Draft COMMISSION DECISION

Draft COMMISSION DECISION of on the Annual Action Programme 2007 in favour of Bolivia to be financed under Article 19 09 01 of the general budget of the European Communities THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to Council Regulation (EC) 1905/2006 of 18 December 2006 establishing a financing instrument for development cooperation and in particular Articles 6 and 22 thereof 1 Having regard to Council Regulation (EC, Euratom) 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities 2 and in particular Article 53 thereof, Whereas: (1) The Commission has adopted the Country Strategy Paper for Bolivia and the multiannual National Indicative Programme for the period 2007-2013 3, point 5.2.2 of which indicates the priorities of supporting Bolivia's fight against illicit drug production and trafficking and its policies for comprehensive development and for rationahsation of coca production through social control mechanisms. (2) The objectives pursued by the Annual Action Programme is to support the elimination of poverty, social exclusion and environmental damages in coca producing areas and the implementation of a coherent anti drugs policy. (3) This decision constitutes a financing decision within the meaning of Article 75(2) of Council Regulation (EC, Euratom) No 1605/2002, Article 90 of Commission Regulation No 2342/2002 of 23 December 2002 4 and Article 15 of the Internal Rules 5. (4) It is appropriate to define the term "substantial change" in the meaning of Article 90 (4) of Commission Regulation No 2342/2002 for the application of this decision. 1 2 3 4 5 OJL378, 27.12.2006, p.41 OJ L248, 16.9.2002, p. 1 Regulation as last amended by Regulation (EC, Euratom) No 1995/2006 of 13 December 2006 (OJ L390,30.12.2006 p.l) Not yet approved by the Commission. Submitted to Member States OJL357, 31.12.2002, p. I.Regulation as last amended by Regulation (EC, Euratom) No 478/2007 of23 April 2007 (OJ L 111, 28.04.2007 p.l). Commission C/2007/513, C/2007/514, C/2007/433. EN! EN

(5) The measures provided for in this Decision are in accordance with the opinion of the DCI Committee set up under Article 35.1 of Council Regulation (EC) 1905/2006 of 18 December 2006, HAS DECIDED AS FOLLOWS: Article 1 The actions "Support to the National Comprehensive Development Plan with coca" and "Support to the Social Control of the Coca Production", which constitute the Annual Action Programme in favour of Bolivia, the text of which is set out in the Memorandum and Annexes I and II, are approved. Article 2 The maximum contribution of the Community is set at EUR 36 M to be financed within the limits of the available resources of budget line 19 09 01 of the general budget of the European Communities for 2007. Article 3 Within the maximum indicative budget of all the specific actions, cumulated changes not exceeding 20% of the maximum contribution of the Community are not considered to be substantial provided that they do not significantly affect the nature and objectives of the Annual Action Programme. The authorising officer may adopt such changes in accordance with the principles of sound financial management. Done at Brussels, [...] For the Commission Member of the Commission EN 2 EN

ANNEX I: ACTION FICHE FOR BOLIVIA 1. IDENTIFICATION Title Total cost Aid Method DAC-code Support to the National Comprehensive Coca 126M (EC: 26M, GoB: 100 M ) Sector Policy Support Programme (SPSP, centralised management) Development Plan with 31165 Sector Alternative Development 2. RATIONALE AND COUNTRY CONTEXT 2.1. Economic and social situation Bolivia's macro-economic performance in 2006 has been positive and there is no reason to think that this situation will change in the near future. Real GDP growth for the year was 4.5%, the highest since 1999 and the projection for the year 2007 has been estimated at 4.8%. Inflation has been stable since 2005 at around 5%, and the current account surplus stands at 12.7% of GDP. A noteworthy progress has been the turn-around in the public sector deficit, from 2.3% of GDP in 2005 to a surplus of around 5.1 % of GDP in 2006. The other main economic indicators are as follows: steady nominal exchange rate with a slight trend to appreciation, increasing revenues from minerals and hydrocarbons (due to higher world market prices and higher domestic tax revenue from hydrocarbons), sharp decrease of public external debt as a consequence of the Multilateral Debt Relief Initiative (from around USD 5 billion in 2005 to USD 2.2 billion in 2007), reducing the cost of public debt service from USD 104 million (2005) to approximately USD 60 million. Increasing levels of imports, international reserves in the highest historic levels, "dedollarisation" of the economy and a sound financial system reflect that the Bolivian economy is following a conservative path. Regarding the evolution of real GDP per head of population, the trend shows that it is rising at an increasing rate with a consequent slight improvement in the poverty rate. It can be said that the growth rate and the reduction in poverty levels are consistent but slow. On the other hand, Bolivia's public investment for the year 2007 will be around USD 1,1 billion, 50% higher than in 2006 (USD 720 millions), which, if achieved, is expected to foster further economic growth. In summary, the country is maintaining a stable macroeconomic course. However, the key challenge remains the creation of good quality employment opportunities, in a context of social and political stability.

