Public Disclosure Authorized

Document of
The World Bank

Public Disclosure Authorized

Report No: ICR00002866

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-81870)

ON A
LOAN

Public Disclosure Authorized

IN THE AMOUNT OF US$450 MILLION TO THE

STATE OF MINAS GERAIS
FOR A
THIRD MINAS GERAIS DEVELOPMENT PARTNERSHIP
DEVELOPMENT POLICY LOAN

Public Disclosure Authorized

July 20, 2014

Governance Global Practice

Brazil Country Management Unit
Latin America and the Caribbean

CURRENCY EQUIVALENTS
(Exchange Rate Effective April 25, 2014)
Currency Unit = Brazilian Reais
R$ 1.00 = US$ 0.45
US$ 1.00 = R$ 2.23
FISCAL YEAR
January 1- December 31
ABBREVIATIONS AND ACRONYMS
AFD
CDM
CEMIG
CPS
DPL
GoMG
IEF
IGD-M
M&E
PDO
PPA
PROEB
RBM
RI
RMBH
SEPLAG
SIAFI/MG

Agence Franaise de Dveloppement

Clean Development Mechanism
State Energy Company (Companhia Energtica de Minas Gerais)
Country Partnership Strategy
Development Policy Loan
Government of Minas Gerais
State Institute for Forestry (Instituto Estadual de Florestas)
Index of Decentralized Municipal Management (ndice de Gesto
Descentralizada Municipal)
Monitoring and Evaluation
Program Development Objective
Multi-Year Plan (Plano Plurianual)
Evaluation Program of Public Basic Education Network (Programa de
Avaliao da Rede Pblica de Educao Bsica)
Results-Based Management
Results Indicator
Metropolitan Region of Belo Horizonte (Regio Metropolitana de Belo
Horizonte)
Secretariat of Planning and Management (Secretaria Estadual de
Planejamento e Gesto)
Integrated Financial Management System (Sistema Integrado de
Administrao Financeira)

Vice President:
Country Director:
Senior Practice Director
Practice Manager:
Task Team Leader:
ICR Team Leader:
ICR Primary Author:

Jorge Familiar
Deborah L. Wetzel
Mario Marcel Cullel
Arturo Herrera
Roland Clarke
Fanny Weiner
Chris Parel
i

BRAZIL
Third Minas Gerais Development Partnership Development Policy Loan

CONTENTS

Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Program Performance in ISRs
H. Restructuring

Table of Contents
1. Program Context, Development Objectives and Design ............................................ 1
2. Key Factors Affecting Implementation and Outcomes .............................................. 8
3. Assessment of Outcomes .......................................................................................... 10
4. Assessment of Risk to Development Outcome ......................................................... 17
5. Assessment of Bank and Borrower Performance ..................................................... 18
6. Lessons Learned........................................................................................................ 20
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 21
Annex 1. Bank Lending and Implementation Support/Supervision Processes............. 22
Annex 2. Beneficiary Survey Results ........................................................................... 23
Annex 3. Stakeholder Workshop Report and Results................................................... 23
Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 24
Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 25
Annex 6. Citizen Engagement in Policy Priorization: The Estado em Rede experience
....................................................................................................................................... 26
Annex 7. Forest Plantation Policy: Limitations to State intervention .......................... 32
MAP .............................................................................................................................. 36

ii

A. Basic Information
Country:

Brazil

Program Name:

Third Minas Gerais

Development
Partnership DPL

Program ID:

P121590

L/C/TF Number(s):

IBRD-81870

ICR Date:

04/24/2014

ICR Type:

Core ICR

Lending Instrument:

DPL

Borrower:

THE STATE OF
MINAS GERAIS
BRAZIL

Original Total
Commitment:

US$ 450.00M

Disbursed Amount:

US$ 450.00M

Revised Amount:

US$ 450.00M

Implementing Agencies: State Secretariat of Planning and Management (Secretaria Estadual do

Planejamento e Gesto - SEPLAG
Cofinanciers and Other External Partners: Agence Franaise de Dveloppement

B. Key Dates
Process

Date

Process

Concept Review:

08/04/2011

Effectiveness:

Appraisal:

03/29/2012

Restructuring(s):

Approval:

07/26/2012

Mid-term Review:
Closing:

Original Date

Revised / Actual
Date(s)

12/13/2012

12/10/2012

01/31/2014

01/31/2014

C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes:

Satisfactory

Risk to Development Outcome:

Low or Negligible

Bank Performance:

Satisfactory

Borrower Performance:

Highly Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank
Ratings
Borrower
Quality at Entry:
Moderately Satisfactory Government:

Ratings
Highly Satisfactory

Quality of Supervision:

Satisfactory

Implementing
Agency/Agencies:

Highly Satisfactory

Overall Bank
Performance:

Satisfactory

Overall Borrower
Performance:

Highly Satisfactory

iii

C.3 Quality at Entry and Implementation Performance Indicators

Implementation
QAG Assessments
Indicators
Performance
(if any)

Rating:

Potential Problem Program

No
at any time (Yes/No):

Quality at Entry
(QEA):

Problem Program at any

time (Yes/No):

No

Quality of
None
Supervision (QSA):

DO rating before
Closing/Inactive status:

Highly Satisfactory

None

D. Sector and Theme Codes

Original

Actual

Sector Code (as % of total Bank financing)

General education sector

15

15

General energy sector

10

10

General industry and trade sector

10

10

Other social services

15

15

Sub-national government administration

50

50

Theme Code (as % of total Bank financing)

Education for all

10

10

Environmental policies and institutions

20

20

Managing for development results

20

20

Public expenditure, financial management and

procurement

30

30

Social safety nets

20

20

E. Bank Staff
Positions

At ICR

At Approval

Vice President:

Jorge Familiar

Hasan A. Tuluy

Country Director:

Deborah L. Wetzel

Deborah L. Wetzel

Practice Manager:

Arturo Herrera Gutierrez

Arturo Herrera Gutierrez

Program Team Leader:

Roland N. Clarke

Roland N. Clarke

ICR Team Leader:

Fanny Weiner

ICR Primary Author:

Chris Parel

iv

F. Results Framework Analysis

Program Development Objectives (from Project Appraisal Document)
Assist the Government of Minas Gerais to deepen its innovative management model and
strengthen its budget management and sectoral policy management in the areas of social
inclusion, environmental management and metropolitan governance.
Revised Program Development Objectives (if any, as approved by original approving
authority) N/A
(a) PDO Indicator(s)
Indicator

Formally
Actual Value
Original Target
Revised
Achieved at
Baseline Value
Values (from
Target
Completion or
approval documents)
Values
Target Years
Share of Strategic Projects with an execution rate above 85%

Indicator 1:
Value (quantitative or
61.00%
63.00%
88.77%
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/30/2013
Comments
Overachieved
(incl. % achievement)
Percentage of budget items with contracts greater than the annual budget
Indicator 2:
allocation
Value
(quantitative or
16.12%
8.06%
1.45%
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/29/2013
Comments (incl. %
Overachieved
achievement)
Percentage share of government programs and projects for which
screening and evaluation procedures are operational (value amount as
Indicator 3:
share of total PPA)
Value
(quantitative or
0.79%
9.12%
6.24%
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/29/2013
Underachieved. A pilot application of the screening and evaluation
procedures to priority on-going programs indicated that the methodology
was unsuited for these and the methodology changed to evaluate
Comments
(incl. % achievement) Investment Projects with values above R$10 million. 76 percent of these
projects were evaluated, showing considerable improvement in that
particular area of focus.
Level of citizen participation in the identification of regional priorities.
Indicator 4 :
Five strategic
Five strategic priorities
priorities
identified for each of
Value
identified for
the five additional
No additional
(quantitative or
each of the
regions of the state
regions identified.
Qualitative)
regions of the
with the participation
state - North and of civil society.

Rio Doce - with

the participation
of civil society
Date achieved
06/25/2012
01/31/2014
12/29/2013
Underachieved. The participatory model developed was launched in two
pilot regions, however, due to the lack of capacity and training of civil
society in these regions, participation was very passive. The Government
thus decided to not expand the model to all ten regions as the pilot regions
Comments
did not achieve the results initially expected. Nevertheless, the Regional
(incl. % achievement)
Committees comprised of Government representatives with some civil
society participation, eventually played a bigger role than initially
expected in integrating civil society in the planning process and were kept
in all ten regions.
Percentage share of Municipalities receiving co-financing from the State
Indicator 5 :
for the delivery of social services
Value
(quantitative or
25.00
70.00
100.00
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Overachieved
(incl. % achievement)
Number of municipalities with IGD-M below 0.55 (register validation and
Indicator 6 :
quality)
Value (quantitative or
90 municipalities 45 municipalities
11 municipalities
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Overachieved
(incl. % achievement)
Backlog of education personnel records modification (informativos de
Indicator 7 :
alterao) to be included in SISAP-MG
Value
91,917
178 remaining to be
(quantitative or
modifications to 18,383
included
Qualitative)
be included
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Overachieved
(incl. % achievement)
Share of students reaching adequate learning levels or higher on the
Indicator 8 :
annual PROEB exam
Portuguese: 5th Portuguese: 5th year Portuguese: 5th year
year - 42.1%; 9th 46.5%; 9th year 45.9%; 9th year
year - 33.7%;
36.3%; 12th year 40.5%; 12th year
Value
12th year - 29.7% 37.5%
36.3%%
(quantitative or
Math: 5th year - Math: 5th year Math: 5th year
Qualitative)
57%; 9th year - 61.5%; 9th year 59.7%; 9th year
21.2%; 12th year 25.8%; 12th year 22.9%; 12th year
- 3.7%
5.5%
3.85%.
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Underachieved. The targets were excessively ambitious, in the short

vi

(incl. % achievement) term, given the teachers strike in 2011, and because previous reforms had
already raised the level of education to among the best in the country.
Share of irregular business undertakings monitored after being identified
through the Special Inspection Operations to ensure mitigation measures
Indicator 9 :
are implemented
Value
(quantitative or
0.00
100.00
100.00
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/30/2013
Comments
Achieved. Out of the four irregular business undertakings identified
(incl. % achievement) through the Special Inspection Operations all of them were monitored.
Hectares of forest plantation to serve as raw input for charcoal production
Indicator 10 :
Value
(quantitative or
94.325 hectares 108.474 hectares
62.227 hectares
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/30/2013
Underachieved. The new phase of the Kyoto Protocol made Brazil
ineligible for CDM payments removed all incentives from the
Comments
Government program (for unforeseeable reasons external to the
(incl. % achievement)
Government), although initial indications are that the target would have
been met if the CDM had continued.
Holding of regular meetings of the Territorial Management Commission
Indicator 11 :
(CGT) of the RMBH
Value
19 meetings held in
At least one every 60
(quantitative or
0
2013, one every 2
days
Qualitative)
weeks
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Overachieved
(incl. % achievement)
Average time, in days for the analysis of requests of prior approval for
Indicator 12 :
land parceling in RMBH.
Value
(quantitative or
27.52 days
23 days
10.45 days
Qualitative)
Date achieved
06/25/2012
01/31/2014
12/31/2013
Comments
Overachieved
(incl. % achievement)

G. Ratings of Program Performance in ISRs

No.

