which provides the legal support for corrective action such as investments in disaster risk reduction.

J The mandate and obligation to include disaster risk evaluation as a parameter in territorial and infrastructure planning, which provides the legal support for prospective disaster risk management, i s defined in the Law of Housing and Human Settlements, Decree 120-96.

Prior Action and Acti

Developing and validating in a participatory process the National Program for Disaster Reduction and Prevention and including budgetary appropriations in support of the Program in the 2009 National Budget.

I Areas

Improving risk identification, assessment, and monitoring.

Strengthening institutions and planning capacity for risk management.

Investing to reduce risk.

Developing risk financing strategies.

Benchmark 2012

0 Expansion of meteorological, hydrometric and seismic monitoring network from the February 2009 level of monitoring stations to 56% in meteorological, 56 % in hydrometric and 29 % in seismic networks. Baseline values: meteorological ( 5 3 , hydrometric (54) and seismic (29).

0 20 public buildings with vulnerability analysis. Baseline: 0

0 Mapping of risk in 10 municipalities. Baseline: 0

0 SEGEPLAN and SE-CONRED have produced 3 annual reports on the progress on the implementation of the National Program for Disaster Reduction and Prevention. Baseline: 0

0 SEGEPLAN will have developed the instruments, applying the methodology, for the inclusion of disaster risk management in investments. Baseline: 0 15% o f urban areas have incorporated disaster risk management in their territorial planning. Baseline: 5%

0

0 Investment in building and rebuilding 60 schools according to seismic standards and based on risk assessments validated by SE- CONRED. Baseline: 0 Construction plans for new public building meet seismic standards. Baseline: 0 Minister of Finance has developed an indicator to track budget appropriation for disaster risk management. Baseline: 1 and should be updated and improved.

0

0

In accordance with the PNPMD the Ministry o f Finance has completed: 0 Analysis of fiscal exposure to

adverse natural events. Baseline: 0 0 Assessed the contingent liability.

Baseline: 0 Design of risk financing strategy. Baseline: 0

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Fiduciary Aspects

85 . The 2007 update o f the Country Fiduciary Accountability Assessment ( C F W C P A R ) indicates that the fiduciary environment in Guatemala i s adequate, as evidenced by the improvements in the public expenditure management systems made over the previous decade and the actions being taken by the Government to continue increasing transparency. While challenges remain, the current administration i s moving ahead to strengthen its public fiduciary control framework further, and has shown a strong commitment to tackling fiduciary issues in many key areas identified by the Country Fiduciary Assessment. The foreign exchange control environment o f the Central Bank is adequate and, subsequent to the IMF Assessment Report (2002), external auditing i s now in place and international foreign currency reserves are managed according to prudent international practice.

Disbursement and Auditing

86. The Minister of Finance has elected the deferred drawdown option (DDO) as the disbursement mode for this operation. The D D O feature gives an IBRD borrower the option o f drawing down the D P L during a three-year period, which can be extended up to four additional three-year periods during which the D P L with the D D O can be disbursed. Each extension will require the approval o f the regional Vice President o f the Bank.

87. The CAT DDO may be drawn down at any time subsequent to a natural disaster resulting in a declaration of a national and or regional’ emergency in accordance with Public Order Law Article 14. If during the drawdown period the Bank concludes that the hazard r isk management program i s not being implemented, the Bank will advise the Government o f the need for a subsequent satisfactory review before the Bank will be able to grant any request for drawdown. Adequacy o f the macroeconomic framework is verified at inception and upon any subsequent renewals.

88. The Bank would disburse the loan proceeds into an account o f the Central Bank (Banguat), denominated in U.S. dollars.” Banguat will immediately credit the disbursed amounts to the Ministry o f Finance Treasury Single Account (“common fund”), thus becoming available to finance budgeted expenditures. Within a week o f this funds transfer, the Ministry will provide the Bank with a written confirmation.

89. Due to the described conditions, no additional fiduciary arrangements (for example, dedicated accounts subject to audit) are deemed necessary for this Disaster Risk Management DPL with a CAT DDO.

According to the country’s Preliminary Regionalisation Law, Decree 70/86 In the context of the latest IMF central bank safeguards assessment, an action plan has been agreed with Banguat. 10

Moreover, Banguat i s a participant in the Bank’s Reserves Advisory and Management Program (RAMP).

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Risks and Risk Mitigation

90. The proposed loan i s considered to be of moderate risk due to institutional and coordination risks. As has been made evident by institutional weaknesses in the face o f major disasters in even advanced countries (e.g., Hurricane Katrina in the United States and the Kobe earthquake in Japan), although prior actions needed for this loan have been achieved, there remains a risk that comes primarily from Guatemala's lack o f experience in interinstitutional coordination. This risk can be mitigated by the validation o f the Program by all the relevant institutions, as this will ensure political support o f the Program, and will secure and strengthen SE-CONRED's role as institutional coordinator. In addition, the activities outlined in the Program are accounted for in the 2009 National Budget, guaranteeing implementation because financing has already been set aside.

91. On the macroeconomic front, the main risks derive from the global financial crisis and more specifically from a deep and prolonged global deceleration. As discussed previously, the current global situation i s expected to negatively impact Guatemala as credit to the private sector becomes tighter, remittances and foreign direct investment growth decelerate, and the US demand for Guatemalan products declines. These factors have already been taken into account in the design o f the program and in the projections developed for the medium-term. However, to the extent that the global slowdown lasts longer or i s deeper than anticipated, and hence affects Guatemala more than projected, the government may find some difficulties implementing i t s program. This risk i s somewhat mitigated by recent steps taken by the authorities to enhance crisis preparedness including preparation and publication on January 15th o f the Emergency and Economic Recovery National Program which tries to coordinate and adjust the country's policies to the current situation. A critical component o f the effort to mitigate macroeconomic risks i s related to the need for fiscal responsibility. In this sense, the aimed increase in tax collection in the government's fiscal reform proposal appears to be a step in the right direction as it will allow for additional spending in key areas such as infrastructure. Similarly, the expansion o f the government's CCT program will mitigate some o f the risks o f the economic slowdown by improving income prospects for the poorest. The authorities have also taken efforts to minimize stress in the banking sector, including through the increase o f provisioning for non performing loans.

31

e e

e e e

e e

e e

e e

e e

e e 0

e e 0

e 0

e

8

0 e

m m

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 2: Debt Sustainability Analysis

The outlook on Guatemala’s medium-term macroeconomic prospects has deteriorated as a result o f the global financial turbulence experienced over the second half o f 2008. The debt sustainability analysis in this Program Document i s based to a large extent on the macroeconomic framework developed by the IMF following their last staff visit to Guatemala in December 2008. Thus, this medium-term macroeconomic framework already incorporates the expected negative impact o f the global crisis on the Guatemalan economy.

Mid 2008 projections anticipated a GDP growth rate o f about 5 percent in 2008 and o f about 4.5 percent over 2009-2013. However, in light o f the severity o f the crisis growth projections have been revised downwards to reflect an expected decline in export performance, tightening domestic credit markets and a slowdown in remittances growth. Indeed, growth i s now projected at 3 percent in 2009 before recovering to 3.5 percent in 201 0 and about 4.0 percent over 20 1 1-20 13.

Table A2.1 Guatemala: Non Financial Public Sector Public Debt as o f December 2008 US$ (million) % o f total debt % o f GDP

Total 7,940 100 21.0

By residence Internal External

By creditor Multilateral Bilateral Private

Currency composition Foreign currency

3516 44 9.3 4,424 56 11.7

2,952 37 3 16 4

1,156 59

7.8 0.8 12.4

4,824 61 12.8 Quetzal 3,116 39 8.2 1/ Preliminary Source: Central Bank o f Guatemala, IMF and World Bank staff estimates

Table A2.1 presents the stock o f long-term debt o f the Non Financial Public Sector as o f December 2008. I t indicates that the stock o f Guatemala’s debt i s (i) quite modest at 21 percent o f GDP; (ii) somewhat balanced between internal and external debt although the stock o f the latter i s higher (56 percent o f the stock i s external debt); (iii) mainly held by private creditors (59 percent o f total debt), although when just focusing on the stock o f the external debt this i s mainly held by multilateral and official bilateral creditors (74 percent o f total); (iv) and denominated to a large extent in foreign currency, mainly US$ denominated (61 percent o f total debt).

34

The debt sustainability analysis (Table A2.2) indicates that under the baseline scenario, Guatemala would manage to stabilize the stock o f public debt in a 21-22 percent o f GDP range. Thus, in the absence o f a crisis scenario, the medium term external position o f Guatemala remains sustainable.

