Report No. 22590 Urban Services Delivery and the Poor: The Case of Three Central American Cities (InTwoVolumes) Volume l: Service Delivery and Poverty June 3, 2002 Finance, Private Seto,r a,nd m Ifrttr ctIrc De partment Central America Country Management Unit DLatiomerina the Worlban k egion D>ocument of the World Bank C'TTK1D1VTf? Tr't1d-TTT"7 AI VAT'1'Q LTblL XT A XALI t..lJdT US$1= 1 Dollar (El Salvador) US$11o.4+u Lexmpiras (rionduras) US$ 1I= Balboa (Panama) FISCAL YEAR January I to December 31 for El Salvador, Honduras and Panama ACRONYMS AND ABBREVIATIONS AMSS: Metropolitan Area of San Salvador AMDC: Tegucigalpa Central District Municipal Govemment ANDA: El Salvador's National Water Company ATTT: Panama's Transit and Terrestrial Transport Authority BNH: PqnqmA's National Mortgage Bank CAEES: El Salvador's Electricity Company CAS: Countiy Ac,ssista-nce st-.ratem, CDS: City Development Strategy f(fC%AT A40' ,.~1C. J T,f- -- :a A C M :ouncil of San Salvador's Meuopoltlar I-U a, %JUVVIiulUhIILS DGT: Honduras's Directorate General of Transport DiivLA: Panama's Direction of Urban Sanitation ENEE: Honduras's National Electricity Company ENV: Living Standards Survey ("Encuesta de Niveles de Vida") FHIS: Honduras's Social Investment Fund FONAPROVI: Honduras's National Fund for Production and Housing FONAVIPO: El Salvador's National Fund for Popular Housing FOSOVI: Honduras's Social Housing Fund FSV: El Salvador's Social Housing Fund GDP: Gross domestic product GIS: Geographic information system IDAAN: Panaima's National Water Company IDB: Inter-American Developument Bank JICA: Japanese International Cooperation Agency LSMS: L LU11UWU3 Mlle0surement aUl Vey IV 11 L1%J%%JU&y MEF: Panama's Ministry of Economy and Finance MIVI: rPanarna's rHusing Ministry- OPAMSS: Planning Agency of San Salvador's Metropolitan Area PCSM: Panama City and San Miguelito urban area PPP: Purchasing power parity RAP: Honduras's private contribution system SANAA: Honduras's National Water Company SOPTRAVI: Honduras's Secretariat of Public Works, Transport and Housing USAID: United States Agency for International Development VMT: El Salvador's Vice-Ministry of Transport VMVDU: El Salvador's Vice-Ministrv of Housing and Urban Development WDI: World development indicators Vice-President: David de Ferranti Country Director: Donna Dowsett-Coirolo Sector Director: Danny Leipziger Sector Manager: Maria Emilia Freire Task manager: Alexandra Ortiz A C ' ,40-"iv O ED G Nvi Ni' T S mnis study was ied Dy Aiexandra Ortiz (LCSFU). Team members were: Tova Solo (LCSFU), Sumiia Gulyani (AFTU1), Carlos Sobrado (LCSPP), Alberto Harth and Richard Tardanico (consultants). Peer reviewers were: Aicira Kreimer (TULDDM Sector Manager), Helena Ribe (LCSHD Sector Leader), and Jesko Henstchel (AFTM3 Sr. Economist). Additional written comments were sent by Ian Bannon (LCC2C Lead Economist), Norman Hicks (LCSPP Sector Manager), Abel Mejia (LCSFW Sector Manager), Danny Leipziger (LCSFP Director), Maria Emilia Freire (LCSFU Acting Sector Manager), Marianne Fay (LCSFP Sr. Economist), Vitor Serra (LCSFU Lead Urban Specialist), Mario Lungo (counterpart from San Salvador) and Mario Martin (counterpart from Tegucigalpa). Official comments on the final draft were submitted in writing by: Mario Lungo (OPAMSS Director, El Salvador), Nuvia de Jarpa (Director of the Social Policy Unit in the Ministry of Economy and Finance, Panama), Rosa Elena de De La Cruz (Social Policy Unit in the Ministry of Economy and Finance, Panama ), Juan Carlos Narvaez (Mayor of Panama City), Carlos Bellido (Professor and researcher at the Universidad de Panama), Jorge Hernandez Alcerro (Minister of the Interior, Honduras), Antonio Trivizo, and Lourdes Herrell (LCSFU) provided administrative assistance. Counternarts in the field (Mav/99) were: San q1lvqdnr Metropolitan Area: Mario Lungo, OPAMSS Pirectnor( C(rlnsr Briones, Advisor of the Minister of Education; Roberto Arguello, Consultant; Hugo Morin, Advisor of the President in transport issues; Roy SQandOval Consulntnt. Temucignol inn Maiirn NApmhrrAn, A Axi;or of t-h0 AAoM,r r; 1nrAa - lnr- e flrantnr nE- Tntorn tnnol Cooperation in the Mayor's office; Julio Carcamo, General Manager in the Mayor's Office; Fanny Mejia, Sc1I DeLvelop1menL IVMAI1ar.age in Lthe IVLayorI a WJIIA1%, 11V ..11a1iguILa, I eaxia peI t VAjJFIL m ULh IVMayoI r office; Milton Murillo, Urban Development in the Mayor's office. Panama City and San Miguelito: Darinel Espino; Head of the City Planning Department; Nuvia de Jarpa, Director of tne Sociai Policy Unit in thle Ministry of Economy and Finrance; Luis Campana, Transport Advisor in the Mayor's Office; Luis Bustos, Sub-Director of the Urban Development Unit in the Ministry of Housing; Francisco Donadio, City Planning Department Funding for this study was provided by the Central America Country Unit (LCC2C), 1he Cities Alliance Program, the Water and Sanitation Program (EWDAP), and the Land and Real Estate Thematic Group. URBAN SERVICES DELIVERY AND THE POOR: THE CASE OF THREE CENTRAL AMERICAN CITIES CONTENTS VOLUME I: SERVICE DELIVERY AND POVERTY T'rWI'T1'rlrTE' Q!TT1UlIZ A DVU D Li A* T D h %J IVAVJ2I A i I e1.: 1f RODUvCT10iO i A. Background I B. Objectives and scope 2 C. Sources of information, metiodology, and welfare measure 3 D. Case studies 4 U A..A... A E. AudierLV -4 F. Link with CASs 4 G. Structure of the report 5 WY WTIMY A WT T)d-%'%T~rV10rX UM11'T7 1rY In ii. t UZOI..LI~ Jr %V Z EEka I Jr M%JJ KLLiE., A. Poor nousenolds 7 B. Poor neighborhoods 8 .I-, iw u IVw..l,. a C.,. L AtL .U d d IO n g D. Infrastructure deficits 10 ImI. POLICY ISSUES 12 A. The decentralization fiamework 12 B. Urban growth management 13 C. Housing provision and finance 16 D. urfblai Ll-anu markets 10 E. Water, sanitation, drainage and solid waste collection 20 A Ts A'T,p^ 23WAQ YL XTr1kqT'W UT 1T'fW'LWrsfl A iTo A T Cl. * rTr ThwAT'I'EY l:U TU A-T'UTdaT - 1V %lM IL A.Lr.EdL % JLI l V .v1% A 1%14 h BIBLIOGRAPHiY 30 TABLES 2.1 Poor households in AMSS and Tegucigalpa 7 2.2 Poor neighborhoods in AMSS and Tegucigalpa 8 2.3 Housing characteristics of the poor in AMSS, Tegucigalpa, and PCSM 9 2.4 Basic services and the poor in AMSS, Tegucigalpa, and PCSM 11 GRAPHS 1.1 Urbanization in Central America, 1970-2010 1 1.2 Annual growth of urban population, Central vs. South America, 1950-2005 1 BOXES 1.1 Cities as opportunities 2 2.1 Summary statistics of the welfare measure 6 3.1 Conditions for a successful decentralization 13 3i.2 Findings of a poverty-focused household survey .1 3.3 The importance of the housing sector 17 3.4 oveme-p1ULUUU eqUdLUUd s u iri PUsi 9 3.5 Small water providers: the case of Paraguay 22 3.6 T.mnon.i. Bogota's nnontatin mass tronsit sy-e, 'A EXECUTIVE SUMMARY 1. Central America is a region that is rapidly urbanizing, with a projected 55% of its population living in urban areas by 2010, compared to 40%/o in 1970. Compared to South Amenca where urbaiization has reached a very high but stable point, Central America is still in the process of urbanizing more and at a fast pace. Levels of urDan primacy are very high in Centira- America, meaning thax iarge cities are housing many :of their countries' poor and producing a high share of national GDPs. Finally, urban life in Central America is characterized by a high degree of vulnerability to naturai disasters. 2. T he present study describes and quantifies the provision of basic urban services to the poor in three Central American cities, the Metropolitan Area of San Salvador (AMSS), Tegucigalpa, Panaman City and San Miguelito (PCSM), and identifies priority areas for government intervention. Specialized household surveys were used to quantify current deficits and to rank households from poor to rich using aggregate consumption as the measure of welfare. A. Urban poverty profile 3. Over 40% of the population in Tegucigalpa lives with less than $3 per day, while this figure is close to 30% in AMSS and near 15% in PCSM. The three cities present very high levels of inequality in the distribution of aggregate consumption as well as in the access to basic services. While in AMSS the first quintile gets an 6% share of total consumption and the fifth quintile gets 41%, in Tegucigalpa these numbers are 6% versus 44% and in PCSM they are 7% and 54%. 4. Poor households are large (hnoiiehold si7e is 5-7 in AMSS and 7 in Tegucigalpa) and growing verv fast (reported birth rates are 15% and 18%). They are characterized by very low levels of education: almnint 19%/a of the hoIuChoAl heads in the fist nuiintilp in A WAR arnA 1 AO in Tpmgcinasdna reportdA hsaving no education whatsoever. A second characteristic of the poor is the low participation of household heads UtIAV*USAU( (. 1.U *S .+ A 0 I .- '70-N .f A a" U +h j-ft l ^flW -n P1,SUL*S 04I SUfl 1<.1- - ~ VI*WI inwe labor -a ke 6°-,a. 7)a.d the large per_entge of -Iff--e,.ployed x(37% -n 25%) I.,h s associated with greater job insecurity, less benefits and a low level of affiliation to the social security sysl *A203 -,-A '2AO3%) J. ruuz r.eiguhborhood appea.- to Lbe Voive and inu kdiaUil lives Ui 1 11fVI U l YA' s iruuluump anu display relatively high levels of community participation, while in Tegucigalpa this is not the case. In both cities violence is a major problem in poor neighborhoods as well as waLer provision, solid waste collection, and vehicular access. 6. In terms of land and housing, in all three cities almost half of the poor who reported being property owners have weak or no documentation over their properties, being in that sense informal. Thne housing quality is mixed. Although most poor houses are made of permanent materials (92%, 96%, and 91%), they are overcrowded; with 4 persons per bedroom, on average in each city, and lacking basic facilities, most notably showers (31% and 80%). Construction of-houses is made in a progressive way in poor neighborhoods (64%, 74%, and 70%), with a significant portion of poor households investing in house improvements (34%, 19% and 26%), spending significant amounts per year in each city. The investment is made mostly through personal savings, while reliance on loans from public institutions was low (4%, 1% and 6%). 7. Considerable portions of the poor population, are not connected to the public aqueduct (18%, 37%, and 12%), and among those connected to the service, many receive water for less than eight hours per day (23%, 55%, and 15%). Many of the urban poor had to wait more than 5 years to obtain the water service (30% and 22%) and very few if any, received help from the government (3% and 4%). Due to the way IUII11La CJL aouu aUiu1lv Cu1i 3,L, IJ1, jJVVI J9J4Yall~ il 111U%.dl ab UIV, WVRIU-[Y jJVI1 L U.;LbUJ1VU. '..IU%iUl4un LU the public sewer is at very low levels, particularly in Tegucigalpa (37%) and PCSM (40%). As in the case o0 wa'eer, conellICUoin 'LU UIle seFViCe by tile poorest taKes a long tUnm anU is reacnte mostiy -urough personal and communal action rather than by govermment intervention. In the case of solid waste collection, Tegucigaipa is in tne worst situation, with only 41% of poor housenoids served oy the municipal door to door collection service. The percentage of poor households throwing their garbage in lots, rivers, backyards or simply burning it is consequently very high (49%). A substantial percentage of the poor reported to have suffered damages from floods (10% in AMSS and 17% in Tegucigalpa) and from landslides (18% and 22%) in the last five years. 