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PERMANENT COUNCIL ORGANIZATION OF AMERICAN STATES OEA/Ser.G CP/doc.3324/00 rev. 1 30 May 2000 Original: English/Spanish
REPORT OF THE INTER-AMERICAN COMMITTEE ON NATURAL DISASTER REDUCTION (IACNDR) EXPLANATORY NOTE At its meeting of May 26, 2000, the Permanent Council considered the report of the Inter-American Committee for Natural Disaster Reduction (IACNDR) (CP/doc.3324/00) and agreed to take note of the report with the amendments presented by the Delegation of Argentina and to transmit it as a reference document to the General Assembly at its thirtieth regular session. ORGANIZATION OF AMERICAN STATES WASHINGTON, D.C. THE SECRETARY GENERAL May 24, 2000 Excellency: I have the honor to address Your Excellency and, in keeping with resolution AG/RES. 1682 (XXIX-O/99), "OAS Natural Disaster Reduction and Response Mechanisms," to present to the General Assembly the report on the activities of the Inter-American Committee on Natural Disaster Reduction (IACNDR). Accept, Excellency, the renewed assurances of my highest consideration. César Gaviria His Excellency Marcelo Ostria Trigo Ambassador, Permanent Representative of Bolivia to the Organization of American States Chair of the Permanent Council Washington, D.C. REPORT OF THE INTER-AMERICAN COMMITTEE ONNATURAL DISASTER REDUCTION (IACNDR) Introduction: At the thirtieth regular session of the General Assembly in Guatemala, the Assembly, in resolution AG/RES. 1682 (XXIX-O/99) on Natural Disaster Reduction and Response Mechanisms established the Inter-American Committee on Natural Disaster Reduction (IACNDR) consisting of the Secretary General and the Assistant Secretary General of the Organization of American States, the President of the Inter-American Development Bank, the Director-General of the Pan American Health Organization, the Secretary General of the Pan American Institute of Geography and History, the Director-General of the Institute for Cooperation on Agriculture, and the Director-General of the Inter-American Agency for Cooperation and Development. The IACNDR held its first meeting on November 8, 1999, and agreed on a course of action in fulfillment of the mandate entrusted to it by the General Assembly. At this meting, the Secretary General of the OAS stated that: "We should also concentrate on the design of mechanisms to coordinate and cooperate in emergency preparedness and response in such a way that international and national assistance will be more effective, faster and better able to reach those who need it most. The latter aspect is of particular importance in the short term. We should recognize that in some instances in the past, the generous demonstrations of international solidarity with the affected communities have been limited and obstructed by flaws in the coordination of efforts. This is reflected I duplication, confusion, and delays of the humanitarian relief that is meant to be provided." (Remarks by the SG at the installation of the IACNDR, Nov. 8, 1999) Establishment of three Working Groups: In its resolution AG/RES. 1682, the Assembly requested the IACNDR to provide the Permanent Council with specific recommendations on a number of issues as stated in paragraph 6 of that resolution, by no later than November 30, 1999. In pursuit of this, the IACNDR established three working groups to facilitate consideration of these issues. The first working group, under the chairmanship of the Pan American Health Organization (PAHO), has undertaken the responsibility of preparing a complete and detailed report that would include recommendations for a coordination mechanism for humanitarian assistance. The second working group, presided over by the Inter-American Development Bank (IDB), was in charge of the examination and evaluation of the different options including proposals for the creation of specific funds and reinsurance pools recently presented. This group also included the participation of the World Bank and other sub-regional and specialized agencies that deal with financial matters on an ongoing basis. The third working group, which the OAS has led, focused on how to advance and increase our capabilities to identify and assess the vulnerability of our peoples and their economic and social infrastructure. The work of this group has involved risk evaluation and will propose policies, strategies, and investments for risk reduction. This group was supported in its efforts with the current activities of the Inter-American Task Force for Follow Up on the Santa Cruz de la Sierra Summit, with its Working Group on Mainstreaming Disaster Reduction in Development. On 30th November, 1999, the Secretary General wrote to the then Chairman of the Permanent Council and advised on the creation of the working groups and the mechanism that would be utilized in responding to the mandates of the Assembly, specifically operative paragraph 6 of AG/Res. 1682. The working groups met on a number of occasions during the last six months and brought together the major stakeholders involved in the specific subjects being analyzed by each group. Drafts of each group’s report were circulated and discussed with the respective participants. The result has been one of consensus. At its meeting on February 8, 2000, the IACNDR reviewed the progress of the groups and urged them to redouble their efforts in completing their tasks. These three working groups have presented detailed and complete recommendations to the IACNDR, which, in turn, considered them at its meeting on May 