Table A2.2. Debt Sustainabilitv Analvsis

Public Debt (YO of GDP)

Projection 2008 2009 2010 2011 2012 2013 21.1 21.5 21.5 21.5 21.6 21.7

Alternative Scenarios A l . Higher real interest rate on external debt 21.1 21.8 22.2 22.6 23.1 23.7 A2. Lower real GDP growth 21.1 22.0 22.8 23.7 24.9 26.2 A3. Lower fiscal primary balance 21.1 21.8 22.2 22.7 23.2 23.7 A4. Combination o f shocks 21.1 22.0 22.5 23.0 23.6 24.2 AS. Real exchange depreciation in 2009 21.1 26.4 26.5 26.6 26.8 27.0

1/ Includes both Public and Private Debt.

The main risks to the medium-term outlook are associated with the global financial turmoil as wel l as with the ability o f the new administration to increase tax collection and push structural reforms in a very volatile environment. To account for the impact that a materialization o f some o f these risks would have o n the sustainability o f public debt, table A2.2 also presents projected debt dynamics under more pessimistic alternative scenarios:

o Under tighter financial market conditions resulting in higher interest rates paid on public debt o f around 1 standard deviation o f historical values (past 10 years) (equivalent to about 1.5 percent) over 2009-2013, scenario A1 projects debt indicators for 2013 that would be 2 percentage points o f GDP higher than under the baseline scenario.

o Under a less optimistic growth scenario equivalent to the baseline minus 1 standard deviation o f historical values (or 1.3 percent) over 2009-2013, scenario A2 projects an increase in public debt in 20 13 o f 4.5 percentage points o f GDP with respect to the baseline.

o Under a deterioration in public finances equivalent to 1 standard deviation o f historical revenues (0.4 percent o f GDP), scenario A3 indicates that the stock o f public debt in 20 13 would be 2 percentage points o f GDP higher than under the baseline.

o Scenario A4 projects the impact o f contemporaneous shocks A1 to A3 but using 0.5 standard deviations. I t indicates that the stock o f debt would reach 24.2 percent in 2013.

Finally, scenario A5 projects the impact o f a real exchange rate depreciation equivalent to 30 percent in 2009. It shows that under this admittedly dramatic scenario, the stock o f debt would reach 27 percent o f GDP in 20 13.

35

Republic o f Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 3: Fund Relations Note

Guatemala-Assessment on Economic Situation for the World Bank by IMF Staff February 5,2009

The latest assessment by the Executive Board i s presented in the Public Information Notice o f June 4,2008 (http://www.imf.org/external/np/sec/pn/2008/pn0865.htm). The next Article IV Consultation discussion i s expected to take place in the second hal f o f 2009.

In line with regional trends, growth is decelerating rapidly. Real GDP growth slowed to about 4 percent in 2008 (from 6.3 percent in 2007) and i s projected to decline to 3 percent in 2009. Annual inflation has declined from i ts peak in mid-2008 (about 14 percent) to 9.4 percent by year-end, due to the reversal o f external commodity prices and tighter monetary conditions. The external current account deficit remained broadly constant at 5% percent o f GDP in 2008, due to solid export growth and the continued f low o f remittances. Net international reserves stand at US$4.4 billion, i.e. almost 4 months o f imports and 1 10 percent o f the monetary base.

Global turbulences have had a limited impact so far, but domestic financial conditions are becoming tighter. Interest rates have risen and the quetzal has been depreciating moderately, with occasional intervention by the central bank. Due to the tightening in funding sources-there has been a small decline in external credit lines-banks have been rebalancing their portfolios toward liquid assets, with private sector credit growth slowing to 10 percent in 2008.

There are downside risks to the outlook due to strong country and regional linkages with the U.S. economy. Remittances declined in the last months o f 2008 (although lower o i l prices are expected to reduce pressure on the external current account in 2009) and capital inflows may slow further if external financial conditions deteriorate. The central bank recently added more flexibil i ty to the foreign- exchange intervention rule, which would facilitate adjustment to changing external conditions and strengthen the implementation o f the inflation-targeting regime. As inflation declines toward the target (5 !4 percent in 2009), the central bank could consider reducing interest rates gradually, balancing against the risk o f inducing capital outflows.

Fiscal policy has remained prudent, and there i s some space for a countercyclical response to the downturn. Accordingly, the central government deficit i s projected to increase to 2% percent o f GDP in 2009 (1% percent o f GDP in 2008) mainly through higher spending, but nonfinancial public sector debt will remain low at about 22 percent o f GDP. Financing o f the budget has been shifted to external sources (almost fully from multilaterals) to lessen crowding out, and the authorities have made important progress in consolidating tax collection, as a temporary tax on corporate assets has been made permanent. However, the tax ratio remains l ow and there i s a need o f a revenue-enhancing tax reform to provide more scope for needed infrastructure and social spending.

The authorities should continue strengthening bank regulation and supervision in light of remaining vulnerabilities. Provisioning requirements have been raised to ensure 1 00-percent coverage o f past-due loans in a 2-year period; in addition, the public mortgage bank (CHN) was recapitalized, reducing solvency risks. Bank supervision has been enhanced with continuous on-site supervision and the central bank has put in place temporary and l imited measures to ensure adequate liquidity. Progress has been made on finalizing draft amendments to the banking law-expected to be submitted to congress during 2009-which are necessary to reduce risks from offshore bank operations, strengthen enforcement powers, reduce credit concentration, and enhance bank resolution tools.

36

Republic o f Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 4: Disaster Risk Profile for Guatemala

Exposure to Natural Hazards in Guatemala

Guatemala i s one o f the most densely populated countries in Latin America, with about 12 million habitants and a territory o f 108,890 square kilometers. I t i s also one o f the poorest countries in the region. Guatemala i s also highly vulnerable to adverse natural events (Figure A6.1). The World Bank Hotspot Study ranks Guatemala fifth among the countries most exposed to three or more hazards, with 52.7 percent o f the total area at risk, 92.1 percent o f the population living in areas at risk, and 92.2 percent o f GDP in areas at risk to two or more hazards (World Bank 2005). It i s this combination o f high population density, poverty, and exposure to natural hazards that constitute a high risk to adverse natural events in Guatemala (ibid.).

Figure A4.1: Affected Area, According to Type of Hazard

Percent Affected area 0% 100%

Earthquake Volcanic Eruption

Tsunami Tropical Storm Winter Storms

Storm Surge Winds

Hail Electrical Storms

Floods Drought

Exposure: None Very High

Source: BID-IDEA 2005.

Seismic Exposure: Guatemala i s situated on three tectonic plates: the North American plate, the Caribbean plate, and the Cocos plate, resulting in high risk o f earthquakes. The most catastrophic adverse natural event would be an earthquake in Guatemala City, in the case o f a 500-year event.

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Volcanic Exposure: Volcanism in Guatemala i s a result o f the subduction o f the Cocos plate beneath the Caribbean plate. There are approximately 288 volcanoes in the country, eight active in historic times, and four presenting a threat: Fuego, Pacaya, Cerro Quemado, and Santiaguito. ”

Floods Landslides Volcanic eruption Seismic events

Exposure to Hurricanes: Guatemala i s exposed to two coasts, the Pacific coast in the area most vulnerable to hurricanes, and the floods associated with them, especially at the river mouths.

726,110 523 352,113 266 22,604 197 270,73 1 567

Flooding and Landslides Exposure: Guatemala i s continually affected by smaller disasters, which occur frequently at a local level, such as landslides and flooding, largely due to the topography o f the river basins and slopes, and the exposure o f the country to two coasts. Nearly 1.733 communities and 210,000 inhabitants are vulnerable to flooding, and 30 percent o f the territory i s under high threat o f flooding (Table A4.1).

Drought: The interior o f Guatemala i s greatly affected by drought, with the agricultural sector suffering the most, while also having affects on the water, energy, and health sectors.

Table A4.1: Estimated Population at Risk in Guatemala [Hazards A I * > 1 ” ,Populatian-. I .Cornmupities ,]

Determinants o f Vulnerability in Guatemala

A natural disaster i s the result o f the occurrence o f a natural hazard event that affects a vulnerable community or a set o f physical assets. While natural hazard events are largely exogenous factors that are hard or impossible to control, vulnerability i s a manifestation o f the development patterns o f a given community. Vulnerability can be understood as the degree o f susceptibility and resilience o f a community, including assets, population, and the environment, to a change in external conditions. I t i s therefore a key factor to consider when trying to understand historic trends and in the analysis o f potential impacts o f natural events on the country.