2.2. Cooperation policy of beneficiary country In June 2006, the Government presented its 2006-2010 National Development Plan (NDP) which aims to reduce poverty and create a more inclusive society through the elimination of its "colonial and neo-liberal" features. Poverty is seen as the result of the centuries-old exclusion and marginalisation of Bolivia's indigenous and rural populations. Key to the NDP's implementation will be the transfer of surpluses, notably from the energy sector, to stimulate job-creating productive activities. Recovery of national (state) control over natural resources is a key element of the NDP. The Plan is divided into four main components: "Bolivia Digna" dealing with social issues, "Bolivia Democratica" which calls for empowerment of the traditional indigenous organisations, "Bolivia Productiva " which proposes a new productive model based on state intervention and control and an expanded domestic market, and, finally, "Bolivia Soberana" which outlines the Government's vision of international relations. While strong on ideological content, the document remains short on clear statements of operational mechanisms, institutional framework, performance indicators or medium-term budgets. Nevertheless, ownership is perceived to be higher than in former national strategy documents, particularly in areas related to the management of natural resources, the Constituent Assembly and the anti-drugs policy. 2.3. Government Sector Programme 2.3.1 The Vice-ministry for Coca and Comprehensive Development (VCDI) recently defined a new sector policy closely related to the National Development Plan. The PND, under the chapter of agricultural development, proposes seven different new policies, including coca production. In general, the new policy approach maintains all important aspects of the former alternative development (now comprehensive development) but introduces activities regarding the revalorization and industrialization of the Coca leaf, respecting the international laws and conventions signed by Bolivia and the principle of "shared responsibilities". For a description and assessment of the new national coca policy, please refer to the Memorandum to the PCI Committee. 2.3.2 The weakness of the Bolivian institutional framework is commonly recognised, concerning different aspects ranging from training and continuity of professional personnel, programming and implementation procedures to lack of financing and problems of horizontal and vertical integration of the overall government structure. Despite this general appraisal, the comprehensive development sector possesses a consolidated institutional framework, due to important institution building measures in the past. On the one hand, the VCDI, as part of the Ministry of Agriculture, is integrated prominently in the National Council for The Fight Against Drug Trafficking (CONALTID). On the other hand, the institutional structure of the VCDI includes the National Alternative Development Fund (FONADAL) and the Programme For Rural Alternative Development (PDAR). While the FONADAL, with EC funding, is considered to be the financial instrument of the national comprehensive development policy, the PDAR is oriented towards technical assistance for coca growers. Although both institutions have a

long institutional history, institutional strengthening measures are foreseen in the sector policy. 2.3.3 The set of indicators is mainly related to the following categories: 1. Coca cultivation (volumes, hectares, expansion and/or reduction of crops); 2. Generation of comprehensive development in the areas of intervention (Unsatisfied Basic Needs), poverty levels, employment generation, migration); 3. Consolidation of sector policy and institutions; 4. Governance and conflict prevention and mitigation, human rights, etc. The SPSP foresees a technical assistance component which will set up the framework for institutional and programmatic monitoring. 2.3.4 Public Financial Management has experienced important achievements due particularly to the Multi Donor Budget Support Programme (2004-2006), which helped the government to implement reforms in three main areas: i) public financial management, ii) fiscal policy and iii) poverty reduction policy. This Programme ceased to function in 2006 but the government manifested its intention to resume the meetings and discuss new intervention areas. The government is also planning the implementation of a national exercise equivalent to a Public Expenditure and Financial Assessment during the first quarter of 2007. 2.4. Lessons learnt The EC has been providing assistance since 1998 to the alternative (now comprehensive) development efforts of successive Bolivian governments within the context of national drugs strategies. This support has amounted to 50 M implemented in five different projects. The success of those programmes has been widely recognised and encouraged the actual government to request the CE to increase its support in this sector under the 2007-2013 CSP. All projects have been externally assessed in past years and the corresponding reports confirm the pertinence of the project design and the impact of the proposed activities. Further improvements on efficiency and sustainability will be addressed in the SPSP. It has been learnt that alternative development and coca reduction go hand-in-hand. On the one hand, the population affected by coca reduction must have access to development activities in order to compensate economic losses by receiving incentives for alternative income generation and access to social services. On the other hand, the active participation of the coca growers and their social organizations in the implementation of coca policy is vital to guarantee its success. EC-financed interventions - which have all been based on not being conditioned to beneficiaries eradicating their coca crops in order to receive cooperation - have played a key role in demonstrating that positive dialogue can be established with coca growers' organisations which in turns leads to propitious conditions for rationalisation/eradication of coca when social and economic conditions are improved. The successful reduction in coca cultivation last year in the Chapare mentioned above could not have been achieved if this groundwork had not been previously laid.