8. Finally, the poor depend on public transport for most of their transportation needs: 100% of poor households in AMSS reported using the bus on a regular basis, while this percentage is 97% in Tegucigalpa. There is a need to improve the safety record and/or "security" of the buses, to upgrade the 20 year old fleet, and to reduce crowding. B. Policy issues 9. Institutional and policy issues explain the current situation. First, in terms of decentralization, municipalities have limited functions vis-a-vis the deliverv of basic services in Central America and in some cases the separation of responsibilities with the national government is not transparent. Although there are variations by country, municipalities take care of public markets- slaughter houses- street cleanliness, and solid waste collection. Most of the financing comes from central government transfers. Although the three countries are considering broad reformns these have lacked political cnsensus and have not been implemented yet. Municipalities are weak in terms of human and financial resources, nariruu1arvl in Panama. Aq a rssdult there is little if anv landt minnanremPnt c-adaetrpes areef Awcierpnt andi information to monitor poverty, vulnerability and urban growth is inexistent. AMSS is the only Mretropo*.tan region that hao a mr.trf%ne%1to". annn agncyr;, finanr.cOA ,vih -uitdir.g A -ub-io kAE.. S J*1 * *J - **5t-jllt*R jfuRnR 5 1I JflI Al t rA .... .... . 0A O V .A VfOA.I* permit fees, and providing municipalities with information, GIS technology, and analytical supnort in uire pl^a.img aCti-ities. 1U. Swecond, im terms ol nousing, small oudgets nave been assigned througnouth me years To designmng and implementing housing programs and policies in El Salvador and Honduras, with the consequent enlargement of the housing deficit. in Panama, the government has adopted a hands-on approach, implementing directly a series of programs but leaving behind the design and implementation of long term policies and strategies!. El; Salvador has been able to articulate a broad housing policy that addresses issues of land titling and informal development, two crucial aspects for the poor. The earthquakes of 2001 have now shifted the priorities to reconstruction and thus the effective implementation of the new policy remains to be seen. Lengthy and intricate processes to obtain building permits, involving the utility companies, the Ministry of the Environment, the housing agencies, and the local planning agencies, increase the cost of housing by about 5%. But the worst problem in the housing sector is the gap between housing provision and housing finance. Government programs only benefit the formally employed earning two to three minimum salaries, notwithstanding the fact that informal workers constitute a large portion of the population, particularly the poorest. Housing subsidies are not well targeted and many of the national housing financing agencies face financial problems. These problems, compounded with the very restricted supply of land at affordable prices for the poorest population has created active informal land markets in the three countries, but particularly well developed in El Salvador. Although infornal 'This was the situation at least until 1999. From there on the Ministry of Economy and Finance has developed two policy documents which include the housing sector: "Nuevo Enfoque Estrategico para Reducir la Pobreza" (1998- 2003) and "Politica y Estrategia de Desarrollo Social" (2000-2004). UVVVeU:perV pLVVIUd a slteLr LVI 0LUU LU UI, pJoUVrt, LUI, Uack V1 goVVUI1tLr.IIL coUr,Uro tUVW5 abUUsesV 01 ulV system in legal and financial terms. 11. Third, the institutional framework for the delivery of basic services, but particularly for water, sanitation and drainage is characterized by great uncertainty in El Salvador, Honduras, and Panama. in all cases water reforms involving a combination of decentralization and privatization of the service, have been under discussion for a long time without ever reaching approvai. In addition, responsibility for operation and maintenance of drainage systems is diffused in'AMSS and Tegucigalpa, resulting in extremely poor management of this essential infrastructure. Regulation of water and sanitation, on the other hand, is a function exerted informally by the same national agencies that provide most of the service: ANDA, SANAA, and IDAAN. There is no external control over their operation, their efficiency, their tariffs, and the quality of their service. Water tariffs in the three cities are set well below the cost of service and have not been changed in years. Since not all households have meters and even if they have them they often do not work, many households do not pay for the water they consume. This results in financial problems for the national companies, deterioration of the existing infrastructure and no resources to expand the systems or improve them. Subsidies to consumers are another problem. In all three countries the tariff structure is similar, with a fixed minimum charge for a certain consumption level to be added to a charge that directly depends on consumption and land use. The idea behind this scheme is that the poor would pay less since they consume less. Data from this study and others shows that there is not such a significant variation in consumption at the household level among quintiles. As a result. a large portioniiof non-poor households capture the implicit subsidy. 12. Solid waste, on the other hand, has a clearer institutional picture. In all cities it is a municipal responsibility annd there are intentinnq tn bring private sect.or participation. In AMSS and Tegucigalpa the model under discussion includes a single concession that would operate in formal neighborhoods, while m,pvn..pnteprnr,cp .wnuld serve snfiormt, npmohhborhnrods x,Uhprj accessa is difficult. AccorwA;r. to Blank research micro-enterprises in garbage collection uniformly need a mix of neighborhoods (low and high ;-nco n.e b.e 4inoncia!!y susaohlab Solid n,aatn lon4nn se,4 ,ices are alo in nd. aofA -fo-d;.rar+;--n and regulation, particularly at the metropolitan level in AMSS. 13. Finally, the most striking characteristic of public transport in AMSS, Tegucigalpa, and PCSM is Ui LUAL Uht Lt IL 1n VILLIMly pUrViUdeU by ULV piLva.e sVcLUr. I IVUSIUUb 01 oUfUuI jjroea'orUs, a4 li4J0[lLy 01 whom own one or two vehicles, compete for passengers on a daily basis. The lack of regulation, the excessive compeition in ute sector, and the unique ownersnip structure and operation arrangements of ihe bus operators causes many problems, among them traffic chaos and accidents, poor maintenance of buses, and overall low quality of service. Finaily, transport subsidies in Ei Saivador and Honduras have negatively affected the efficiency of service, raised the total number of trips, and increased the proportion of low or zero occupancy trips. In addition, the subsidy schemes are difficult to administer and are vulnerable to abuse. The subsidy costs approximately $2.3 million per year in the case of AMSS and $10 million in the case of Tegucigalpa. C. Critical areas of intervention 14. A While the levels of poverty and infrastructure deficits highlighted in this report are consistent with trends elsewhere in the world, action taken over the next two decades can still have a dramatic impact in the region. The urbanization process will continue to pour hundreds of thousands of generally poor people into towns and cities - local and national governments accepting this as a fact, and as a precondition for further social and economic development, can provide the basis for policy development. The following areas are considered critical for immediate intervention and can help trigger the implementation of proposed sector reforms. 15. There are three areas in which Central American municipalities need most help in preparation for further decentralization: (i) administration of their own cadastres and improvement of their performance, considering outsourcing the data collection and maintenance to private providers; (ii) improve land and real estate assessment techniques and geographical monitoring of land markets; (iii) improve financial management and diversify the sources of income; and (iv) improve poverty monitoring. * Streamline two key processes: building permit issuance and land titling 16. The basic concept is to create a single authority, the ventanilla zunica, to deal with the development and building processes and grant approvals. This entails: (i) simplify the processes; (ii) minimize the number of agencies involved at each step; (iii) define clearly what should be the flow of documents in each of the simplified processes; (iv) establish coordination mechanisms between the ventanilla unica and the different agencies involved so that the former can carry out the procedures involving the latter; (v) computerize the svstem so that there are records of each transaction and thus monitoring is made easy; (vi) for some processes move from face to face attention to the public to a web hased customer service (e-government- and (viii nrennre clenr hnndioits for the different type of customers, indicating the steps to follow, documents needed, and a mechanism to monitor the status of request-s. A similar concept might be applied to the land titling process which is encumbered, in all three cities of the study, by a multiplicity of agencies involved, complicated laws and procedures, low if any use of comput.eri-ed tools, lack of basic analysis in.for..mation and lite i public information. *Recognition of informal development as an option to supply low cost shelter 17. Even though informal development is still controversial, it represents an option to provide shelter at low cost for the poorest families. Some of the probiems that persist in the system and that wouid need to be considered if a city or country wants to learn effectively from the work of informal developers, are: (i) lack of information by the potential clients about the different sheiter options that they have, with their pluses and minuses; (ii) lack of legal counseling to help customers understand the full range of rights and obligations that they have regarding property tenure, and the legal instruments that they can use in case of need; (iii) lack of a master plan to provide infrastructure, in a phased manner, to the new developments, essential to guide an orderly expansion and consolidation of the neighborhoods; and (iv) lack of technical assistance to households in the construction of their houses. In effect, the idea of government intervention would be to correct the present problems of the system without affecting the functioning of markets. * Undertake comprehensive urban upgrading programs 18. Urban upgrading is an efficient way to reduce poverty in urban areas in a comprehensive and participatory way. Given that infrastructure sector reforms are hibhly political and thus take years to be approved and implemented, urban upgrading has the potential to solve some of the immediate physical needs of the nonr, taking advantage of the valnable exiqfinrg physical and social commujnity assets, empowering communities, and helping incrementally in the improvement of city infrastructure. *Reform water tariffs and subsidies 19. While comprehensive sector reforms take place, national water agencies would immediately benefit iron a change 111 water tariffs anu subsidies. MIcreased revenues ior invesiment and more focused subsidies will in turn benefit the poor. Additional research is needed to determine the consumers' iv willingness to pay and the tariff levels that would cover operational and maintenance costs and leave a margin for investment. * Consider a mass transport svstem as an option for the near future 20. Although Central American canitals are still small comnared to their South American eauivalents, they are in an accelerated process of growth. To improve the access of the poor to the working place and reduc~p the hiah scnial andi pnvirrnnmpnttnl costs nf thi. current trnnpnnrt qvqtpemsq investment in a mass transit system should be considered. Such system should have the following characteristics: (i) increased speeA; (ii)A -e:ase congestion; (iii) oex,x,rr cAaner, sufer, anti heffwr maintainped buses; (iv) increase-d 014t If* O Jtl.J*Ji L Zu 'WtUWS Jt-W - k** * ", traffic safety; (v) strict enforcement of routes and designated stops; and (vi) a change in citizen culture. T.he Bogo+ - T.s ..J,-. nspo syse,, is; a goo -A of a nne n d f.irt me trancstexystem with the characteristics listed above, and thus it is worth looking at closely. v I. INTRODUCTION A. Background 1.1 Central America is a region that is rapidly i Graph 1.1 | urbanizing, with a projected 55% of its population living in Urbanization in Central AmarIe I urban areas by 2010, compared to 40% in 1970. These 1970-2010 | numbers place Central America as one of the most I urbanized sub-regions in the developing world, ahead of 70% East Asia and the Pacific (35%), Sub-Saharan Africa (34%) l _ = I | and South Asia (28%). Taken individually, all the countries rlJLJJ] of Central America'reported urbanization rates higher than 50% LJlWflhl U n-- -1 9 70' 40% in 1999. Nicaragua and Panama are the most 40% i mi ii |ii ;- j a |1 1976 urbanized (56%), followed closely by Honduras (52%). 30%J I* .E _.i [20101 (Iutpmnla3 nn the nther hnnd is the least iurhbni7pd nountrv 20111 l~ E|UHI[IH in the region (40%). * cP ° i w

