Chairman's Concluding Remarks
Inter-American Development Bank Consultative Group
Meeting for the Reconstruction and Transformation of Central America
Stockholm, Sweden 28 May 1999
The Consultative Group meeting at IDB Headquarters in Washington last December
mobilized the international community's support for the Central American countries
devastated by Hurricane Mitch.
These countries then went to work preparing National Reconstruction and Transformation
Plans for this Stockholm meeting.
At the CG meeting last December, there was a strong consensus that the top priority for
Central America was a rapid recovery and reconstruction from the enormous devastation
caused by Hurricane Mitch.
It was equally important, however, that the recovery must not be at the expense of the
political and social transformation, which the Central American countries were
experiencing with peace, freely elected governments, judicial reforms, and steadily
improving economic growth.
There was also a strong consensus among donors and the Central American Governments
that effective implementation of the National Plans required reducing social and
ecological vulnerability; decentralization and participation of the civil society and
transparency in the use of resources.
Consequently, this CG meeting involves the review of National Plans, three Workshops on
key region-wide issues, addressing ecological and social vulnerability, transparency and
decentralization, as well as two Working Groups on trade and migration issues.
In retrospect, this was a unique CG meeting with a very heavy workload.
I want to acknowledge the excellent work of the Central American countries in preparing
these comprehensive National Reconstruction and Transformation Plans in a very short
time-fame, since the disaster of Hurricane Mitch.
Next, I also want to thank all the participants in this meeting for both their stamina
and diligence in the meaningful interchanges we had with our Central American partners
over these past four days in reviewing their National Plans.
I would like now to summarize our discussions of the National Plans at this meeting.
Honduras
President Flores again reminded us that the tragedy of Hurricane Mitch
provided a unique opportunity, not to rebuild the same, but a better Honduras.
The Honduras Master Plan for the National Reconstruction and Transformation (MPNRT) was
well documented. Its key overall objectives or themes including: (I) Economic Reactivation
and Productive Employment; (ii) Combating poverty, and Human Development; (iii) Natural
Resources and Environmental Protection; (iv) Democratic Participation in the Master Plan.
Donors Comments
Donors strongly supported the Plan's key objectives and stated that the presentation by
the Honduras officials during the meeting was excellent.
Donors expressed concern regarding the country's absorptive capacity, given that the
Master Plan was very ambitious and that it was necessary to establish clear-cut priorities
for the public investment program proposed for the next four years.
They also emphasized the need for transparency in the use of both donor and public
funds.
Donors also recommended greater involvement of the civil society in the implementation
and monitoring of the Plan; and decentralization with greater use of local government
entities which required strengthening their financial and management capacity.
Donors emphasized that the amount of tax revenues transferred to municipalities needs
to be increased substantially.
They pointed out that land use and land tenure needed more attention because they can
be important factors in helping to reduce rural poverty and environmental degradation.
Sector Programs and Coordination
There were recommendations on the need to improve aid coordination, utilizing a sector
approach. It was suggested that the Government invite interested donors to discuss
participation in certain key sector programs, for example in the social sectors and rural
development. The IDB offered to provide assistance in organizing such sector meetings.
Non-Project Assistance and Debt Relief
As a result of Mitch, Honduras suffered the major destruction of export crops and the loss
of production in other sectors, which coupled with the high costs of reconstruction, is
resulting in widening fiscal and external deficits.
The World Bank, the IDB and the IMF prepared a paper which indicated that in view of
the size of the projected deficits in 1999-2000, the success of the Honduran Government's
economic programs will depend heavily on the availability of adequate external resources,
including new grants and concessional loans as well as significant additional debt relief.
Nicaragua
Nicaragua was engaged in a major transformation process, when Hurricane Mitch struck.
Nicaragua's strategic objectives included economic growth, poverty reduction, and
strengthening democratic institutions and rule of law.
The Government clearly recognizes that sustainable growth requires good governance,
macroeconomic stability, and expanded private sector development.
Nicaragua's Reconstruction Program focuses on four areas: social sectors,
infrastructure, rural development and governance.
President Aleman pointed out that in terms of potential, "Nicaragua was not a poor
country but an impoverished country" because of decades of poor policies and
accumulation of the highest per capita debt of any country in the world.
President Aleman stressed Nicaragua's need for concessional assistance; debt
cancellation under the HIPC Initiative; and greater market access principally in Europe
and the United States.
The Government is in the process of undertaking a series of governance enhancing
practices, including: the passage of a new law on public sector procurement, the adoption
of a unified system of accounts to improve transparency in the use of public funds, the
acceleration of titling and registry of land properties, and further progress in the
reform of the judicial system.