2.5. Complementary actions In the case of Focal Area 2, the EC is currently contributing to the Fondo Nacional de Desarrollo Alternativo (FONADAL), in charge of channelling public funds towards the areas and beneficiaries under the National Plan for Comprehensive Development. The main geographical focus of these funds is the Yungas area, although a small portion of the available funds is also being channelled to the Chapare as well as to labour out-migration zones and to national parks (to prevent the spread of coca cultivation there). In the mining sector, a project is currently being implemented to assist with the re-activation of the small mining sector, with the express purpose of stemming migration from these impoverished areas towards coca production zones. 2.6. Donor coordination In the specific area of cooperation in the field of drugs, the new National Plan for Comprehensive Development foresees an important role for the FONADAL to stimulate donor coordination and to intensify dialogue on policy issues. The most important donor, in financial terms, in the field of Comprehensive Development is USAID, which focuses its programme on support to agricultural producer associations and private investors in coca production areas. US support, however, has always been conditioned to beneficiaries' committing themselves to eliminating their coca fields. As a result, the US cooperation programmes were seen by the majority of the population in coca growing areas as an external intrusion. It was only recently - in part after observing the results of EC programmes - that USATO programmes began to engage more directly with local government authorities and other local civil society organisations. Other donors who, along with the EC, stress social investment as an important part of their programmes in coca growing areas, include the UN, Belgium and Spain. Only Spain is also financing interventions in out-migration zones. The new National Plan for Comprehensive Development foresees important efforts, chaired by the FONADAL, to stimulate donor coordination and intensify the dialogue on sector policy issues. 3. DESCRIPTION 3.1 Objectives The general objective of the government sector policy is focusing the elimination of poverty, social exclusion and environmental damages in the intervention areas, revaluating the coca leaf, developing local capacities, promoting broad participation of the population and its social organizations and stimulating private investment. Specific objectives of the government sector policy are related to the diversification of the production, development of productive chains and clusters, improvement of social infrastructure, capacity building and industrialization of the Coca leaf within

the limits of the international agreements signed by Bolivia. 3.2 Expected results and main activities As the present intervention proposes the modality of a Sector Wide Support Programme, the alignment with government's policy using the existing institutional framework of the sector and national contracting procedures is an important issue. Therefore, both expected results and main activities listed below are indicative and will be supervised under a close government - donor coordination mechanism which has been set up for the programme. Expected Result 1: Comprehensive development sector policy has been consolidated by defining its scope, limits and inter-relationship with other sub sectors, and has been fully appropriated by sub-national levels (prefectures, municipalities). Main activities will be related to the design of a comprehensive and integral sector policy, its dissemination among principal stakeholders and decision makers, the harmonizing of proposals with related sectors and the process of administrative procedures in order to create the final legal framework. At the same time, activities will be directed towards the involved sub national levels, traditionally excluded from participation in coca and anti drags policy development and implementation. The activities guaranteeing their involvement will allow an increased sense of ownership of the sector policy both in institutional and financial terms. Expected Result 2: The operational capacity of sector institutions has been strengthened particularly regarding the use of public finance management procedures. Main activities will include the identification and characterization of the national institutional framework involved in integral development interventions, the strengthening of their administrative, technical and financial capacity and the promotion of inter sector coordination. These activities will involve prominently the National Alternative Development Fund (FONADAL) and the municipalities of coca growing regions. Specific attention will be given to the training in and application of national contracting procedures. Expected Result 3: Local institutional capacities have been supported in order to stimulate public and private investment for the generation of comprehensive development. Main activities will be related to the provision of services, supplies and works by national sector institutions to principal stakeholders in order to offer new opportunities regarding off-farm employment and alternative income sources. The design of projects and programmes, the channelling of public financing and the technical assistance will be of particular interest of these activities. 3.3 Stakeholders a) The Government of Bolivia: With the election of Evo Morales as President of Bolivia the anti drug policy has changed substantially compared with previous governments (see attached memorandum to the DCI Committee). As the shapers of national policy, senior government officials, including the President himself, will

