Decentralization and regional development project
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Mexico; Region: Latin America And Caribbean; Sector: Rural Roads; Major Sector:
                                                    Transportation; ProjectID: P007688


The Mexico Decentralization and Regional Development project, supported by Credit 3310-ME for
US$350 million equivalent, was approved in FY91. The loan was fully disbursed and closed, as
originally agreed, in December 1995. The Implementation Completion Report (ICR) was prepared by the
Latin America and the Caribbean Regional Office. Appendix A is a translation and summary of the
borrower’s report on the project.

    The project aimed to increase the access of poor and indigenous populations in the states of Chiapas,
Guerrero, Hidalgo and Oaxaca to basic infrastructure, social services, markets and technologies. There
were three project components: (i) assisting the states to develop, execute and finance investment
programs with a strong poverty alleviation focus; (ii) helping the federal and state planning and
budgeting ministries to make project selection, environmental assessment and monitoring and evaluation
more efficient, and financing more flexible; and (iii) enabling state institutions and municipalities to
identify, prepare, build, operate and maintain investments in a more participatory way.

     The project was adequately designed and implemented. The overall outcome was satisfactory
because the Municipal Funds Program successfully created a new mechanism for planning and
implemented poverty-targeted rural investments. The project design would have been stronger if there
had been fewer project components and less of a requirement to coordinate implementation with federal
and state agencies. The municipal investment program (US$153 million disbursed) met project objectives
to a much greater extent than the state investment program (US$165 disbursed). School building was the
most successful investment component, costs per subproject being only one-half to two-thirds that of
equivalent federally-contracted works. Water supply, roads and income-generating projects performed
less well because of technical design inadequacies. The project also had an environmental protection
component which made significant steps toward improving the management of the Montes Azules
Reserve based on community participation.

     The Operations Evaluation Department agrees with the ICR in rating the outcome of the project as
satisfactory, sustainability as likely and institutional development as substantial. Similarly, the ICR and
OED rate the performance of the Bank as satisfactory.

    Lessons that can be drawn from this project include: (i) it is feasible for rural communities to manage
their own small-scale development investments; (ii) participatory evaluations, involving different levels of
government and community members, can be done effectively with limited resources; (iii) in designing
participatory programs with diverse investment options, care must be taken to ensure that incentive
structures are adequate. Lessons learned have been incorporated into the design of the Second
Decentralization and Regional Development Project which is now under implementation.

     The ICR is satisfactory, containing a well-documented and thorough account of project
implementation and providing useful cross-references to related projects in Mexico and Brazil. It would
have been helpful to have a fuller explanation of why the subprojects involving income-generating
investments (e.g. agriculture) generally performed less well than those entailing social investments (e.g.
schools). Moreover, the ICR does not include a plan for the future operation of the multitude of
investment projects at the local level, including arrangements for an appropriate system of M&E. Instead,
the corresponding section focuses on the Bank’s future involvement in the sector, beginning with a
follow-on project (Second Decentralization and Regional Development Project).
    This project has much to offer in terms of learning about what is required to make decentralization
work and how to learn from past failure: it is the fourth in a line of five projects that have shared a rural
development rubric, the first three (PIDER I, II, III) being examples of integrated rural development that
were generally rated unsuccessful. In order to fully exploit the lessons that may be learned and to advance
thinking about good and less good practices in rural development, an audit is planned.