Vulnerable populations around the world are economically fragile by definition, and often have few or no assets or savings to help them recover from disasters. When a disaster strikes, i t can destroy their existing wealth, and also their income opportunities and livelihoods, further increasing their vulnerability.

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Guatemala i s one o f the most densely populated countries in Central America (12,728,111 inhabitants), and one o f the poorest in the region. I t i s also one o f the most vulnerable countries in South America (see Figure A4.2).

Figure A4.2: Vulnerability Index for Each Country in Five-year Periods

60

50

40

30

20

10

0

81085

I 190s E ozaoo

CHL CRi COL PER MEX ARG ECU JTO DOM QTH SiV JAM

Source: BID-IDEA. 2005.

Vulnerability in Guatemala i s to a large extent due to increased urbanization, insufficient planning, inadequate environmental management and land use planning, and a lax application o f building codes. Given the high vulnerability o f the country, natural hazard events result in disasters that affect not only the population, but also infrastructure, which has a negative impact on productivity and delays development.

Historic Occurrence and Impacts of Disasters in Guatemala

During 1902-2005, Guatemala experienced 62 natural disaster events, which affected approximately 6 million people.

Some of the most damaging of hurricanes include:

Hurricane Francelia, in September 1969, resulted in 269 fatalities and 248 people injured, and affected 10,000 people, with economic damage approximating US$15 million.'2 Tropical Depression Paul, in September 1982, caused 855 deaths and 482 injuries and affected 20,000 people, especial1 in the South o f Guatemala; 3,458 houses were destroyed and 30 aqueducts were damaged. Hurricane Mitch, in October 1998, caused 384 deaths, affected 105,000 people, and caused economic damage estimated at US$748 million (4.7 percent o f GDP). The whole country was affected by the hurricane, with 72 roads destroyed, more than 160 kilometers o f highways seriously damaged, and 121 bridges, 2,293 houses, and 3 1 1 educational centers destroyed. Hurricane Iris, in October 2001, affected the lives o f 700 people, destroyed 26 schools, caused 46 collapsed bridges, and damaged 1,229 houses and destroyed 73. l4

i;

l2 EM-DAT: The OFDNCRED International Disaster Database, 2008. I3 Inventario Desastres CEPREDENAC 1960-1 999. l4 Ibid.

39

More recently, Hurricane Stan, in October 2005, resulted in 1,500 fatalities, affected 475,000 people, and caused approximately US$988 million in economic damage (2.8 percent o f GDP) (Box A4.1).

Box A4.1: Hurricane Stan Exp

The torrential rains that acco

least 20 percent are at hi

From 1988 to 2000, crises doubled from

In Guatemala, violent 2005. The number o f

Some of the more devastating earthquakes include:

In February 1976, a magnitude 7.5 earthquake caused by the Motagua Fault, which passes 15 miles north o f Guatemala City, resulted in 23,000 fatalities, 76,000 injuries, and affected approximately 3 mill ion people throughout the country. Damage to roads, bridges, buildings, and vital services caused approximately US$l billion in damage and US$1.250 million (1 7.9 percent o f GDP) in economic losses. The Pochuta earthquake, in September 1991, resulted in 25 deaths, 150 injuries, and affected 20,000 people in the regions o f Escuintla, Chimaltenango, Solola, and Sacatepequez. Approximately 43 percent o f the houses collapsed and 31 percent were damaged; roads were affected by landslides, and bridges had structural damage; water and electricity lines were also damaged.”

0

Of the 288 volcanoes in the country, four present a risk to Guatemala:

0 Volcan Fuego, one o f Central America’s most active volcanoes, has frequent and vigorous eruptions, which have been recorded since 1524. Volcan Pacaya sits 30 kilometers south o f the center o f Guatemala City. An eruption in 1989 produced a 4.5-kilometer-tall eruption column, enlarging the MacKenney crater; in

Is Ibid.

40

June-August 1991, an eruption damaged villages to the west, and in 1998, eruption ash f e l l on Guatemala City. l6

One o f the largest eruptions o f the 20th century occurred at Santa Maria in 1902, which caused 6,000 deaths. This explosion also resulted in the creation o f Santiaguito, Guatemala's youngest and most dangerous volcano. Volcanologists rate Santiaguito among the 10 most dangerous volcanoes in the world, in terms o f potential damage to people and property.17 In 1929, part o f the dome collapsed, generating pyroclastic flows, which killed as many as 5,000 people. *

Flooding in Guatemala is a major source of economic loss:

The floods o f October 1949, resulted in 40,000 fatalities, and caused damage up to approximately US$15 million. In June 1973, floods caused up to US$2,500 in economic damage.

0 In September 1982, 256 people were affected by devastating floods that caused approximately US$1 billion in damage. Severe flooding also occurred after Hurricane Stan in October 2005; there were 669 fatalities, more than 470,000 people were affected, and nearly 35,000 homes were damaged. l9

The interior of Guatemala is greatly affected by drought. Devastating droughts include:

0 In September 2001, a drought affected approximately 113,000 people, resulting in A drought in July 1994, which caused US$10 mill ion in damage.

approximately US$14 million in damage.

The effects of landslides should not be underestimated:

In 1986, a series o f landslides triggered by intense rainfall caused approximately 75 deaths and 200 injuries, predominately in the western part o f the country, with economic damage o f up to US$ 10 million.20

Potential Economic Losses o f Disasters in Guatemala

The Disaster Deficit Risk (DDI)2' measures the economic loss that a country could suffer if a catastrophic event takes place, and the implications in terms o f resources needed to address the situation. The DDI i s the relationship between the demand for contingent resources to cover the losses generated by the maximum considered event (MCE) and the economic resilience. The MCE i s calculated based on a model that takes into account diverse hazards and the physical vulnerability

16 http://www.mayaparadise.com/volcanos/volguatee. htm. Ibid.

l8 Ibid. l9 http:Nwww.usaid.gov/our_work/humanitarian_assistance/disaster_assistance/countries/guatemala/fl_index.html. 2o Inventario Desastres CEPREDENAC 1960-1 999.

Prevalent Vulnerability Index, and the Risk Management Index. IADB 2007. This report defines and estimates four indexes: the Disaster Deficit Index, the Local Disaster Index, the

41

o f elements exposed to it. Economic resilience i s defined as the availability o f internal and external funds for restoring affected inventories. The following equation shows the relationship:

DDI DDI50

DDIlOO DDI500

DDI = Maximum Considered Event Loss /Economic Resilience

1980 1985 1990 1995 2000 0.15 0.17 0.25 0.15 0.13 0.35 0.4 1 0.58 0.35 0.3 1 1.44 1.64 2.22 1.45 1.30

A DDI greater than 1.0 denotes a lack o f financial capacity to face extreme disasters, outstripping even resources available when accruing as much debt as possible. A bigger DDI represents a bigger deficit.

The DDI for Guatemala between 1980 and 2000 (every five years) for an MCE with a 50-, loo-, and 500-year return period (correspondingly 2 percent, 10 percent, and 18 percent probability o f occurrence in 10 years) i s presented in Table A4.2.

Nacional de Colombia), Programa de Informacidn e Indicadores de Gestidn de Riesgos. Aplicacidn del Sistema de Indicadores a Guatemala 1980-2000 (Manizales, Colombia, 2004).

The DDI i s greater than 1 for maximum events with a 500-year return period. This can be interpreted as Guatemala not having enough financial resources to face losses and to restore the affected capital for events with 18 percent probability o f occurrence in 10 years. For events with a 50- and 100-year return period, Guatemala has the capacity to cover the reconstruction costs with internal and/or external funding.

In a comparative estimation o f the DDI for an M C E with a 500-year return period in year 2000 for Latin America and the Caribbean Region countries, the DDI for Guatemala i s 1.3, showing that the country i s in a much better position (third after Costa Rica and Argentina) compared with other countries in the region. However, the only country in the region with a DDI lower than 1 i s Costa Rica. For all other countries, the financial capacity to face losses in the event o f a disaster i s not sufficient.22 In the case o f potential losses when faced with an event with a 50- and 100-year return period, Guatemala holds second place among the countries included in this analysis. For disasters with a 50-year return period, the Dominican Republic and Peru are the only countries with a DDI higher than 1.