be closely concerned by the implementation of this sector programme. The support to be provided in this sector will preserve the EC's role as a key interlocutor for the government, enabling it to maintain high-level policy dialogue. b) The Municipalities: The process of the decentralization in Bolivia has demonstrated an increasing importance of the municipalities in territorial and sector planning. At the same time, municipalities constitute also the major beneficiary of comprehensive development programmes, which stimulate socio-economic and institutional development in coca production areas. Municipal governments' capacity to manage resources, to mobilize local demands and, overall, to negotiate, has improved substantially. The combination of both aspects makes the municipalities an important actor to achieve the objectives of present intervention. c) Coca Producers: The social organizations of coca growers, made up of hundreds of agricultural "sindicatos", "centrales" and "federaciones", are traditionally strong and dominant in coca leaf production areas. The participation of these organizations at political, technical and institutional level will be vital for the success of the present SPSP. d) Drugs producers and traffickers: Although it will be clearly impossible to involve this category of stakeholder in the project, their influence should not be neglected, particularly their response to coca leaf price fluctuations as a result of reduced cultivation. This aspect should not be neglected during the course of implementation. e) Others: The economic development of the concerned regions represents a major challenge in order to offer alternative income opportunities for the coca growers and to compensate losses for reducing coca plantations. Therefore, efforts have to b e made to establish institutional links and generate a favourable investment environment for private companies. Regarding ownership and appropriation, it is considered that this will not be a problematic issue in the proposed intervention since coca growers constitute the main beneficiaries and, at the same time, possess an important political weight in the new government. On the other hand, institutional capacity is weak and not sufficiently prepared to implement the SPSP. Strong efforts will have to be made in order to strengthen the institutional capacities, identify bottle necks and implement remedial actions. The government has therefore recognized to include advisory services in order to assist in this institutional strengthening effort. 3.4 Risks and assumptions A principal assumption under which this proposal is put forward refers to the openness of the international community towards this initiative which seeks to support the reorientation of Bolivia's anti drug policy, placing it on the basis of greater social participation and consensus, respect for human rights and, as a result, greater social and political sustainability. Another assumption is the commitment of the government and its institutions to participate in the process and to consolidate the existing institutional framework

which could include a significant change in the legal positioning of FONADAL within the government structure in order to ensure its administrative and financial efficiency. Concerning the risks, it is worth emphasizing the new dynamics in the relation between the State and the social sectors associated with coca cultivation. The proposed sector budget support mechanism is an innovative instrument that will require much operational capacity from the institutional framework and political will for its success. On a general level, there is a risk related to the new Constitution currently under preparation which may modify the institutional and legal framework, in particular regarding the relationship between the central and the sub national governments. It is also not impossible - although considered at this stage unlikely - that the new Constitution may include some provisions giving the coca leaf a special protected cultural status. 3.5 Crosscutting Issues Given the social and physical characteristics of coca cultivation, particular importance will be given to the integration of gender and environmental issues during the implementation of this action. Given that a necessary condition for success will be a change of productive pattern away from coca cultivation, the impact that this will have on male and female roles, responsibilities and social standing may be significant. Existing gender monitoring mechanisms in place in FONADAL will therefore be further developed. With regard to the environmental dimension, shifts away from coca cultivation, known to have a particularly serious impact on soil degradation, should be positive. However, productive alternatives to coca should also be systematically assessed for their own environmental impact. The issue of preventing coca cultivation in protected areas and national parks will also require specific attention. Finally, the focus of the new national coca policy, with its emphasis on reducing the abuse of human rights that was seen as characteristic of previous government interventions, will also require particular attention to be paid to the incorporation of this dimension, including its measurement. 4. IMPLEMENTATION ISSUES 4.1. Implementation method This action will be implemented as a Sector Policy Support Programme with centralised management procedures. In this sense it will be an innovative approach in Bolivia where there are for the time being relatively few such sector programmes. However, it is believed that in this sector conditions exist for this approach to be used, consistent with the Paris Declaration and the EU's global policy to use budget support approaches where feasible. Every effort will be made to encourage other donors active in this sector to harmonise their own interventions and, if possible, to join in this aid delivery modality. In any event, the EC will stimulate, in partnership