wa droppe in. ,,dleo ..: cvl w-.- Second ulefw ocl. xs,o MCOM: UU PFPUTY IAA WU5 UIUpprU LUl UIC IIUUUU i~ UkC WVAVUI war. opvvl.uI1, UIV, IVW Ulv%4I L4a&v, Uon industry, commerce and financial activities, have low and regressive rates and very complicated structures tnat make their collection and overali auministratiuon dinicult LnIU defcient. i iiuu, ubaic senvice feLe sue very low and do not cover service delivery costs. In order to compensate for this, municipalities often use other sources of revenue such as taxes, capital income and national transfers, leaving litile resources ior investment, if any. Municipalities in El Salvador are responsible for the provision of a limited set of services and public goods, namely, pubtic markets, public parking, cemeteries, siaughter houses, street lighting, street cleaning, solid waste collection, and administrative services. Fourth, municipalities depend, to a large extent, on national transfers to function and to invest. These transfers represent 6% of the national government's current income and are channeled through the Fund for Economic and Social Development of Municipalities (FODES). There are discussions on whether more functions should be assigned to local governments in exchange for increased FODES transfers. The World Bank is leading a study on municipal finance that will quantify the financial situation of local governments and will develop case scenarios for devolution of functions paired with increased sources of income. 3 4 Mayors are elected for four-vear periods in Honduras and they are in theory, in charge of a wide range of services, including urban development planning and regulation, solid waste management, potable water and se.wage, drainage, urban roads, street lighting and cleaning, property cadastre and registryv management of public markets and cemeteries, and functioning of slaughter houses, according to the legislative derere 1 9 I 0AQA nf 1rntn,hPr 190QA Tn nrnnt','e potahle water and sewage are sti!l the responsibility of a national agency, at least in the case of Tegucigalpa. This has created tension between we_ +..,o level of.- 0oenre earig etr rsoiblt.T.h. Adecree alson sw.es that rniznipalnn.ties ULUV LWV I 1%V %IOIn j.fl11- t I-5-h - ZL- 0'- -I JWfl . I- can contract out service provision under different modalities, and that their income comes from: (i) serviLce LVes Which msLbIIU UetL to DL L e IreaL .LL9UlIiGipF senice provision Fivosts (ii)sio 12 . nrn ftt laf nol ln ta a-Ar a caines bitne- ta. s nrl ar -n.C-'dA to,-_ Uwttl.A--A5 -- V - OjJ* J M_tfl, -J'1 V@JAtt J WASA t.l, W- woo.V , fl A.u OUFJFJWO%4A *V receive national transfers representing 5% of the national tax revenues; and (iv) debt issued directly by m11unicip~Ia1ltes. I 1.L.e are. also uLscrepancUies he . UaL, sr vice fees aiV VLfte low ar.U UV Ir.o rV%oVVer costs. Second, taxes are inefficiently managed, particularly the property tax since assessments are oULUtLdaU aUlu u. ca4UdasUtre iur,icomple. IUiUr, nationaU4l U7UIIM UUcome UILVII I4La aUrU in pa.Lidl filegUlar installments, creating uncertainty in municipal budget preparation. In spite of all these problems, there is agreemerIlt 'ula-ILUU UH w UUUcLIMuWJA1LIUII LdlllCWUrs Is Ullt 01 UIU mosL auvaLncV u in CenrUal America but needs fine-tuning. 3.5 Mayors are elected for five-year periods in Panama and face political constraints, such as very little autonomy in decision making and budget management, that overshadow any administrative and financial issue. Municipal councils have a predominant role over determining the priorities and expenses of municipalities and operate very independently of the mayors. This creates political tensions and delays important decisions. In terms of administrative functions, Panama's municipalities have very limited responsibilities. Housing, transport, water and sanitation, until recently solid waste, land management, and even city planning, are all managed at the national level. The municipalities of Panama metro area are only in charge of community facilities, parks, cemeteries and markets, and since recently, the provision of solid waste collection services. The municipalities do not have participation in land management and land regulation0, they do not receive any portion of the property tax, they do not prepare their own city plans, and they have, very little information on the functioning of their cities, their demographics and the extent and location of poverty. Box 3.1. Conditions for a successful decentrialt.on 1 The UV, nsU from de .-nAwCn may be large, poldueu Jte ollowI ng conri.:ons aruu : place: (i) local UL11c.als are elected, the democratic process works well enough to provide sufficient electoral discipline, and decisions rp mnr_ vicih s.And cormntabhle iiw InrAl gnvPrnmPnts havp instititinnal canpaity tn handlp thpir PexpntPtil | responsibilities under a decentralized regime; (iii) the decentralization contract between the different levels of g aovermnent (irnplicit or explicit) is clearly specified; (iv) as much as possible; corresnondence is kent between the benefits of government programs and the cost to local taxpayers; and (v) intergovernmental relations (including the transfer system and borrowing rules) are such that subnational governments face hard budget constraints. l Source: Stein, 1998. B. Urban growth management 3-6 Central American canital cities have ,rown fast in the lat decades= While AMRSR as a whole orew at an annual average rate of more than 5% per year in the period 1992-1999, some of its municipalities have heen ogr,wina at more than 1 0/% npe-r yearr TegucigiGolrta on the other handA grpw a total 10% in the period 1980-1995. This growth has not been accompanied by any growth management program, resulting in a chaotic expansion characterized by ehtensive rath.er thain nt.nnsolvm land use and - som.e neighborhoods spreading to areas of very difficult access and highly vulnerable. Although Panama City has bee gri n at a .nanar.ale')OZ. 2% --ya. +1h n --..- wes.m UiST of larA.s in +U. r.al.- s 110 u%t'e 5,10wV 15 (wAtJw"*tttJACC5tVO1W"Atm fle U p 3 It,AA *. Vel01 111UP L 3 lALJ . ll LUte taIMaL OU %la I3 changing this pattern. 6 The municipality of PanamA enforces the land regulations produced by the Urban Development Department in the Minictrv of Housing 13 3.7 Th.ese cities concentrate large percetnages of their conntres' poor and will lik ely copntinue to do so in the years to come. Today, AMSS houses 32% of El Salvador's population and at least 15% of all the -- por. Our, household o1,r, ,sh-t,v- that 2)n0% of a!! t.h h-shols in the pooret quintile weren formed outside of the metropolitan area and migrated in search of better opportunities, and that 15% of ute households lU1 Ih Mir IuiL 4UI.ile llha a DaDy J1I UIns las. yea. vUesus a I /u Uir uhe Wal1uiust 4u1i.tiI, WhichIA is more than double the birth rate. Similarly, in Tegucigalpa 18% of the poor households interviewed reportLeU UIV, UIUI U U LoaIldU laUL yeaI Versus nliy '470 oiI WealUly hoUUseIh:Us. in Uie cUas VI PanarIs, 41% of the entire country's population and 9% of all the poor, are clustered in the metropolitan area of Panama City (which includes Panama City, Chorrera, Arraijan, and San Miguelito). its suburDs, particuiarly Arraijan, are receiving dozens of migrants from rural areas on a daily basis. 3.8 The situation is worrisome. The infrastructure of these cities has not been maintained and expanded over these years to accommodate growth, resulting in deficient services, as already described. Sustained growth will translate into additional housing and infrastructure needs for the poorest population, and unless serious actions are taken, the gaps in these services will continue to grow. 3.9 In general, municipalities are ill-equipped to face the challenges of urban growth, but in the case of AMSS they have found an innovative way to start tackling the problem. Since municipal governments in AMSS, except for San Salvador, have limited resources and staff to face complicated urban growth issues, the mayors created in 1988 the Council of Metropolitan Area Governments (COAMSS). The Council meets weekly to share common problems, to discuss issues of metropolitan impact, agree on common policies, and determine combined needs for technical assistance. The latter are channelled through the Metropolitan Planning Agency (OPAMSS), a unique organization in Central America, dealing with urban olanning and development in the metropolitan area. It is financed with building2 and subdivision permit fees. OPAMSS provides municipalities with information, GIS technology, and Rnalyticl support in their planning activities. It is also in charge of ratinnA2izing the deliVerv Of metropolitan services that lend themselves to greater economies of scale. For the moment it fulfills this fiine'tinn nnly in snlid .wt.e disonna! hbut in the fitulhre it mnua asiime sin indiret- rnle in th.e delivery of drainage and transport. An example of successful metropolitan coordination and negotiation is the case of the newv saniarmy lanrdlf! csering 1i offkie 1A municipaolities irn A4SS since 1000 in -hch OPAkASS participated advising the municipal governments. Due to its source of financing, however, regulatory actLiLities havMYe ben L.L.iLLr.ent "v%, plar.ingL activities. TherLefor iLroILre rU. Lo be UVIIn IL LVi1LID Uo metropolitan planning given the projected growth of the area and the already existing infrastructure UdLfiILts. 3.10 In 1997, with iDB support, the Vice-ministry of Housing and Urban Development (vMVDU) contracted with several international consulting firms the design of municipal development plans all over the country, a sign of strong centralization. Most of these plans were not properly consulted with local governments and today only the plan prepared for San Salvador is being used regularly. 