22, 2000. After some discussion, the members of the Committee accepted and agreed to transmit these recommendations to the Permanent Council for its consideration and subsequent action, as it deems necessary. It should be noted that the Committee has been guided in its deliberations by and benefited from the active participation of the observers listed in operative paragraph 5 of AG/RES. 1682. The full text of the reports of the three working groups may be found as annexes I, II, and III to this report. What follows is a summarized version of Conclusions and Recommendations of the IACNDR, which pertain specifically to operative paragraphs 6 and 9 of AG/Res. 1682, details of which may be found in the reports of the working groups. CONCLUSIONS AND RECOMMENDATIONS AND POINTS FOR ACTION BY THE PERMANENT COUNCIL AND THE GENERAL ASSEMBLY: I. Recommendations on Resolution AG/RES. 1682, operative paragraph 6, and other items identified by the Committee to be brought to the attention of the IACNDR: 6.a. The Most Effective Manner in which the OAS, with the Involvement of the Competent National, Regional, and International Bodies, should participate in the Implementation of Policies and Programs for Mutual Assistance during Emergencies Declared by Member States, taking into account the Effectiveness of OAS Natural Disaster Response Mechanisms in the wake of Hurricanes Georges and Mitch and the Earthquake in Armenia, Colombia The IACNDR would like to stress that there is a considerable amount of organized mutual assistance within the Region, particularly through sub-regional agencies such as the Caribean Disaster Emergency Response Agency (CEDERA) and the Central American Center for the Prevention of Natural Disasters (CEPREDENAC). It recommends to:
Additionally, there are several possible actions that could be considered by the countries in Latin America and the Caribbean. The OAS General Assembly may recommend an increased use of market-based instruments to share the risk and diminish government exposure to rehabilitation and reconstruction costs:
There is evidence that market mechanisms may be insufficient in funding the needs of the economically marginalized populations in the countries. General Assembly may therefore want to consider declaring the need to take special steps in two areas:
The IACNDR concluded that, although in-kind donations may be a valuable contribution to development activities, if these are uncoordinated they are inappropriate and counterproductive in emergency situations and should, therefore, be discouraged. Existing guidelines on donations should be recognized and endorsed by the Region.
The two main strategies to consider by the countries could incorporate: (i) creation and strengthening of markets for insurance and other financial instruments for hedging risk and (ii) alignment of financial instruments with prevention and mitigation objectives, probably with intervention by the governments. The keeping of traditional modes of risk taking and reliance on external support for post-disaster reconstruction may not sustainable. Financing may be directed specifically to prevention and mitigation such as through vulnerability reduction funds or to reconstruction through calamity funds. The IACDNR recommends:
The Committee considers that a proactive stance should be taken to reduce the toll of disasters in the region. It should encompass both pre-disaster risk reduction and post-disaster recovery, involving the following set of activities: risk analysis to identify the kinds of risks faced by people and development investments as well as their magnitude; prevention and mitigation to reduce vulnerability; sharing and transfer of risk transfer to spread financial risks over time and among different actors; emergency preparedness and response to enhance a country’s readiness to cope quickly and effectively with an emergency; and post-disaster rehabilitation and reconstruction which support effective recovery and incorporate measures to safeguard against future disasters. All of these activities require funding. To effectively promote these activities and to prioritize them, the countries in the region face the challenge of putting risk management at the forefront of their agenda. Investment should be directed toward prevention and mitigation of disasters, as well as building risk management capacity. Reducing risk could be adopted by focusing on the following strategic areas (Adopted from Challenge of Natural Disasters in Latin America and the Caribbean: An Action Plan of the IDB):
The Committee observed that natural disasters pose important challenges for financing. Instruments need to be developed with a number of objectives in mind:
The OAS General Assembly should also urge member states to systematically allocate a portion of public sector investment funding to retrofitting existing infrastructure, based on priorities determined by vulnerability assessment and indexing. The international community has diverse ways to provide resources to disaster related investments in a timely fashion. The World Bank, regional and bilateral agencies commonly use their regular financing instruments (loans and technical assistance). In addition, special Emergency Recovery Loans (the World Bank) and funding through the Emergency Reconstruction Facility (the IDB) have been established to provide fast disbursing of funds for investments after disasters. Additional new mechanisms are being created such as through the World Bank ProVention initiative. The IDB is in the process of establishing a new mechanism, the Facility for Innovation in Disaster Prevention. Co-financing arrangements are underway to finance regional prevention and mitigation funds such as managed by CEPREDENAC in Central America. There is fairly good knowledge of how the formal banking system and the use of general development funds (for social, municipal, housing or environmental purposes) may be used as ways of mainstreaming disaster prevention and reconstruction within development investments. Further experimentation is needed for others, such as for insurance and reinsurance, and the creation of specialized vehicles such as for prevention and mitigation purposes and post-disaster calamity funds. The creation of new innovative financial market instruments will pose the greatest challenge of the mechanisms outlined below. The IACNDR therefore offers the following recommendations:
Amplified dialogue on these themes is proposed to take place through an event to be organized in the region in coordination between the different financial organizations operating in the region, during the fourth quarter of 2000.
The participation of the Office for the Coordination of Humanitarian Affairs (OCHA) in the Working Group on Disaster Response and Preparedness allowed for the identification of complementing and common interest areas between the InterAmerican System and the UN System. The UNDP has been very active in the region through the Disaster Reduction and Recovery Program, the objectives of which coincide with the outline of an action plan for the OAS, outlined in point 6.a above. It is also supporting a new initiative, to create a consortium on disasters and climate change for the Caribbean, a sub-region where there are many projects by multiple donors but little coordination between the initiatives. In particular, closer cooperation would be advantageous in the assessment of the needs following disasters and in the promotion of civilian-military collaboration. Consequently, the following is recommended:
The Inter-American System has a considerable capacity and experience in reaching out to various audiences. This capacity should be directed towards the areas of disaster prevention, mitigation and response. Several priority areas have been identified for discussion, mobilization of resources and implementation: education of the donor public; training/briefing of permanent missions; courses for the private sector and NGOs; inclusion of the topic in the curriculum of the I-A Defense College; etc. Many of these activities are being initiated as a result of the contacts established during the meetings of the WG. Therefore:
As indicated above in point 6.e the financial instruments for the reduction of natural disasters are in different stages of development and use. The resources to carry out the recommendations of the IACNDR in country level would come from those sources available in the region. Regional and sub-regional entities and bilateral agencies operating in Latin America and the Caribbean would be involved. However, there is a general lack of non-reimbursable funding in the region. The Committee would therefore like to offer the following recommendations:
II. Evaluation of the Report of the Working Group of the General Secretariat on Revisions of the Statute of FONDEM Regarding FONDEM, the Committee was briefed on the revision of its Statutes, and it was made clear that FONDEM, undoubtedly, has a definite, distinct function. However, minor areas of overlapping were identified.
Finally, the IACNDR proposes the maintenance of the three working groups as a mechanism to continue to facilitate the dialogue on issues relating to preparedness, financing and vulnerability reduction, and in particular to assist in the formulation of a strategic plan on disaster response, and vulnerability reduction, to which the Committee shall concentrate its attention in the coming months. ANNEX I PREPAREDNESS AND RESPONSE WORKING GROUP (PRWG) INTER-AMERICAN COMMITTEE ON NATURAL DISASTER REDUCTION (IACNDR) PRELIMINARY REPORT INTRODUCTION "We (the OAS and its Member Countries) should also concentrate on the design of mechanisms to coordinate and cooperate in emergency preparedness and response in such a way that international and national assistance will be more effective, faster and better able to reach those who need it most. The latter aspect is of particular importance in the short term. We should recognize that in some instances in the past, the generous demonstrations of international solidarity with the affected communities have been limited and obstructed by flaws in the coordination of efforts. This is reflected in duplication, confusion, and delays of the humanitarian relief that is meant to be provided." (Remarks by the S-G. at the installation of the IACNDR, Nov. 8, 1999) The objectives of the Preparedness and Response Working Group (PRWG) are:
Recommendations on resolution AG/RES. 1682 and other items identified by the Working Group to be brought to the attention of the IACNDR: 6.a. The group stressed that there is a considerable amount of organized mutual assistance within the Region, particularly through sub-regional agencies such as CEDERA and CEPREDENAC. It recommends to:
6.b. The Group concluded that, although in-kind donations may be a valuable contribution to development activities, they are inappropriate and counterproductive in emergency situations and should, therefore, be discouraged. Existing guidelines on donations should be recognized and endorsed by the Region.