The disaster that would potentially generate more losses to the country i s an earthquake in Guatemala City, estimated in probabilistic terms to generate US$3.44 billion in losses (IADB 2004). These probabilistic losses reflect the direct economic impact o f a disaster on public and private assets that are the responsibility o f the Government. In the case o f a larger event, the Government would have to provide subventions and credits to support the population most affected.

** The CAT-DDO i s expected to serve as a bridge-financing instrument to f i nd the short-term liquidity gap. It i s intended to finance government expenditures for the f r s t three months after a disaster. During this period, the Government i s expected to raise additional finding.

42

The Government would also need to take additional measures against the unemployment generated by the cessation o f labor in the productive sectors affected by the disaster. For a medium-size quake with a 100-year return period, the Government would suffer estimated losses o f US$692 million, and for a smaller earthquake with a 50-year return period, estimated losses would be US$13 million.

The different economic sectors o f Guatemala, if exposed to natural hazards, would affect the economic stability o f the country. Guatemala’s main agricultural export products (coffee, banana, sugar, and oil) could be potentially affected by floods, droughts, and seismic events. The population most vulnerable to climate change i s the small farmers producing for their own consumption. These cases can degenerate into increased malnutrition figures affecting the poorest in the country. The energy sector i s also at risk; drought can cause a reduction o f the energy produced in hydroelectric plants, and sewage systems are also affected (Table A4.3 and Figure A4.3).

Table A4.3: Impact of Disasters and Expected Effects of Climate Change by Sector

and bridges). Physical damage to road infrastructure and hotels. Touristic destinations l ike Tikal and co&tal zones threatened by the increase in sea levels, floods, increase in intensity of tropical storms, and possible increase of expenses related to electricity and o i l prices.

Tourism

e to strong rainfall. Risk o f rupture o f dams caused by

Road inpastructure

saturation in slopes. Increase in number of constructions in areas at risk o f flood due to increase in river currents and erosion due to high rainfill.

Urban areas

43

Figure A4.3: Economic Impact o f Natural isasters in ~ u a t e m ~ ~ a ~ 19

2 000 1,800 1,600 1,400

1,000 2 800

600 400 200

0

.- s 1,200 -

krricane Earthquake Flood Drought

Source: World Bank based on information from EM-DAT: The OFDNCRED International Disaster Database, 2008, and CEPREDENAC, Zrnpacto Econbrnico en Dolares (US) 1960-1 999,200 1.

Table A4.4: Declared Municipal, Departmental, Regional, and National States of Emergency

1969

1976

1982 1985

1986

1987 1991 1991

1991 1998

2000

2000 2000

Hurricane Hattie Hurricane Francelis

Earthquake

Hurricane Paul Earthquake

Floods

Floods Earthquake Volcanic Eruption Landslide

Hurricane Mi tch

Earth shaking

Floods Floods

Departmental Departmental

National

Departmental Municipal

Municipal

Municipal Municipal Municipal

Municipal National

Municipal

Municipal National

- 269

22,778

620 -

-

- 23 -

- 268

-

14 -

- -

222,261

- 600

-

- 2,200 -

- 2,294

-

- -

Formation o f CONE.

Formation o f the National Committee.

Reconstruction, liquidated 15 years later.

Without a Government Agreement; transitional

government. Declaration o f National

Emergency.

Two volcanoes active.

Implementation o f an Early Warning System.

500 more disasters caused by the hurricane. Relocation o f the

Municipality.

Territorial expansion o f the previous event.

44

200 1 2003

2005 2007

2008 2008 2008

2008

Drought Forest Fires

Hurricane Stan Sinking

Floods Floods

Tropical Depression 16

Landslide

Municipal National

National Local: Brio. San

Antonio Municipal Municipal Regional

Municipal

- - - - Especially in the North

7,039 7,473 northeast.

- -

- - 2nd o f June Agreement. - - 25" o f July agreement. - - Expansion o f the

territorial environment. - - Evacuation o f

Municipality. I Source: CONRED, updated on the basis o f the ratification decrees o f Congress.

45

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 5: Organization of the National Coordinator for Disaster Reduction (CONRED)

The National Committee for Emergencies (CONE) was created after Hurricane Francelia in 1969, which caused more than 500 deaths. I t s purpose was to coordinate Guatemala’s emergency response to disasters. A law passed in 1971 made the CONE permanent.

In 199 1 , after the Chimaltenango earthquake, departmental, municipal, and local emergency committees were created. In 1994, after the lessons learned from the earthquake and following the international trend, a bill was introduced to transform the CONE into the National Coordinator for Disaster Reduction (CONRED). Law 109-96 created this entity, allowing the institution to focus more on prevention and continuing the emergency response mandate. In 1999, the law was renewed and a budget provided to CONRED. In 2000, regulations regarding CONRED were issued under a Governmental Agreement, the purpose o f which was to clarify the roles and technical procedures o f Decree 109-96 for the correct compliance o f the functions described in the Decree.

CONRED’s Legal Framework

The legal basis for CONRED i s contained in two laws: (a) the National Coordinator for the Reduction o f Disasters Law, 1996; and (b) the National Coordinator for the Reduction o f Disasters Law Regulations, 2000. CONRED’s predecessor organization, the centralized, military-run National Committee for Emergencies (Comite‘ NacionaZ de Emergencias, CONE), was a disaster response body rather than a coordinator,

CONRED i s the National Coordinator for the facilitation o f disaster prevention, mitigation, preparation, and response. During a disaster, CONRED has the power to enlist the cooperation o f all public institutions and any private bodies within their areas o f competence. In addition, CONRED plays a key role in recommending to the President o f Guatemala that a state o f emergency should be declared, based on information from the Institute for Seismology, Volcanology, Meteorology, and Hydrology (INSIVUMEH).

Organizational Structure

CONRED’s organizational structure i s designed to establish a national system o f coordination across all the relevant sectors o f government and humanitarian agencies, and at the national, regional, departmental, municipal, and local levels o f territorial government. This i s outlined in Figure A5.1.

46

Figure A5.1: Organization Chart of CONRED

I

SecntuiD y I I I

Refeienrms (9 Bajo la responsabilidad de 10s delagados regionales dependen 10s 22 delegados departamentales

National Structures

At the national level, the National Council for the Reduction o f Disasters (Consejo Nacional para la Reduccidn de Desastres) approves policies and standards and i s available to support the Government during emergencies. I t s membership includes the Vice President, the Minister o f Defense (Convener), and representatives o f the Ministries o f Health and Welfare, Education, Public Finance, Communications Infrastructure and Housing and Government; and the Board and Executive Secretary o f SE-CONRED (Secretaria Ejecutiva), the National Fire Brigade; the Assembly o f Professional Associations; and the Coordinating Committee o f the Association o f Agricultural, Commercial, Industrial and Financial industries.

The National Board (Junta) i s convened by the Minister o f Defense and includes the Executive Secretary o f SE-CONRED and a representative o f one o f the private entities from the National Council. The Executive Secretary i s responsible for management o f CONRED and implementation o f National Council decisions. The position i s responsible for four main offices within the CONRED national secretariat:

47

0

0

0 The section for Sectoral and Territorial Coordination, including the Department o f

The Secretariat’s core operations, made up o f five sections, focused on operations, risk analysis, education, finance, and administration The section for Coordination o f Planning and Strategy The section for Coordination o f Cooperation

Coordination o f Regional Offices and Regional Delegates.

Finally, members o f the Scientific Council (Consejo CientiJco) o f the National Board and Secretariat, which i s incorporated into INSIVUMEH, include representatives o f universities, scientific and technical research centers, autonomous and decentralized state entities, NGOs, and technical-scientific volunteer groups.

Government Coordinators

At the national, regional, departmental, municipal, and local levels o f territorial government, the coordinators are cross-sectoral committees including public, private, and civil society organizations and providers o f emergency services, convened by the most senior government representative in the relevant locality. The intention i s that regional and departmental delegates o f SE-CONRED support the committees, which are the delegated authority for coordination. The membership o f each committee i s intended to represent groups active in the relevant geographic area.

Their main functions are to: (a) participate in the process o f prevention, reduction, and response to disasters, and mitigation, preparation, rehabilitation, and reconstruction; (b) relay information to the coordinator at the next level o f the system about actual and potential disasters; and (c) publicize, communicate, and implement actions relating to alerts, evacuation, security, and emergency shelter.

