The first loan, a $108 million Decentralized Infrastructure Reform and Development Loan will be made to BANOBRAS, Mexico's National Bank of Public Works and Services, to finance improvements to roads, water and sanitation services, and to expand access to low-income housing in the state of Guanajuato.

"This project will empower the state of Guanajuato to play a leading role in making infrastructure works and services respond to the needs of our citizens", said Juan Carlos Romero Hicks, Governor of the state of Guanajuato.

The project, which is expected to be completed within five years, will benefit the people of the state of Guanajuato through improved access to basic infrastructure and public services, including:

• Providing the poor with greater access to markets by rehabilitating and improving about 500 km. of secondary roads and expanding the state-managed road network by about 600 km.
• Providing 40,000 beneficiaries with additional water supply coverage, and 60,000 people in rural and urban communities with access to sanitation services.
• Providing 2,000 more families with access to low income housing

The loan also supports a pilot initiative - the first of its kind in the Latin America and Caribbean region - to utilize the country systems and processes of the state of Guanajuato. The pilot follows the Bank's paper, Safeguard Policies: A Framework for Improving Development Effectiveness, which was prepared in October, 2002. The intent of the pilot project is to strengthen the implementation of safeguard policies while promoting country ownership and innovation, and building country capacity.

The state of Guanajuato was nominated as a pilot state because of its legal framework, sustainable fiscal and financial frameworks, and its institutional capacity to uphold environmental and social safeguards. The state has also taken significant measures to increase transparency, including implementing a new law which provides greater access to public information. In addition, the state of Guanajuato has a strong legacy of encouraging participatory approaches towards sector investment plans.

"This project aims to strengthen the state of Guanajuato's capacity by putting the state in the driver's seat, while ensuring compliance with the principles of the Bank's policies, including monitoring and evaluation standards, and complaint processes, which apply in all Bank-financed projects", said Krishna Challa, The World Bank's Task Manager for the project.

The project also follows the Bank's current Country Partnership Strategy for Mexico, which was designed in cooperation with the Mexican authorities, and benefited from the input of diverse members of Mexican civil society groups.

"As outlined in the Bank's current Partnership Strategy for Mexico, capacity building, institutional strengthening, and community participation are essential to improve the effectiveness of the decentralization process in Mexico", said Isabel Guerrero, the World Bank?s Country Director for Mexico.

The $108 million loan from the International Bank of Reconstruction and Development (IBRD) has 18 years to maturity, including a two-year grace period. The total cost of the project is $290.8 million.

Affordable Housing and Urban Poverty

The second operation approved is the $100 million, Affordable Housing and Urban Poverty Sector Adjustment Loan, which will support the Mexican government efforts to improve the living conditions and access to housing of low and moderate-income households nation-wide.

As the first of four expected operations under the program, the loan will support the government's goal of increasing housing production from the current pace of around 500,00 households to some 750,000 per year by 2006. In addition, the program will support joining physical and social initiatives to improve the living environment of 90,000 households per year in the poorest communities.

In particular, the loan will help:

• Develop a sound national policy and institutional framework for housing and urban development;
• Design and put in place a unified housing subsidy policy that facilitates access of low and moderate-income families to housing and leverages household savings and private credit finance;
• Strengthen housing credit and saving systems, as well as real property registries and rights;
• Increase the supply of urban land and access by the poor;
• Coordinate and support physical and social investments to systematically upgrade poor neighborhoods; and
• Better prevent and manage the impacts of natural disasters.

"Mexico's population growth rates have slowed but the formation of new families will double the number of total households by 2030," said Anna Wellenstein, World Bank task manager of the project. "In order to meet demand, Mexico needs to increase access to affordable housing and, by doing so, it will be supporting asset accumulation and improved living conditions for poor and moderate- income families."

The $100 million, fixed-spread loan from the International Bank of Reconstruction and Development (IBRD) will be made to the Finance Ministry. It has 15 years to maturity, including a 5 year grace period.