6.c. The future orientation of the White Helmets initiative in regard to disaster reduction remains to be determined by the new government of Argentina. For this reason, it is recommended that:
6.d. The participation of the Office for the Coordination of Humanitarian Affairs (OCHA) in the Working Group allowed the identification of complementing and common interest areas between the InterAmerican System and the UN System. In particular, closer cooperation would be advantageous in the assessment of the needs following disasters and in the promotion of civilian-military collaboration.
6.e. The Inter-American System has a considerable capacity and experience in reaching out to various audiences. This capacity should be directed towards the areas of disaster prevention, mitigation and response. Several priority areas have been identified for discussion, mobilization of resources and implementation: education of the donor public; training/briefing of permanent missions; courses for the private sector and NGOs; inclusion of the topic in the curriculum of the IA Defense College; etc. Many of these activities are being initiated as a result of the contacts established during the meetings of the WG.
Regarding FONDEM, the Working Group was briefed on the revision of its Statutes, and it was made clear that FONDEM undoubtedly has a definite, distinct function. However, minor areas of overlapping were identified.
ANNEX II INTER-AMERICAN COMMITTEE ON NATURAL DISASTER REDUCTION (IACNDR) Working Group on Financing First Report May 16, 2000 OVERVIEW The countries of Latin American and Caribbean are no strangers to the devastation brought on by hurricanes, floods, earthquakes, landslides and volcanic eruptions. In the last ten years alone, natural disasters killed more than 45,000 people, affected 40 million people and caused over $23 billion in damages. With an average of 40 major disasters a year, the region ranks second only to Asia in terms of the frequency of disaster occurrence. The response of the international community to disasters in the region has usually been immediate and generous, providing post-disaster emergency relief as well as financing reconstruction efforts. For example, during the past four years, the IDB approved $1.5 billion in new financing to help the affected countries recover from disasters, increasing its average annual disaster-related lending by a factor of 10 compared to the previous 15 years. However, recent disasters have revealed the unsustainable nature of after-the-fact approaches. Even if there is international financing for reconstruction, this funding being in the form of loans increases the debt burden of the countries. The consequences of late delivery of the financial resources may also have serious consequence to the socioeconomic development of the affected countries. The three main strategies to consider by the countries could incorporate: (i) creation and strengthening of markets for insurance and other financial instruments for hedging risk, (ii) alignment of financial instruments with prevention and mitigation objectives, probably with intervention by the governments, and (iii) keeping traditional modes of risk taking and reliance on external support for post-disaster reconstruction. A proactive stance to reduce the toll of disasters in the region requires a more comprehensive approach that encompasses both pre-disaster risk reduction and post-disaster recovery. Such an approach involves the following set of activities: risk analysis to identify the kinds of risks faced by people and development investments as well as their magnitude; prevention and mitigation to address the structural sources of vulnerability; risk transfer to spread financial risks over time and among different actors; emergency preparedness and response to enhance a country’s readiness to cope quickly and effectively with an emergency; and post-disaster rehabilitation and reconstruction to support effective recovery and to safeguard against future disasters. All of these activities require funding. To effectively promote these activities and to prioritize them, the countries in the region face the challenge of putting risk management at the forefront of their agenda. Development investment should be directed toward prevention and mitigation of disasters, as well as building risk management capacity. Financing is the last step in a comprehensive disaster risk management strategy. In order to get off the vicious cycle of reconstruction- disaster-reconstruction, it is essential that the development efforts first include effective hazard and risk identification, and that they contribute to the reduction of that risk. As a final step, the risks that cannot be sufficiently eliminated or reduced, should be shared or transferred through the ex-ante and ex-post mechanisms identified in this paper. The international community has diverse ways to provide resources to disaster related investments. The World Bank, regional and bilateral agencies commonly use their regular financing instruments (loans and technical assistance). Special mechanisms have also been created, such as the World Bank’s Disaster Management Facility, which is working to mainstream disaster risk management into that institution’s development efforts; and the ProVention Consortium, a global partnership aimed at reducing disaster risk in developing countries