Date ISR
Archived

DO

IP

1
2
3

11/12/2012
03/20/2013
12/09/2013

Satisfactory
Highly Satisfactory
Highly Satisfactory

Satisfactory
Highly Satisfactory
Highly Satisfactory

H. Restructuring (if any): Not Applicable

vii

Actual
Disbursements
(US$ millions)
0.00
448.88
448.88

1. Program Context, Development Objectives and Design

1.1 Context at Appraisal
1.
Minas Gerais is often referred to as a microcosm of Brazil. Its income level is
close to Brazils national average (ranked 10th out of 27 states in 2012), it has a very poor
Northeastern region not different from the semi-arid northeastern serto, and is home to a
dynamic industrial area. Minas Gerais also has Brazils second largest population (19.5
million, representing 10 percent of Brazils total) and the economy is the third largest
after So Paulo and Rio de Janeiro, and about the size of Peru. Between 2003 and 2012
Minas Gerais grew at an average rate of 4.5 percent, slightly above Brazils 4.4 percent.
Nonetheless, the States economy remains vulnerable to the country and the worlds
growth dynamics.
2.
From 2003 Minas Gerais has had an unparalleled record of public sector
reform and sustained engagement with the Bank. The administration elected in 2003
inherited a bankrupt state with large levels of debt, poor management and no investment.
Consequently, the Government launched the results based management reform program,
Choque de Gesto (Management Shock). It also addressed the dire fiscal situation by
imposing fiscal discipline and constraining expenditures while rigorously defining
priority programs. Within the new management framework secretaries were held
accountable for meeting agreed performance indicators. In the ensuing decade the
government successfully dealt with States indebtedness and fiscal constraints while
improving public service delivery and significantly reducing poverty.
3.
The Bank has supported the Government of Minas since 2006 through the
Minas Gerais Partnership Series. The first operation under the partnership series was
the 2006, US$170 million Minas Gerais Partnership for Development DPL (P088543). 1
It was followed by the 2008 Minas Gerais Partnership II SWAp (P101324), a US$976
million multi-sectoral project that was supplemented in 2010 by an Additional Financing
(P119215) of US$461 million. The series was followed by this current operation in 2012.
The Bank also played an important technical assistance role collaborating frequently in
the fine-tuning of the Choque de Gesto and on sector programs.
Minas Gerais Partnership for
Development DPL (2006)
Choque de Gesto Management Shock (20032006) - stressing fiscal
balance

Minas Gerais Partnership II

SWAp (2008) + Additional
Financing (2010)
Estado para Resultados - State
for Results (2007-2010) stressing efficiency and results

Third Minas Gerais

Development Partnership DPL
(2012)
Estado em Rede Management for
Citizenship (2011-2014) stressing citizen
participation

4.
The Choque de Gesto was based upon priority programs and performance
indicators to manage them. As the system evolved these targets were negotiated with
sector secretariats that became accountable for delivering program results. By the time of
1

Owing to its compliance with the Federal Governments (Fiscal Reform Law) debt limit rules, 2006 was
the first year the State was allowed to borrow.

the SWAp, reforms had entered into a second phase - the Estado para Resultados (State for
Results). In this phase, indicators were negotiated at the departmental level, with rewards
and penalties linked to the achievement of goals. A special unit was established in the
Secretariat of Planning (SEPLAG) to coordinate the elaboration of annual programs and
monitor, evaluate and report results. By 2012, the Government strategy had evolved to a
focus on citizen participation, called Estado em Rede (Management for Citizenship) with
the aim of consolidating previous phases, increasing efficiency and building a permanent
constituency through citizen participation while ensuring the models sustainability,
through devolution of performance management to individual secretariats. It was organized
across eleven thematic networks representing eleven key challenges to be overcome.
5.
The Choque de Gesto and its subsequent phases have grown to impact every
facet of State economic and administrative management. All Partnership Series
operations provided cross-sectorial support to public sector management and the results
based framework. Minas Gerais success, starting with the Choque de Gesto, was
critical in managing the States economic recovery as well as improving service delivery.
In effect, it transformed Minas from a bankrupt and poorly managed under-performer to a
fiscally responsible state, featuring an innovative management model. It is considered to
be a gold standard of public sector management in Brazil and worldwide.
6.
From 2004 to 2008 Minas Gerais consolidated the fiscal adjustment efforts
initiated in 2003, significantly improving revenue and operating balances, increasing
investments and reducing debt (see Table 1). Not only was it able to borrow after 2006
but by 2008 the State was in a much stronger position to withstand the deep global and
domestic recession and fiscal challenges resulting from significant drops in state revenues
and federal transfers.
Table 1: Financial Results 2004-2011 (R$ billion2011 constant values)
Parameter
2004
2008
2011
Revenues
33.2
50.1
55.3
Expenses
28.6
39.8
45.7
Gross Operating Balance
2.5
6.4
4.7
-% of NCR
15.2
21.6
12.6
Net Current Revenue (NCR)
16.7
29.2
37.3
Primary Balance
2.3
3.7
2.7
-% of NCR
13.8
12.7
7.3
Non-Financial Investment/NCR
9.5
15.0
8.9
Debt/NCR
224.5
175.4
181.8
Source: Third Minas Gerais Partnership DPL PD, p. 14

7.
The rate of extreme poverty in the State was reduced from 7.8 percent in 2003
to 3.3 percent in 2011. As part of a continuous effort to further reduce this rate, the
Federal Government launched large programs to confront extreme poverty and to
empower states to do likewise. Minas Gerais has incorporated poverty mitigation through
the creation of the Programa Travessia, to identify the poorest communities and
rationalize social protection program support across secretariats. The State also had
strengthened the statewide social assistance services and supported a new social safety
net funding program (Piso Mineiro de Assistncia Social) complementing federal and
municipal efforts.

8.
At time of preparation of the operation, the Government of Minas Gerais
(GoMG) had an appropriate fiscal framework, including its expenditure program
and its fiscal relations with the Federal Government. Nevertheless, care was required
in managing investment owing to projected growth of expenditure exceeding growth of
revenue over the medium term and the downside risk that, despite major efforts, revenue
might fall short of expectations. Of particular concern on the expenditure side was the
medium term increase in the wage bill driven by teachers and public security.
9.
The Banks debt sustainability diagnostic concluded that under any plausible
set of external conditions the debt and fiscal dynamics were sustainable and
consistent with the Federal Governments Fiscal Responsibility Law (Lei de
Responsabilidade Fiscal LRF). However, diagnosis of the amortization profile
confirmed a spike in 2035 amortization owing to debt owed to the State Energy Company
(Companhia Energtica de Minas Gerais S.A - CEMIG). Indexed to the IGP-DI price
index (ndice Geral de Preos Disponibilidade Interna), the CEMIG debt was also the
most expensive owed by the State and posed a potential future threat to sustainability.
Rationale for Bank Involvement
10. Consolidation of Reforms and creating fiscal space. The DPL offered the
opportunity to support the consolidation of important reforms addressed in previous
Partnership Series loans. The consolidation required fiscal space for investment to further
strengthen the reforms; at the same time, the GoMG made the decision to anticipate
future debt payment to avoid unfavorable financing conditions of the existing CEMIG
debt, which could have affected the States fiscal situation in the future.
11. Leveraging the States successful results-based management model as an
example for other states. The aim of this operation was to maintain the support for the
reforms being carried out by the GoMG, and to develop solutions to enhance public
sector performance and service delivery issues which can be used by other states and
countries. Since 2006, the Bank has been committed to supporting the evolution of this
innovative results based management model. Through its Partnership Series, the World
Bank had become a major stakeholder in successfully implementing the Choque de
Gesto. The success of the public sector reforms in Minas Gerais proved to be an
important model with continuing and useful demonstration effects for Brazilian states and
other countries confronting similar development problems.
12. Building upon the CPS. The DPL aligned well with the Brazil Country
Partnership Strategy (CPS) for 2012-2015 2. The DPL policy measures addressed four
CPS pillars: (i) increasing the efficiency of public and private sector investments; (ii)
improving the quality of public services for low income households; (iii) promoting
regional economic development; and (iv) improving sustainable natural resource
management and climate resilience. 3

Country Partnership Strategy 2012-2015 (Report No. 63731-BR) discussed by the Executive Directors on
November 1, 2011.
3
Although not mentioned in the PD, the DPL was also well-aligned with the Middle Income Countries
Strategy, which emphasized knowledge services, financial services, flexibility and sub-national focus.

13. Strengthening long run financial sustainability. The GoMG recognized that the
terms of payment of the CEMIG debt presented a threat to future fiscal sustainability and
had negotiated a refinancing arrangement including a cash discount of 35 percent on the
current debt face value, if this were to be repaid immediately. This arrangement required
resources of about US$2 billion, but would reduce the debt face value as well as decrease
the real cost of service, thus increasing fiscal space for investment or providing an
additional margin to deal with any external shocks.
14. Leveraging external finance. The initial request from the State to the Bank was
for a loan of about US$ 2 billion. While the Bank could not supply this volume of
resources on its own, it worked with the State to develop alternative innovative financing
solutions. During the preparation of the loan operation, the Bank Treasury provided
advice and guidance on the possible structure of a refinancing operation, and explored
various options including guarantees of private sector loans. The solution developed in the
end involved a parallel financing operation with the Agence Franaise de Dveloppement
(AFD) and Credit Suisse to refinance the CEMIG debt. AFD provided a 300 million loan
based on a program closely coordinated with the World Bank operation, while Credit
Suisse lent US$1.3 billion. The refinancing package was one of the first times since the
institution of the Fiscal Responsibility Law that a subnational government in Brazil was
able to borrow from an external private sector lender without the guarantee of a multilateral
or bilateral development agency. In this sense it was an important innovation facilitated by
the World Bank operation, and represented a return to market financing for the State of
Minas Gerais, providing an example for other well managed and reforming states in Brazil.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as
approved)
15. The PDO was to assist the Government of Minas Gerais to deepen its innovative
management model and strengthen its budget management and sectoral policy
management in the areas of social inclusion, environmental management and
metropolitan governance.
Table 2: Policy Area Objectives and Key Outcome Indicators
Policy Areas and Objectives
Key Outcome Indicators
Policy Area 1: Strengthening Public Sector and Budgetary Management
Increased robustness and
Increased share of strategic programs with execution rate above
sustainability of RBM Model
85% (target 63%)
50% reduction in the number of budget items with contract
Increased predictability and
commitments above annual budget allocation
control of budget execution
Evaluation procedures extended from 0.79% to 9.12% of
Government programs
Five additional Notebooks of regional priorities published,
Increased citizen participation in
identifying regional priorities for additional five regions of the State
identification of regional priorities
produced through formal consultation procedures
Policy Area 2. Promoting Social Inclusion
Reduce poverty in the most
Percentage share of municipalities receiving co-financing from the
disadvantaged areas so as to
State for the delivery of social services (Social Assistance Floor of
reduce exclusion and regional
Minas Gerais program) increased from 25% to 70%
inequalities
Reduction of 50% in number of municipalities with IGD-M score
below 0.55
Strengthen the management of
Increase the share of students reaching adequate learning levels or

quality of education

higher on the annual PROEB examPortuguese and math

80% Reduction in the backlog of education personal records
modifications to be included in Personal Records System of Minas
Gerais (SIAP-MG)
Policy Area 3: Increasing Environmental Sustainability
Strengthen the quality of
100% of irregular business undertakings monitored after being
environmental management
identified through a Special Inspection Operation to ensure
mitigation measures are implemented.
At least 108,474 hectares of new forest plantations for charcoal
production are established
Policy Area 4: Developing a Metropolitan Governance Framework
Strengthen governance of the
Regular meetings (at least one every 60 days) of Territorial
Metropolitan Region of Belo
Management Commission (CGT) for Belo Horizonte Metropolitan
Horizonte (RMBH) improving
Area are held
coordination of state and
Reduce the average time from 27.5 to 23 days for the analysis of
municipal public policies.
requests of prior approval for land parceling in RMBH.

