I. EVALUATION PURPOSE AND SCOPE

1. At the request of the Executive Board of the International Fund for Agricultural Development (IFAD), the Office of Evaluation and Studies (OE) has carried out a series of Country Portfolio Evaluations (CPE) for Yemen, Sudan, Bangladesh and Pakistan.

2. Honduras has been selected as the first Latin American country in which IFAD should analysed and synthesised its experience. This choice was made taking into account the importance of rural poverty in Honduras and the relevance of IFAD's experience in the country for the rest of Central America, where IFAD has been financing 12 projects.

3. The purpose of the Honduras ECP is to draw lessons from the experience in order to improve future project design and implementation. An attempt has been made to consider the experience of other funding agencies and to provide elements for a policy dialogue with the Government of Honduras (GOH) concerning policies, programmes and projects for rural poverty alleviation.

4. To this effect, the CPE focused on the following issues:

(a) Which strategy (or strategies) IFAD has developed in Honduras and to what extent the implementation of IFAD- financed projects have taken into account the needs and possibilities of target beneficiaries?

(b) What results have been achieved, and what limitations have been faced, by these projects? How sustainable are these results? To what extent the projects (or some of their elements) are replicable?

(c) How could future design and implementation of ongoing projects be financed on the basis of lessons learned from IFAD's experience in the country?

(d) Which lessons learned from IFAD's experience in Honduras could be applied in principle to the rest of Central America?

5. The main report consists of five chapters complemented by eight annexes (which present in detail those aspects synthesised in the main report). The first chapter presents the national and regional context in which the projects have been designed and implemented.

6. The second chapter presents the experience of the projects cofinanced by IFAD. The projects' results and a discussion of their sustainability are the subject matter of chapter three, whereas chapter four includes lessons learned from experience and a set of recommendations for the ongoing projects.

7. The Annexes contain a detailed presentation of the following themes: peasants organisation and participation, the economic framework, hillside agriculture and environmental protection, rural roads and construction, support to rural women and incorporation of gender aspects in the projects, project management and organisation, credit and financial services. These annexes are the basis on which the CPE's main report was prepared.

 II. IFAD'S COUNTRY STRATEGY AND THE NATIONAL CONTEXT

8. IFAD's activities in Honduras started in 1980. Since then, it has approved loans for a total amount of approximately USD 35 million to finance four development projects located in neighbouring areas in Western Honduras.

9. The Context. Between 1980 and 1995, Honduras underwent significant changes in its economic situation going through a period of slow growth (an average annual GNP growth of 3.2%), macrodevaluations and high inflation. During the previous two decades, it had reached annual GNP growth rates of almost 5% with no devaluations and low inflation (World Bank, 1995a). As from 1990, macroeconomic measures were introduced to try and reduce the deficit, establish an exchange market which would stimulate foreign trade and liberate the markets in general.

10. The slow average growth of the economy over the last fifteen years, together with the high population growth rate (average annual rate of 3.1% for 1984-1994, almost equal that of the GNP) means that per capita income has not increased. Given that, in 1980, Honduras was one of the Latin American countries with the lowest income, the stagnation of recent years has further worsened a situation of chronic poverty. Percentage estimates of poor populations in the country vary, and range from 53% (according to the World Bank) up to 74% (according to SECPLAN). However, the sources agree that 85% of such poverty is concentrated in rural areas and almost two-thirds of these areas are in situations of dire poverty. The highest concentration of rural poor is related to the even slower rate of GNP growth in the agricultural and livestock sector where an annual increase of only 2.5% was registered.

11. Given the importance of rural poverty, Honduras has always been a priority country for IFAD, right from the start of its activities. In 1979, a Special Programming Mission established the basis for future operations in the country. The first of the four projects which make up the Fund's loan portfolio in Honduras was approved in 1980 (PRODERO) while the others were approved in 1982 (PRODESBA), in 1987 (Intibucá-La Paz) and in 1993 (PLANDERO).

12. Strategies. Actions taken within the scope of IFAD financed projects have to be analysed in relation to measures drawn up by the country for dealing with rural development and poverty as well as in relation to IFAD's own policies. Moreover, while the projects were being implemented, changes were made in operative strategies in order to adjust to realities which had not been foreseen when the projects were first designed. Both national policies and IFAD strategies formed part of a dynamic, evolutionary process which resulted in significant changes in the relationship between the two.

13. National strategy. The critical situation of rural poverty and the lack of national resources to deal with this problem, have led the Government of Honduras, with help from external agencies for financing rural investments, to establish policies of land redistribution and rural development.

14. Policies of agrarian reform implemented in the 70's have formed one of the main hubs of the strategies for incorporating the rural poor into the country’s economic development. This process of agrarian reform gave rise to an important number of settlements for landless peasants who were given land on State property or on property bought by the Government in different parts of the country. These settlements, however, had no means available for developing agricultural production on the land.