Donors Comments
There was a strong consensus that Nicaragua's National Plan was a good model of
consultation and involvement of the civil society in its formulation. Donors urged
building on this experience and involving the civil society in the implementation of the
National Plan.
Donors expressed concern for Nicaragua's absorptive capacity and recommended that the
Government establish priorities for its Reconstruction Plan.
Transparency issues were raised by donors, particularly the efficient use of public
resources and the important role of the Comptroller General. Donors also encouraged the
Nicaraguan Government to establish specific targets and deadlines for implementing their
transparency programs. Donors said that establishing a professional civil service was
essential for good governance and were encouraged that such a law was currently before
Congress.
Progress was noted in the Government's plans for decentralization and donors encouraged
it to take concrete steps for implementation.
Donors noted progress in implementing land titling and encouraged continuation and
acceleration of this important program.
Progress was noted in carrying out most of the nine points agreed to in the CG meeting
for Nicaragua in Geneva, Switzerland, in April 1998.
Guatemala
Guatemalan Government officials presented a frank and full update on the country's
current macroeconomic situation and on the status of the agreements that put an end to
more than three decades of civil war.
The Peace Accords signed some 26 months ago called for comprehensive transformation of
the Guatemalan society and economy to promote equitable growth, rule of law, and social
justice.
The Reconstruction Program necessitated by Hurricane Mitch was incorporated as a
complementary program to the Peace Accords.
The Government summarized recent progress in fiscal areas: Superintendency of Taxes
(SAT) has been very successful in improving tax collection. During the first four months
of 1999, tax collections are up 20% compared to the same period last year and on an annual
rate could reach 11% of GDP- There has been significant growth in Social Sector
expenditures which in 1999 are expected to exceed planning levels by 30%.
Work is going forward on the Fiscal Pact which calls for expanding the tax base and
improving tax collections.
With regard to the Reconstruction Program, the Emergency Relief and Rehabilitation
targets for the first 100 days were met and a mid-to-long term Reconstruction Plan has
been developed which features: (i) productive conversion emphasizing a 10 year rural
development plan and (ii) a program for the prevention and mitigation of disasters.
The rural program calls for better land use, strengthening land tenure and ownership
supported by the recently approved law for a Land Fund and food security element.
Donors Comments
Donors welcomed the Guatemalan officials' frank and comprehensive presentation. Donors
discussed the results of the recent referendum with Guatemalan authorities and
representatives of the civil society who participated in the meeting. The Guatemalan
authorities said that the referendum was only one chapter in the process of implementing
the Peace Accords. Much has been accomplished and much needs to be done. Donors were
encouraged by the Government's commitment to continue with the peace process.
Donors focused on three areas which need more attention.
- Top priority was keeping the Peace Accords on track. Many donors indicated that support
from their parliaments for aid to Guatemala was dependent upon continuous progress in
implementing the Peace Accords.
- Judicial Reform must be strengthened and accelerated.
- Further improvements in tax revenues must continue.
El Salvador
El Salvador has been involved in a major transformation process since the signing of
the Peace Accords seven years ago. It has experienced free elections, judicial reform,
high growth rates within the framework of macroeconomic stability.
Hurricane Mitch hit the poor the hardest. The Government prepared a comprehensive
National Reconstruction Plan identifying key areas of vulnerability, such as river basins,
established an early warning systems and focuses on reducing the vulnerability of the poor
through complementary programs in rural development The objective was to break the vicious
cycle of poverty and environmental degradation.
The strategy for executing the Plan calls for decentralization with local community
participation and transparency in executing and monitoring the Plan.
Donors Comments
Donors noted the quality of El Salvador's National Reconstruction Plan, prepared in close
consultation with its civil society and also with the in-coming Government of
President-Elect Flores, who has endorsed the National Reconstruction Plan.
Donors emphasized the importance of continued commitment to the Peace Accords.
Donors recommended deepening decentralization process with revenue sharing with
municipalities and also strengthening their management capacity.
Several donors suggested that river basin management would benefit from a regional
approach inasmuch as the river runs through several Central American countries.
Costa Rica
President Miguel Angel Rodriguez in a video presentation indicated three areas of
particular interest for Costa Rica and the whole region.
- The need to improve the trade opportunities of Central America, improving access to
developed countries markets in order to complement assistance with trade opportunities.
- The need to focus on the general situation of indebtedness of the countries of the
region, in particular relief in intra-regional debt, including the debt with CABEI.
- The strong pressure on his country's economy due to migration flows that represent 20%
of Costa Rica's population and deserve international attention and compensation.
Donors Comments
Donors praised the Government of Costa Rica's generosity in welcoming immigrants in the
aftermath of Hurricane Mitch, which merits international recognition and support. The
quality of Costa Rica's rescue and disaster preparedness system was also acknowledged. In
this regard, the possibility of Costa Rica serving as a source for technical assistance to
other Central American countries was indicated.