1.3 Revised PDO and Key Indicators, and Reasons/Justification

N/A
1.4 Original Policy Areas Supported by the Program
11. This operation comprised four Policy Areas: (i) Strengthening Public Sector and
Budget Management; (ii) Promoting Social Inclusion; (iii) Increasing Environmental
Sustainability; and (iv) Developing a Metropolitan Governance Framework. In addition,
it included a cross cutting theme of improved fiscal sustainability and increased fiscal
space through leveraging external financing for the refinancing of the CEMIG debt.
Policy Area 1: Strengthening Public Sector and Budget Management
12. The Governments objective under this policy area was to deepen its innovative
management model, strengthen its budget management and promote greater citizen
participation in the definition of regional priorities. While previous reform phases had a
strong center of government bias, being highly dependent on the roles of the Secretariats
of Finance and Planning, the leading role exerted from the center of government on the
implementation of sector policies began to be seen as counterproductive in the long run.
Moreover, a key weakness of the model was the fact that it could easily be dismantled from
the center by a future administration, for instance with the setting of easier targets or
loosening of controls.
13. To increase the robustness and sustainability of the Results-based
Management Model, the GoMG shifted responsibilities to line secretariats. Under
this phase of the reform supported by this DPL, the public management systems were
moved away from a model where power was centralized in the State for Results Unit
(Unidade Estado para Resultados) and the Planning and Finance Secretariats, to one
where authority is embedded in line secretariats operation units, thereby enhancing
ownership of service delivery teams. This was achieved by establishing 22 Strategic
Management and Innovation Units (AGEIs) within line secretariats transferring the
monitoring of sector policies, definition of targets and responses to problems to line
secretariats.
5

14. At the same time, the State took an important step in improving predictability
and control of budget execution to ensure that investment projects were cost effective
and sustainable in the medium term. This required, inter alia, assuring that: (i) projects
were adequately reviewed and included reasonable assumptions; (ii) data on contractual
commitments were available to avoid unforeseen payments requiring short term budget
adjustments; and (iii) budgeted funds were used for their intended purpose. The
introduction of new procedures for budget execution planning and evaluation of investments
consequently was supported under the DPL. A major policy reform and advance was the
migration to a new integrated financial system, which improved the level of data exchange
within the system and facilitated the introduction of the new accounting regulations.
15. In order to enhance budget allocation efficiency, a methodology for screening
and evaluation of investment projects was developed and formally launched in 2011.
The first step in mainstreaming the system was supported in this DPL. The policy reform
ensured that all projects exceeding roughly US$2 million co-financed through voluntary
transfers from the Federal Government were subjected to rigorous prior review, in order
to ensure that they could be implemented as planned and would not result in an undue use
of State resources (both financial and administrative) for implementation.
16. Finally, the budget reform included the States pilot for expanding citizen
participation. The reform contemplated empowering citizens, especially in poorer
regions, to participate in the selection of development priorities. As part of the Estado em
Rede program, it was intended to increase understanding of and support for results-based
management while refining priorities and upgrading implementation by involving local
governments and civil society in priority settings.
Policy Area 2: Promoting Social Inclusion
17. The GoMG has been very successful in its efforts to eradicate extreme poverty,
reducing the incidence from 8 percent in 2005 to 3 percent in 2009. Nevertheless,
about 6 percent of the rural population was living in extreme poverty in 2009 and there
was a large variance in extreme poverty rates across the 853 municipalities. Once the
Governments Choque de Gesto results-based management model was firmly in place,
the State increasingly focused on reducing poverty and regional inequities. This was
intended to be achieved through programs focusing resources in the most deprived areas.
18. The first policy action included a co-financing structure to support the
provision of social services at the municipal level. To that end, the Social Safety Net
Piso Mineiro de Assistncia Social was established. The Piso Mineiro increased resource
transfers to poor municipalities through state co-financing of services and benefits which
complemented federal and municipal funding. The calculation of the transfer was based
on the number of registered families in the Federal Governments Single Registry of
Beneficiaries, the Cadnico, which currently constitutes a keystone of several social
programs in the country.
19. A second policy reform was directed at collecting data on and increasing
knowledge of the conditions in the poor municipalities, identifying causes, effects
and instruments to mitigate poverty. This was implemented through the Door-toDoor program Programa Travessia, which supports the municipalities with the
6

preparation of poverty or Deprivation Maps. These maps show key vulnerabilities,

identifying poor families yet to be included in the Cadnico, and provide support in the
definition of social programs to address the municipalitys key social needs.
20. A third intervention focused on improving management in public schools
throughout the State by adopting merit-based selection for regional school
superintendents and directors. While not explicitly targeting poorer municipalities, it
supported social inclusion because wealthier students tend to opt out of the public school
system in favor of private schools. Hence, the public schools serve virtually all of the
States poor and near-poor student population.
Policy Area 3: Increasing Environmental Sustainability
21. Minas Gerais is among Brazils largest states, with enormous natural
resources and important biomes. Owing to the workload and difficulties of
coordination involved in issuing environmental licenses, there was insufficient follow-up
on inspection and mitigation. Hence, the State reformed the organization, roles and
responsibilities of its environmental agencies to integrate environmental management
functions in the administration so that regulatory and oversight actions occurred in a
more systematic and coordinated manner.
22. One of the States critical environmental challenges is deforestation to produce
charcoal, the energy source for many of the States 62 pig iron mills. Minas Gerais
produces 60 percent of Brazils iron and steel and most of the charcoal has come from
illegal deforestation of the Cerrado biome. The State approved legislation requiring that
by 2018 at least 95 percent of charcoal consumed should originate from managed
plantations in order to encourage forest plantation within the States territory. A key
Government objective was to create incentives and conditions for planned forestation and
to define the financial and technical mechanisms to promote tree plantations under strict
environmental sustainability parameters for all sizes on rural landholdings. In addition, it
intended to lay out the process to develop a programmatic Clean Development
Mechanism (CDM) under the Kyoto Protocol, with the aim to increase attractiveness of
the plantations and provide key initial resources to the farmers (See also Annex 7).
Policy Area 4: Developing a Metropolitan Governance Framework
23. The development and eventual implementation of an urban master plan is
part of a long process that was, at the time of the loan preparation, unique in Brazil
and in Latin America. In 2004 an amendment to the State Constitution was approved,
allowing for the creation of metropolitan regions to improve planning and development.
Additional legislation passed between 2006 and 2009 introduced institutional
arrangements for governing the Metropolitan Region of Belo Horizonte (RMBH). The
RMBH has about 5.5 million inhabitants, making it the third largest metropolitan area in
the country after So Paulo and Rio de Janeiro, and is an industrial powerhouse. The
objective was to promote effective policy coordination among different state and
municipal government stakeholders that are coordinated in the Consultative Council of
Metropolitan Development (Conselho Deliberativo de Desenvolvimento) in the RMBH,
and which is entrusted with the preparation and adoption of the Integrated Development
Master Plan. This strategic plan presented guidelines and proposals on public policies and
7

investments that guide regional development. The Plan was focused on urban areas where
poverty and social vulnerability are concentrated through a combination of structural
investments and coordinated measures of social development, environmental quality,
generation of jobs, and delivery of local public services.
Fiscal sustainability and external financing
24. The Bank team worked very closely with the Agence Franaise de
Dveloppement (AFD), which prepared a parallel financing of 300 million to support
the reduction of social and regional inequalities in the State of Minas Gerais. The AFD
operation also had a budget support format and was based on the GoMGs strategy to
broaden the coverage of basic infrastructure and housing in the poorest regions of the
State. The AFD operation supported the refinancing of the States debt with CEMIG.
Although AFDs mandate does not include the support for broad reforms of public
administration, the agency recognized the advances made by the GoMG with the support
of the World Bank and the importance of the current reform program. As a result, the
approval of the AFD operation was conditional on the approval of the World Bank
operation. In addition to the 300 million loan with 20 year maturity from AFD, Credit
Suisse, chosen in a competitive process with other private banks, provided US$1.3 billion
with 15 year maturity and 5 year grace period to refinance the CEMIG debt.
1.5 Revised Policy Areas
N/A
1.6 Other significant changes
N/A
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
25. All required policy actions were satisfied in a timely manner, with no delays in
effectiveness or disbursement. The Prior Actions have significantly advanced the States
development agenda and have resulted in significant impact, as described below. While
some of the indicators, specifically the ones on citizen participation and commercial tree
planting have been missed, many outcomes were achieved and valuable lessons were
learned. Indeed the State responded pro-actively to the missed indicators and used them
as an opportunity to learn and adapt policy interventions.
2.2 Major Factors Affecting Implementation
26. Government commitment. Minas Gerais was and continues to be fully committed
to the continuous reforms carried out since the Choque de Gesto. The Prior Actions and
Results Indicators came from the States development agenda; hence the strong
ownership and the fact that the operation was deeply embedded into the Government
program strongly facilitated the implementation. Perhaps the most important evidence of
commitment was the fact that the Government had been progressing systematically in its
reform agenda, and thus had a long track record of implementation of reforms.

