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Implementation Completion Report (ICR) Review - Second Decentralztn

1. Project Data:   
ES Date Posted:
Project Name:
Second Decentralztn
Project Costs(US $M)
 1,095  1,038.6
Loan/Credit (US $M)
 500  500
Sector, Major Sect.:
Business Environment,
Private Sector Development
Cofinancing (US $M)
 0  0
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
06/30/1999 06/30/2000
Prepared by: Reviewed by: Group Manager: Group:  
Jorge Garcia-Garcia
Laurie Effron Ruben Lamdany OEDCR

2. Project Objectives and Components:

a. Objectives
The objectives were to: (a) alleviate poverty in eight poor states by increasing the access of rural poor and indigenous communities to basic social and economic infrastructure and to income generating activities; and (b) strengthen the institutional capacities at the state and local levels to assume greater responsibility in supporting rural development.

b. Components
Initial Components

1. Municipal Investment and Institutional Development -Municipal Fund- ($737 million). This component financed works for water supply development, rural roads, school rehabilitation, productive activities, and other infrastructure works; the community would select and manage those works.
2. Rural Water Supply ($178 million). This component financed investments in potable water in small rural localities (500-5,000 inhabitants) not eligible under the Municipal Funds Program.
3. Rural Roads Rehabilitation and Maintenance ($133 million). This component financed the rehabilitation and maintenance of priority sections of the rural roads network.
4. Income Generating ($12 million). This component financed technical assistance, training and limited investment to develop and pilot new strategies to support income-generating projects in rural areas.
5. SEDESOL-Institutional Development and Project Coordination (US$35 million). This component financed a program of institutional development, technical assistance and training and contracting of technical expertise required for the supervision and review of each component.
Components after 1998 and 1999 amendments
1. Municipal Investment and Institutional Development. All loan funds were transferred to this component.

c. Comments on Project Cost, Financing and Dates
In 1998, after the first two years of project implementation, the Bank and the Borrower agreed to: (a) eliminate the rural roads and water components and transfer the funds to the Municipal Investment and Institutional Development component; (b) eliminate the income generating component; (c) increase the disbursement percentage in certain categories, from 50 to 65 percent; and (d) increase the aggregate amount for civil works under direct contracting for the Municipal Fund Program.
In 1999, the Bank and the Borrower amended the loan to adjust it to the decentralization law issued by Congress in 1997. In this amendment the component for SEDESOL was eliminated.

3. Achievement of Relevant Objectives:

The project achieved the objectives of increasing the access of the poor rural communities to basic social and economic infrastructure. Public works carried out under the Municipal Funds component exceeded 100,000, beyond the 40,000 planned in the SAR; these public works included rural roads and water supply systems. Between 1995-97, before its amendment, the loan financed 52 larger rural water supply systems (construction, enhancement and rehabilitation) and 200 rural roads rehabilitation projects. The slow execution of the rural roads component convinced the Bank and the Borrower to abolish them, and transfer the funds to the Municipal Funds component.

4. Significant Outcomes/Impacts:

1. The Fiscal Coordination law (decentralization law) of 1997 ordered the Government to transfer directly to states and municipalities the funds for local programs, without intervention of federal agencies (SEDESOL). SEDESOL, the executor of the Bank-financed project, stopped managing the funds for local programs. The funds, thus, ceased to be federal, and local jurisdictions managed them without having to account for them to the federal government. As a result, the component for SEDESOL was abolished and replaced by one that focused on municipal strengthening and community participation. Moreover, the execution of the project financed by the Bank depended on the states willingness to participate in the project and to meet the conditions for disbursement and accountability required by the Bank. Four out of the eight original states of the project agreed to participate in the program.
2. The project strengthened the institutional capacity of the state and local levels in supporting rural development. The project showed that local communities can manage projects well, that accountability and community participation increase when they take responsibility for managing the funds they receive from the central government. Thus, a federal anchor (SEDESOL) for the project was unnecessary. Moreover, projects had lower costs and better quality than those managed by outside contractors. Field reviews found that the costs of the community-based projects of the Municipal Fund Program were 30 percent lower than those managed by outside contractors.
3. Experience with the project helped to influence the decentralization law; in fact, the innovative ideas of the Operations Manual for the project were used to shape parts of the decentralization law issued by Congress

5. Significant Shortcomings (include non-compliance with safeguard features):

Management problems delayed disbursement of funds. In 1997 disbursements were suspended for some months due to considerable delays in the provision of audits, and monitoring reports also had a considerable lag.
States did not provide specific funding to the state water agencies for implementing the rural water component.
Delays in institutional strengthening of state water agencies, local water organizations and state road agencies impaired their capacity to manage operations effectively.
The municipalities did not have readily available aggregate information on numbers of projects and unit costs This monitoring weakness is being addressed with the help of a grant from the institutional development fund (IDF).

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
    ICR rates ID as satisfactory, but its authors meant substantial
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

1. Simple project designs have higher chance of success than complex ones. Over its implementation, the amendments to the project and the abolition of three components made its execution easier and more effective.
2. Local communities, municipalities and state governments can manage projects as well or better than central government agencies. The Bank, thus, must be inventive and find ways to operate in the new decentralized environment of Mexico.
3. Better to change the project during execution than trying to stick to its original design. The project showed that, during execution, abolishing components that do not work and shifting the funding to those working well increased its benefits.

8. Audit Recommended?  No


9. Comments on Quality of ICR:

ICR deals with project as if it were two separate projects, the one before and the one after the amendments. ICR could have presented a small table at the beginning listing the components in the initial and final phases of the project. Another section could have explained why the project had to be changed during implementation. After that, the ICR could have focused on discussing the components that were actually implemented.

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