with the government, enhanced donor coordination. Disbursements of fixed and variable tranches will be based on yearly verification missions that will supervise the progress of the established sets of indicators. In order to improve sector financing instrument, policy issues and a sector monitoring system, the SPSP will include a technical assistance component. 4.2. Procurement and grant award procedures Not applicable for SPSP component (24 M ). The contracts regarding the Technical Assistance component (2 M ) must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. 4.3. Budget and calendar The budget will include indicatively the following items: a) Technical Assistance, b) Fixed Tranche (FT) c) Variable Tranche (VT) The provisional distribution is as follows: 2007 Annual Amounts (in M ) 2008 2009 2010 Total (M ) % ATI _ 2 0 0 2 7% VT - 3 5 6 14 53% FT 4 3 2 1 10 40% TOTAL 4 8 7 7 26 100% 4.4 Performance Monitoring and criteria for disbursement With respect to the monitoring of the sector performance, a comprehensive Base- Line Study regarding in particular the established areas for indicators will be carried out in the first year of implementation. In relation with fixed tranches, the Delegation will draft yearly reports on the macro economic environment and public finance management based on data from the national statistics institute, the Bolivian central bank, the IMF and other official sources. As far as disbursement of variable tranches is concerned, annual external monitoring missions will assess the achievement of targets as defined with GoB.

4.5 Evaluation and audit After 24 month a Joint Assessment Mission will carry out a Mid-Term Review in order to review the sector progress and recommend, if necessary, adjustments to the initial design including the distribution of fixed and variable tranches. 4.6 Communication and visibility The EC standard guidelines on visibility will be fully applicable in order to assure an adequate visibility of the community aid. The project will elaborate a specific visibility and communication strategy in order to communicate to society at large the results being obtained in the field.

ANNEX II: ACTION FICHE FOR BOLIVIA IDENTIFICATION Title Total cost Aid Method DAC-code Support to the Social Control of the Coca Production (2007-2010) 12,0M (EC: 10,0M, GoB: 2,0M ) Project approach: Decentralised management 31165 Sector: Alternative Development 2. RATIONALE 2.1. Sector context The production and illicit trafficking of drugs in Bolivia is due to the dynamics of organised crime based on international networks with high operational capacities. The Bolivian State, during several decades and throughout successive governments, applied an anti drug policy which prioritised the application of police and military forces for this task and focussed its interventions on the eradication of the Coca leave. As a consequence, the country experienced during several years a high conflict level and it has been impossible to establish fluent and confident relations between the State and the Coca producers and its social organisations in order to reduce Coca plantations down to the legally established surface and regions. The government of President Evo Morales is applying a new anti drugs policy formulated in the "Strategy of the Fight against the Trafficking of Drugs and Revaluation of the Coca Leave 2007-2010". This strategy is based on the principle of "one cato per family", which recognises the right of every family in the traditional production areas to grow 1.600 m2 of Coca leaves. At the same time, the priorities of the anti drug policy changed significantly, shining police and military activities from eradication of coca fields towards interdiction of production and trafficking of drugs. For a fuller description and assessment of the new national coca policy, please refer to the Memorandum to the PCI Committee. In order to a) control the overall extension of coca fields in defined areas and b) contribute simultaneously to its rationalization/reduction, the government foresees to establish strategic alliances with the organizations of Coca producers, municipalities and the civil society and implement mechanisms of social control over the Coca production. 2.2. Lessons learnt The EC has been providing assistance since 1998 to the alternative (now comprehensive) development efforts of successive Bolivian governments within the context of national drugs strategies. This support has amounted to 50 M implemented in five different projects. The success of those programmes has been