There i s a Regional Coordinator (Coordinadora Departamental para la Reduccidn de Desastres, CORRED) in each o f the eight regions; these are convened by the presidents o f the regional development councils and should each be supported by a regional delegate o f SE-CONRED. The Departmental Coordinator (Coordinadora Departamental para la Reduccidn deDesastres, CODRED) i s in each o f the 22 departments, and i s convened by the Governor o f the department and should also be supported by a departmental delegate o f SE-CONRED. The Municipal Coordinator (Coordinadora Municipal para la Reduccidn de Desastres, COMRED) i s in each municipality. These are convened by the mayor o f the municipality and rely on the CODRED for technical support. Finally, the Local Coordinator (Coordinadora Local para la Reduccidn de Desastres, COLRED) i s in each local community, consisting o f local public, private, and citizen organizations and emergency services. These are convened by an auxiliary mayor o f the municipality or a recognized community leader.

As part o f the Government o f Guatemala’s effort to shift to a more preventive disaster risk management strategy, the Government i s drafting new regulations in which CONRED, SE- CONRED, CORRED, COMRED, and COLRED (see figure A5.2) assume the responsibility for promoting prevention and mitigation projects, in accordance with the hazard, vulnerability, and risk studies. In addition, the new regulations ensure the development o f national building codes and norms that take prevention and mitigation o f disasters into account. During the recovery and reconstruction phases, CONRED should guarantee that these codes and norms are enforced.

48

Figure A5.2: Government Coordinators

CONRED

CORRED

CODRED

CONRED Coordination Powers

The CONRED Law and Regulations provide a fiamework for the organization’s Coordination Powers, which includes a National Fund for the Reduction o f Disasters, an organizational structure with provision for an annual operating budget, and the basic framework for an Emergency Operations Center. The following documents prescribe how to manage and coordinate a response to a national disaster:

The Institutional Response Plan (Plan Institucional de Respuesta, PIR), activated by CONRED for i t s institutional decisionmaking and preparation; The National Response Plan (Plan Nacional de Respuesta, PNR), activated by CONRED under Executive Branch authority; The Regional Manual o f Procedures for the Center for the Coordination o f Aid and Humanitarian Assistance (Manual de Procedimientos del Centro de Coordinacibn de Ayuda y Asistencia Humanitaria); The Regional Manual o f Departments o f External Relations in Case o f Disaster, adopted by Guatemala through the system o f integration of Central America through the Central American Coordination Center for Natural Disaster Prevention (Centro de Coordinacibn para la Prevencibn de 10s Desastres Naturales en Amkrica Central, CEPREDENAC).

49

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 6: National Plan for Disaster Prevention and Response

Legal Framework

The Social Development Law (Decree 42-200 1) establishes that there i s a reciprocal relationship between the advancement o f development planning and reducing disaster risks. In Articles 37 and 38, the Ministry o f Planning (SEGEPLAN), in coordination with other government institutions, i s charged with the strategy for disaster risk prevention and protection o f vulnerable populations. In 2006 the Government approved the National Program o f Risk Management in Development Processes 2007-2012. On the basis o f this Program, the Government designed the National Program for Disaster Prevention and Reduction 2009-20 1 1 which includes interinstitutional activities to reduce risk.

Methodology

In formulating the National Program for Disaster Prevention and Reduction 2009-20 1 1 , participatory workshops were held, with the intent o f engaging various institutions. All the different actors' points o f view were incorporated in the plan, and from this information the objectives o f how to incorporate disaster risk management in development planning was defined. O f note are the active participation and the incorporation o f ideas o f different institutions that make up the CONRED system. The institutions consulted were:

0 Asociacibn Guatemalteca de Ingenieros Estructurales (AGIES) 0 Comite' Coordinador de Asociaciones Agricolas, Comerciales, Industriales y Financieras

(CACIF) Contraloria General de Cuentas (CGC) Gabinete del Agua Instituto Geogrdfico Nacional (IGN/MAGA) Instituto de Foment0 Municipal (INFOM)

0 Instituto Nacional de Sismologia, Vulcanologia, Metrologia e Hidrologia (INSIVUMEH) 0 Ministerio de Agricultura, Ganaderia y Alimentacidn ('GA) 0 Ministerio de Ambiente y Recursos Naturales (MAW) 0 Ministerio de Comunicaciones, Infiaestructura y Vivienda (CIV) 0 Ministerio de Educacidn (MINEDUC) 0 Ministerio de Finanzas (MINFIN) 0

0

0

0

0 Vicepresidencia de la Republica

Ministerio de Salud Pziblica y Asistencia Social (MSPAS) Secretaria Ejecutiva de la Coordinadora Nacional para la Reduccidn de Desastres (SE- CONRED) Secretaria de Planijkacibn y Programacidn de la Presidencia (SEGEPLAN) Centro de coordinacidn para la Prevencidn de 10s Desastres Naturales en Ame'rica Central (CEPREDENA C)

50

Description of the Program

The National Program for Disaster Prevention and Mitigation in Guatemala aims to articulate institutional efforts and those o f the private sector in the achievement o f sustainable development, through initiatives that incorporate disaster risk management in development planning. The Program has 15 years validity and defines short- and medium-term activities aimed at increasing the resistance o f the country to natural phenomena. I t identifies institutional responsibilities, provides an approximate budget, and defines development indicators for the next three years. These indicators will be revised and updated in 20 1 1.

Guatemala is recognized at a regional level for its capacity to respond to emergencies. The goal o f this Program i s to shift the focus o f disaster management from emergency response to disaster prevention through a comprehensive disaster risk management strategy, based on four areas o f action: (a) risk identification and monitoring, (b) risk reduction, (c) institutional planning and strengthening, and (d) development o f a financial strategy.

1. Risk identification and monitoring

The objective o f this area o f action is to strengthen the generation and monitoring o f information on hazards, vulnerability, and risk. This will provide the country with essential information for development planning. Specific projects are:

0

0

Development and disclosure o f methodologies for the analysis and evaluation o f hazards (landslides and floods) and vulnerabilities. Hazard (landslides and floods), vulnerability, and risk studies for strategic basins and priority zones o f the country. Construction, enlargement, improvement, and modernization o f seismic, meteorological, and hydrological observation networks.

2. Risk reduction

This area o f action aims to mitigate existing risks and to prevent new ones. Projects incorporate mitigation and guaranteeing safe constructions, especially to the health and education sectors. Projects include:

0 Development o f building codes 0

0 Public infrastructure auditing 0

0

0 Mitigation works

Development o f municipal building regulations

Works to prevent landslides (retaining walls, slope reinforcements) Rehabilitation and maintenance o f road infrastructure

51

3. Institutional planning and strengthening

The main objective o f this area o f action i s the incorporation o f disaster risk management in projects and activities related to development, territorial planning, and development o f public policies. Specific projects include:

0

Formulation o f a National Risk Management Policy and a National Risk Management Strategy Strengthening o f SEGEPLAN planning systems to incorporate disaster risk reduction in their implementation and operational mechanisms Formulation o f land use, urban, and rural zoning plans that take into account the reduction o f disaster risk Creation o f a roundtable for disaster risk management.

4. Financial strategy

This area o f action includes projects related to the identification o f the investment in risk reduction. A code that will classify investments in these fields will be created in order to estimate the budget invested in it. The financial cost o f disasters and the fiscal risk for Guatemala will be studied. Projects include:

Development o f a code to classify and identify budget used in disaster risk reduction Analysis o f the financial costs o f disasters for Guatemala A study to define possible contingent liabilities.

52

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

Annex 7: Letter o f Development Policy

MINIZT€RIO D€ FlNF1NZAS PUBLICA5

1 9 FEE, 2009 GUFSTF-MALFS,. C. 6.

Seiiora Pamela Cox Vicepresidenta para America Latina y El Caribe Banco Mundial Washington, D.C.

Estimada Seiiora Cox:

El Gobierno de Guatemala presidido por el lngeniero Alvaro Colom Caballeros, ha fijado wmo una de sus principales metas promover el desarrollo econornico sostenible y equitativo que responda a las necesidades de toda la poblacion, per0 en particular las de aquellos que viven en situacidn de extrema pobreza. En ese sentido, el cornprorniso de la actual Adrninistracion se centra en avanzar en el cumplirniento de 10s Acuerdos de Paz y en las metas establecidas dentro de 10s Objetivos del Milenio.

Con ese proposito, el Gobierno est6 implementando un plan basado en cuatro programas estrategicos que son: i) Solidaridad; ii) Gobernabilidad; iii) Productividad; y, iv) Regionalidad.