15. On the other hand, during the 60's, resources had been negotiated with international banks for financing investment in infrastructure such as highways and roads and for developing agricultural services. These resources were not specifically intended only to benefit the poor population but were aimed at all sectors which required such services. Other rural development projects approved towards the end of the 70's were aimed more specifically towards poor populations. These projects included Guayape (World Bank) and, soon after, PRODERO (IFAD) which formed part of a national rural development strategy based on area development projects. This strategy, based on rural development programmes, still exists today, although it has gone through periods where it received very little political support.

16. So in the 80's, farming sector policies were explicitly identified with rural development projects aimed at reducing rural poverty. Although there was no consistent national programme during the first part of the 80's, eight independent projects of this kind (three with IFAD) were implemented, thereby showing the State’s support for this way of working with the rural poor. The situation began to change towards the end of the 80's, when the economic crisis resulted in the country having to default on payments to international financing institutions which, in turn (including IFAD), stopped disbursements for these projects. Moreover, the World Bank and the Inter-American Development Bank changed their financing priorities and concentrated their resources on structural adjustment programmes to improve macroeconomic performance. Rural development projects were thus left aside. Only IFAD and a few bilateral donors (including Switzerland and Canada) continued to show interest for and support rural development.

17. In recent years, sector policies relating to agricultural and rural development have followed lines laid down by the Law of Modernization for the Agricultural Sector of 1992, although for some time previously some aspects of the Law were already being applied. The institutional restructuring furthered by the Law eliminated or modified institutions and functions related to rural development. The restructuring did not lend itself to reproducing the model proposed for area development projects, such as the three initially funded by IFAD, in which the State played an important role in deciding and carrying out development activities (PLANDERO, the fourth project, involves private institutions). Projects being executed had to adjust to these policy changes which weakened the role of the State in rural development. The subject of rural development lost importance for the sectorial authorities, especially during the period 1990 -1993. However, as from 1995, a Programme of Rural Development was established in the Ministry of Natural Resources (SRN) and a renewed interest in the issue seemed to emerge.

18. IFAD strategy. The Fund designed its strategy for Honduras taking as a basis the recommendations of the 1979 Special Programming Mission (SPM). In accordance with IFAD overall policy guidelines, the target group was defined as small, land-holding farmers and landless rural workers. The approach followed was in line with the Government practice at that time, as mentioned above, of working on integrated rural development projects, in those areas where poverty was particularly concentrated. The Mission recommended continuing the approach of investing in rural development projects but focusing these mainly towards an increase in agricultural production with special emphasis on basic grains. In this way, it was hoped to increase the food availability (cereals) and to generate higher income from agricultural activities, thereby improving the standard of living of the target population. In this way, right from the start, it was assumed that there was a direct relationship between increasing production of basic cereals and improvement in well being. No further study was made on the subsistence strategies of those peasant families which diversified earnings and risks, and the effect this could have on the design of the project. Neither was there any explicit analysis of the actual capacity of families to improve their earnings according whether they had access or not to sufficient land of adequate quality. It should be pointed out that IFAD was, at that time, only just beginning to operate in Latin America.

19. Given the enormity of the task of fighting rural poverty, with the number of poor rural families estimated at 400 000 throughout the country, the proposed strategy indicated the need for focusing the actions to be taken. Initially, this was to be done by focusing on geographical areas and making concerted efforts in areas with the highest concentrations of poverty. Then new areas would gradually be dealt with by approving new projects. Although the SPM did not state so explicitly, presumably the hope was that eventually new projects would be able to cover a large part of the rural poor population.

20. The main operative principle of the strategy was that of increasing the earnings of rural populations through an increase in agricultural production by poor inhabitants of the area. The productive strategies advocated by the projects were based on the assumption that appropriate agricultural production technologies were available or that existing ones could be adapted in a short period to the needs of poor farmers. This meant that the projects were designed assuming that it would be possible to significantly increase the production of basic cereals and other crops, in spite of the fact that poor farmers had limited conditions for production (in 80% of cases, infertile, rocky, mountainous land, which was difficult to access). The design of the projects also assumed that, if farmers had access to technical assistance and credit, then they would be able to increase their earnings significantly (100 to 400 %). Because the potential beneficiaries were scattered over a wide area and were not well organised, the strategy also assumed that it was vital to form and consolidate groups through training (with 10 to 20 farmers in each) so that credit services and technical assistance could be made available at a reasonable cost.

21. Within the design of the last project, the PLANDERO, an assumption was added concerning how to continue over time the actions undertaken by the project. Specifically in the case of credit and technical agricultural assistance, a supposition was included to the effect that it would be feasible for the groups which had been formed to eventually provide the basis for organisations which would ensure the sustainability of services once external funds had been placed. PLANDERO was designed in 1993 after sectoral policies had changed as a result of the Modernization Law for the Farming Sector (1992). In answer to the changes introduced by the Law, the operative strategy of PLANDERO assigned private development organisations the important role of co-executing bodies. Since the above Law had reduced drastically the extent to which public institutions could directly offer credit and technical assistance, this meant that ways had to be found of incorporating private development bodies as co-executors into the PLANDERO executive structure.