widely recognised and encouraged the actual government to request the CE to increase its support in this sector under the 2007-2013 CSP. All projects have been externally assessed in past years and the corresponding reports confirm the pertinence of the project design and the impact of the proposed activities. Further improvements on efficiency and sustainability will be addressed in the SPSP. It has been learnt that alternative development and coca reduction go hand-in-hand. On the one hand, the population affected by coca reduction must have access to development activities in order to compensate economic losses by receiving incentives for alternative income generation and access to social services. On the other hand, the active participation of the coca growers and their social organizations in the implementation of coca policy is vital to guarantee its success. EC-financed interventions - which have all been based on not being conditioned to beneficiaries eradicating their coca crops in order to receive cooperation - have played a key role in demonstrating that positive dialogue can be established with coca growers' organisations which in turns leads to propitious conditions for rationalisation/eradication of coca when social and economic conditions are improved. The successful reduction in coca cultivation last year in the Chapare mentioned above could not have been achieved if this groundwork had not been previously laid. 2.3. Complementary actions In the case of Focal Area 2, the EC is currently contributing to the Fondo Nacional de Desarrollo Alternativo (FONADAL), in charge of channelling public funds towards the areas and beneficiaries under the National Plan for Comprehensive Development. The main geographical focus of these funds is the Yungas area, although a small portion of the available funds is also being channelled to the Chapare as well as to labour out-migration zones and to national parks (to prevent the spread of coca cultivation there). In the mining sector, a project is currently being implemented to assist with the re-activation of the small mining sector, with the express purpose of stemming migration from these impoverished areas towards coca production zones. 2.4. Donor coordination In the specific area of cooperation in the field of drugs, the new National Plan for Comprehensive Development foresees an important role for the FONADAL to stimulate donor coordination and to intensify dialogue on policy issues. The most important donor, in financial terms, in the field of Comprehensive Development is USATO, which focuses its programme on support to agricultural producer associations and private investors in coca production areas. US support, however, has always been conditioned to beneficiaries' committing themselves to eliminating their coca fields. As a result, the US cooperation programmes were seen by the majority of the population in coca growing areas as an external intrusion. It was only recently - in part after observing the results of EC programmes - that USAID programmes began to engage more directly with local government authorities and other local civil society organisations.

Other donors who, along with the EC, stress social investment as an important part of their programmes in coca growing areas, include the UN, Belgium and Spain. Only Spain is also financing interventions in out-migration zones. The new National Plan for Comprehensive Development foresees important efforts, chaired by the FONADAL, to stimulate donor coordination and intensify the dialogue on sector policy issues. 3. DESCRIPTION 3.1. Objectives General Objective: Support to the implementation of a coherent anti drugs policy, by means of a group of innovative activities implemented by the Bolivian government, which reduces drastically the illicit trafficking of drugs and, simultaneously, supports the rationalization 1 of the cultivation of Coca leafs, respecting the national sovereignty and human rights. Specific Objective: Contribute to the rationalization of the production of the Coca leaves, through the implementation of mechanisms of social control and the capacity strengthening of local institutions and Coca Producer organizations, under a perspective of consensus and active participation. 3.2. Expected results and main activities In order to achieve the purpose of the intervention, the strategy foresees to define exactly the limits of Coca productions areas and the extension of the plots of the Coca growers. Simultaneously, peasant organizations will be trained and equipped to measure the extension of their affiliates and within their territories and apply mechanisms to control expansion of Coca cultivation, avoiding conflicts and reporting any irregularity to the national authorities. The process will be supported by information systems and visibility measures in order to raise consciousness not only among Coca producers but among the population in general. 4 main components have been identified: I.) Social control of the coca leaf production, addressed to take a census of the plots of the coca producers, define the limits of the areas of coca production, the national parks and the areas of voluntary reduction. 11.) Systems of information, dissemination and visibility, directed to generate the necessary geo-referenced information to monitor the progress of the programme, to circulate the processed information among the principal actors, to guarantee the adequate visibility of the process and to create consciousness among both general population and stakeholders on the importance of the programme. III.) Institutional strengthening, specifically of the social organizations of the coca growers and the indigenous communities in adjacent areas of the coca production areas and also of other institutions which are immersed in the problem. 1 The term "rationalization " as used by the Government of Bolivia in its new coca strategy refers to measures to adjust production to legal demand.