3.11 Tegucigalpa, on the other hand, has very limited staff and resources, and low managerial capacity. Master plans have been prepared since the mid 1970s but they lack a legal basis to allow strict enforcement. Since the national government is located in Tegucigalpa, there is constant intervention of the national level on local level matters, particularly in the setting of service fees. Although in 1998 the then new mayor devised a series of modernization strategies to be financed in part with an IDB loan, these have hardly been implemented and the project has had a very low disbursement rate. Several reasons explain this outcome. First, hurricane Mitch hit the city at the end of 1998 destroying houses, roads and bridges, and leaving many people dead. This immediately shifted the priorities of the Central District Administration toward reconstruction. Second, the mayor died after the hurricane during a field visit. This had significant political effects as many of his supporters and advisors left the administration, weakening his political agenda 14 3.12 Land management is limited in AMSS to land regulation which has been simplified since the 2 CTA IC,C L-U 'II t- creation of OPAi-viaa, b-uL XLiII has a ong -way to go to become more flexible and responsive to market changes. In fact, constructors and developers complain about the amount of regulations that they must comply with, including OPAMiSS's and those of ministries and utility companies. They claim that more than 80 laws and regulations seem to apply, though not simultaneously, with a final approval taking many months to become effective. In addition these regulations are not published in a single manual, creating confusion and additional delays. Finally, there is little if any information on land markets, an obstacle to make them more open and transparent. Geographical information on land uses, land densities, land prices, and land purchases in the informal and formal markets does not exist. 3.13 Although the cadastre in El Salvador is a national function under the responsibility of the National Registry Center (CNR), its administration can be delegated to municipalities. At the time, the CNR is implementing, with World Bank support, a national land administration project to cadastre and register all parcels in the country through a self-sustained and modem integrated system. The project has covered the department of Sonsonate and is working on Ahuachapan, Santa Ana. and La Libertad. The municiDality of San Salvador recently signed an agreement with the CNR to have their cadastre and registry designed and implemented in the next phase of the proiect. This valuable innut along with the nossible introduction of municipal property taxes, should change dramatically the land management functions in AMSS. Box 3.2. Findiugs of a poverny-focused household survey 1 Ahousehold surveym hdertk ;n Ca!-, Colombia aS 1 s9 as part of a cLLY aLUUdy, revealed I interesting characteristics of poverty in the city. A total of 1,912 households, representative for five geographic areas and all socin-economic groups, were interviewed to obtain quantitative and qualitative information aboult their quality of life. Using income as the proxy for welfare, households were ranked from poor to rich in quintiles. Although Cali had good data on services and programs at the comuna level (the city is divided in 21 comunas), the survey brought two additional elements: information at household level and careful measurement of poverty. Three points are worth highlighting: 1. In Cali as in Colombia in general, the government classifies geographic areas by socio-economic strata based mostly on exterior housing characteristics. These strata are used to discriminate tariffs of public services and to target subsidies. A cross-tabulation of strata and quintiles shows two types of problems: (i) households classified as lowest stratum fall in all quintiles, particularly 1 to 4; and (ii) households in the first quintile fall in all strata, particularly 1 to 4. This result cautions against using strata as the only iuentifying variable for geographic targeting of beneficiaries, and calls for a review of the stratification process. 2.lesur-rey .-esults show tha her I-, -------rE;neji pover.yy levels withirn cormunas. 'Illere are JL 1LLe i3ULO OiiUW ui-aL U1.IM ta VICaL ILVLVIUrVUVL liV1L1YUL Lr'1VV WUIU .FIfCJl ur r pockets of extreme poverty in specific comunas which - overall - do not appear to have a high poverty level. Given this rpesult, using comuna as the level of analys-s might .ot be the m..ost wf v way t, reach the poorest families. 3. An analysis of the geogranhic incidence of city exnendih±res shows that the snatial distrihnition of expenditures in Cali is regressive, with several comunas obtaining a higher share of city expenditures than what they would have obtained had expenditures been distributed strictly according to a poverty map. Source: World Bank, 2002. 15 1) i A A 1.1L_ _ _ _ _ :_ ,L __._____I__11_I____z, :w J. I1t ft11uUUgll I1gULLgz,U1dpu UUV5 IIVL I11VW 4Gy WUV4LAZU LVlIU 111ditagtUilL ttf.LIVILIb, Hii 1A1 4 LVU1g Pei se does not exist and changes in land use result only from neighborhood protests when a particular use is considered a nuisance, it manages directly and independently its own cadastre. Tne city's cadastre, based on a 1978 aerial photograph, has information of only 135,000 plots out of a total estimated of 300,000, and of these only 60% have updated information. in spite of the very iow property assessments, property taxes represent 30% of the district's income being the second most important source of revenues after the industry and commerce tax. It is estimated that income derived from the property tax could be increased four fold if information from registered properties would be up to date. 3.15 Finally, another weakness of both AMSS and Tegucigalpa is the lack of accurate information in terms of services, poverty, and vulnerability. A social department was created recently in Tegucigalpa, but lacks minimum resources to assess poverty levels and service deficits. C. Housing provision and finance 3.16 Housing provision has not kept up with the considerable population growth that these cities have experienced in the last decades. The sector has many problems, particularly on the institutional and financial sides, but there are some interesting reforms and innovative projects crystallizing as well. 3.17 On the institutional side, the three countries have followed different paths. While in El Salvador HonA Unrminm hniiqing has been acrorded tnw prinritv in the nftinanl nnntext with vih'- -ninitries of housing embedded in public works ministries where they have to compete for budgets and staff, in D&.a ~ .h-.si hoc hbn a pr.o.t of +h. grAvnnman+ ,x,i*h heanrn infaean*ion thrniuvh tha Ministry of Housing. Both models have problems. In the first case, small budgets have been assigned throughout the yea-s o deigin AA. i,.lee.tn houir. --Arum .-Ardplce w.th+ the_ consquen ena to the housing deficit. In the second case, the government has adopted a hands-on approach, implementing *. _|A: -- | _.. -C 1. _A. :_L: _I AAtAA_ A _C A_A_t_A _ s Az_ _ A1_JA+A_IAAAA_A U ; LIy I11 IUbU Ul PI U11b UUL * iv VI I I U_VIIIU UIl Ub 1&iI alIU 11*M iVILIVILL.UVI VI IUUl LV 111 p U Iiva 11Q1U strategies. 3.18 Despite the institutional situation, El Salvador has been able to articulate a broad based housing policy that includes market-based financing, subsidies targeted to specinc famiiies, iegailzation or aii informal land subdivisions, certification of informal developers, no government supplied housing, and greater municipal control over housing regulation. What is remarkable about this new policy is the upfront approach to issues of land titling and informal development, two crucial aspects for the poor. In that sense, El Salvador is clearly ahead in the region, serving in fact as a model for other countries. Given that the earthquakes in the first semester of 2001 severely affected the housing stock in the country, much of the efforts of the Vice-ministry of Housing (VMVDU) have now shifted to reconstruction and thus the effective implementation of the new policy remains to be seen. 3.19 Another problem is the lack of inter-institutional coordination among the different sector stakeholders. There is clear fragmentation of the city planning, housing provision, housing finance, and service delivery functions. They are, for the most part, the responsibility of different agencies at different levels of government, without clear coordination mechanisms. In the case of El Salvador, for instance, private developers complain about the lengthy and intricate processes to obtain building permits, involving the utility companies, the Ministry of the Environment, the VMVDU, and OPAMSS. They claim that these processes alone increase the cost of housing by 5%. A similar situation takes place in Tegucigalpa where building permits can take over a year to be approved. In both countries there have been diseicsionc non wasv to solve the nroblem Eynerts orree that the creation nf a single auithoritvy equipped with modem information technology and qualified staff, to deal with the approval process, is the b'es+t P,at1v. Bat.er one of +.h t.Jvo cn^mf.a. hao been ahle* to bAAnn1ar At this solutin, another 16 sy,,pt,, oftesco ->lnt.Tepyia rvso f basic ser ices to new A-velomen-t is L3ZIIM1 JLl LiLq 11 V'ii1 LiGC1&It~Iau14M&4. iLIV I~ JL.Y0111U FJRWV131'II VL UU51~. ~I kV~I~ -V % UV v'aJpnF ..L.O also lengthy in the three cities, adding overhead costs. The low capacity of public utility companies to enlauge sIVIice nI-LWr1I XL1II1bL.t, Hi U112 Lcase, WILII Ulhe rapid Iresponse UL priVate. UeVVIVlUe1 LU UU2U1ess opportunities. 3.20 By far, the worst case of lack of inter-institutional coordination is the gap between housing provision and housing fimance. Tnese functions are, to a large extent, tihe responsibiiity of nationai authorities in Central America. In all three cities, but particularly in Tegucigalpa, there is a serious shortage in the provision of housing for the poorest. Govermnent programs only benefit the formaily employed earning two to three minimum salaries. In El Salvador and Honduras the government institutions in charge of financing housing acquisition and improvement, face either one or several of the following problems: (i) offer of indirect subsidies through below-market interest rates, introducing distortions in the housing market, excluding competition by commercial banks, and not necessarily targeting the poorest families; (ii) in the cases where intermediary agencies are used to channel the funds, the selection of these agencies and the monitoring of their portfolios have been faulty, increasing risks and interest rates; (iii) unstable sources of funding that threaten the viability of programs and increase the financial risk; and (iv) funding of a couple of these agencies come from contributions of formal workers matched by contributions of their employers and thus exclude informal workers from accessing the system, notwithstanding the fact that informal workers constitute a large portion of the population, particularly the poorest. Box I.I. ThU IHUporuu e ou tUe ououiubg setoru I H,,ol3,, together awAt.h the lanAd under ;it, 'Sh me ingle r.ost impor-nt asset of house-hold in most of the w d' cities. Housing investment and the flow of housing services account for a total contribution to GNP of between 7 ?nd l8 percent in most countries. However- these figure- fail to convey fully how the performance of the housing sector is intertwined with that of the broader economy through real, financial and fiscal circuits. Since housing comprises 15 to 35 percent of consumer spending in most countries, inflation in housing prices is a significant element of overall consumer price inflation. Housing loans comprise some 15 to 20 percent of the consolidated assets of the banking systems of the most industrialized countries, making the integrity of these loans crucial to the overall soundness of the financial sectors. Housing subsidies, particularly in formerly planned economies, have contributed to budgetary deficits which have aggravated inflationary pressures, and poorly pianned housing policies have often ied to iimited residentiail and labor mobility. Even in the United Kingdom, research indicates that inappropriate housing policies have increased structural unemployment rates, increased consumer prices and interest rates, atUversely afcutied tue balance of payments, and led to a significant decline in rates of household savings. Real estate booms and busts have also bLeco,,e a pIr...ir.ent featu.