22. IFAD’s strategy was implemented concentrating actions in Western Honduras, where there is the highest concentration of poverty. It is an area of high migration to urban areas and to areas of agricultural expansion. It was hoped that the expected increase in the standard of living in the region would induce farmers to stay on their lands, thereby reducing the social cost of migration to marginal urban areas as well as slowing down the continual depletion of natural resources when new agricultural areas were exploited using low-productivity systems. The fact that almost one quarter of the project funds were provided for roads and other infrastructure shows how much importance was given to opening up access to markets for the peasants and facilitating the access to services in the areas where they lived.

23. Since then, IFAD actions in Honduras have followed the main lines of the strategy outlined with a few adaptations taking place during execution of the projects. Four projects have been partially financed: The Rural Development Program for the Western Region (PRODERO-loan 028-HO approved in December 1979); the Integrated Rural Development Project of Santa Barbara (PRODESBA-loan 099-HO proved in September 1982); the Integrated Rural Development Project of Intibucá-La Paz (loan 203-HO approved in April 1987); and the Rural Development Plan for the Western Region (PLANDERO-loan 336-HO approved in September 1993). The total original cost of these four projects was approximately: US 84.7 million dollars, with IFAD contributing approximately US 34.6 million dollars (DEG 28.2 million), equivalent to 43% of the total. The Government of Honduras allocated resources to the projects for the equivalent of 20% of the total cost and other international or bilateral financial organisms (IDB, BCIE, KFW, OPEC, UNDP) contributed the remainder. As a result of partial loan cancellations, the effective contribution of the Fund once all the payments have been made, will be approximately US 24.6 million dollars (DEG 20.7 million).

24. Operational strategies of the projects. The implementation of each project followed, in principle, the design established during the preparation and ex-ante evaluation stages described above. All projects based their strategy on achieving an impact on the target population through a combination of credit facilities and technical assistance aimed at increasing production. This was complemented by infrastructure construction - especially roads -to facilitate transport of outputs and inputs and access to services.

25. The main objective of the four projects was to increase income and improve the well being of the rural population in the geographical areas where they were implemented. The target population included small farm owners, farmers settled on lands from the agrarian reform, landless agricultural workers and other poor inhabitants whose earnings derived from non-agricultural activities. In all, some 27 000 families should have benefited directly from credit services and technical assistance (just under 10% of the rural population in the west of the country).

26. The productive and production support services consisted of: a) agricultural credit which made up 23% of the total resources assigned and was channelled during the first three projects through the state Agricultural Development Bank (BANADESA), and in the case of PLANDERO through a private agricultural bank and other financial intermediaries; b) extension services provided basically to those benefiting from credit services by Ministry (SRN) personnel in the first three projects and by technicians from private and public organisations in the case of PLANDERO (representing 14% of the total resources assigned); and c) road construction and improvement (23% of the total). Apart from the above three components which formed the core of the four projects, other components were also included such as: d) marketing (included as a component only in PRODERO and PRODESBA with 3% of the total funds); and e) training and organisation (included in the last three projects with 3% of the total investment). Other components such as health and education received 3% and project administration was allocated around 11% of the total. The remaining 21% was for contingencies.

27. Because of the low level of technology and yields, as well as the lack of access by the target population to cultivable land (most is mountainous), the main aim of the productive strategy was centred on increasing agricultural yields per unit of area. This was to be done by applying improved production techniques which were assumed to exist in the country. Credit and technical assistance were the mechanisms to facilitate the introduction of these techniques. As a supplementary measure, soil conservation techniques were encouraged to ensure the long term sustainability of a mountainous productive system. During implementation, each project had to adapt the design by introducing explicit (and more frequently implicit) changes into the strategy contained in the project documents. One of the main changes which took place in practice was that greater emphasis was placed on providing loans for financing crops other than basic cereals (which had been given so much importance in the project design. Projects were thus flexible with regard to initial project design and this was supported and approved by IFAD and other cofinancing institutions.

28. Forming new groups and incorporating already existing groups was an important element in the operational strategy. Thus, in each project area, attempts were made to incorporate peasant groups (ACs) which had already been set up under the agrarian reform. Since there were few ACs, the projects formed agricultural committees (Ca), a way of organising encouraged by the Ministry of Natural Resources. The fact that farmers had to be organised in Ca in order to obtain credit from the projects meant that there was a strong pressure to keep them together. Other kinds of organisations included in the projects, but a much lower scale, were women's groups and co-operatives.

29. Productive activities were to be dealt with through the groups by means of a direct relationship between the project and the 'heads of family'. This was to take place without involving other members of the family, even though they also took part in decisions relating to production and sale of products. Within this framework, the project dealt with women in a segregated way, forming 'women's groups' to carry out activities related to improving the home and productive projects for increasing family earnings. Women were not incorporated as members into either the agricultural committees or the peasant groups.

30. Although there are groups of indigenous origin in the west of Honduras (Lenca and Chorti), attention was not drawn to them during the project design as a specific target group. In addition to production services included in the initial projects, some other services relating to improving the well being of the population in general (such as health and sanitation) were included. Rural roads, although mainly intended to improve commercialisation of agricultural products, were also intended to have a wider impact by opening up the way for transport, thereby also contributing to general well being. Only one project (Intibucá-La Paz) set aside resources for normalising the legal situation of beneficiaries in relation to the land they occupied.

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