Aforementioned strengthening will be addressed to increase the capacity of prevention and mitigation of conflicts, the design of social control mechanisms and its implementation, the equipment, training and operation of these organizations and their capacity of monitoring the process. This component represents the central purpose of the present intervention, enabling the leaders of the social organizations to exercise social control in order to rationalize the production of coca leafs. IV.) Administration and Management, specifically of the Vice ministry for Social Defense and Controlled Substances, the establishment of a monitoring and evaluation system and Technical Assistance. 3.3. Stakeholders a) The Government of Bolivia: With the election of Evo Morales as the President of Bolivia the anti drug policy has changed substantially compared with previous governments. Former interventions derived in acute situations of social conflict and violations to human and civil rights. Evo Morales has declared in several opportunities that he continues firmly committed with the fight against the drug trafficking and the principle of "shared responsibility" between drug producer and consumer countries. However, he also made clear that erradication of the Coca crops by means of military force will not be the strategic focus of his government but only the interdiction of production and trafficking of drugs. At the same time, recognizing the right of the farmers in certain areas to grow "one cato" of Coca (1600 ml) it is foreseen to apply social control mechanisms to rationalize the growing of Coca in order to achieve an extension of hectares of Coca that corresponds to the legal demand of Coca and its derivatives in Bohvia. The present intervention takes into account the previous lessons in the matter under the principles of consensus and social participation that will allow the national government and the Coca producers and its social organizations to work jointly in an amicable environment and with political and social stability. b) The Producers of Coca: The Coca growers are organized in hundreds of agricultural syndicates in the different areas of Coca production. On a higher organization level, theses syndicates are grouped in "centrales" and "federaciones". Therefore, the six colonizer federations of the Chapare region, the seven peasant federations of the traditional Yungas area and the four colonizer federations of the Caranavi zone constitute both, the principal actors and beneficiaries of the present intervention. The interests and roles that each of these actors comply with may be different according to the mentioned areas since the Yungas area is considered to be a legal Coca growing area meanwhile in the Chapare and Caranavi region Coca plantations are illegal according to the sector law 1008. Broad participation and consensus will be essential to guarantee the involvement of the social organizations. It is supposed that the coca growers will participate directly in all project activities, particularly related to land title management and rationalization and control of the Coca production. c) The Municipalities: The process of the decentralization in Bolivia demonstrates an increasing importance of the municipalities in the field of economic development. At the same time, municipalities constitute also the major beneficiary of Alternative Development programmes, which stimulate the socio-economic and institutional development in Coca production areas. Their management capacity, mobilizing the

local demands and, overall, their negotiation power within theses has improved substantially. The combination of theses both aspects makes the municipalities an important actor to achieve the objectives of present intervention. The rationalization of Coca production in Bolivia by means of social control mechanisms represents a core part of the government's new anti drugs strategy. As the operators and main beneficiaries will be the peasant organizations of Coca growers, at the same time an important political weight in the new government, ownership and appropriation is not considered a critical issue in the proposed intervention. On the other hand, the institutional capacity of both. Vice Ministry and Peasant Organizations are considered weak and not sufficiently prepared to implement such an innovative approach. Strong efforts will have to be made in order to assess regularly the institutional capacities, identify bottle necks and implement remedial actions. The government has therefore recognized to include advisory service in order to assist in this institutional strengthening effort. The CONALTID (National Council for the Fight against Drug Trafficking) is the Government body which supervises, inter alia, EC supported Actions and will ensure their coordination with each other, as well as within the broader framework of Bolivia's fight against illegal coca production and narco-traffic. 3.4. Risks and assumptions A principal assumption under which this proposal is put forward refers to the openness of the international community towards this initiative which seeks to support the reorientation of Bolivia's anti drug policy, placing it on the basis of greater social participation and consensus, respect for human rights and, as a result, greater social and political sustainability. Another assumption is the commitment of the government and its institutions to participate in the process and to consolidate the existing institutional framework which could include a significant change in the legal positioning of FONADAL within the government structure in order to ensure its administrative and financial efficiency. Concerning the risks, it is worth emphasizing the new dynamics in the relation between the State and the social sectors associated with coca cultivation. The proposed sector budget support mechanism is an innovative instrument that will require much operational capacity from the institutional framework and political will for its success. On a general level, there is a risk related to the new Constitution currently under preparation which may modify the institutional and legal framework, in particular regarding the relationship between the central and the sub national governments. It is also not impossible - although considered at this stage unlikely - that the new Constitution may include some provisions giving the coca leaf a special protected cultural status.

