INTERNATIONALBANK FOR WORLD BANK R E T C N O E N STRUCTION PM AND DEVELO April 2004 No. 46 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region THE WORLD BANK AND BRAZIL: A NEW COUNTRY ASSISTANCE STRATEGY Angela Furtado Brazil enjoys human and natural resources unavailable development: one that treats social progress and mar- to most countries. Its assets include a diverse, ener- ket-oriented economic reform as equally important, getic population and a vast territory that encompasses and interdependent. the world's largest rain forest and up to one-fifth of the world's fresh water. Brazil is the world's 9th largest economy with The Bank's Country a GDP of around $500 billion. Assistance Strategy and But it is among the most unequal Public Concerns countries in the world: the wealthiest 1 percent of Brazil's How can the World Bank Group population receives 10 percent of make a difference in Brazil, when the country's income. World Bank lending represents only 0.4 percent of GDP and 4 percent of Brazil now has a chance to close external financing? And how can it the gap between the country's best contribute to the development promise and its reality. Advances debate in this vibrant democracy of began in the 1990s, when macro- 172 million people? economic reforms tamed runaway inflation, and policymakers tar- These were the key issues for the geted education, health and other team that worked on the joint World key services for improvement. Bank-IFC Country Assistance Strat- Indicators began rising: primary egy for Brazil covering 2004-2007, school enrollment rose to 97 per- approved in December 2003 by the cent, infant mortality fell by Board. And they are the questions more than 33 percent to fewer that were posed to a diverse set of than 30 per 1,000 live births and groups consulted by bank staff. life expectancy increased to 71 Ideas and proposals were sought years. from hundreds of people in Brazil's 27 states, including local government officials, repre- Early progress fueled rising expectations. In this cli- sentatives of social and environmental movements, mate, Brazilians elected a new president, Luiz Inácio unions, youth, indigenous and religious groups, aca- Lula da Silva. A former factory worker and labor demics, members of parliament, the private sector, unionist, the President champions a new approach to other interested citizens and international development 1 partners. (The government held its own separate con- Presently, the Bank's Brazil operations include 53 sultations on the multi-year plan, hearing from more active projects and US$4.7 billion in commitments. than 4,700 people). Among their recommendations, The new country assistance strategy (CAS) aims to citizens pushed for greater attention to education, en- complement the Government's four-year Multiyear trepreneurship, culture, natural resources, and anti- Plan (Plano Plurianual) with funding of between $4 crime programs, as billion and $7.5 billion well as for support in over the 2003-2007 pe- reducing the riod, depending on results country's notoriously of reform initiatives and high logistics costs programs. in its ports, roads and rail systems. Development Objectives "These consultations shape the direction of Three major goals guide the Bank's work in the Bank's strategy. It Brazil by bringing to aims to help Brazil be- sharper focus the come more equitable, en- countries' opportuni- vironmentally sustainable, ties as well as risks, and economically com- and by presenting a petitive. To maximize the range of ideas for ad- Bank's impact, the ap- dressing them", ac- proach is also highly fo- cording to the Bank's cused, which is achieved Country Director, through three dimensions: Vinod Thomas. First, the approach is more integrated across sectors, This ongoing process, on the one hand, highlights the moving away from single-sector or one-off projects opportunities offered by Brazil's vast wealth of human and policy support. So, for example, the recently ap- capital and natural resources and their development proved investment loan for the state of Tocantins links through education, entrepreneurship, efficiency, and infrastructure and the environment. A programmatic sustainable use. It also raises issues of culture, crime loan for productivity, currently under preparation, and violence and youth. And it brings to light a variety links infrastructure regulation and financial sector re- of risks such as the country's debt burden and need for forms. fiscal discipline, the limits on investments, the vast inequalities in income and wealth across the popula- Second, it seeks greater leverage with other resources tion, and the vulnerabilities affecting the country's (including government), moving away from self-stand- social and environmental sustainability. ing projects that do not mobilize other actors. A new line of projects will work with priority government What is unique today, says Thomas, is that the country programs and institutions, moving away from the use is pursuing a bold social agenda while at the same time of Bank-driven agencies, procedures, and reporting addressing the risks and adhering to fiscal adjustment requirements. and market principles. The World Bank fully supports Brazil's program. The effectiveness of Bank support at Third, it makes a direct link to results, focusing on this crucial time can be disproportionately large, even projects that can demonstrate a measurable contribu- though that support is small relative to Brazil's tion to defined human welfare outcomes, trends in economy. But to have impact result, the program must environmental and social sustainability, indicators of have sound macroeconomic foundations and straddle competitiveness, and fundamental macroeconomic per- issues of equity, sustainability and competitiveness. formance. These outcomes are linked to specific ac- Economic growth would come primarily from produc- tivities that the Bank can support--for example, sec- tivity improvements and needs to be increasingly equi- ondary school reform or water and sanitation invest- table and sustainable. ments--to help achieve them. 2 Specific goals Instruments How will this approach impact Brazil's people in Three instruments of Bank assistance are expected to cities, towns and the countryside? Overall, the Bank dominate the financial assistance outlined in the CAS. To strategy aims to help accomplish specific measurable help meet Brazil's need for balance of payments financing goals: and support for reforms, the Bank expects to continue policy-based programmatic adjustment lending at the fed- · Expand income transfers from 10 percent to all eral level, complemented by technical assistance. Sector poor households; increase pri- wide approaches (SWAps) could become a mary school enrollment from the key investment lending modality for Bra- present 97 percent to 100 percent zil, especially at the national level. of the child population; reduce SWAps rely on ministries and other gov- new HIV/AIDS cases from the ernment institutions that are already in present 15.9 per 100,000 to 10 per place rather than on special-purpose 100,000. project implementation units, and use existing country fiduciary rules as- · Ensure safe water supply to 3.7 mil- sessed as sound. An integrated ap- lion people in the poverty-stricken proach to subnational investment lend- and semi-arid Northeast; increase ing, in support of multisectoral rural the percentage of poor families and urban strategies will require a with permanent dwellings from deepener relationship between the Bank 93 percent of the population to and states and municipalities. 