Conceptual Workshops
We had a series of excellent workshops in which government officials, donor
representatives, NGO's and academicians discussed the key issues relevant to effective
implementation of reconstruction and transformation in Central America, which I would like
to summarize.
Ecological and Social Vulnerability
The workshop on Ecological and Social
Vulnerability, chaired by President Iglesias, provided an important opportunity to
explore conceptual and operational aspects associated with reducing vulnerability to
natural hazards.
The discussions, based on a series of presentations of technical papers and formal
comments, involved issues such as: the relationship between ecological, social and
institutional factors; regional and local dimensions of strategies to reduce
vulnerability; and environmental management tools that can be brought to bear on the
problem.
Spending on vulnerability reduction is a cost-effective investment in national
socio-economic development, and as poverty Is inextricably related to vulnerability, an
effective strategy to reduce one requires concerted efforts to address the other.
Sectoral agencies and local communities which have primary responsibility for
vulnerability reduction, require support from specialized technical agencies, as well as
concerted attention to strengthening the capacity to carry out this task effectively.
Hurricane Mitch demonstrated the importance of involving small farmers as part of the
solution.
Financial mechanisms to compensate them for local and international environmental
services could be important tools for increasing attention to watershed protection.
Transparency and Governance
The workshop on Transparency and Governance,
chaired by Dr. Jose Eduardo Gauggel Rivas, President of the Central American Court of
Justice, had the active participation of government officials, international
organizations, civil organizations and the private sector with broad audience
participation.
The general discussion emphasized the indispensable need for the efficient and
transparent management of public resources, both in terms of reconstruction funds and as
an integral part of the transformation of the countries of the region. A fundamental
element of transparency is the availability of free access to information. The discussion
also stressed that in the context of transparency, accountability involves all elements of
society (the state, civil society and the private sector); and made recommendations
covering the Administration of Public Resources, the Judicial System, Civil Society, Legal
Instruments, the Reconstruction Period and the Private Sector.
Decentralization and Local Development
The workshop on Decentralization and
Local Development, was chaired by Mr. Pierre Schori, Minister of International
Development Cooperation of Sweden.
Hurricane Mitch has highlighted the abilities and limitations of municipalities and
other local actors in Central America to act in the immediate aftermath of the disaster
and in the period of reconstruction.
Decentralization distributes power, resources, decisions and capacities from central
governments to sub-national governments (mainly municipalities) and communities. The
potential benefits of this process are related to the comparative advantages of local
institutions: greater understanding of local problems, better control and accountability
during execution and operations of projects, and better ability to involve the community
and to mobilize their resources.
In order for decentralization to succeed, there must be a willingness on the part of
central government to share power and on the part of local governments and communities to
assume now responsibilities.
In each country, there is a need for a stronger and verifiable political commitment to
decentralization. This commitment should be expressed in an articulated strategy,
operative tools and a detailed plan of action that includes a time schedule.
Governments must organize the decentralization process so that there is a correlation
between the transfer of responsibilities and financial resources, so that the process does
not undermine fiscal outcomes at either the national or local level.
Technical Working Groups
There were also two technical working groups which discussed two important regional
issues, trade and migration.
Trade
The technical working group on Trade was
chaired by Mr. Gert Rosenthal, Ambassador of Guatemala to the United Nations. It brought
together representatives from Central American Ministries of Trade and Foreign Affairs and
delegations from major trading partners and donor countries.
It was agreed that trade and foreign investment are essential complements to external
aid for the subregion's recovery from Hurricane Mitch and economic transformation.
Issues related to market access for Central American exports, mechanisms for promotion
of foreign investment and exports and institutional strengthening of trade related
agencies in the subregion were discussed.
It was agreed that while in the medium term Central America requires stable reciprocal
trade relations with its major international partners, in the short term there is a need
for enhancement of the Caribbean Basin Initiative and other preferential arrangements in
two key negotiating Fora - the FTAA and WTO.
Migration
The technical working group on Migration,
chaired by Mr. Brunson McKinley, Director General of the International Migration
Organization (IOM), was organized with the cooperation of the IOM, and included the
participation of Ministers and senior level officials of Central America and other
governments, international organization, NGO's, and experts on migration.
This meeting was hold in view of the increasing importance of migration for the
affected countries and Central and North America in general, especially in the aftermath
of Mitch. Participants agreed that a difficult situation in migration in Central America
was considerably aggravated by the effects of Hurricane Mitch.
The Working Group arrived at a broad consensus regarding actions required, and appealed
to the international community for support of Central American efforts to achieve the
governance of migration as well as ensuring that the migratory issue becomes a positive
dimension within the process of Reconstruction and Transformation.