Dentro del Programa Estrategico de Productividad, el Gobierno para hacer frente a estos desafios, formulo la Politica de Gestion de Riesgos, Prevenci6n y Atencion a Desastres, cuyo objetivo es evitar o reducir las perdidas de vidas, asi wmo 10s efectos datiinos que pueden ocurrir sobre 10s bienes materiales y ambientales de 10s guatemaltecos, como consecuencia de 10s riesgos existentes que se pueden presentar en el territorio nacional. Los objetivos basicos de la politica son: a) reducir riesgos y prevenir desastres; b) brindar respuesta efectiva en cas0 de desastre; y, c) recuperacion pronta de las zonas afectadas.

A traves de la citada Politica, se pretenden crear las condiciones para un desarrollo mas sostenible, menos vulnerable a 10s efectos de 10s fenomenos de origen natural o hurnano, cuyo alcance amenace la estabilidad social. Ademas, se pretende evitar vlctirnas hurnanas rnediante una efectiva gestion de riesgo, prevention y rnitigacion de 10s efectos negativos del desastre y restituir a la poblacion afectada las condiciones de vivienda y atencion social, conforme a sus patrones culturales y situ6ndolos en lugares alejados de la posibilidad de nuevos riesgos.

53

MINIZT‘CRIO DE: FINANZAS PUBLICAS GCIAT€:MALA. C. A.

En wnsonancia con lo anterior, el Gobierno de Guatemala, ha formulado el Programa Nacional de Emergencia y Recuperacion Economica con el objeto de contrarrestar 10s efectos de la desaceleracion de la economia mundial, el cual dentro de su Politica Financiera, contempla la gestidn de recursos que permitan al pais hacer frente a eventuales choques externos. Asimismo, se pretende acelerar la negociacion de lineas de cr&ito contingentes con Organism0 Financieros Internacionales, incluyendo 10s programas de apoyo contra 10s efectos de la crisis puestos a disposicion por el Banco Mundial, Banco lnterarnericano de Desarrollo y el Fondo Monetario lnternacional.

La estrategia de asistencia acordada entre el Gobierno de la Republica de Guatemala y el Banco Mundial contempla, entre otros, apoyar la implementacion del Plan de Gobierno, en el tema de manejo de riesgos, a traves del otorgamiento de un financiamiento bajo la Opcion de Desembolso Diferido durante Catastrofes (CAT-DDO), por un monto de US$85.0 rnillones, que se tiene previsto obtener en el aAo 2009.

Con base en lo anterior, se diseR6 el Programa Nacional de Prevencion y Mitigacion ante Desastres 2009-201 1, con el objeto de fortalecer el proceso de reduccion de desastres y en coherencia con el Plan de Gobierno 2008-2012, en el cual se rewnoce la necesidad de realizar actividades de reduccion y mitigacion, con la participacion y el trabajo coordinado de la sociedad civil y el sector privado, las instituciones del Estado y 10s gobiernos locales, en todos 10s ambitos geograficos.

Este Programa contiene indicadores verificables en un plazo de tres ahos y el desarrollo de una plataforma institucional que permitira dar seguimiento y monitoreo a las acciones a ser desarrolladas.

Asimismo, se enmarca en 10s objetivos estrategicos y acciones prioritarias del Marco de Accion de Hyogo 2005-2015: “...Velar porque la reducci6n de 10s riesgos de desastre constituya una prioridad nacional y local dotada de una solida base institucional de aplicacion”. Segun 10s lineamientos establecidos en dicho Marco de Accion, Guatemala cuenta con una plataforma nacional para la gestion del riesgo, constituida por un marco legal e institucional que incluye a la Coordinadora Nacional para la Reduccion de Desastres, el Programa Nacional de Gestion para la Reduccion de Riesgo a Desastres en 10s Procesos de Desarrollo 2007-2012, y las instancias de coordinacion que lo conforman.

Para la implementacion del citado Programa, se han definido cuatro estrategias: i) Identificacion y monitoreo del riesgo; ii) Reduccion del riesgo; iii) Planificacion y fortalecimiento municipal; y, iv) Estrategia financiera, las cuales serbn desarrolladas de la siguiente manera:

54

MINIZTfRIO D€ FINt?NZAS PUBLICAS GCIRT€MF)LR. C. A.

1. ldentificacion y monitoreo del riesgo

Contiene proyectos y actividades relacionadas con la identificacibn y el monitoreo del riesgo, a traves de las siguientes actividades: a) Promover el intercambio y divulgacibn de metodologias existentes sobre analisis y evaluacibn de amenazas y vulnerabilidades; b) Realizar estudios estrat6gicos que inicien con la amenaza y vulnerabilidad de las cuencas mas importantes del pals para determinar la vulnerabilidad de las poblaciones, la infraestructura vital y el sector economico; c) Crear el Sistema Nacional de lnformacibn Geografica el cual administrara y oficializara toda la informacibn geografica del pais, mediante una Politica Geografica.

II. Reducci6n del riesgo

Esta estrategia permitira el desarrollo de marws normativos relacionados con la construccibn segura y proyectos de mitigacibn, asi como actividades relacionadas con la regulacibn y el monitoreo de las inversiones sectoriales (pdblico y privadas), en especial las del sector salud y educacibn. Las actividades contempladas, son las siguientes:

Elaboracibn de un Reglamento Nacional de Construccibn Segura, con especial atencibn en 10s sectores de salud y educacibn; el cual sera socializado con las municipalidades para que puedan desarrollar sus propios Reglamentos de Construccibn.

lnvertir en recubrimientos de talud para evitar deslizamientos en algunos asentamientos que son propensos a este riesgo y se rehabilitara utilizando medidas de construccibn seguras.

lncluir a la Contraloria General de Cuentas dentro del proceso de verificacion de la incorporacibn de la gestion de riesgo a desastres en la inversion publica, a fin de fortalecer la auditoria de la infraestructura pOblica. La base para el fortalecimiento del area de infraestructura sera el convenio recientemente suscrito entre el Ministerio de Finanzas Pdblicas, la Secretaria de Planificacibn y Programacibn de la Presidencia, y la Contraloria General de Cuentas.

lmpulsar a traves de la Coordinadora lnterinstitucional de Asentamientos Precarios, el desarrollo de asentamientos modelo piloto con miras a la reduccibn del riesgo a d esas tres.

55

MINIST€RIO D € FINANZRS PUBLICAS GUFSTFMFSLA. C. 6.

Sistematizar a traves del Ministerio de Comunicaciones, lnfraestructura y Vivienda, la informacion sobre puentes y carreteras que estan estructuralmente debiles y que necesitan de inversion para reducir su vulnerabilidad.

Promover por medio de la Secretaria Ejecutiva de la Coordinadora Nacional para la Reduction de Desastres, SE-CONRED, acciones que perrnitan fortalecer la capacidad municipal en materia de reduccion de riesgo a desastres.

111. Planificacidn y fortalecimiento municipal

La estrategia contempla que la SE-CONRED realice la formulacion de una Politica Nacional de Gestion de Riesgo a Desastres y de la Estrategia Nacional de Gestion de Riesgo a Desastres, que involucre a 10s sectores publico y privado.

Asi tambien, se fortalecera el Sisterna Nacional de Planificacibn, para garantizar que la planificaci6n del desarrollo contribuya a la reduccion de 10s riesgos a desastres y no a generar mhs vulnerabilidad. Dicho fortalecimiento se realizara en fases a lo largo de la ejecucion del Programa Nacional, y se contara con la participation de 10s Consejos de Desarrollo. La primera fase involucra directamente a la SEGEPLAN, y se espera lograr el fortalecimiento del Sistema Nacional de Planificacidn Estrategica Territorial Integral (SINPET-I), del Sistema Nacional de Pre-inversion (SINAPRE) y al Sistema Nacional de Inversion Publica (SNIP) para lograr permear y operativizar la variable riesgo a desastres.

En el marco del SINPET-I, SEGEPLAN impulsarh en coordinacion con 10s Consejos de Desarrollo, planes de desarrollo departamentales y municipales que incluyan la variable de riesgo a desastres. En lo que se refiere al marco de la Pre-inversion y la Inversion Publica se identificarhn 10s instrumentos adecuados que incorporen la variable riesgo, 10s cuales se deberan socializar e incorporar a las normas SNIP.

Se elaboraran Planes de Ordenamiento Territorial, en donde deberan incorporarse linearnientos para orientar la localizacion de la infraestructura vital y las instalaciones esenciales del municipio, asi como las areas de production con alta exposicion a amenazas. La primera fase del proyecto sera implementada en trece municipios, y estara bajo la coordinacion del Ministerio de Ambiente y Recursos Naturales, la Secretaria de Planificacidn y Programacion de la Presidencia y el lnstituto de Foment0 Municipal.