and supporting pilot projects that demonstrate effective disaster management strategies. In addition to its existing Emergency Reconstruction Facility, the IDB is exploring a new mechanism, the Facility for Innovation in Disaster Prevention. Co-financing arrangements are underway to finance regional prevention and mitigation funds such as managed by CEPREDENAC in Central America. Financial instruments are in different stages of development and use. There is fairly good knowledge of how the formal banking system and development funds may be used as ways of mainstreaming disaster prevention and reconstruction within development investments. Further experimentation is needed for others, such as for insurance and reinsurance, and the creation of specialized funds. The creation of new innovative financial market instruments will pose a great challenge. Since both conceptual work, testing and structuring pilot deals are needed in the absence of established markets for innovative instruments, their development is costly but could bring worthy rewards for the countries. Insurance is an important part of risk management strategy, and should be promoted not for its own sake, but because it can be a powerful tool to promote risk awareness and enforce risk mitigation measures. Privately provided insurance not only represents a new source of funding after a disaster (rather than adding to debt), but provides valuable pre-disaster loss prevention services. In developed countries it is considered a basic necessity. The question is how to turn it from a luxury item to an available instrument at a reasonable cost to the people and entities in Latin America and the Caribbean. There are several possible actions that could be considered by the countries in Latin America and the Caribbean:
The future actions by the Working Group on Financing of the IACNDR may include the analysis of several themes. The suggested topics include:
Amplified dialogue on these themes is proposed to take place through an event to be organized in the region during the fourth quarter of 2000. 1. INTRODUCTION 1.1 Objectives of the Working Group At the first meeting of the Inter-American Committee on Natural Disasters Reduction (IACNDR) November 8 1999, hosted by the Secretary General of the OAS it was agreed that there was a need to establish a regional working group on financing related to natural disasters and development. The objective of the group would be to evaluate alternative approaches for financing, " including proposals for the creation of special funds and reinsurance pools…" The IDB agreed to coordinate the Working Group and proposed the participation of the World Bank and regional and specialized agencies in it. This report presents the initial results of the Working Group deliberations and provides a basis for future action. 1.2 Natural disasters and risk sharing According to independent sources of statistics, the occurrence of disasters and reported damages have reached a new record in Latin America and the Caribbean in recent years. While losses from disasters seem to be increasing, the overall level of assistance available for emergencies in the world has been shrinking since 1992. These trends make it all the more necessary for the region to break the cycle of destruction and reconstruction and address the root causes of vulnerability, rather than merely treating its symptoms when disasters happen. A proactive stance to reduce the toll of disasters in the region requires a more comprehensive approach that encompasses both pre-disaster risk reduction and post-disaster recovery. Such an approach involves the following set of activities: risk analysis to identify the kinds of risks faced by people and development investments as well as their magnitude; prevention and mitigation to reduce vulnerability; risk sharing and transfer to spread financial risks over time and among different actors; emergency preparedness and response to enhance a country’s readiness to cope quickly and effectively with an emergency; and post-disaster rehabilitation and reconstruction which support effective recovery and incorporate measures to safeguard against future disasters. All of these activities require funding. To effectively promote these activities and to prioritize them, the countries in the region face the challenge of putting risk management at the forefront of their agenda. Investment should be directed toward prevention and mitigation of disasters, as well as building risk management capacity. Reducing risk could be achieved by focusing on the following strategic areas (adopted from Challenge of Natural Disasters in Latin America and the Caribbean: An Action Plan of the IDB):