Pledging
The international community's support indicated at this meeting totals approximately
US$9 billion of assistance for the period since November 1998 through the next four to
five years. Of this amount, the Inter-American Development Bank plans to commit US$3.5
billion for the five Central American countries and the World Bank plans to commit US$1.8
billion, from November 1998 through the year 2002. A substantial part of this amount is
concessional financing and includes debt relief, redirection of funds from existing
projects and new projects which give priority to the task of transformation in Central
America. Bilateral donors and other international organizations indicated support
amounting to approximately US$3.7 billion. The international community has clearly
demonstrated its solidarity in helping the people of Central America in the monumental
task of rebuilding their communities and transforming their societies and economies.
Conclusion
We recognize the solid and serious preparation of the Central American countries that
attended this event. In fact, this Stockholm meeting became a historic opportunity to
profoundly analyze the transformation of the countries in order to face the challenges
presented by globalization, poverty reduction and improvement of income distribution,
environmental sustainability, and above all, the strengthening of the democratic
institutions, the participation of the civil society, and the respect to human rights.
We recognize the opportunity to participate that the Central American countries
provided to the representatives of the various branches of government, political parties
and members of the civil society, as well as the active participation of donors,
multilateral institutions, observers and international organizations.
The announced commitments represent an exceptional response from the international
community. We should not only recognize the contribution of the governments but also that
of the civil society. The spontaneous reply from the public in the form of voluntary
contributions reached unmatched levels in the history of the region. It has been a strong
reaction and constitutes a homage to the principles of solidarity on which a better
international society should be built.
It is equally important to recognize that the meeting gave an opportunity to the civil
society through NGO's to make a very valuable contribution that should be a part of the
reflections and actions of the recipient governments, bilateral and multilateral
institutions.
This meeting also presented an innovative modality for discussing issues of collective
interest to all the countries of the region: attention to the environmental and social
vulnerability, the participation of the civil society and the decentralization of the
political action and the transparency in the use of resources of the international
cooperation.
The Central American governments came well prepared to give clear signals of
sensibility and willingness to respond to the major themes of this meeting.
Many donors indicated the need to strengthen transparency in light of the large amounts
of funding involved in the reconstruction process. The implementation of specific
transparency measures, however, is still an outstanding issue that needs to be properly
addressed in order to ensure the efficient use of the funds committed by donors.
Consequently, specific actions by each country will have to be agreed upon in the near
future.
Expressions of Appreciation
On behalf of all the members of the international community, I want to express our
appreciation to the Prime Minister of Sweden, the Secretary General of the U.N.,
distinguished Presidents and Vice-Presidents from the Central American countries and their
respective delegations for their comprehensive and informative presentations on their
respective National Plans for Reconstruction and Transformation, as well as the
participation of the Secretary General of the OAS and the Vice-President of the European
Commission and distinguished Ministers of the donor family.
This meeting reflects the best example of solidarity and cooperation between the
international community and the Central American governments, working together to help
their people rebuild their communities and economies.
Prime Minister Persson said it best at the opening of this meeting, "If
humanity closes its eyes to some of us that are suffering, all of us will suffer sooner or
later"
I also want to thank again the Swedish authorities for their outstanding cooperation in
co-hosting this meeting, and their strong commitments with its objectives. This attitude
made a real difference to assure the success of this meeting.
Follow-Up to Stockholm CG Meeting
As a follow-up to this CG meeting, we are proposing the following:
First, Individual country CG meetings for Honduras and Nicaragua which
would be held in Tegucigalpa and Managua, respectively, early next year. For Guatemala, we
propose a CG meeting in the middle of next year after the new Government has taken office.
Second, Hurricane Mitch demonstrated that there are several areas
including river basin management, early warning system for disasters, which can benefit
from a regional approach. In addition, SICA (Sistema de la Integracion Centroamericana)
made an excellent presentation on a number of operations concerned with regional
cooperation, which merits our future attention.
We propose that a Regional Consultative Group meeting to discuss regional issues be
held late next year in Madrid, thanks to the generous offer by the Spanish Government. To
that extent, we intend to undertake consultations with the Central American countries to
transform and expand the objectives of the present Regional Consultative Group that has
been operating for the last six years between Central American countries and the donor
community.
It clearly appeared in our deliberations that regional integration which continues to
be a basic pillar of development of the region, now has new fundamental opportunities to
be engaged in light of new challenges presented by the reconstruction and transformation
of the region and the management of risks created by the natural and social
vulnerabilities.
I want to thank all of you for your contributions to this meeting which helped make it
an important event and a success.
I also want to especially thank Minister Schori and other officials of the Swedish
Government for their outstanding cooperation and hard work in our joint efforts in
organizing this outstanding Consultative Group meeting.
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