27. Political and Institutional Risk. In the particular case of the implementation of the
citizen participation model, the risk identified during preparation materialized and
resulted in the non-expansion of the participatory model to all regions of the State.
Despite strong political support, the implementation process and the necessary
adjustments that the model seemed to require could not be achieved within the time of the
implementation, but require a longer time period. However, valuable lessons learned for
the design of citizen participation were obtained and the Government continues adjusting
its approach on how to better involve citizens (See Annex 6).
28. Operation design. This DPL was anchored in the Governments current phase of
the reform (Estado em Rede) and based on progress initiated by previous Partnership
Series operations. The four DPL policy areas were highly relevant and well reflected in
the PDO, and aligned with the Governments development agenda and the Banks CPS.
The choice of a DPL was appropriate as disbursement to the treasury single account
relieved fiscal pressure. Support of selected policy areas furthermore allowed the
consolidation of previous reform efforts.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
29. Design. The choice of a DPL covering multiple sectors and supporting various
priority policy areas of the GoMG not only reflected the Governments commitment, but
also backed inter-governmental coordination and the consolidation of previous multi-sector
approaches. However, the original design of the results framework was weak and was not
able to capture all of the progress made with the supported policy reforms (see Section 3.2).
30. Implementation. The Secretariat of Planning and Management (Secretaria do
Planejamento e Gesto - SEPLAG) had overall responsibility for M&E, reporting progress
and coordinating actions with other involved secretariats. As in the case of the other
Partnership Series operations, the management of M&E and liaison with the Bank was
carried out by the unit (Gesto Estratgica dos Recursos e Aes do Estado - GERAES)
that focuses on day-to-day implementation of the Governments strategic program.
SEPLAG led the actions under Policy Area 1; the Secretariats of Social Development
(Secretaria de Estado de Trabalho e Desenvolvimento Social - SEDESE) and Education
(Secretaria Estadual de Educao - SEE) were jointly responsible for implementation of
reforms under Policy Area 2. Policy Area 3 was the responsibility of the State Secretariat
for Environment and Sustainable Development (Secretaria de Estado de Meio Ambiente e
Desenvolvimento Sustentvel - SEMAD) and the State Institute for Forest (Instituto
Estadual Florestal - IEF). Finally, the Secretariat for Metropolitan Governance (Secretaria
de Gesto Metropolitana - SEGEM) and the Development Agency of the Metropolitan
Region of Belo Horizonte (Agncia de Desenvolvimento da Regio Metropolitana de Belo
Horizonte - ARMBH) were responsible for Policy Area 4. As in previous Partnership
Series operations, the monitoring of Results Indicators was carried out satisfactorily by the
client, and collaboration and communication with the Bank continued to be very good.
Consequently, the Bank was aware that some 2013 indicators were at risk (owing to design
and not M&E problems) and the State provided detailed explanations. One of the particular
strengths of monitoring and evaluation (and indeed overall implementation) was the high
degree of coordination across secretariats through SEPLAG, which is also evidence of the
efficacy of the management model adopted over the past decade.
9

31. M&E Systems. Finally, this DPL and its M&E design significantly supported the
strengthening of the States already well-articulated M&E framework, i.e. through the
adoption of the SIAFI/MG budget model, and the prior review of investment projects.
2.4 Expected Next Phase/Follow-up Operation (if any)
32. This operation, in conjunction with the Minas Gerais SWAp, created a rich venue
for continued collaboration in the Partnership Series. This longstanding relationship
between the State of Minas Gerais and the Bank is likely to continue in the future, as it is
an important factor in the continuous consolidation of the States reform process. The
State has already expressed interest in a follow up operation to support the development
of the Belo Horizonte Metropolitan Area.

3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
33. The operation was developed based on the States development agenda and
was aligned with the Brazil Country Partnership Strategy. The DPL policy measures
address four CPS pillars: (i) increasing the efficiency of public and private sector
investments; (ii) improving the quality of public services for low income households; (iii)
promoting regional economic development; and (iv) improving sustainable natural
resource management and climate resilience. The design and objectives were and remain
highly relevant for Brazil and for Minas Gerais. This operation was the third in the Minas
Gerais Partnership Series and has supported the continuation and consolidation of the
Government reform program.
34. The Results Indicators were generally relevant. Nevertheless, some of the
Results Indicators could have benefitted from narrower and more operational definitions
given the long chain of causality between public sector reforms and sector specific
service delivery. For example, on Prior Action 7, while over the medium to long term it
would be reasonable to expect improved management has a direct impact on educational
outcomes, it would be difficult to attribute the achievement (or non-achievement) of the
results indicator to an improved selection process of school managers in the short time
frame of the project. The result indicator for Prior Action 10, the number of times the
Conselho Deliberativo de Desenvolvimento held meetings, should be considered an
intermediate result (i.e. the policy is actively being implemented) but cannot measure the
final desired outcome, which would include better social and economic development
indicators for the RMBH in future years. Furthermore, as one of the rationales of the
operation even though not specifically mentioned in the PDO was to re-finance the
debt with CEMIG and to improve the States debt sustainability, the project design would
have benefitted from an indicator reflecting this.
3.2 Achievement of Program Development Objectives
35. The PDO was to assist the Government of Minas Gerais to deepen its innovative
management model and strengthen budget management and sector policy management in
the areas of social inclusion, environmental management and metropolitan governance.
Policy Area 1 supported the deepening of the innovative management model and
10

strengthened budget management, while the other Policy Areas supported the respective
sector policies. The results achieved under each Policy Area are described below.
Policy Area 1 Strengthening public sector and budgetary management
36. This policy area aimed at strengthening the RBM organizational structure,
systems and processes. Hence the first Prior Action decentralized RBM functions by
establishing 22 Strategic Management & Innovation Units in the line secretariats. This
decentralization of monitoring in turn promoted further institutionalization of strategic
management and built capacity throughout the administrative apparatus and ultimately
improved execution capacity. In line with this, the linked Results Indicator (RI), as targeted
(improvements in the execution rates of priority projects -above an 85 percent rating), was
overachieved, reaching 88.8 percent of priority projects relative to a baseline of 61 percent.
37. The second and third Prior Actions targeted the introduction of systemic and
process reforms through upgrading the SIAFI/MG integrated budget model and
completing rigorous prior-reviews of larger investment projects. The introduction of
SIAFI/MG allows for monitoring of commitments relative to the planned budget, direct
action with the line ministries to ensure compatibility between commitments and budgetary
planning, and expansion of the budgetary management for new contracts before the
procurement processes. Ultimately, the new procurement portal can block purchase requests
that have estimated values beyond the budgetary credit available. Overall, this system
improved the predictability and control of budget execution, which was reflected in a
decrease in the percentage of budget items with contracts greater than the annual budget
allocations from 16.12 percent to 14.5 percent, exceeding the original target of 8.45 percent.
38. The rigorous prior-reviews of investment projects required the previous
evaluation of costs and impacts for projects with values above R$5 million. In 2012, 18
convnios were evaluated, and in 2013 the value was raised by decree to R$10 million,
changing the focus of the evaluation portfolio to Investment Projects and Associated
Projects. An entire methodology for evaluation of the projects was developed and this
process is now systematized and institutionalized. The Results Indicator that targeted
increasing the (value) share of projects for which screening and evaluation had been
performed was underachieved. Approximately 6.2 percent of the total PPA projects were
evaluated relative to a target of 9.12 percent. However, 76 percent of the Investment
Projects with values above R$10 million were evaluated, showing considerable
improvement in that particular area of focus. Moreover the methodology of prior-review is
now well established in the State.
39. The final Prior Action targeted broader civil society participation in
identifying priorities, particularly with a regional focus. The participatory model
developed was launched in two pilot regions where regional meetings and forums were
established, facilitated and closely monitored. However, due to the lack of capacity and
training of civil society in these regions, the participation was very passive (see Annex 6).
The Government then decided not to expand the model to all ten regions as the pilot
regions did not achieve the results initially expected. Nevertheless, the Regional Committees
comprised of Government representatives with some civil society participation, eventually
played a bigger role than initially expected in integrating civil society in the planning
11

process and were kept in all ten regions. Furthermore, the State undertook an evaluation
of the programs results and reasons for the unexpected outcomes and showed great effort
in trying to understand why the participatory model did not work as expected and how to
improve it (see Annex 6 for a summary of the Governments evaluation).
40. Citizen participation is also embedded through local consultations as part of
the federal governments Multi-Year Plan (Plano Plurianual-PPA). The fact that the
participatory model did not reach the results expected is somewhat mitigated by the fact
that the federal governments PPA process requires local consultations in devising annual
budgets and the State, through its RBM system and deconcentration, continues to identify
and vet priorities. Furthermore, the Regional Committees still maintain an element of
citizen participation, even though not as formal and structured as initially planned with
the Regional Forums.
41. Overall, Policy Area 1 achieved two of the three Results Indicators and the
actual outcomes achieved far exceed the results represented by the indicators. The
GoMG went to great lengths into the decentralization of the management model, the
institutionalization of better budgetary controls, and increase in citizen participation. While
not all of the reforms achieved the expected level of success, as was the case for the citizen
participation, this resulted in important lessons learned and opportunities to improve future
efforts in this area. Indeed the process of learning by doing or feeling the stones to cross
the river has been one of the hallmarks of the Minas reform process, whereby successful
experiments are adopted and less successful ones are adapted or dropped.
Policy Area 2 - Promoting Social Inclusion
42. In Policy Area 2, the main objective was broadly to strengthen management of
social protection and education services, and increase their supply for the poor through
increase in resources diagnostics, funding and service delivery. It was recognized that a
major challenge was the uneven management capacity across municipalities, which
undermined the implementation of social inclusion programs at the municipal level. To
strengthen and improve the coordination amongst the various government-level programs
for income transfer, productive inclusion and provision of public services, the GoMG took
measures for co-financing of social services provided by the municipalities and
improvement in the identification of poor families entitled to receive assistance from
federal, state and municipal social programs. The Piso Mineiro provided supplementary
flexible resources needed by municipalities to finance services and benefits to the most
vulnerable and at risk local populations in municipalities based upon the number of poor
families registered in the Cadnico.
43. Related to that, along the period of this operation, there was an increase in the
number of municipalities receiving state transfers. In fact, all 853 municipalities of
Minas Gerais were granted the Piso Mineiro by 2013, ahead of the 2014 schedule. Also,
municipalities of Minas Gerais significantly improved their IGD-M 4 scores. There was a
4

The IGD-M was created to fund the identification and monitoring of the most vulnerable families by
municipalities. It measures the quality of municipal management of Bolsa Famlia Program (PBF) and
Cadnico and, based upon performance, ensures monthly federal transfer of funds to municipalities. To
receive the resources of the IGD-M, the municipality must score minimum index of 0.55.