-e ofU I ur and.. uaIV.l;al econor , nis notably in se Uni.ted States and Jaipanl. fl;ipn thp ;Mnnrt1n P nf thp hnlaainu cr tnr snnd thP hiah a,nqt nf nnlirv fniha,r-c it k ciirnricina thnt mnnv .,.-c -f d^-w _ ED--- D--t'' - -- -.e cos. -- p ---- -- -- countries underestimate the objectives and instruments of housing policy. As a result, housing problems are often aLravated by ill-conceived or poorly executed public policies, and the performance of the sector falls beneath its potential. Source: Mayo, 1997. l 17 3.21 Panama City is the only case in which the Ministy of Housing (i'lVI) is actively involved in the direct provision of housing through heavily subsidized programs. It operates through the National Mortgage Bank (B-N), a very inefficient institution. Today the BINki has ceased to lend and is, with difficulties, only recovering old debts. The government is contemplating an institutional reform including the liquidation of BNH. Partly due to its imminent liquidation, the situation is confusing: its audited statements are not up to date, it does not have a computerized information system and its arrears are high. 3.22 Unlike in El Salvador where NGOs have made an important contribution in designing housing programs for the poor, in Tegucigalpa and Panama City this has not been the case. In fact, in the case of Tegucigalpa, many housing NGOs started in the late 1980s when USAID funded low interest credit lines for new construction and improvements. After hurricane Mitch, these NGOs built and delivered some 5,000 homes with donated funds, but without sustainable financing mechanisms, some have closed shop and left a legacy of paternalism and unsustainable results. .D. LI UUaU iau mark V 3.hJ Given uIat 'uie poor ir, tUIese citie depend grealy on progressive housing, zcqMui1r.n irU U p;ece of land and then slowly but steadily building structures and obtaining basic services, it is important to understand how lanud marke-s work. Like in rnioisL capita: in Latmi ineriica, lanidu I-r1.Vts in 0I0, Tegucigalpa and Panama City are characterized by: (i) a restricted supply, particularly for the poorest; (ii) a strong segmentation according to the formality of property ownership and compliancte with regulation,s; and (iii) lack of information on values, prices and transactions. 3.24 Supply of formal land to the poor is restricted in AMSS, Tegucigalpa, and PanamA City. This outcome is the result of several conditions: First, land itself is scarce, particularly in Tegucigaipa where the topography and the susceptibility to natural disasters constrain new development. Second, and more important, land, and in general real estate assets are highly illiquid, meaning that land uses and densities do not adapt to the pace of the changing economic base of cities and of.population growth. And third, regulations and subdivision restrictions constrain the effective supply of land. 3.25 In response to these conditions, informal markets have developed in all three cities, although their degree of sophistication varies considerably. In Tegucigalpa there are three types of informal land developers: (i) individual households or a small number of them that settle in public lands ("ejidos") or rights of way; (ii) organized invasions of hundreds of households that can be led by professional organizers; and (iii) well known "developers" who take advantage of the outdated land registry, register dunlicate titles or usurp public lands and immediately resell them several times through shell companies to avoid the legal system catching up. Given the scarcity of developable land in Tegucigalpa, these are very profitable initiatives. According to PanamA's Housing Ministrv (MIVI), informal land development does not exist in an organized system and large scale in PCSM. It is suspected, however, that there are some partially-servi-ed plots seling for a price of $800 to $1,500 per plot in the nerinherv. Medium or small scale invasions of land take place in the periphery of the metro area and are usually made of recent mindvigats. These ; rn.a ann^coint fnr 12% of the population or ahouit 130,000 neonle. This is a very low percentage when compared to most Latin American capital cities. Nevertheless several small orgar,izd invons ha Ub +I _i_;Al A nuously in the rCar.a's reverted areas, particularly in the municipality of Arraijan, posing a challenge to the government's plans to protect these areas. 3.26 By far the most iteresting case is that of AvivSS vwbere an extre,,ely proactive informall land market has developed. The Constitution of 1998 for the first time separated the concept of legal tenure 18 frnm nrnvizinn of haqir zervicneq AA iininiie nceiirrenre in Latin Americ-a allowing informal land developers to operate legally even though they do not meet subdivision standards. Informal land subdividerseor "!otifi-^adores" buy lage estates mostly in rural areas and subdivide them in small lots that they sell to the poorest population under a leasehold agreement. These agreements are not backed up by the legal system a.-d car. f --ere..r be abused. The lots do not have sere or - -nfa- - an.d dono comply with subdivision regulations. Lots cost on average $1,400, a price affordable at one minimum sAlIAry. TM- __ __ i --+ A-- X AtBAA1A _._ A A_ - A S AiA KA T-+: _A A_ +1k_ - P - _A :>al4ly. I LIV %.UIUIUIVI0 all vvy avulavUlil. IlV UlLVlL3L aUU IIV uvvJWI FaY111iVIL. IMaLLUII-WIU%., uI,1i1t CLI. O.IjII 150 land sub-dividers, four of whom dominate the market. The largest of the informal land sub-dividers pUOVICS gvlvrd Ililldli.villg iLU ILS IlL Ulcil Lu,ll Ur, UWvU WIU 11iUulig %UbLUIU ULLIUII dJIU MIpluVrIIIVLL. Ill provildess genetr`a n fina. -, '.o its -li-erits 'athcr eue o osn os co n mpoerel.l is done through the use of a sort of credit card backed up and insured by the company. The interest rate is 30% per year, which is quite high, and the debt is guanrnteed by the lot, which carries a high risk. In spite of occasional complaints that informal developers take advantage of the poorest, they have fulfilled an important role in the provision of shelter to the poorest. 3.27 When poor households settle on unused government land, whether national or municipal, they contribute to improve land use efficiency and they partially solve their shelter needs. Therefore from both standpoints urban upgrading and regularization of land tenure make sense for governments. Historically, municipal and national governments have been against these mechanisms and have tried instead to evict squatters and relocate them far from activity centers. Fortunately, the last decade has witnessed important changes in the understanding of these issues. Governments now support urban upgrading and land titling, but programs have had limited scope and few beneficiaries compared to the demand. AMSS might depart from this small scale approach by including upgrading and titling in its housing policy. It has a project in preparation, to be supported by IDB, to upgrade municipal neighborhoods in medium to large municipalities in the country. The project includes certification of informal developers to improve the quality and reliability of the services offered from the technical, environmental and legal standpoints. Box 3.4. Govemet..rono squatt-JVV. wig *1- *Pakista lin 1 OR the Hyvelprhad Develonpment Au thonrity HAD) began investigating the low-occupancv rate of govemment land in the city and the functioning of the informal housing sector. As a result, HAD decided to carry out an experiment in "govemrment-promoted squatting". In this program HAD adopted the strategv of private informal entrepreneurs (dalal) who have managed to provide the low-income people with plots at an affordable price. The dalal occupies land informally with tacit recognition of state officials, police, and other relevant agencies, and subdivides the land according to govermment planning regulations to the extent possible. Some plots are held for speculation and sold for commercial use, so that the price of lots for low-income customers is cross-subsidized. In the government-promoted squatting program, HAD started to provide the poor with regularized, though initially unserviced, plots. They earmarked an open plot and named it the "reception area". Families in immediate need of shelter were required to bring their family and belongings and erect a makeshift house. They then moved to plots measuring 80 m2 to erect a more permanent shelter. Tne informTai sector (daaia) has not been replaced completely, but continues to provide construction material and advisory services, and to locate and move people to the site. The ri-4 LF hUIa ulL4,Vus 'noer UV,1 rIoleo. Ui UI. aUsUIVIUeUL, IL aiauo u. 1uuuyJur, wsLi IncMVeL asULLLI~a a3l. " government agency it is better placed than any private operator for this role. In addition, residents do not have to pay larg-g sums of money as people do An il!eglal suAbdivis'iorins to agent-s whno Inhho An thpir behnlf Source: Durand-Lasserve and Clerc, 1996. Box written by Deniz Baharoglu. World Bank. 19 L. vvater, sani -iuu, druiage, andu sUU wasit-e 3.28 A;thnOugii accesS LU bicNIU Unull serFViLcs has IrIp.IUVVU iUl Ul ir, CdetL UrUb III %-VLIUal tAIiVLI%.aiI capitals, it is still far from universal, particularly among the poorest. But more than access, quality and reliability of these services are the main probiem. Even thougn tie main cause can be easiiy identified in deficient institutional frameworks, the situation is complex and involves many different variables and stakeholders. 3.29 First, the institutional framework for the delivery of basic services, but particularly for water, sanitation and drainage is characterized by great uncertainty in El Salvador, Honduras, and Panamna. In the case of El Salvador, there have been extensive discussions on a reform including a new water law and the breaking up of the national water and sanitation company, ANDA, into municipally managed companies that might be eventually privatized. The water law provides a framework for the rational use, exploration, exploitation, and conservation of water as a vital natural resource, and the creation of a Superintendency of Water Resources. This entity would be in charge of monitoring water management, ensuring that environmental mandates are followed, enforcing laws and regulations, and creating and maintaining the proposed water cadastre and public registry. The law has been criticized as being anti-decentralization and not promoting local development, this being a reason why there is no consensus among experts to support it. Others observe that the proposed reforms, on the other hand, do not take into account regional and global experience which has shown that a strategy to decentralize water supply and sanitation services to municipalities first, and privatize them later, will create inefficiencies by not maximizing economies of scale in service provision. Neither the water law nor the institutional reform are currently moving forward. The strong political polarization in congress and the requirement of a two third majority to approve any new legislation have contributed to hold back the reforms. In addition the earthquakes have changed the country's priorities leaving the sector's reform as a lower priority even though the e.hqilteshn u h sved a fiirthpr dPtPrinrqtfn& impniact nn hbaic service provision. 