IV. Estrategia financiera

En este eje, se incluyen proyectos relacionados con la identificacion de la inversion que hace Guatemala en materia de gestion de riesgo. Para el efecto este Ministerio desarrollarh

56

MlNIZT€RIO DE: FINHVZAZ PUBLIC65 GUAT€MALA, C. A.

una etiqueta dentro del clasificador presupuestario para el tema de gesti6n de riesgo, lo cual permitira identificar la inversion sectorial que se hace en el terna. Se tiene planificado un programa de capacitaci6n para las Unidades Ejecutoras de las instituciones publicas, lo cual permitira que las mismas esten en la capacidad de reportar el gasto relacionado con la reduccion de 10s desastres.

Asimismo, se realizara un estudio para definir las posibilidades respecto a pasivos contingentes, lo cual permitira a las autoridades de Gobierno, determinar si es necesario contar con una reserva de pasivos contingentes para desastres. El estudio incluira 10s temas de transferencia de riesgo perdida mhxima probable, y, sobre estructuras de aseguramiento.

Conclusion:

Como se puede observar, el Gobierno de Guatemala est6 altamente comprometido con mejorar la capacidad de gesti6n de riesgo en el pais a traves de: i) mejorar la eficiencia y efectividad de 10s mecanismos de respuesta a desastres; ii) integrar 10s principios de la gestion del riesgo en todas las instituciones del gobierno; y, iii) incorporar las regulaciones de ordenamiento territorial como componente critic0 de la gestion del riesgo.

Conscientes de la importancia de fortalecer las capacidades nacionales para el manejo de riesgos, el Gobierno de Guatemala ratifica su solicitud al Banco Mundial para obtener un financiamiento reembolsable bajo la Opcion de Desembolso Diferido durante Catastrofes (CAT-DDO), hasta por US$85.0 millones.

AI agradecer el continuo apoyo que nos brinda el Banco Mundial, aprovecho la oportunidad para expresarle las rnuestras de mi consideraci6n y estima.

57

Letter o f Development Policy English Translation

Pamela Cox Vice President o f Latin America and the Caribbean Region World Bank Washington, D.C.

Dear Ms. Cox:

The Government o f Guatemala, presided by Engineer Alvaro Colom Caballeros, has set as one o f his principal goals to advance sustainable and equitable economic development that addresses the needs o f the whole population, but especially o f those that live in extreme poverty. In this sense, the commitment o f the current administration i s focused on advancing the completion o f the Peace Accords and the aims established in the Millennium Development Goals.

With this objective in mind, the Government i s implementing a plan based on four strategic programs: (i) Solidarity; (ii) Governance; (iii) Productivity; and (iv) Regionalism.

Within the Productivity strategic program, the government has formulated the Policy for Disaster Risk Prevention and Response, to tackle these challenges with the objective o f avoiding or reducing loss o f lives, as well as damages that can occur to material and environmental assets o f Guatemalans, as a result o f existing risk that can occur in the national territory. The basic objectives o f the policy are: a) to reduce risk and prevent disasters; b) to provide effective response in the case o f a disaster; and c) to rapidly reconstruct o f affected zones.

Through the said Policy, the government aims to create the conditions for a more sustainable development, less vulnerable to the effects o f phenomena o f natural or human origin, whose scope threatens social stability. Furthermore it aims to avoid loss o f human l i fe through effective disaster risk management, prevention and mitigation o f the negative effects o f disasters and to return the affected population to living conditions, adequate to their cultural patronage and situating them in places that are not vulnerable to new risks.

Consistent with what has been said, the Government o f Guatemala has formulated a National Program o f Emergency and Economic Reconstruction with the objective o f countering the effects o f deceleration o f the global economy, through i ts Financial Policy, which considers the management o f resources that allows the country to face the eventual external shocks. In this way it aims to accelerate the negotiation o f contingent lines of credit with International Financial Institutions, including those support programs against the effects o f the crisis placed at i t s disposition by the World Bank, the Inter-America Development Bank and the International Monetary Fund.

58

The assistance strategy agreed to between the Government o f Guatemala and the World Bank considers, among other things, support o f the implementation o f the Government Plan, in the theme o f disaster risk management, through the granting o f financing under the CAT DDO, in an amount o f US$85.0 million, which i s foreseen to be obtained in 2009.

Considering this context, the Government o f Guatemala has designed the National Program for Disaster Prevention and Reduction (2009-201 l), with the objective o f strengthening the process o f disaster reduction and in coherence with the Government Plan 2008-2012, in which it recognizes the necessity to get involved in activities o f risk reduction and prevention, with the participation and the work coordinated by civil society and the private sector, the institutions o f the state and the local government, in all geographic areas.

This Program has verifiable indictors in a three-year period and the development o f an institutional platform that will permit the following and monitoring o f actions to be developed.

In this way it i s part o f the strategic goals and actions prioritized in the Hyogo Framework o f Action 2005-2015: “...to ensure that disaster risk reduction constitutes a national and local priority” According to the lines established in the said Framework o f Action, Guatemala counts on a national platform for disaster risk management, consisting o f a legal and institutional framework that includes the National Coordination for the Reduction o f Disasters, and the National Program for Disaster Prevention and Reduction in the Development Plan, 2007-2012.

To implement the cited Program, four strategies have been defined: (i) Identification and monitoring o f information; (ii) Risk reduction; (iii) Planning and institutional strengthening; and (iv) Financial strategy, which will be implemented in the following manner:

I. Identification and monitoring o f risk

Consists o f projects and activities related to the identification and monitoring o f risk, through the following activities: a) promote the exchange and disclosure o f existing methodologies on the analysis and evaluation o f hazards and vulnerability; b) develop strategic studies that start with the hazard and vulnerability o f the most important river basins in the country to determine the vulnerability o f the population, vital infrastructure and economic sector; c) create a National Geographic Information System that will administer and formalize all the geographic information in the country, through a Geographic Policy.

11. Risk reduction

This strategy allow for the development o f normative frameworks related to secure construction and mitigation projects, as well as activities related to regulation and

59

monitoring o f public and private sectoral investments, especially in health and education. The activities considered include the following:

Elaboration o f a National Regulation for Secure Construction, with special attention to health and education sectors, which will be communicated to municipalities so that they can develop their own Construction Regulations

Investment in slope stabilization to reduce landslides in certain settlements that are prone to this risk, and rehabilitation using secure construction measures.

Inclusion o f the General Accounting Auditor in the process o f verification o f disaster risk management incorporation in public investment, in order to strengthen the auditing o f public infrastructure. A convention, which was signed recently between the Minister o f Public Finance, the Secretary o f Planning and Programming o f the President and the General Accounting Auditor, will be the basis for the strengthening o f the area o f infrastructure.

0 Promotion through the Inter-institutional Coordinator o f Slums o f a pilot model for settlements with the objective o f reducing disaster risk.

Systemization, through the Ministry o f Communication, Infrastructure and Housing the information on bridges and roads that are structurally weak and that need investment to reduce their vulnerability.

0 Promote, through the Executive Secretariat o f the National Coordinator for Disaster Reduction (SE-CONRED), o f actions that permit strengthening municipal capacity in reducing disaster risk.

111. Planning and municipal strengthening

The strategy consists o f SE-CONRED formulating a National Policy o f Disaster Risk Management and a National Disaster Risk Management Strategy, which w i l l involve the public and private sectors.

It will also strengthen the National System o f Planning, to guarantee that development planning wi l l contribute to the reduction o f disaster risk and not to generate more vulnerability. This strengthening will be carried out in phases throughout the execution o f the National Program, and wi l l count on the participation o f the Development Council. The f i rst phase wi l l directly involve SEGEPLAN, and wi l l hopefully achieve the strengthening o f the National System for Integral Territorial Strategic Planning (SINPET- I); the National Pre-Investment System (SJNAPRE); and the National system o f Public Investment (SNIP) to infiltrate and operationalize the variable o f risk to disasters.

Within the INPET-I framework, SEGEPLAN in coordination with the Development Council w i l l set in motion departmental and municipal development plans that wi l l include the variable o f risk to disasters. In the pre-investment framework and the Public

60

Investment the necessary instruments that incorporate risk will be identified, which should communicate and incorporate the SNIP norms.