12

reduction of more than 85 percent in the number of municipalities which IGD-M scored
less than 0.55. The overall increase in the IGD-M scores for municipalities, and their
compliance with federal social safety net guidelines, eventually yielded higher federal
transfers to municipalities. Hence, results indicators 5 and 6 were exceeded, and there was
supposedly an increased availability of funding from both federal and state level social
programs to municipalities in Minas Gerais.
44. The Prior Action regarding the amendment of the Programa Travessia to
increase diagnostics studies in poor municipalities had no associated Results
Indicator. However, the State has produced more than 140 Social Deprivation Maps
based on the UNDP methodology. Accordingly, they portray the multidimensional
aspects of poverty that go beyond economic variables and include health, education,
living conditions, and provide a fundamental tool for planning and designing adequate
government programs to address the needs of the most vulnerable.
45. The Prior Action for the education sector (the introduction of merit based
selection of regional officials and school directors) was particularly important. It is
linked to the specific objective of strengthening the management and quality of education
according to the rationale that ensuring higher standards in the education system
management shall improve overall efficiency and thus have a positive impact on students
in lower-income neighborhoods and poorer-performing schools. The RIs associated with
this Prior Action refer to the expected short-term stronger managerial performance by the
recently selected cadre, measured in terms of the increase in education personnel with
updated records in the human resource system, and the longer-term impact on the
performance of student learning levels. As such, there was a 99,8 percent reduction in the
backlog of education personnel records in the Human Resources System (Sistema
Eletrnico de Administrao de Pessoal do Estado de Minas Gerais SISAP-MG), i.e.
from a backlog of records to be addressed and input of nearly 92,000 the remaining stock
was only 178. This represents an overachievement of the original target.
46. The final RI, namely improved PROEB school testing results in Math and
Portuguese, however, was not fully met. All three grades tested in Math and Portuguese
exceeded the 2011 PROEB test scores. Nonetheless, the baseline was set as 2010 given
the timing for preparation of the project. The rigid baseline and challenging targets were
not altered and did not compensate for the longest strike of teachers in the States history
(112 days), from June to September 2011. Yet the impact of the strike undoubtedly
affected performance of schools in the next two years. In addition, as previously stated,
the period for monitoring and evaluation of the operation, was clearly too short to assess
the impact of the managerial reform. While good school directors are known to be an
essential input of learning performance this could not measurably affect improvement in
test scores in two to three years, especially with such a disruption in teaching activities.
47. This notwithstanding, there are mitigating circumstances pertinent to the
evaluation of education performance. A mitigating factor is that Minas Gerais was
starting from a high level relative to other states owing to numerous reforms implemented
over the past decade. In 2011 the State scored first in Portuguese and Math in percentage
of students performing at the recommended level in the 5th and 9th grades of basic
education and the 3rd year middle school in math, while ranking 4th in Portuguese. Also in
terms of Index for Basic Education Development (ndice de Desenvolvimento da Educao
13

Bsica IDEB) test scores the early and later years of basic education and middle school
ranked first, second and third respectively. Hence, the shortfall on the test score indicator is
not representative of continuing recent progress in the education sector in Minas Gerais.
Policy Area 3 - Increasing environmental sustainability
48. The goal of this policy area was to increase state capacity for managing
environmental challenges. On the institutional side, responsibilities and business processes
on environmental licensing were integrated to ensure better collaboration and more efficient
environmental regulatory system. Through the reorganization of the Secretariat of
Environment and Sustainable Development (Secretaria Estadual de Meio Ambiente e
Desenvolvimento Sustentvel SEMAD) two new Sub-Secretariats were created: the SubSecretaria for Management and Regularization (Subsecretaria de Gesto e Regularizao
Ambiental Integrada SGRAI) and the Sub-Secretariat for Control and Inspection
(Subsecretaria de Controle e Fiscalizao Ambiental Integrada SUCFIS). Both SubSecretariats work through decentralized regional offices, yet with an integrated centralized
oversight. As a result of the integration and the use of synergies, work flows and
communication were improved, and the Government was able to significantly increase
controls of compliance with environmental regulations.
49. Special emphasis was given to the detection of non-compliance with
environmental regulations. During 2012 and 2013, Special Oversight Operations
(Operaes Especiais de Fiscalizao) including aerial mapping of remote forest areas to
detect illegal deforestation, and extensive testing on water quality to reveal clandestine
disposal of waste waters found four cases of non-compliance with environmental regulations.
All of these irregular business undertakings were then closely monitored to assure
improvements of the previous situation and compliance with the regulations.
50. Another action undertaken in this Policy Area was the adoption of measures to
encourage forest plantation to supply raw input to State metallurgy industries. The
intention was to diminish the harvesting of native forest for charcoal production and to
stimulate commercial tree planting carried out by the private sector and entrepreneurs,
which had been declining since 2009. While it was intended to increase the hectares of
planted forest, the number actually decreased by about 35 percent during the time of the
project. The Government action was also linked to Brazils participation in the Clean
Development Mechanism (CDM) under the Kyoto Protocol, which was expected to finance
new tree plantations.
51. However, the new phase of the Protocol unexpectedly declared high-middle
income countries, including Brazil, ineligible for the financing scheme. When the
CDM payments were discontinued, there was no other mechanism that could have
substituted the absence of those payments. Additionally, private sector incentives were
further diluted by the recession and a decrease in demand for raw input for charcoal
production resulting in a 50 percent decrease of the plantation area for new trees from
about 200,000 hectare in 2008 to 100,000 hectare in 2012 The Government could have
launched its own incentive program, but due to the decreased demand and a potential
time lag for such a program to show results, it would most likely not have been cost
effective. It can be assumed that if those two external factors (CDM mechanism and
14

economic conditions) had continued, the commercial tree planting would have increased
by up to 50 percent. Annex 7 describes in detail the background and lessons learned,
including the proposed policies going forward.
52. It should also be underlined that the State undertook several actions to
diminish the harvesting of native forest for charcoal production. For example, the
State has recently passed laws and regulations requiring 95 percent of raw wood
materials to be supplied from cultivated forests. It has eliminated the import of natural
forest products from other states to ensure that their forests are not cut to supply local
charcoal needs. Each pig iron or steel mill is required to develop annual plans for
sustainable supply of wood and charcoal. The State intends to implement these laws
including reviewing wood sourcing plans, the use of border crossing point freight
inspections and satellites to verify planted areas. These laws are integrated into a broadreaching, multi-faceted environmental framework that will contribute to ending the
harvesting of pristine forests for charcoal. 5
Policy Area 4 - Developing a metropolitan governance framework
53. The key outcome associated with Policy Area 4 was to strengthen governance
of the RMBH to enable the coordination of State and Municipal public policies.
Accordingly, the respective Prior Action required that the RMBH Metropolitan Authority
adopt an integrated regional development master plan. This approach, which was also
supported through the Minas Gerais SWAp operation, established the guidelines and
orientation on public policies and investments for promoting the development of the
region, aiming at improving the quality of life of the RMBHs population.
54. The state achieved both Results Indicators which targeted more rapid land
parceling procedures and regular agency meetings. The RI requiring regular
Commission meetings was intended to ensure that a key new metropolitan agency was
operational and performing its important intersectoral and intergovernmental
coordinating functions. The Commission was supposed to meet every two months and
exceeded this target with one meeting every 15 days, suggesting that it was very actively
carrying out its functions. The reduction in the average time for the analysis of requests
of prior approval for land parceling in the RMBH also overachieved the original target.
Previously it would take 27.5 days to obtain the prior approval as compared to the latest
record of 10.5 days. These improvements will become increasingly important as the
Metropolitan Master Plan is implemented and generate urban investment projects.

State laws and regulations include, the Codigo Florestal Mineiro 2013, Plano de Auto Suprimento,
Decreto Plano de Preveno e Combate ao Desmatamento no bioma Mata Atlntica, Lei sobre a Politica
de Mudana do Clima, apoio a ABC, Copa Verde, Projeto Certifica Minas-Florestas, Projeto ndice de
Atratividade ao Investimento Florestal--and the update of the original plan "Incentivo a Aquisio e Plantio
de Florestas de Produo de Base Sustentvel"linked to the Programa Estruturador da SEAPA
(Secretariat of Agriculture).

15

3.3 Justification of Overall Outcome Rating

Rating: Satisfactory
55. The overall outcome of the PDO was achieved. The outcome of the project is
rated satisfactory as the operations objectives as expressed by the PDO of deepening
Minas Gerais innovative management model and strengthening budget management and
sector policy management was achieved. As described in the previous section, the States
reforms of its management model were consolidated, and it is now firmly integrated in
the institutional structure of the administration. Sector policy management underwent
important regulatory and institutional reforms, with important results achieved in the
areas of social inclusion, environmental management and metropolitan governance. Even
though the citizen participation model did not fully achieve the outcomes expected, the
Government took actions and assessed the shortcomings of the initial model and took
initial steps to adapt it. Some result indicators were not fully under the Governments
control, as for example in the case of new forest plantation for charcoal production,
which resulted in not all result indicators being fully achieved. However, this
shortcoming was less related to State performance than to indicator selection and did not
negatively influence the overall outcome of the project.
56. On the contrary, when the Government noticed that some of the policies did
not generate the desired results, it took actions to adjust those shortfalls.
Assessments were carried out and alternatives were developed to adapt the lagging
policies. Even more, the lessons learned from those experiences (i.e. from the citizen
pilots and commercial tree planting) were rapidly incorporated into further improvements
of sector policies and approaches. This process of adaptation has been a central element
of the management reform since it began a decade ago.
3.4 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
57. This DPL moved the Partnership Series significantly in the direction of
addressing poverty by including a Promoting Social Inclusion Policy Area. It
addressed poverty through two Prior Actions: (i) implementation of the Piso Mineiro
program resulting in transfers to poor municipalities, and (ii) amendment of the
Programa Travessia to allow for a more targeted study of impoverished areas. As a
result, all of Minas Gerais 853 municipalities were granted transfer through the Piso
Mineiro, and the number of municipalities with IGD-M below 0.55 was reduced
drastically, from 90 to 11.
58. Poverty aspects were addressed through action in the education sector. Poverty
issues were also indirectly addressed under the Social Inclusion Policy Area with a Prior
Action requiring merit based selection of state regional school superintendents and school
directors followed up by Results Indicators requiring improved learning performance and
personnel record-keeping. In the long run this is probably one of the most important
poverty oriented measures because the poor and near poor students usually attend public