3.30 T_Ule c of r,d-ura,, she wate cor,,par,y, A^13^ ^, A as b- under-A .-L-ong national ar.d international pressure to decentralize its water systems. The Association of Honduran Municipalities, AivIiiJN, is one Vo ie nIoULIalu. ageni.Ies iuuyuin lrvi a.quick decer,tralizto, Ir lin whi sIUh Municipalities Law, and on the international front the IDB is supporting decentralization of the Tegucigaipa water systems to the Municipality. Uniortunately, most Municipalities, Wihi uie exception of San Pedro Sula, do not have the technical and financial capacity to manage these water systems, and in general they will inherit inefficient systems and organizations to start with. A first drart or the reform law was rejected by the Ministries of Health and Governance, by SANAA, by AMHON, and by the National Commission that supervises all public services. A second draft has been under discussion but has not yet been approved. 3.31 Panama is perhaps in the worst situation. The previous administration made an important effort to privatize several public services, including telephone and electricity, and had an elaborate reform proposal for water and sanitation, given the inefficiencies of the national company, IDAAN, and the low coverage of sanitation services. But in the wake of presidential elections any substantial decision in the water sector was postponed. The new government did not support the reform in part because there were serious criticisms at the time regarding the reforms in other sectors. The new government established a vice-presidential commission to analyze the situation, but after two years, the draft laws produced by the commission were not considered acceptable by the different stakeholders. On the one hand, the reform only addressed some of the problems of IDAAN, disregarding the entire sector framework, and on the 20 .ther hAnd it did not makAe nv ttemnt t. .hAnn0. the. tariff Cuih-.idv s nd nrinin v qtnIrtie whicrh A will be seen later, are in serious need of improvement7. 3.32 Drainage is another case of great institutional uncertainty. In the case of AMSS, the drainage responsil-liUft fe!! -dAe a;- ;.;-io of *-L i is 1o-1,fll P l AAlto s (MOP). WlI'hen +u-%# A.isyUS,v reformed in 1998, and the Vice-ministry of Housing and Urban Development (VMVDU) was created, the 1 A--- _ n A4s w_m no A- _ -A &- _A ;+_. ..a- A+ T AA_ _11............................................. A-: I1n 4 _I. A CA=g ULauiaM, UUtIUI%I3D Wa1v Iv UUL * U a l} UIIIL. IIi111 1777, U1ILI LU1VULI&LGI JUL IUIU1r Uli., (OPAMSS) and the VMVDU signed an agreement in which OPAMSS took the responsibility of reviewing dUai4Uage plar,s iu new developVe,111., as par UL UIof LUIIUUlr g mVIItIIL prULces. RsbpVULsIMiILy for physical maintenance and improvement of the drainage systems has not been defined, but given its importance, municipalities have taKen some leadership. inus, responsibility and overiaps are an issue, compounded by the lack of information about the entire drainage system. In Tegucigalpa the situation is also confusing. in principle, SANAA is in charge of sanitation and the District is in charge of drainage. Nevertheless the channels are sometimes mixed, creating confusion in terms of who is to maintain them. 3.33 The institutional dysfunctionality and the uncertainty regarding the reforms has negatively affected the performance of the water and sanitation sector in the three countries. Much needed changes in organizational, financial, and technical issues are being held up until decisions at the national level regarding the overall reforms are made. In the mean time services continue to deteriorate. 3.34 Solid waste, on the other hand, has a clearer institutional picture. In all cities it is a municipal responsibility and there are intentions to bring private sector participation. In AMSS and Tegucigalpa the model under discussion includes a single concession that would operate in formal neighborhoods, while micro-enterprises would serve informal neighborhoods where access is difficult. According to Bank research micro-enterprises in garbage collection uniformly need a mix of neighborhoods (low and high income) to be financially sustainable. 3.35 The second issue is the lack of sector regulation. In water and sanitation the situation in the three cities is again similar. Regulation is a function exerted informally by the same national agencies that nrovide most of the service: ANDA. SANAA. and IDAAN. There is no external control over their operation, their efficiency, their tariffs, and the quality of their service. In El Salvador as well as in Hnondurna the sec-tor reforms include the creationnof independent commissinns to regulate the service bot, as explained before, the implementation of these reforms is uncertain. Besides auditing the performance of the wat.er and sanitntion dormpanies, these comm.issions would have an imnportant role to play in overseeing that healthy competition takes place in the sector. At present, in AMSS and Tegucigalpa there are fewA small pr.voat ,.,oatr providers nrho n, , s, e n,e thm poo,-est households (A% Of he' poorest households in AMSS are served by private operators and 19% in Tegucigalpa). Although these operators sve vv all .r..porl LLt Aunc'vt.ionu, uhirL Siff Fper cubcUl UmLter LtendLU oU b1ilSll andU Ushe qualitL VL U1e service V Vw. If more providers entered the market and efficient enabling regulation were enforced, tariffs might go Uo-wiI wUhie qualiy m1proves. 3.36 Solid waste collection services are in need oI coordination and regulation at the metropoliian level in AMSS. Fourteen municipal companies operate in addition to small private companies. The efficiency of these companies is highly variable as illustrated by the wide variation in coliection and disposai costs per ton, costs per person served, tariffs, and net revenues. 7 Thp M..ninalitv nf Pqnnmh hnq Pnrpeq-^ ctmna intprpct in mrtirinstina in thp dPlivPrv nf wntpr eprvirPQ tn itc population, but given the incipient decentralization level and the difficulties in IDAAN's privatization, this participation does not seem feasible in the near future. 21 'X I) x7 _ . ':_1. :__-- : _1 , A_ :_ ._ _ -_ - _ . _rI 1 ,- - !,_ -- - -_ __L - _ E - - - I I- _: - - '_ A, - -- _,__ - - _, __ - _ Ir _ W -'_ .J.-I 1ilt UIIIU INUB 1b UiW ui14umquw..cy U1 u .11 tLUIU 411U sUUsiUy pUIIwuiS 111 UIU WIW[ SuLLUI . 1 d1ill1 U1 the three cities are set well below the cost of service and have not been changed since 1994 in El -Saivador, and since 1iyo in ranama. m auition to iow tarifrs, there is a problem of measurement. Since not all households have meters and even if they have them they often do not work, many households do not pay for the water they consume (20% in Panarna City and surrounding municipaiities). I nis results in financial problems for the national companies, deterioration of the existing infrastructure and no resources to expand the systems or improve them. ANi)A's annual report for 1999 shows mcome statements tor the past five years lagging some 20-25% behind operating and maintenance expenses, not including amortization of investments which are generally paid by the national government. In addition to financing ANDA's investments through the Fondo General de la Naci6n, the government subsidizes the company's operation and maintenance. SANAA is in a similar situation, with tariffs too low to even cover operational services, and a high dependence on subsidies from the Central Government. Water being such an essential service, governments avoid increasing tariffs for fear of protests. In the long run this strategy backfires since low tariffs prevent a better delivery of service. Box 3.5. Small water providers: the case of Paraguay By one estimate there are some 500 small, competing water companies in Paraguay, functioning in place of the | large mnnonolies with govemment regulated nrices and government capital that are more tvnical of South I America. These private companies rely on their own artesian wells and pipe networks. They set their prices and finance investments on their own. These entrepreneurs offer an inspiring example for the rest of Latin America, where public and private monopolies are unable to keep up with the demands of expanding urban populations. Rafael Caceres, a successful Asuncion aguatero, with 1,000 clients and an ice factory on the side, says, "I delivered water by truck from the city treatment plant. I had a steady group of clients. So I drilled my own well. Then I realized it would be a lot easier to run pipes to their houses, and cheaper to fuel pumps than my truck." The first aguateros figured out the most cost effective investments (smaller pipes and simple motors) by trial ana error. As coicerns ELIUMlHiU1W5 of sca:e - as wen as ulie reUUlaU alLUrad munupuiy argument - taKing water from ground wells and supplying nearby neighborhoods has proved much cheaper than the large-scale alternative, tueat:u.g river watte: ona z c:.it;=widel4 set andS tucking it to .fW'Ju±tOsvl.. US, U5US Vg a UrsA"om zndt pop"S audUet.st.0 average two employees per 300 to 800 households. One worker checks on the pipes and pumps and looks after £', 1Qtonm,rre The nther handles hilling nd mannage the accoints Theodesias Ftela deMart ez o nins a ore- woman operation with about 400 customers and some 25 kilometers of pipe. Also private sellers exist in Latin America in large part because of the great diversity of needs. Single, large l scale suppliers are not necessarily poised to sell to neighborhoods where land use is illegal, where there are no l roads, and where making standard house connections is difficult. In developing cities, people's circumstances and needs vary so much that it is hard to support the notion of a monopoly company offering standardized services to everyone. L Source: Solo, 1998. l 3.38 Subsidies to consumers are another problem. In all three countries the tariff structure is similar, with a fixed minimum charge for a certain consumption level (20 m3 in El Salvador and Honduras and 30 m3 in Panama) to be added to a charge that directly depends on consumption and land use. The idea behind this scheme is that the poor would pay less since they consume less. Data from this study and others8 show that there is not such a significant variation in consumption at the household level among ouintiles: in AMSS average consumption for those with a metered domestic connection varies from 39 to See WalKer eE a:1., 200UU. 22 44 m3, in Tegucigalpa from 35 to 55 m3, and in Panama from 30 to 37 i3. As a result, a large portion of non-poor households capture the imnlicit subsidy: average navment per m3 in AMSS varies from 23 to 25 cents from first to fifth quintile and from 15 to 17 cents in Tegucigalpa. In addition, only 8% of the first quintile households in AMSS and Q0/n in Tegucigalna consume less than 20m3 which also shows that the minimum consumption level might be inadequate. V. TI.rnspoUl 3.39 As cLIte gIvY, UaII,orIL V becre r1I.oeI UL a ct ... I LU to LMe tre...endo xe.a UI.aU congested systems can impose upon persons, the environment, and the economy. Although transport was not a prionrty issue for lue hIusuldusu surveyeu in u,is sLuUy, IL ra Iwily is UdIIcie. tIIU Iar. UIha seLpt11ial to become a central problem in the years to come, if corrective measures are not taken. 