The Territorial Planning strategy will be elaborated and should incorporate the guidelines to orient localization o f vital infrastructure and the essential installations in the municipality, as wel l as the productive areas with high exposure to hazards. The f i rst phase o f the project will be implemented in thirteen municipalities, and will fa l l under the coordination o f the Ministry o f Environment and Natural Resources, the Secretariat o f Planning and Programming o f the President and the Municipal Promotion Institute.

IV. Financial strategy

This sphere includes projects related to the identification o f investment that Guatemala makes in disaster risk management. For this the Ministry will develop an index within the budget classifier for the disaster risk management theme, which will help identify the sectoral investment which will be made. A capacity building program for the Implementing Units o f public institutions is planned, which will grant them the capacity to report the expenditure related to reduction o f risk.

In addition, a study will be carried out to define the possibilities with respect to contingent liabilities, which will permit the authorities o f the government to determine whether it i s necessary to rely on a reserve o f contingent liabilities for disasters. This study will include themes o f transference o f maximum probable loss risk and o f insurance structures.

Conclusion

As one can see, the Government o f Guatemala is highly committed to better the disaster risk management capacity in the country by: i) improving efficiency and effectiveness o f the response mechanisms to disasters; ii) integrate the principles o f disaster risk management in al l the government institutions and iii) incorporating regulations on territorial planning as a critical component o f disaster risk management.

Conscious o f the importance o f strengthening i t s national capacity to manage risk, the Government o f Guatemala ratifies i t s request to the World Bank to obtain a reimbursable financing under the Catastrophe Deferred Drawdown Option C A T DDO, in the amount o f US$ 85 million.

I take this opportunity to express my gratitude for, and high esteem of, the continued support o f the World Bank,

Sincerely,

61

Republic of Guatemala Catastrophe Deferred Drawdown Option (CAT DDO)

4.8 5.2

Annex 8: Guatemala at a Glance

Guatemala at a glance 9/24/08

- ~ x p c r u - b l m p c r t o

POVERTY and SOCIAL Guatemala

2007 Population. mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ blillons)

Average annual growth, 200197

Population 1%) L a b force (56)

Most recent eatlmata (latest year available, 200197) Poverty (% of population below national poveriy line) Urban copulation (% of total populatlonJ Life expectancy at blrth (years) Infant mortality (per 1,000 live birihs) Child malnutrition 1% of chlidmn under 5) Access to an Improved water source (% of populatlon) Literacy (% of population am 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987

GDP (US$ billions1 Gross capital formatiorVGDP Exports of goods and services/GDP Gross domestic savingsiGDP Gross national savingslGDP

7.1 13.9 15.8 7.5 6.4

Current account balance/GDP -7.5 Interest payments/GDP 2.2 Total debVGDP 39.4 Total debt service/eworts 29.5 Present value of debWGDP Present value of debVeworts

(avenge annual growth) 1987-97 199747

GDP 4.0 3.8 GDP per capita 1.6 1.1 E w r t s of goods and services 6.5 1.4

13.3 2,440 32.6

2.5 2.8

48 70 31 18 €6 69

114 118 109

I9S7

17.8 13.7 18.0 8.0

10.1 -3.5 0.6

19,4 9.9

ZOO8

5.1 2.5

Latin Arnerlca 6 Carib.

563 5,540 3,118

1.3 2.1

76 73 22

5 91 90

118 120 116

2006

30.2

-5.1 0.8

18.2 5.8

18.5 59.1

2007

5.7 3.2

Lower- mlddle- Income

3,437 1,887 6,485

1.1 1.5

42 69 41 25 88 89

111 112 109

2007

33.4

-5.5

2007-11

4.5 2.0

hvelopnnnt diamond'

Life expectancy

GNI Gross per primaq capita enrollmen

Access to improved water sourca

-Guatemala - .. Lower-middle-income DmuD

iconomic ratios'

Trade

T Domestic Capital ravings formation

Indebtedness

-Guatemala Lo wer-middle-incume omuo

STRUCTURE of the ECONOMY

(% Of GDPJ Agncuiture 260 237 Industry 198 200

Manufactunng 157 137 Services 542 5 6 3 Household final consumpbon ewenditure 848 8 7 0

'987 I997 2006 2007

General gov't final consumption expenditure Imports of goods and services

(average annual growth) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation imports of goods and services

Manufacturing

7 9 22 3

1987.97

3 0 3 8 2 7 4 5

4.0 3 8

5.0 23.6

1997-07

1.1 1.4 1 .o 6.0

3.8 2.7

2008 2007

-0CF -GDP I Growth of exports and imports (%) i c T I

Note 2007 data are preliminary esbmates This table was produced from the Development Economics LDB database

The diamonds show four key indicators in tha country (in bold) compared with its incomegroup average If data are missing, the diamond will

62

Guatemala

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices implicit GDP deflator

Government Rnance (% of GDP, includes Current granfs) Current revenue Current budget balance Overall surpiuddeflcit

TRADE

(US$ millions) Total exports (fob)

coffee Sugar Manufactures

Total imports (cir) Food Fuel and energy Capital QOOdS

Export price index (2000=100) Import price index (2000=100) Terms of trade (2000=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current acwunt balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, locaUUS$J

EXTERNAL DEBT and RESOURCE FLOWS

(US% millions) Total debt outstanding and disbursed

iBRD IDA

Total debt service iBRD IDA

Omcial grants Official creditors Private weditors Foreign direct investment (net inflows) Portfolio equity (net inflows)

World Bank program Commitments Disbursements Principal repayments Net flows interest payments Net transfers

Composition of net resource flows

1987

10.8 8.0

1907

978 355

51

1,374 184 105 416

20 25 80

1987

1,136 1,593 -456

-179 101

-535

481 54

310 2.5

1987

2,791 330

0

357 45 0

146 -8

-78 150

0

0 12 22

-1 1 23

-34

~

1997

9.2 8.3

9.4 3.2

-0.8

1997

2,598 589 258

1,428 3,852

810 269

1,055

71 76 91

1997

3,175 4,188

-1,013

-228 61 1

5 3 0

662 -232

866 6.1

1997

3,444 188

0

364 28 0

156 68 72 84 0

33 16 12 4

14 -1 0

~

2006

6 6 4 9

12 7 3 3

-1 9

2006

4,033 443 284

2,747 9,911 1,493 1,664 2,289

2006

5,506 10,788 -5.282

-355 4,103

-1,533

1,812 -279

4,070 7 6

2006

5,496 642

0

551 65

0

409 347 -25 354

0

100 199 36

163 28

134

2007

5.5 5.7

12.5 3.8

-1.9

2007

4,909

3,346 10,084

2,846

2007

6,589 11,938

-568 4,400

-1,854

2,689 -835

4,905 7.7

2007

740 0

75 0

179 136 36 98 37 61

Inflation (36) E l -GDP deflator - 0 ' C P I

Export and Import levels (US$ mill.)

12.000 I 10 wo 6,WO

6,000

4,000

2,000

0

I Current account balance to GDP (K)

Comporition of 2006 debt (US$ mill.) I 842 I

386

A . IBRD E - Bilateral B . IDA D. Other multilateral F . Private C - IMF G - Short-term

Note. This table was produmd from the Development Economics LDB database 9/24/08

63

References

BID-IDEA. 2005. “Informe TCcnico Principal. Sistema de Indicadores para la gestion de Riesgos.” Colombia.

Cruz Avila, Ligia Lorena. 2008. “Health Humanitarian Assistance for Disaster Management.” Masters Thesis, San Carlos University.

IADB (Inter-American Development Bank). 2004. “Indicators o f Disaster Risk and Risk Management.” Washington, D.C.

IADB (Inter-American Development Bank). 2007. “Indicators o f Disaster Risk and Risk Management.” Washington, D.C.

IMF (International Monetary Fund). 2003, “Fund Assistance for Countries Facing Exogenous Shocks. ” At: http://www.imf.org/external/np/pdr/sustain/2003/080803 .pdf.

Ramussen, Tobias. 2004. “Macroeconomic Implications o f Natural Disasters in the Caribbean.” IMF Working Paper 04/224. Washington, D.C.

World Bank. 2003. “Caribbean Economic Overview 2002: Macroeconomic Volatility, Household Vulnerability, and Institutional and Policy Responses.” Report No. 24165-LAC. Washington, D.C.

World Bank. 2005. “Natural Disaster Hotspots: A Global Risk Analysis.” Disaster Risk Management Series No. 5. Washington, D.C.

World Bank Independent Evaluation Group. 2006. “Hazards o f Nature, Risks to Development: An IEG Evaluation o f World Bank Assistance for Natural Disaster .” Washington, D. C .

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