The prevention of disasters should be an important element in land use planning, infrastructure investments, production of goods and services, urbanization and housing, especially for the least favored segments of the society. Local decision makers should be involved in the design and implementation of prevention and mitigation in general and as well as the financial mechanisms. The communities provide important resources to finance these activities. Risk management should be financially sustainable. There should be an adequate transition to the creation of legal and institutional framework to facilitate a decentralized decision making process. The Caribbean offers an example of the complexities of the financing issues related to natural disasters. Since disaster events occur regularly the best strategy may be through vulnerability reduction mainstreamed in the development process. The problem is conceived more as a risk management than a risk transfer issue. It is considered more mitigation/loss reduction centered than funding related. However, currently the main instrument under analysis is the insurance-reinsurance approach. In this respect, the main problem is how to broaden the limited pool of a small market. The availability of information on forecasting and vulnerability is a bottleneck both for a risk management and risk transfer. 2. ECONOMIC LOSSES AND FUNDING The justification for an analysis of risk and financing becomes evident in the light of the damages caused by natural disasters in the past. According to ECLAC, the economic losses of natural disasters in the region amount to over US$50 billion since 1972, affecting more than 12 million people and causing 108,000 deaths. Both direct and indirect damages have long term impacts that will affect production cycles and economic growth in the medium and long-term. Short-term fiscal imbalances are a result of the need to make emergency budget allocations and to make immediate repairs after a disaster. These alterations may continue into the medium-term due to a fall in tax revenue as a result of the direct and indirect effects of the disaster. As time passes, the government’s capacity to maintain or improve certain public services or maintain certain activities is gradually affected. This has been observed in social services, such as education and health. These imbalances, together with external ones, reduce the room for maneuver of countries when it comes to international sources of finance. Figure 1 LATIN AMERICA AND THE CARIBBEAN: DAMAGE CAUSED BY NATURAL DISASTERS: (Millions of 1998 dollars)
Source: ECLAC, based on studies made between 1973 and 2000. Natural disasters often have a dramatic negative impact on income distribution. Developing countries insurance coverage against events is limited. Typically only the largest and most modern economic sectors and wealthier social strata have an awareness of the role of insurance and the resources to purchase it. The poor are disproportionately affected by disasters, and have less access to consumption smoothing mechanisms following an event. Therefore, the economic reactivation that occurs after these catastrophes tend to sketch an income and wealth profile that is much more inequitable than the situation prior to the event. Added to this, public economic and social infrastructure most likely lack insurance coverage. Further macroeconomic impacts of disasters include:
The negative macroeconomic impacts lend support to the idea that not only does economic fragility lead to increased vulnerability to natural catastrophes, but also vulnerability to natural catastrophes leads to economic fragility. To sum up, the long-term effects of natural disasters tend to be substantial and diverse, with serious impacts on countries’ prospects for development. This situation provides important impetus for managing economic and financial consequences of natural disasters. First, a country’s national development planning must account for natural disaster exposure and recognize that resources spent to prevent and mitigate the impact of natural phenomena are a very high-yield investment, both in economic terms and in terms of the social and political environment favorable for long-term growth. Second, reconstruction financing must be seen from the perspective of reducing vulnerability for future disasters. 3. PREVENTION VERSUS RECONSTRUCTION: PREVENTION AS THE MAIN OPTION Reducing vulnerability to disasters can be seen as an investment. It can be highly profitable in social, economic and political terms. Vulnerability reduction must be a fundamental part of a systemic and comprehensive vision of development. According to ECLAC, the cost of mitigation can be small compared with the total development investments. For example, to improve the resistance of infrastructure against earthquakes an additional cost of 4-10 percent would be needed. In the specific case of hospitals, the additional cost would represent only about 2 percent of the construction investment. A vulnerability reduction strategy as a basis for sustainable development must follow several basic action lines, the most important of which are comprehensive risk management, the strengthening of macroeconomic capacity to absorb disasters, active policies to reduce the most acute disincentives to prevention and mitigation, the coordination of regional and subregional policies, the strengthening of the democratic system and the increase, reorientation and coordination of international aid. The two multilateral banks based in Washington, D.C. working in Latin America provide examples of how prevention and mitigation are gaining importance in financing related to disasters. The World Bank is the world’s largest provider of disaster reconstruction assistance, and is taking steps to put disaster vulnerability reduction at the core of its efforts to fight poverty. Its Disaster Management Facility (DMF) was established in July 1998 to provide proactive leadership in introducing disaster prevention and mitigation practices in the range of development related