3.40 The most striking characteristic of public transport in AMSS, Tegucigalpa, and PCSM is the fact that it is entirely provided by the private sector. T housands of small operators, a majority of whom own one or two vehicles, compete for passengers on a daily basis. Operators usually belong to associations that represent their interests vis-a-vis the government. Taken together, these associations have significant power and leverage. But the lack of regulation and the excessive competition in the sector has caused many problems. First, bus drivers in their daily competition stop anywhere potential passengers call them, even if this requires complicated maneuvers. This creates traffic chaos and accidents. Second, since the most profitable routes go through the city center, where many passengers are going to and departing from, there is excess supply in these radial routes, creating congestion in the downtown area, while there is insufficient supply in routes covering peripheral areas and neighborhoods of difficult access. Third, planning and coordination of bus services by the government is extremely difficult if not impossible given the existence of so many small companies. In fact, the government has little control over the operation of these companies, giving room for even more operators to enter the market illegally and provide their own range of services at their own tariffs and with their own routes. This over supply gives operators no incentive to imnrove service and fleet maintenance. 3.41 The se ond characterstic of the system is the unique ownership structure and oneration of the bus operators. Many vehicle owners lease their buses for a fixed daily fee and the driver and his assistant retain the fires that they cnnIppt. En-ch hilu ic then nnpratetd as a sePnarte indene-ndent business in which the only objective is maximization of the number of passengers per day. Owners ignore the profitability of their buses as they really do not k'Mow, the incor. rn1oeltaAn per day. Having lnt rnntrnl novr costs and revenues, owners have little incentive to make significant investments in bus maintenance and in 3.42 Wny is regulation so deficientr in each city inere are diffeivni reasons. Ai- tviaa ,..e agency tin charge of formulating transport policies and enforcing regulation, the Vice-Ministry of Transport (VMT), concentrates too many responsibilities under a very limited budget. in spite of the situation, the transponr sector in El Salvador has taken some interesting initiatives. First, in January of 1999, the VMT concessioned the driver licenses and vehicle plates system to a private company, SER1KACEN, making processes simpler and faster. Second, a proposal to modernize the transport sector, is currently being discussed. According to this proposal there will be a separate Ministry of Transport in charge of formulating transport policies, enforcing regulations, structuring legal changes in the system, planning road infrastructure use and enhancement, define subsidy policies and its corresponding financing mechanisms, and monitor public investrnent. The new Superintendencia de Transporte (ST) will be an independent agency in charge of regulating competition in public transport, setting and monitoring tariffs, and ensuring the enforcement of safety measures. The new Fondo Vial (FV) will be the financial mechanism to channel resources for the maintenance and improvement of road infrastructure. It will 23 operate through road user taxes. Finally, the new Instituto Nacional de Carreteras (INC) will be in charge of construction, rehabilitation ar.d M,,o,,ten-,nce of roaA _t -e thrrouYh vwriunfti sc.tnr w ntr" s.i' As in the case of water, reform of the sector is not a priority at the moment, and therefore regulation of the sectLur is weak aL Ubet. n A . T- T T _ _J___ 1A__ _ vw1 s1A _ FI`Vs _ A_ A_ArwA J.)t3 Iii t lUjjUUF4b LII A LUAULIUIx I l1Ib UIIUiv; U1IAUIL, 5 IlVei UIC; ar'ViiI.y 11 %i r, UL U U11IA vUS1 I Y VV VA public transport services (DGT) is very inefficient, overstaffed, and has very limited resources. Technical decisions are made on political grounds, especially tihe granting of permits. The DGT' s offices wreV badly affected by hurricane Mitch: computers, disks, and paper files with transport planning information, route maps, operators records, were all destroyed. Consequently planning activities have been seriously affected and illegal operators have taken advantage of the situation to operate buses without permits. A move to decentralize public transport provision has been under discussion for some time but there is no consensus on this approach. 3.44 In Panama the government created a new agency, ATTT (Autoridad de Transito y Transporte Terrestre), combining the transport functions of the Ministry of Public Works (MOP) and the transport administration functions of the Ministry of Government and Justice. ATTT faces some problems at the moment. The most important are the lack of appropriate resources given the amount and nature of functions and responsibilities, and continuous overlaps with the MOP. Box 3.6. Transmilenio: Bogota's innovative mass transit system 1 Bogota has suffered from high levels of congestion (average trip of I hour and 10 minutes), pollution (1,200 | deaths due to pneumonia). and accidents (over 50,000 traffic accidents per year), as a result of rapid and poorly managed urban growth. In response, the Pefialosa city administration conceived a sound and long-term transport policy for the city of Bogotd, including restraiinig the use of private cars, increasing the supply of public space, promoting bicycle use, improving street maintenance and traffic management, and providing an efficient and | I sustainable mass transit system. Transmilenio is the mass transit system. Once completed, the system will comprise 62 Km of dedicated bus lanes, 62 stations, about 700 articulated buses, an electronic ticketing system, feeding buses, and supporting infrastructure. To develop the system a new company, Transmilenio, was created in 1999. It owns on behalf of the city the operating infrastructure and is in charge of the operation and expansion of the system. It is a smaii company funded trough a percentage of the fare revenue and through the sale of bus publicity slots. Most of iransmuenio s uncutons arc concessioned Lo uLc priv *L secwr, WiUI ULU company focing or. .-l g.,.g contracts and planning the system. The bus operation was concessioned - on the basis of clear and efficient orgau:fio.u, nuau..,a, sou1.&.es, -- ar. e.,v U..r. r.a. f4W LShA W.:.c of tJ- buses =-t f--' oties ir which the participation of local operators is significant. Similarly the ticketing and collection system, as well as the control center And the feedinag system wpre co.n.essioned to different national and international firmq lEv.en though only the first phase of the project is being implemented, the results are positive. In April, 2001, with only 160 articulated buses in operation, Transmilenio mobilized 360,000 passengers/day. It is expected that by the end of 2001 it will mobilize 800,000 passengers/day. Collection in April, 2001 was $134,000 per day and it is expected to increase to $300,000 by the end of phase I. Between 1999 and 2001 there has been a reduction of 86% in car accidents in Bogota and 98% in run overs. Average speed of public transport in two of the main city corridors increased from 12 and 18 to 27 km/h. The tariff of $0.36 covers operation, maintenance and investment costs of the entire system and is only 6% higher than the normal bus fare. Sources: Ardila and Menckhoff 2001. l | Hidalgo,2001. 1 24 3.45 One of the main nroblems of the transport svstem in El Salvador and Honduras is the existence of transport subsidies that have negatively affected the efficiency of service, raised the total number of trips, and increased the nronortion of low or zero occunancy trins= In addition- the subsidv schemes are difficult to administer and are increasingly corrupt. In AMSS the subsidy takes the form of 400-600 gallons of csihd,lizeP fue! ner huser nimnnth The susih'idi7zd nriee was set at ahbot C 1 9 ner gallon (the actual nrice varies slightly each month) as compared to the prevailing market rate of about C 11.5 per gallon. The quantity of subidz fu.e1 a1!oatedto a bus depends on the size of the hus, nimher otf trin: tper month. and distance. A team of dispatchers monitors the trip rate to ensure that operators are indeed providing service at agreed tv..-.s. Au +F l subsidy goes directly to pay part of t b The. s,ubcs'idy amounts to about L550 per day per bus and it is calculated at LO.5 per passenger assuming a volume of i,IJ-;1ULJJ penigers per day. racu subsidized us is requieU to uperau. aL leasL 20 days per l1I...i1S and complete four round trips per working day. Currently about 80 government employees are involved in administering the suusiuy systum, inc;Iuudig at team 01 ieUlU swlf WIlh IOmoIIILUI Ue Uaily vo:ulleV of passengers and the number of trips completed by the buses. The subsidy costs approximately $2.3 million per year in the case of AMSS and $ 10 million in the case or Tegucigaipa. 25 IV. CRrrICAL AREAS OF INTERVENTION 4.1 While the levels of poverty highlighted in this report are consistent with trends elsewhere in the w orld, action fakr over the nrvt ft.v dec-ades can cti11 hauve a dArnmiatin ,mnnut in the rpeagnn The urbanization process will continue to pour hundreds of thousands of generally poor people into towns and cILtLO - IUoal aLr. rUaLi.juonal govrr,U* tsccptinU Isulo ao a fact, ar.d -a a rrecons.no n f inaso-_a and economic development, can provide the basis for policy development. Intervention to curb urban povevry shou:ld p:ae l.V W UVbIVer UI IVrILIVeU ar.u abutieU levelsvv vof UL FrJouble beco...e unmanageable. 4.2 A feature in this report that needs to be highlighted is the attitude of local government - despite serious revenue and capacity constraints, the major cities have made senous attempts to address their developmental challenges. The generally positive approach to the urban poor is significant, and likely to pay policy dividends over the medium term. 4.3 However, this report also highlights the need for serious attention to be paid to policy and institutional frameworks. The strengthening of local government is part of a wider challenge of filling serious gaps in institutional capacity, and reviewing institutional and policy arrangements across all tiers of government. 