16

schools, and improving the quality of education is one of the most effective mechanisms of
increasing the capital of the poor.
(b) Institutional Change/Strengthening
59. The Third Partnership Series DPL, as a continuation of the Partnership Series
with Minas Gerais, was first and foremost designed to refine, strengthen and build
support for the Choque de Gesto model. Policy Area 1 (Strengthening public sector
and budgetary management) deepened the management model through the establishment
of 22 Strategic Management and Innovation units, adopting the SIAFI/MG integrated
budget system, and requiring rigorous prior review of infrastructure projects over R$5
million. Those actions resulted in improved budget planning and execution. The
reorganization of the Secretariat of Environment and Sustainable Development under Policy
Area 2 resulted in improved work flows and communication, and the Government was able
to significantly increase controls of compliance with environmental regulations. Policy Area
3 (Developing a metropolitan governance framework) introduced important institutional
changes, which established the guidelines and orientation on public policies and
investments for promoting the development of the region and fostered intersectoral and
intergovernmental level coordination.
(c) Other Unintended Outcomes and Impacts (positive or negative, if any)
60. Further steps to adjust solutions for citizen participation are being
undertaken. The major unintended outcome is that the State has undertaken further steps
to analyze and develop solutions to address the failure to achieve some Results Indicators
and their respective development impact. The difficulties encountered in enrolling local
participants in meaningful development agenda discussions once Regional Committees had
been established is an example for this. The Government has evaluated and analyzed the
issues of how to address non-compliance of the regional committees, how civil society
can/should be approached and what it has to offer, and the opportunities and limits of
participatory development approaches. Annex 6 provides a summary of the Governments
conclusions, lessons learned and suggested new approaches.
61. Similarly, the State is evaluating why PROEB test score targets were not met.
Finally, a paper analyzing the shortfall in tree plantation hectarage has been addressed in a
Government Memorandum (see Annex 7 for a summary). While the State had the intention
to eliminate the harvest of native forest for charcoal, the implementation mechanisms
chosen are being reconsidered.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
N/A
4. Assessment of Risk to Development Outcome
Rating: Low
62. The risk to the achieved outcome of deepening Minas Gerais management
model is considered to be low for a number of reasons. First, the model is now
17

embedded in the States institutional structure and its processes, and has reached a mature
status of integration and implementation. This is strengthened by a wide support of
technical staff as graduates from the State School of Government and others recruited
into the government are firmly schooled and committed to the model. Furthermore, it fits
seamlessly into federal budget legal requirements to consult, prioritize programs and
incorporate indicators. Finally, the models success has been widely recognized and
generally acclaimed state-wide, nationally and internationally and has become a source of
pride of the GoMG and its public servants.
63. The Choque de Gesto and follow-up reforms were launched and supported by
the highest level of government. With elections scheduled in October 2014 there is the
possibility of a change in policy priorities which could move away from the previous
reform process and/or diminish the Minas Gerais management model. However, a more
likely outcome is that if policy priorities changed, the model, which is by now well
entrenched, would be used to implement these changes. Conversely, it is expected that the
next administration will follow its predecessors priorities and continue with the reform
processes.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: Moderately Satisfactory
64. This operation was designed within the overarching context of the Development
Partnership Series .The strategy to deepen and expand the reach of previous reforms was
a rational progression agreed by the Government and the Bank and provided the basis for
the design of this operation. This was a very timely operation, properly conceived with
reasonable Prior Actions, objectives and desired outcomes selected within the overarching
context of the Minas Gerais Development Partnership Series.
65. The one area where greater care should have been exercised is the results
framework and specifically the coverage and definition of Results Indicators. Some
had technical design flaws, such as the government not controlling the results, tenuous
links between Prior Actions and Results Indicators, and multiple causal chains. As a
result, the link between the results framework and the PDO had shortcomings with
several indicators not directly measuring the desired PDO outcome.
(b) Quality of Supervision
Rating: Satisfactory
66. Supervision was given close attention because of the loan size and its importance
as a Partnership Series operation. The long-standing collaboration and close relations
between State officials and Bank staff facilitated the supervision. The Bank was able to
exploit synergies since the SWAp and this operation overlapped in terms of implementation
18

time and sector coverage, resulting in regular communication and supervision of the
operation. In addition to formal supervision missions the Bank team was in continual
contact with the State, to advice on issues and problems as they developed.
(c) Justification of Rating for Overall Bank Performance
Rating: Satisfactory
67. Overall Bank performance is rated satisfactory as the overall project design and
implementation support contributed to the desired outcome of the operation, which
facilitated the continuous and enhanced collaboration with the State of Minas Gerais.
5.2 Borrower Performance
(a) Government Performance
Rating: Highly Satisfactory
68. The Government was fully committed to this operation. The Government of
Minas Gerais was and remains fully committed to the continuous reform process supported
under this and previous Bank operations in the Minas Gerais Development Partnership
Series. It is noteworthy that this operation also had the full support of the Governor, Vice
Governor and senior officials who have spearheaded past operations of the Partnership
Series. The involvement of stakeholders such as the civil society was addressed in a
specific component and high priority was given to this policy area.
69. High technical and institutional capacity facilitated the implementation. The
high technical capacity of the government staff, intergovernmental coordination and
implementation mechanisms embedded in the Governments existing M&E framework
facilitated an efficient implementation process and timely and technically sound
resolution of arising implementation issues, for example, the adaption of the pilot
methodology for citizen participation.
70. Many of the Prior Actions and Results Indicators are part of the States
development agenda, enjoyed high ownership and political support, and the Government
mostly overachieved the indicators that it controlled. When the design flaws of some
indicators were recognized, the Government took mitigating measures, drew lessons learned
and has demonstrated its seriousness in addressing these issues and is doing due diligence.
(b) Implementing Agency or Agencies Performance
Rating: Highly Satisfactory
71. All secretariats involved were highly committed to the implementation of this
operation, and communication and coordination during preparation and implementation
was excellent. The implementing agencies have done an excellent job of implementing
this operation, including the use of their internal M&E system for follow-up and early
recognition of potential implementation issues, which then were addressed immediately.
19

Furthermore, the liaison with and providing information to Bank counterparts was timely
and of high quality.
(c) Justification of Rating for Overall Borrower Performance
Rating: Highly Satisfactory
72. The very positive outcomes of this operation are mainly due to the strong
government commitment to the reform process, the technical capacity of the
government staff and the continuous effective and efficient collaboration with the Bank
team. Hence, following the criteria suggested under the ICR methodology, which focuses
on the government and implementing agencies commitment, ownership and provision of
an enabling environment, overall Borrower performance is rated Highly Satisfactory.
6. Lessons Learned
73. Results-based Management models cannot be implemented in isolation. While
evidence seems to suggest that there is a particularly positive impact of results
agreements on service delivery outcomes 6, the adoption of the model has not been done
in isolation. Fiscal reforms are an important condition to the successful adoption of RBM.
In Minas Gerais, the fiscal rationalization was a key objective of the first phase of the
reform. The combination of institutional context and interventions, known as
performance regime, is what really drives performance for specific services.
74. Reform processes require a long-term commitment and relationship. As in the
case of the Results-based Management reform in Minas Gerais, the process evolved over
time, it must be adapted and refined. Minas Gerais is a microcosm of Brazil and
previously the State was poorly managed and displayed many of the chronic problems
found elsewhere in badly managed states in Brazil and in other countries. The Choque de
Gesto approach transformed the State and made it easier for future Governments to
implement their priorities. There are important lessons to be learned from Minas Gerais
experience that will doubtless be of use to other governments. However, the experience
of Minas Gerais indicates that there is no unique template of processes and institutions
for a successful management model. The iterative application of the system led to
considerable adjustments. Supporting a client with a strong program over an extended
period has shown to be successful. The decade-long collaboration with Minas Gerais
through the Partnership Series of loans created the possibility for continued collaboration,
which benefited both the GoMG and the Bank. The strong relationship can be said to
have contributed significantly to the success of the reform process.
75. Replication to other States. Numerous countries, Brazilian states and large
domestic municipalities have visited the State to learn about the Choque de Gesto, and
to draw lessons on how to implement similar reforms in other places. The challenge for
the Bank is how to disseminate the case of Minas Gerais more broadly and on how to
effectively replicate this experience elsewhere.

See Review and Research Agenda on Results-Based Management in Brazilian States (2013)

20

76. Reforms need sustained champions. One of the main factors of the success of the
Choque de Gesto was the dedication of an incoming administration with a team of
highly trained, dedicated professionals and a mission to implant results-based
management. It is perhaps worth looking more closely at this dynamic to understand the
importance of champions and how the Minas Gerais experience might be replicated.
77. Cooperation with other public and private institutions to provide innovative
financing arrangements. This DPL is a good example of successful cooperation and
combined efforts with other development institutions (AFD) and private actors (Credit
Suisse). In particular, it is noteworthy that the Bank program with GoMG conveyed
reassurance to leverage the partnership with AFD, and ultimately the involvement of the
three institutions provided the State with the financial and technical resources it needed to
solve the CEMIG debt and to improve the States debt sustainability.
78. Identifying results indicators for reforms is a challenge. Great care must be
taken with the technical definition of Results Indicators and subsequent supervision.
Despite this DPL having been designed by experienced Bank and State officials, the
Results Indicators had various technical flaws, some causality chains were tenuous and not
all Prior Actions had indicators.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/Implementing agencies
79. The Borrower provided the Bank with their comments on the ICR (See Annex 4).
The majority of the comments referred to revisions or further explanations on indicators
and is addressed below. Small editorial comments were also addressed.
80. Updated information on Indicator 8 (Share of students reaching adequate learning
levels or higher on the annual PROEB exam) was provided by the Borrower; however,
indicator still was underachieved. The necessary sections were updated accordingly.
81. As for Indicator 9 (Share of irregular business undertakings monitored after being
identified through the Special Inspection Operations to ensure mitigation measures are
implemented), the Borrower emphasized that as documented in the Aide Memoire from
the January 2013 mission, it was agreed to monitor two irregular business undertakings in
2013, in addition to two other that were already monitored during the previous year.
Overall, 100 percent of the four irregular business undertakings identified through the
Special Inspection Operations defined at the beginning of 2014 were monitored,
achieving the target.
(b) Cofinanciers N/A
(c) Other partners and stakeholders N/A

21

Annex 1. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members
Names
Lending
Gianfranco Bertozzi
Roland N. Clarke
Joseph Kizito Mubiru
Tarsila Ortenzio Velloso
Pablo Fajnzylber
Rafael Barroso
Fanny Weiner
Miguel Navarro
Leandro Costa
Anna Fruttero
Tiago Peixoto
Barbara Farinelli
Augusto Mendona
Alberto Costa
Rogerio Santarosa
Jos Manuel Rodrguez
Alessandra Campanaro
Flavia Nahmias
Tatianna Schlottfeldt
Patricia Mendez
Rocio Manrique

Title

Unit

Senior Financial Officer

Lead Economist and Sector Lead
Sr Financial Management Specialist
Consultant
Sector Manager
Economist
Public Sector Management Specialist
Lead Financial Officer
ET Consultant
Senior Economist
Governance Specialist
Operations Analyst
Consultant
Senior Social Development Specialist
ET Consultant
Senior Public Sector Specialist
Senior Infrastructure Specialist
Program Assistant
Program Assistant
Executive Assistant
Program Assistant

FABBK
LCSPR
LCSFM
LCSPR
PREM
LCSPE
LCSPS
FABBK
LCSHE
LCSHS
WBIOG
LCSAR
LCSSD
LCSSO
LCSPP
LCSPS
LCSDU
ECRBX
LCSPS
LCSPR
LCSPS

Lead Environmental Specialist

Lead Education Economist
Lead Economist and Sector Lead
Public Sector Management Specialist
Economist
Voice Secondee
Junior Professional Associate
E T Temporary
E T Temporary

EASCS
LCSHE
LCSPR
LCSPS
LCSPS
LCSPS
LCSPS
LCSPS
LCSPS

Supervision/ICR
Garo Batmanian
Barbara Bruns
Roland N. Clarke
Fanny Weiner
Laura de Castro Zoratto
Ludmila Vidigal Silva
Ana Mie Horigoshi Reis
Angela Nieves Marques Porto
Brianna Rojas-Elton

(b) Staff Time and Cost

Stage
Lending
Total:
Supervision/ICR
Total:

Staff Time and Cost (Bank Budget Only)

US$ Thousands (including
No. of staff weeks
travel and consultant costs)
53
367
53
367
14
91
14
91

22

Annex 2. Beneficiary Survey Results

N/A

Annex 3. Stakeholder Workshop Report and Results

N/A

23

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR

The task team received the following comments on the draft ICR:
(i)

On Indicator 2: the Borrower pointed that the Indicator was misrepresented in

the ICR as 14.5 percent, instead of 1.45 percent. Considering the corrected
number the indicators was overachieved.

