The case of Guatemala
The Development Policy Loan with a Catastrophe Deferred Drawdown Option (CAT DDO) helped Guatemala – one of the most vulnerable countries in the world – to better cope with the impacts of the eruption of Volcano Pacaya and tropical storm Agatha in 2010. At the same time, it supported the Government in strengthening its institutional capacity for disaster risk assessment, reduction, monitoring and forecasting.
Guatemala has been severely affected by natural hazards including volcanic activity, hurricanes, and landslides. The worst disaster was the 1976 earthquake that killed over 23,000 people and resulted in economic damages estimated at 17.9% of GDP. Over the last decades, further events caused additional human and economic losses, such as Hurricane Mitch (4.7% of GDP), the 2001 drought (0.1%), and Hurricane Stan (3.4%). This high exposure to natural hazards has threatened the sustainability of social programs. Resources for these programs were repeatedly diverted to immediate disaster response activities and the subsequent recovery process, without being replenished later on, which resulted in an even worse situation for the underprivileged. Acknowledging this problem, the Government has started taking significant steps towards a more proactive approach to disaster risk management (DRM) and comprehensive disaster risk reduction and financing strategies, culminating in the adoption of the 2009-2011 National Program for Disaster Prevention and Mitigation (NPDPM).
The loan was designed to support the implementation of Guatemala’s national disaster risk management program and provide liquidity in case of adverse natural events. As opposed to traditional instruments to finance disaster response and recovery, the CAT DDO makes urgently needed resources available immediately after a declaration of emergency. This innovative mechanism allowed the Government to swiftly access $85 million to respond to the adverse impact caused by the almost concurrent eruption of the Pacaya volcano and tropical storm Agatha in May 2010. These events affected, directly and indirectly, more than 910,000 people (3.9% of population) and resulted in economic damages and losses of more than $1.5 million (2.6% of GDP). In addition to the financial support, the Bank sustained a policy dialogue on the aims of the Program for Disaster Prevention and Mitigation to improve risk identification and monitoring, strengthen institutional and planning capacity for DRM, invest to reduce risk, and develop risk finance strategies.
The loan helped the Government to cope with the impact of the catastrophic events in May 2010 and to enhance capacity to implement proactive disaster risk management strategies. Together with the efforts of other partners, it supported improvements in several areas:
National capacity for risk monitoring and forecasting was improved. Existing hydro-meteorological and seismological monitoring networks were upgraded and expanded (increase of 57%). Getting better data allow for more accurate alerts and has also been used to update hazard maps.
Structural vulnerability of public buildings to earthquakes was assessed and reduced. Earthquake vulnerability assessments for 43 schools and 4 hospitals have been completed using the Safety Index. The Government approved new seismic standards. 73 schools were repaired and retrofitted to meet these standards.
Disaster risk information is mainstreamed into planning instruments at the national and municipal levels. National agencies developed and enforce instruments to incorporate disaster risk analysis into public investment projects and development planning. Disaster risk considerations are now incorporated in 96% of all 333 municipal development plans. In addition, 12 municipalities developed land use plans based on updated hazard maps.
Understanding of fiscal implications of adverse natural events was improved. A preliminary CAPRA application was used at the national level to estimate maximum probable losses due to hurricanes and earthquakes.
Bank Group Contribution
The Development Policy Loan with a Catastrophe Deferred Drawdown Option (CAT DDO) was a single tranche operation in the amount of $85 million, which was entirely financed by IBRD. After the Government had issued a national state of emergency following the eruption of the Pacaya volcano and Tropical Storm Agatha, it withdrew the entire loan amount in June 2010 to respond to the damages and losses caused by the disaster. In addition, the Bank provided policy advice and technical assistance throughout the duration of the DPL from 2010 to 2012.
The CAT DDO was complemented by a GFDRR-funded technical assistance to support the Ministry of Education in developing a Seismic Safety Index for vulnerability assessments of education centers based on a similar index for hospitals developed by PAHO. In addition, the Bank collaborated with the Central America Coordination Center for Natural Disaster Prevention (CEPREDENAC), United Nations International Strategy for Disaster Reduction (UN/ISDR), and the Inter-American Development Bank (IADB) to support the Central America Probabilistic Risk Assessment (CAPRA) initiative. Other organizations such as the European Commission, through its DIPECHO Program, USAID, and the Spanish Cooperation have also supported the Government’s DRM efforts.
Guatemala has recently developed a comprehensive National Strategy for Disaster Risk Reduction 2012-2017 and is positioned to start designing ex-ante Disaster Risk Finance and Insurance (DRFI) solutions. The World Bank will support the Government in preparing and implementing a DRFI strategy tailored to its specific needs and capabilities. SEGEPLAN is expected to get engaged on issues related to incorporating DRM into land use plans, strengthening DRM aspects in development plans and looking for legal instruments to ensure their application at the municipal level, along with the promotion of construction codes and standards.
The liquidity provided by the loan with CAT DDO upon the declaration of emergency after the eruption of the Volcano Pacaya and the tropical storm Agatha in 2010 helped attend to the needs of more than 910,000 citizens who had been adversely affected by the two events. In addition, the improvements of institutional capacity for disaster risk assessment, reduction, monitoring and forecasting benefit the country as a whole.