95.5 percent; expand govern- ment land protection from 8 per- Lending is only one form of support from cent of the national territory to the Bank Group. Its International Finance 12 percent (100 million hect- Corporation is (along with other multilat- ares). eral lenders and publicly owned banks) one of the few sources of long-term · Make macroeconomic changes that business financing in the country. IFC's result in 5 percent GDP growth, up Brazil portfolio ­ the institution's larg- from the 2002 level of 1.5 percent; est ­ comprises investments of $1.5 step up trade volume to 35 percent billion in 80 industrial, service and of GDP from the present 24 per- agribusiness companies (plus $1.2 cent; increase the number of pat- billion in investments in the same ents issued to Brazilians from the firms by other participants). The IFC's 2002 level of 150. continued strong support to the Brazil- ian private sector will help enhance the Traditionally, economic and social prospects for improving competitive- development has worked sector by ness, growth and social equity. The sector. A project to increase school growth objective will entail supporting enrollment might involve building growth-generating firms, export-enhanc- more schools, buying more textbooks or training ing activities including infrastructure and logistics, and teachers. The new Brazil strategy seeks to integrate activities improving access to long-term financing for different sectors. Recognizing that the lines between private sector firms, including small and medium-size sectors are seldom as clear in real life as they are on enterprises. Under the social equity objective, IFC will paper, the Brazilian government and the Bank are support firms committed to environmental and social pioneering a new approach ­ funding programs in a sustainability, improved corporate governance, way that reflects human realities. Hence, funding to microfinance, socially oriented entrepreneurship, and as- reduce infant mortality will not only expand access to sistance to the government's Zero Hunger program. clinics, but also increase the number of water and sewage treatment plants, and increase school enroll- The Bank is exploring the use of its private sector ment and improve the quality of instruction, because investment guarantee instrument to foster public-private educated mothers have healthier babies. partnerships in sectors including water, energy and roads, 3 where investors have cited regulatory and legal deficien- Development--an advisory group established by the gov- cies as reasons to avoid involvement. ernment to give greater voice to all groups in society in discussions of key reform priorities--is an example of Technical assistance, and "analytic and advisory" work by structured knowledge exchange. Civil society networks Bank experts support policy reforms in social protection and other interested international and domestic partners, programs, budget management, pension administration including youth movements, will continue to be involved and other complex in the consultation pro- activities. Priority cess, taking advantage of will continue to be the Global Development given to these Learning Network multi- "AAA" services, in- media interactive activi- cluding reports on ties and web-based net- key economic and works. sector issues such as Taking the newly published Risks, Working Together reports on Income for a Better Future No Distribution and De- strategy is risk-free. Bra- forestation in the zil cannot control the Amazon, and to dis- global financial environ- cussions with partner ment. Shocks to the sys- institutions and civil tem, or weak growth in society. the world economy, dis- turb Brazil's economy Lessons through lowered demand Learned and for the country's exports New and a reduced flow of in- vestment capital. Within the country, reform programs Approaches may be poorly managed or carried out. But the risk of In response to the growing importance of state and re- avoiding ambitious reforms is greater than that of attempt- gional governments, the Bank has refashioned its own ing them ­ because Brazil's citizens do not wish the strategy. One example: in the country's single biggest current inequalities to continue to detract from the natural center of poverty, the Northeast region, the Bank worked and cultural resources that characterize the country. with the state of Pernambuco to devise an urban develop- ment project for the city of Recife aimed at ending the To deliver the necessary support for a more equitable, social exclusion of young people at risk of drifting into sustainable and competitive Brazil, the Bank has as- aimlessness or crime; stimulating small- and medium- sembled a strong team of highly-qualified and experi- scale business; improving living conditions in poor neigh- enced specialists from all sectors. These specialists, a borhoods; and strengthening the quality of government large number of whom are based in Brazil, are working in services. an increasingly integrated fashion and in constant dia- logue with country, state and municipal governments, as Close partnership with the Brazilian government allowed well as with national and international partners, including the Bank to avoid a classic pitfall of development lending. the IMF, the Inter-American Development Bank (IDB), Instead of conditioning loans on future government ac- and the United Nations Development Programme tion, the Bank will be lending on the basis of reforms that (UNDP). have already been enacted. And, on the strength of About the Authors Brazil's recent track record of careful management of public finances, the Bank will pool its loans with official Angela Furtado is Sr. External Affairs Officer with the World funds. That way, the funding flow for projects will not be Bank's Country Management Unit of Brazil. interrupted by sudden spending limits or other financial emergencies. About "en breve" The ongoing consultative process of the CAS itself, in Subscribe to "en breve" by sending an email to coordination with the Council for Economic and Social en_breve@worldbank.org 4