(ii)

On indicator 8: the Borrower provided updated data with respect to the share of
students reaching adequate learning levels or higher on the annual PROEB
exam.

(iii) On Indicator 9 the Borrower had the following comment:

Inicialmente, foram planejadas 10 Operaes. Entretanto, conforme apontada
na Ajuda a Memria da Misso de Janeiro de 2013: para o ano de 2013 sero
fiscalizadas e acompanhadas 2 (duas) operaes especiais, de acordo com o
Planejamento Operacional. Destaca-se que estas 2 (duas) so adicionais s
outras 2 (duas) que j esto sendo monitoradas, a saber: Serra da Moeda e
Suinocultura. As metodologias de monitoramento ps fiscalizao sero
desenvolvidas para cada uma dessas 2 (duas) Operaes Especiais a partir do
planejamento especfico da operao. As quatro operaes estipuladas no
incio do ano foram realizadas, ao final do mesmo.
(iv) On Section 3.2 Achievement of Program Development Objectives: the
Borrower noted that a revision was necessary, considering the revised indicator
referent to Policy Area 1:
Conforme demonstrado acima, o indicador teve meta atingida.

24

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders

N/A

25

Annex 6. Citizen Engagement in Policy Priorization: The Estado em Rede

experience 7
The set of planning and management strategies adopted by the Government of
Minas Gerais since 2003 and known as Management Shock (Choque de Gesto) can be
divided in three distinct phases. The first phase (2003-2006) focused on fiscal balance;
the second phase (2007-2010) focused on creating a goal-oriented system, with results
agreements and awards for performance; and the final and third phase, particularly
tackled under this operation, focused on Management for Citizenship (Gesto para a
cidadania).
The concept of Management for Citizenship, and more specifically of the Estado
em Rede program, proposed the restructuring of the alignment of state structures through
the following: (i) the use of transverse and intersectoral networks; the horizontalization
and flexibilization of organizational structures; (ii) the development of new forms of
participation of the organized civil society; (iii) the regionalization of public policy
strategies and goals; and (iv) the improvement of management information systems.
The programs design was based on two pillars: Regionalized Management,
which aimed to bring the strategy of the State Government closer to the specific needs
and characteristics of each region; and Participatory Management, where the government
presents its strategies and actions and asks for suggestions and opinions of representatives
of the organized civil society on the priorities of each region. These two pillars would
complement each other in supporting the Government to provide a more regionalized
view of the government strategies and goals, increasing the adequacy of the execution of
public policies in all of the states regions and contributing to the reduction of existing
inequalities. Overall, the program aimed to identify priorities within the strategies, based
on regional peculiarities and in partnership with society, therefore allowing for the
creation of mechanisms for monitoring the implementation of the strategies.
The Estado em Rede Program (as originally envisioned)
The program was originally composed of a very complex structure that comprised
three governmental bodies and several instances of meetings between government and
civil society representatives. For a series of reasons, including the lack of political buy-in
and preparation for civil society preparation, the program was not fully successful. While
it can be said that the Regionalized Management pillar had good results and succeeded
in improving according to lessons learned during implementation, the Participatory
Management pillar did not achieve the expected results and the program was not
expanded beyond the two initial pilots. Nevertheless, the experience improved the

Based on report prepared by the Government of Minas Gerais, Gesto Regionalizada e Gesto
Participativa: Avaliao da implantao do projeto piloto.

26

governments understanding of the difficulties associated with the citizen participation

process and many lessons were learned that can be used in future experiences.
I. Regionalized Management
In order to carry out the objectives of this pillar, three governmental bodies were
created: the Regional Committees (Comits Regionais), a Multi-sectoral Council
(Conselho Multissetorial), and a Strategic Committee (Comit Estratgico).
Regional Committees (Comits Regionais)
The Regional Committees were composed of representatives from all the
secretariats and public entities whose internal structures are organized by region, as well
as other secretariats that have an active participation in specific regions. The State
Secretariat of Planning and Management (SEPLAG) is responsible for the technical
coordination of the Committees and other strategic actors, often Third Sector
organizations, may be invited to join the Committees, due to their specific qualifications
and expertise.
Those committees were formed for ten regions and their mandate included: (i) the
dissemination of sectoral government information; (ii) the promotion of coordination
between representatives of government entities in the regions; (iii) discussion and
proposal of solutions to cross-cutting problems; (iv) supporting technical cooperation in
the monitoring of the government strategy; (v) identification of regional priorities for
implementation of the government strategy, and (vi) proposing goals for the achievement
of outlined regional strategies.
Meetings of the Regional Committees occur periodically, in key cities of the
regions, with the purpose of presenting the public policy strategies and discussing them in
a regional and intersectoral context. The topics for discussion are organized into three
Integrated Development Networks (Redes de Desenvolvimento Integrado): Education and
Human Development, Identity and Social Development and Protection; Infrastructure,
Cities, Sustainable Economic Development and Rural Development; Security and Health.
Performance indicators are also presented and discussed in each network group.
During the initial meetings of the Regional Committees, a socio-economic
diagnosis of the region was presented as a starting-point for informed discussion. The
diagnosis provides information from different areas, so that regional managers may have
a territorial, temporal and multi-sectoral perspective of the locality in which they operate.
Based on the diagnosis presented, regional managers are able to think beyond the
challenges of their specific area and see the region as a whole, and are thus encouraged to
discuss the challenges facing the region and the strategies that should be prioritized in
order to overcome them. This dynamic allows for the identification and discussion of new
indicators, which are then added to the regional diagnosis.

27

Multi-sectoral Council (Conselho Multissetorial)

The Multi-sectoral Council is a collegiate body composed of deputy secretaries of
all the State Secretariats to: (i) discuss and find solutions to problems that have been
identified; (ii) request and gather information pertaining to regional demands; (iii) ensure
strategic alignment of regional development entities; (iv) generate and disseminate
regional data and information for the Regional Committees and the general public, and
(v) filter and define the demands to be presented to the Strategic Committee.
Strategic Committee (Comit Estratgico)
The Governor and all of the State Secretaries compose the Strategic Committee,
which meets sporadically in order to define the governments strategy and its regional
impact; deliberate on regional demands, and revise the strategy based on information
presented by the Multi-sectoral Council.
II. Participatory Management
Regional Meetings
The Regional Meetings were meant to be a first step in the process of social
participation at the state level in terms of government strategy. In those meetings the
Regional Committee and representatives of the civil society would meet with the goal to
present and discuss the government strategy in the various networks, and allow
participants the opportunity to identify priorities among the long-term government
strategies in accordance with the specificities of the region.
More specifically, the objectives of the Regional Meetings were to: (i) contribute
to the strengthening of the concept of network governance, emphasizing regionalization
and citizen participation in the state; (ii) promote, qualify and strengthen the participation
of civil society in the direction of long-term public policies, and (iii) form the Regional
Forum as a way to permanently integrate regional government representatives and
organized civil society.
In order to ensure their participation in the Regional Meetings a mapping of all
civil society organizations in the region was undertaken. Invitations were sent to all the
organizations, with an attached registration form so as to allow for the registration of
those in remote areas with no access to the Internet. Leaders of organizations were
mobilized to ensure broad involvement of society. The Regional Meetings had an average
participation of 200 organizations in each region.
Working groups were formed during the Regional Meetings based on the three
Integrated Development Networks (Education and Human Development, Identity and
Social Development and Protection; Infrastructure, Cities, Sustainable Economic
28

Development and Rural Development; Security and Health). The working groups
discussed a section of the State Integrated Development Plan (Plano Mineiro de
Desenvolvimento Integrado PMDI), focusing on the main goal, objectives and
strategies.
The expected outcomes of the working groups, which were formed of
representatives from civil society organizations, members of public administration
entities, and representatives of the Regional Committees, were the prioritization of
strategies related to their networks and the election of a representative to be sworn in as a
member of the Regional Forum.
Regional Forum
The representatives of civil society organizations elected in the working groups
during the Regional meetings are tasked with monitoring the implementation of the
identified priorities in the region, along with representatives of the Regional Committees,
in the Regional Forum. The intention is for the Regional Forums, composed of regional
representatives of both the government and civil society, to define and monitor the major
strategic priorities laid out in the government strategy. By the end of the pilot, a set of
regional priorities will have been compiled and included in the Results Agreement.
The Estado em Rede Program (implementation)
III. Successes and failures during implementation
The Estado em Rede program was piloted in two regions of the State: Rio Doce and Norte
de Minas. The intention was to expand it to another five regions within the timespan of
the Project and that was included as a results indicator of the Project. However, many
unforeseen difficulties were identified, and the expansion was not carried out.
The Regional Committees provided a productive environment for discussion and
collaboration and have produced satisfactory results. Not only did the committees
succeed in encouraging the dialogue between different sectors interested in the same
themes within government, but the space for strategic actors participation opened space
for civil society participation even if not in such a structured manner as predicted by the
Regional Forums. One good example of regional solution that was developed from one of
the committees was the Dia do Cidado Rural. The Committee identified that in the
Northwest of Minas Gerais 80 percent of the population is rural 8 and most people were
simply not aware of many of the services provided by the state government. In order to
tackle this, the four largest municipalities in the area jointly organized an event that
consists of bringing services that are normally provided by the state closer to the citizens.
The event was funded with resources from local associations, municipal governments, etc.
8

According to their own criteria which takes into account the work situation, instead of
the living situation, as the national statistics consider.
29

and succeeded in attracting approximately 2,000 families in its first version. Since its
launch, four Dias do Cidado Rural were held.
On the other hand, the Regional Meetings and Forums, in which civil society
participation was formally included, did not achieve the results expected. The expectation
was that the civil society representatives selected would function as leaders and spread
the information discussed in the Forum to the other civil society organizations. However,
this capillarity was not achieved and the passive behavior of civil society participants
during the Forums didnt allow for more productive discussions. One possible
explanation is that there was great heterogeneity between the elected representatives and
they might have needed further training and capacitation. Many of the representatives had
very humble backgrounds and were not aware of most of governments services and
programs and when those were presented there were no criticisms to be made.
After the experience with the two pilots the government chose to refrain from
expanding the Participatory Management pillar and decided to focus on the Regional
Management. While the limited capillarity of the proposed system and the passivity of
civil society representatives are challenges to be reckoned, small changes could have
been made to the program in order to fine-tune it to achieve better results. The lack of a
strong buy-in of the process by the high management level in addition to the fact that
2014 is an election year hindered further efforts on the Participatory Management pillar.
IV. Lessons Learned
The state of Minas Gerais has been in the forefront in Brazil in promoting
deconcentration of authority and decentralization of resources. The Gesto em Rede
Program was an ambitious plan to improve intra-government governance and to reach out
to and incorporate civil society in the process of definition of governmental strategies and
priorities. While not all envisioned goals were achieved, particularly on the Participatory
Management pillar, great strides were made on the Regional Management pillar and
important lessons were learned for both Minas Gerais and other Brazilian states to take
into consideration when implementing similar programs in the future.
Firstly, a strong buy-in of the high management level is needed for such a program
to succeed. While the technical team was strong and made great efforts to advance the
participatory model, it is a difficult task and many adjustments would need to be made to
fine-tune the model. Strong political support would allow time for the technical team to
test different solutions before discarding the model.
Secondly, a greater initial investment in social mobilization and a more robust
communication plan could have contributed to a better outcome. The level of
participation expected from the civil society representatives proved to be incompatible
with their level of knowledge and preparation for the task. An initial investment in social
mobilization and a greater communication plan could be part of the solution for the
passivity problem observed.