4.4 This chapter lists what are considered as critical areas of intervention and briefly comments on them. Since many of the sectors covered in this study already have proposed reforms under discussion in the three countries, we will abstain from making recommendations at that level and will rather recommend specific actions that can help trigger the implementation of the reforms and that can have a short to medium term impact in improving the daily lives of the urban poor. For reference, information on the Central America portfolio and pipeline of the World Bank, the IDB and USAID are summarized in Annex 4. * .Rten,athpn mnJlc-ina!Ztipes 4.5 There are th.ree nreas in which Central Amierican municipalities need most help in preparation for further decentralization measures: (i) Administration of their own cadastres and improvement of their performance, considering UULZuLL.I LUIe Uata IoILIecion ar.d mainenaur.e toFv pr.vate Frvvid, asP J beenuone in Guatemala City, successfully. This outsourcing requires that a property tax be in place to generate uhe resouruces needeU LU LcUVer UIV HUIILIiI. lll appiies veIY Well in TegucI.ga:pa. Li AMSS, the city might lobby for the fiscal and decentralization reform - being discussed at the moment - that would imnroauce municipal property taxes. in ute mean time, tne CNR will be advancing the cadastre mapping and field-level data gathering. Technical assistance to prepare municipal staff for the maintenance, update, and efficient use of the cadastre wiii De a priority. In PanamA City, depending on the government decentralization agenda, a similar recommendation would apply. (ii) Improve land management. First, municipal staff need training on modem techniques of land and real estate assessment. Second, they might benefit from technical assistance to monitor geographically land uses, land subdivision, and land sales and prices. This information would be very valuable to make better public local decisions, to understand land markets, and to update urban regulation accordingly. Cadastres are the first layer of a land information system which can be expanded by additional layers and can benefit from the use of GIS 26 technology. This kind of information is valuable not only for the municipal government, but also for developers, banks, investors, and citizens in general. Therefore it is possible to partly finance the system by selling the information to the public. (iii) Improve financial management and diversify the sources of income. Many of the problems that municipalities face derive from their deficient financial situation. On the one hand, there are few sources of revenue; and on the other hand- limited resources are poorly managed. Technical assistance to improve these aspects would have a tremendous impact on the delivery of municinal serviceq Th'e , B m naoeq a. technical cooneration to improve financial systems in the municipalities of San Salvador and Panama City and has incorporated financinl mnnnaepmpnt imnrovempnt in thpir TGrioutei4lnn nrnie't A revipw nf thecp santivitiec and a list of lessons learned would help in improving this type of technical assistance. (iv) Lm.prove persn nnit.oringT This ro n,v mnAr-ines th.e .fa. t.ht there is litte if ani information on poverty levels by geographic areas, vulnerability, and the situation of the poor vis-a-vis basic service delivery. Technical assista,ce should focus, as af r priority., on strengthening capacity for gathering, maintaining and analyzing information on poverty and VUiIIVI(UUIIILy. 1 L1e crVeLIUII VI a sUocil ubusvaI4jIy, i1UVFMIUVILL VI UIV 111uHIVIipal,Ly, UUL wILI its participation and the participation of other entities such as universities, NGOs, and think tanks, mig'nt be the oest solution in this case. UNCHS is interested in helping cities in the setting up of such observatories. The key issue here is to find a reliable mechanism to finance the observatory and ensure its sustainabiiity. 4.6 AMSS is one of few cases in Latin America where a metropolitan agency has been created. But much more needs to be done, particularly in strengthening OPAMSS's and the municipalities' planning functions. The World Bank is helping OPAMSS through a Cities Alliance grant to improve its planning capacity. OPAMSS can play an important role in the implementation of urban upgrading programs and in regulating and rationalizing services that have spillovers across metropolitan areas such as solid waste collection and disposal, public transport, and drainage. All of these changes would require a different structural organization, enhanced technical and human resources, and expanded sources of funding. What is proposed for OPAMSS is quite ambitious and if successfully implemented, would be a cutting edge outcome at the Latin American level. *Streamline two key processes: buildingpermit issuance and land titling 4.7 Municipalities, utility companies, the agencies in charge of housing, and the chambers of construction- among others- should work together to streamline the building permit process, as has been already proposed in AMSS and Tegucigalpa. The basic concept is to create a single authority, the vpntanilln i;nirn to ilenl with the nroncerQeq andi orant qnnrnvqlq This entsiilsl (Ai simnlifv the nrocesses- ~~~- - -1- r--__1 __ ---o- --- ~rr- --------- ------- ar- as, N----rn---w ---- ro---s-e-, (ii) minimize the number of agencies involved at each step; (iii) define clearly what should be the flow of documents irn each of the simplified processes; (iv) establish coordination mec-hanismrs between the ventanilla unica and the different agencies involved so that the former can carry out the procedures +La latter; (v) co...pu'.r.ze the systems chat there are reo-rud of e. ch ,n-rAnca- - .an s.A d1. . monitoring is made easy; (vi) for some processes move from face to face attention to the public to a web uaseU cus'.om,er serUI viceV (eU-g1ove-I,HLle arIU (viij pirpiaie clea,- iiaiiutuLs fjruie dUifferetL typs oL customers, indicating the steps to follow, documents needed, and a mechanism to monitor the status of requests. A sininar coInIepL Illigit Ur, app:IeU LU Ulhe ladlU Li.llin prUoces Willhl lb encun.LUerU, iUr all t. cities of the study, by a multiplicity of agencies involved, complicated laws and procedures, low if any use of computerized tools, lack oI basic analysis inormation, and litte iransparency in public information. 27 *Recognition of informal development as an option to supply low cost shelter 4.8 Even though informal development is still controversial, it represents an option to provide shelter at low costL f[ Uthe pooLrest fami:ies. EI SalvadoUU[ Uhs I le l a iiiipUrUiUL step in recogiizirg andU at1eptIiig the role of informal developers in the housing sector. The housing project, being prepared by the x~~~ fl AflE Tfl1 ! __ _I ___ .1 . .*r-.nsw..r*r VlVlVDDU ana me wnD in-cludes a sub-component to ceraiy mne oqrycaaores. Some or me problems that persist in the system and that would need to be considered if a city or country wants to learn effectively from the work of informal developers, are: (i) lack of information by the potentiai ciients about the different shelter options that they have, with their pluses and minuses; (ii) lack of legal counseling to help customers understand the full range of rights and obligations that they have regarding property tenure, and the legal instruments that they can use in case of need; (iii) lack of a master plan to provide infrastructure, in a phased manner, to the new developments, essential to guide an orderly expansion and consolidation of the neighborhoods; and (iv) lack of technical assistance to households in the construction of their houses. In effect, the idea of government intervention would be to correct the present problems of the system without affecting the present market functioning. A system where the government coordinates and ensures that clean registered titles are awarded to beneficiaries, informal land developers develop, basic service providers set up minimum service connections at low cost, and NGOs provide technical assistance and information, would take most advantage of the strengths of each stakeholder. This requires strategic alliances and a great deal of coordination and that is precisely what the government should concentrate on.. This approach would take care of new demand for shelter by the poorest urban residents while the next will help improve living conditions in already existing irregular settlements. * Undertake comnrehensive urban ungrading nrngrams 4.9 UTTrhsn upgrading is an efficien.t way to reduce poverty in urban areas.in a _omprehensive and participatory way. Typically, an urban upgrading project comprises the following components: (i) inrastrucrtre xor^rst to imprxrovestree tc side ",vallec andt pedestrian andJ vehicurlar access in geer! toLP 1 construct parks and community centers, to extend water and sewage connections, to recover drainage I n-.)'J cuL UIIU muJ . UUAtf~ l'I .' (4 W~'vCL.. U ,C&LLIW'L jJIaULa, k.IJ iaUU LILILIii, auuI% I%,rUi IC O.UIIa \VII) 11 technical assistance for community participation and co-management of the project; and (iv) institutional suengtienring of the m,unicipality and public utility companies for co-mr,anragemen,t of uhe prouect. Given that infrastructure sector reforms are highly political and thus take years to be approved and implemented, urban upgrading has the potential to solve some oI the immediate pnysicai needs of the poor, taking advantage of the valuable existing physical and social community assets, empowering communities, and helping incrementally in tue improvement of city infrasuucture. UrDan upgrading projects in Latin America have been very successful, providing solutions that range from about $2,000 per family in Guatemala City to $5,000 in Guarapiranga, the costs varying depending on the complexity of the engineering works required. 4.10 To illustrate the need for a comprehensive approach, take the case of drainage. This is a problem originated by the lack of institutional responsibility over the service, but seriously compounded at neighborhood level by other deficiencies: (i) the lack of sanitation systems force poor households to throw their grey and waste waters into the ravines, the backbone of the drainage system; (ii) the lack of vehicular access in some neighborhoods gets in the way of solid waste collection trucks, making this service deficient; (iii) this and other deficiencies of the solid waste collection service lead households to dispose of solid waste in the ravines; and (iv) lack of education is also a reason why solid waste and waste waters are disposed of improperly. *Reform water tariffs and subsidies 4.11 While comprehensive sector national reforms take place, national water agencies would immediatelv benefit from a chanae in water tariffs and subsidies. Increased revenues for investment and more focused subsidies will in turn benefit the poor. Additional research is needed to determine the consumers' willingness to pay and the tariff levels that wonid cover nneratinnal and maintenance cost and leave a margin for investment. * Consider a mass transport system as an optionfor the nearfuture 4.12 Although Central American capitals are still small compared to their South American equivalents, lhey are i. ar acceleraed process of growhul. T O imnprove tue access of tuhe poor to tuhe workling place an.d reduce the high social and environmental costs of the current transport systems, investment in a mass transit system should 'ue considered. Suci system should have the following cnmatristics: (i) inureasud speed; (ii) decreased congestion; (iii) newer, cleaner, safer, and better maintained buses; (iv) increased traffic safety; (v) strict enforcement of routes and designated stops; and (vi) a cnange in citizen culture. The BogotA Transmilenio transport system is a good example of a new and efficient mass transit system with the characteristics listed above, and thus it is worth looking at closely. 29 RT1RI .1 RAP-fTV Alcaldfa del Municivio del Distrito Central (AMDC). 1999. "Hacia la Superaci6n de las Condiciones de Vulnerabilidad de Tegucigalpa: Marco de Referencia", AMDC, Tegucigalpa. AMHON. 1997. Ley de Municipalidadesy su Reglamento, Guardabarranco Editorial y Litografia, Tegucigalpa. ANDA. 2000. "Proyecto de Introducci6n de Agua Potable y Saneamiento Basico en Comunidades del AMSS", ANDA, San Salvador. 1999. "Boletin Estadistico No. 21" Coberturas Urbanas de Acueductos y Alcantarillados, Ano 1999, ANDA, San Salvador. Angel Shlomo. 2000. (for 1DB) "Housing Policy and Housing Programs in Panamna: Diagnosis and Guidelines for Action", New York. Arcadis Euroconsult, Eurolatina. 1998. 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