3.5. Crosscutting Issues Given the social and physical characteristics of coca cultivation, particular importance will be given to the integration of gender and environmental issues during the implementation of this action. Given that a necessary condition for success will be a change of productive pattern away from coca cultivation, the impact that this will have on male and female roles, responsibihties and social standing may be significant. Existing gender monitoring mechanisms in place in FONADAL will therefore be further developed. With regard to the environmental dimension, shifts away from coca cultivation, known to have a particularly serious impact on soil degradation, should be positive. However, productive alternatives to coca should also be systematically assessed for their own environmental impact. The issue of preventing coca cultivation in protected areas and national parks will also require specific attention. Finally, the focus of the new national coca policy, with its emphasis on reducing the abuse of human rights that was seen as characteristic of previous government interventions, will also require particular attention to be paid to the incorporation of this dimension, including its measurement. 4. IMPLEMENTATION ISSUES 4.1. Implementation method Decentralised management through the signature of a financing agreement with the Bolivian Government. The Commission controls ex ante the contracting procedures for procurement contracts >50.000 euro and ex post for procurement contracts < 50.000 euro. Through the programme estimates, payments are decentralised for operating costs and contracts up to the following ceilings: Works Supplies Services Grants < 300.000 < 150.000 < 200.000 <e 100.000 The technical assistance contract will be awarded and payments made under centralised management. 4.2. Procurement and grant award procedures All contracts implementing the action must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question.

The essential selection and award criteria for the award of grants are laid down in the Practical Guide to contract procedures for EC external actions. The maximum possible rate of co-fmancing for grants is 80%. Full financing may only be applied in the cases provided for in Article 253 of the Implementing Rules of the Financial Regulation wherefinancingin full is essential to carry out the action in question. All programme estimates must respect the procedures and standard documents laid down by the Commission, in force at the time of the adoption of the programme estimates in question. 4.3. Budget and calendar Support to the Social Control of the Coca Production (2007-2010) PROJECT COMPONENTS 1. SOCIAL CONTROL OF THE COCA LEAF PRODUCTION Total Amount Euros 6,000,000 Sources of Financing TGN/ Others f,000,000 EC 5,000,000 Land title management (services) 1 Equipment (supplies) Formation (services) //. INFORMATION SYSTEMS, DISEMINATION AND VISIBILITY 1,800,000 300,000 1,500,000 \ Geo referenced information systems (services) 1 Satellite Images (supplies) Systems of Information, Visibility and Dissemination (services) ///. INSTITUTIONAL STRENGTHENING OF SOCIAL ORGANISATIONS Infrastructure (works) Equipment (supplies) Formation, capacitating, training (services) Studies (services) 2,400,000 400,000 2,000,000] IV. ADMINISTRATION and OPERATION 1,800,000 300,000 1,500,00011 Technical Assistance (international services tender) Operation Monitoring and Evaluation (services) TOTAL AMOUNT OF THE PROGRAMME 12,000,000 2,000,000 10,000,000 TGN: General Treasury of the Nation - Government of Bolivia The EC: European Commission The intervention is programmed for a 60 month period of which 48 month of operational phase and 12 month for closure phase.

4.4 Performance monitoring With respect to the monitoring of ongoing project activities, a Base-Line Study will be carried out at the beginning of implementation. Key indicators are the measurement of the effective rationalization of coca plantations (i.e. n 0 of hectares rationalised through social control mechanism), the design and implementation of mechanisms of social control (i.e. n 0 of coca producer organisations which perform social control on coca reduction in within their territories), the operational capacity of the peasant federations, the existence and effectiveness of information systems (i.e. n 0 of reliable databases on coca production maintained by social organisations) and the preventions and mitigation of conflicts (i.e. n 0 of conflicts prevented), among others. Regular monitoring will also allow incorporating findings of the monitoring process into the project evolution and improving performance. 4.5 Evaluation and audit After 24 month of the operational phase a Mid-Term Review will review this innovative approach and recommend, if necessary, adjustments to the initial project design. Yearly external audits, charged to the operational expenditures of the EC contribution, must be contracted by the beneficiary institution (Vice ministry of Social Defence and Controlled Substances) and reports made available to the EC. 4.6 Communication and visibility The EC standard guidelines on visibility will be fully applicable in order to assure an adequate visibility of the community aid. The project will elaborate a specific visibility and communication strategy in order to communicate to society at large the results being obtained in the field. Due to the innovative character of the action it could be considered that the Bolivian experience will be disseminated in the context of the Andean Community where other Coca producing countries established in recent years a coordination mechanism in this area.