30

Thirdly, there is a lesson to be learned from the difficulty within government to

tackle inter-sectoral issues. As public policies become increasingly more complex and
encompass several sectors simultaneously, sectors need to work together to find better
solutions. In order to tackle this, different strategies can be used, from a continuous and
comprehensive sensitization process to the adoption of different management routines
that encourage knowledge-sharing.
V. Conclusion
The third phase of the Choque de Gesto promoted deconcentration, institutional
collaboration, and intersectoral work as a way to find local solutions to regional problems.
The Estado em Rede project thus proposed a new management model that fostered
creating decentralized networks and making better use of local knowledge to identify
regional solutions. While the Regional Management pillar achieved great results in
improving intra-government governance, the Participatory Management pillar did not
fully succeed in integrating civil society in the decision governments strategy and
priorities. Nevertheless, some level of civil society participation was achieved indirectly
through the first pillar, and many lessons were learned for future efforts in that direction.

31

Annex 7. Forest Plantation Policy: Limitations to State intervention 9

During design of the present DPL, it was assessed that Minas Gerais had an
effective environmental regulatory system, yet there was a need for continued efforts to
improve its efficiency. Also, as the State is the largest national producer of steel and iron,
there was a need for fostering lower carbon emissions growth in those sectors. Building
on these challenges, the operation supported increasing the capacity of the State to
sustainably manage the environment (Policy Area 3) through two prior actions: (i) to
restructure the environmental management institutions and (ii) to foster alternatives to
promote tree plantations for charcoal production 10.
I.

Policy Area 3: Prior Actions and Results Indicators

In order to improve the efficiency of the environmental regulatory system, the State
undertook major structural reorganization of the Secretariat of Environment and
Sustainable Development (Secretaria Estadual de Meio Ambiente e Desenvolvimento
Sustentavel SEMAD). The creation of the Under-Secretariat for Environmental Control
and Supervision (Subsecretaria de Controle e Fiscalizao Ambiental Integrada
SGRAI) and the Under-Secretariat for Management and Regularization (Subsecretaria de
Gesto e Regularizao Ambiental Integrada SUCFIS) allowed the consolidation of the
procedures for issuance of environmental permits by a single under-secretariat and the
placement of the enforcement role into another one. As a result, the processing of the
permits would be faster, and monitoring of compliance would be more effective.
Moreover, other environmental agencies in the State the State Forest Institute (Instituto
Estadual de Florestas IEF), the State Institute for Water Management (Instituto
Mineiro de Gesto das guas IGAM), and the State Environment Foundation
(Fundao Estadual do Meio Ambiente FEAM) had their competencies reviewed in
order to adjust to the new work flow. These enhancing measures were duly recognized as
a Prior Action in the DPL, and a Results Indicator linked to the key outcome that 100
percent of enterprises found in non-compliance with environmental regulations,
according to Special Inspection Operations, are closely monitored to ensure that the
mitigation measures are fully implemented was established and successfully achieved
(see Section 3.2).
Another Prior Action referred to the enactment of measures to incentivize forest
plantation in the State to supply raw input to state industries, aiming at the promotion of
sustainable charcoal production. In due course the State implemented the policies it
agreed to with the Bank: approval of the State Forest and Biodiversity Policy. The legal
ruling defines the financial and technical mechanisms to promote tree plantations under
strict environmental sustainability parameters for all sizes on rural landholdings,
9

Based on technical note prepared by the Government of Minas Gerais.

The Bank has supported Minas Gerais initiatives for the reduction on greenhouse gases (GHG) and for
sustainable environment since 2001. The Prototype Carbon Fund Minas Gerais Plantar Project (TF050682)
financed projects which are expected to generate GHG emission reductions. It is a model for expanding the
use of renewable coal in the State and in the rest of the country.

10

32

establishes a programmatic Clean Development Mechanism (CDM) under the Kyoto

Protocol, with the aim to increase attractiveness of the plantations and provide key initial
resources to the farmers, and ensures the connectedness of the entire production chain.
This notwithstanding, the expected outcome this DPL supported was frustrated: instead
of an increase, 2013 estimates point to a decrease in the area of new plantations of
sustainable charcoal to 74,000 ha.
II.

Limitations to State policy: the strategy behind

The observed result is evidence that despite the direct intervention of the State in
fostering renewable charcoal plantations, the decision of increasing the plantation area is
strategic, and as such is a consequence of a favorable business environment for
investment. An assessment by the GoMG 11 has shown that the decrease in the plantation
area follows a decelerating trend set after the 2008 crisis (see Figure below).

Source: Nota Tcnica, Government of Minas Gerais

After the crisis, the decrease in the price of charcoal has undermined investors
appetite for new commercial tree plantations. Most of Eucalyptus plantations in Minas
Gerais are used as fuel and as thermo-reducing agent input for state metallurgy industries.
Given that the supposed investment takes on average 6 years to mature, reduced prices
and the grim macro outlook represent a challenge to reversing investors unwillingness to
pursue operational risk.
Strict regulations to forest products production and trade further hinder the
increase in tree plantations. For instance, it is prohibited for national enterprises with
11

2013, Governo do Estado de Minas Gerais. Nota Tcnica. Ref: Operao de Crdito do Estado de
Minas Gerais com o Banco Mundial; Contextualizao da rea de Florestas Plantadas no estado de Minas
Gerais; Aes desenvolvidas pelo Estado a fim de direcionar o desenvolvimento da Poltica Florestal
Produtiva. Belo Horizonte. November 29, 2013.

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majority of foreign stakeholders to hold land in Brazil. In addition, bureaucratic processes

and long lead time for issuance of permits serve as disincentives for new projects on
forest industries which the GoMG has started tackling through the first Prior Action
under Policy Area 3. Reduced competitiveness of Brazilian forest products in
international markets represents a toll on investment prospects as well. In the
international front, the discontinuation of the CDM under the Kyoto Protocol, albeit not
affecting the voluntary market for reduced emissions, may have contributed to the decline
in the plantation area.
The GoMG has reassessed its policy actions towards creation of profitable
opportunities in the forest sector. An analysis of the factors exogenous, structural and
specific market-related that affect the returns to the business has led to redesigning
State interventions to encompass less short-term direct financial resources yet enhanced
strategic planning on how to promote sustainable forest plantations.
III. Way forward
Aiming at developing projects/activities that would sustainably promote a
strategic and geographic view of a productive forest policy, prior to fostering the
expansion per se in the area of commercial tree plantation, the GoMG is redirecting its
2014 program of incentives to the acquisition and plantation of sustainable forests.
Certifica Minas Florestas
The project stands for certifying forest activities that comply with sustainable
management standards established in the national and state-level legislations. It is
intended to integrate and coordinate productive and environmental control efforts among
the state institutions with a view to streamline requisites for harvesting, transport and
trade of forest products for rural producers.
ndice de Atratividade ao Investimento Florestal IAIF and Processo de Melhoria do
Clima de Negcios para Investimento Florestal PROMECIF
The objective of the IAIF is to measure factors that affect the business environment,
returns and, thus, the attractiveness of the forest sector for direct investment (DI). It shall
allow:
a) comparing the performance of municipalities or microregions in a said period
of time;
b) assisting investors to pre-identify municipalities or microregions with higher
potential of success for DI in sustainable forest sector; and
c) supporting municipalities or microregions to identify key factors that affect
allocation of DI in sustainable forest sector in order to facilitate the design of
strategies and policies for attracting DI.
Based on the knowledge acquired through the IAIF and good practices, the
GoMG will adopt the methodology PROMECIF to strengthen the business environment
for sustainable forest sector to attract DI in the different municipalities or microregions.
The PROMECIF will involve diagnostics, strategic planning, implementation, monitoring
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and evaluation of the process to boost opportunities for DI in sustainable forest sector in
MG.
Pr-Macaba
This project stimulates the diversification of forest species for commercial tree
plantation by fostering the upscale of the value chain for the products derived from the
Macaba palm tree. It is expected that it will benefit mainly small landholders that grow
subsistence crops and cattle, given it may easily be integrated to the landscape.
IV.

Lessons Learned

While the State of Minas Gerais has the largest area of commercial tree plantations
in Brazil and is in the forefront of development of state environmental and social
legislations, not all expected outcomes regarding increasing environmental sustainability
were achieved, particularly the increase in the area of forest plantations. From this
episode, two important lessons were learned for Minas Gerais and should be taken into
account when designing and implementing similar programs in the future.
Firstly, although perceived benefits may exceed costs, forest plantations have
similar characteristics from a traditional long-term investment. This said, government
intervention in providing direct financial resources may have a stricter and
unsustainable impact in comparison to more long-term enabling business environment
measures.
Secondly, given the missed Result Indicator involved reaction of entrepreneurs
towards increasing their investments and the nature of government action might not
determine investor behavior in the short-run, there should be greater attention to the
causality chain when establishing the results framework. Results Indicators should reflect
the ability of the counterpart to deliver and be attributed to it, with a risk of failure
otherwise.
V.

Conclusion

Forest plantations may play an important role in the production of raw input to
metallurgy and agro- industries, and in the generation of jobs, income and well-being.
This notwithstanding, the expansion of the sector is driven by traditional long-term
investment considerations. Therefore, there must be a more strategical, rather than
operational assessment and approach to the design of related public policies in order to
realize the potential benefits it may yield.

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MAP

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