activities and improving the World Bank’s emergency response. It promotes the inclusion of risk analysis in World Bank operations and country assistance strategies, provides technical assistance to the World Bank’s operational complex, provides training in the areas of disaster prevention, mitigation and response to Bank staff and clients, addresses strategy and policy issues, and cultivates productive partnerships with the international and scientific communities, private sector groups and NGOs to advance disaster reduction efforts. The most important of these partnerships was launched in February 2000. A global coalition of governments, international organizations, academic institutions, private sector and civil society organizations, the ProVention Consortium aims to reduce disaster risk in developing countries and make disaster prevention and mitigation an integral part of development efforts. The Consortium functions as a network to share knowledge and connect and leverage resources aimed at reducing disaster risk. It focuses on synergy and coordination so that efforts, and benefits, are shared. The DMF provides the Secretariat for the Consortium. Both the World Bank and the IDB provide resources to countries that have suffered a disaster. Emergency assistance may take the form of immediate support in assessing the emergency's impact and developing a recovery strategy; restructuring of the Bank's existing portfolio for the country to support recovery activities; redesign of projects not yet approved to include recovery activities: and the provision of recovery and reconstruction loans. For the IDB, reconstruction has been by far the most visible disaster-related lending. In the last 10 years, Bank financing has concentrated on rebuilding physical infrastructure (water, sewerage, electricity and road systems – corresponding to 65% of all lending in reconstruction), on reestablishing social services (health, education, housing – 25%), and on credit lines and support for productive activities (such as microenterprises – 10 %). In the same period, over two thirds of IDB loans related to emergencies represented new monies to the affected countries. Less than a third of the reconstruction resources came from modifications of already approved loans under implementation. Recently, the IDB has taken several steps to put risk reduction at the center of its development assistance. Financing is responding to greater demand from countries for help in adopting stronger disaster prevention policies and investments. The Bank new policy on natural disasters of March 1999 emphasizes the importance of prevention over response. Together with ECLAC, the IDB has taken a detailed look at disaster vulnerability in the region and presented findings to the seminar on natural disasters, organized by the Bank during its Annual Meeting in New Orleans March 25-26, 2000. On the same occasion, the Bank prepared an Action Plan to face the challenge of natural disasters in the region, published March 2000. These activities were preceded by the establishment of the Emergency Reconstruction Facility of December 1998, a financial instrument of US100 million to provide fast disbursing funds for investments after a disasters. Currently the IDB is in the process of creating a new instrument: the Disaster Prevention Facility to provide investment and technical assistance for disaster prevention and risk management systems through vulnerability reduction and improved preparedness to natural disasters. It will help countries meet risk reduction objectives for their development through consensus building on inter-sectoral priorities, strengthened institutions and preparing countries to launch larger scale national programs. 4. STRATEGIC APPROACHES Natural disasters pose important challenges, and financing instruments need to be developed with a number of these objectives in mind. Principally, these instruments may be designed to:
The three main strategies to consider by the countries could incorporate: (i) creation and strengthening of markets for insurance and other financial instruments for hedging risk, (ii) alignment of financial instruments with prevention and mitigation objectives, probably with intervention by the governments, and (iii) keeping traditional modes of risk taking and reliance on external support for post-disaster reconstruction. 5. INTERNATIONAL COORDINATION The international aid that to date has played such an important part in catastrophes and whose aggregate value is decisive, especially in the smallest and least developed countries, must be increased and reconsidered in line with some of the ideas discussed herein. The international post-disaster aid is often no coordinated: it may be slow and the items included in the aid packages may not fulfill the needs. Vulnerability reduction is the basis for breaking the cycle of destruction–reconstruction–destruction, an objective shared by the international community. In turn–and it must be recognized that this also depends on the ability of the countries affected to formulate their coordination requirements–the international finance institutions and international cooperation agencies must make an active effort to formulate a vision and adopt practical measures that can allow a more wide-ranging and better coordination of resources to confront natural disasters as a development problem. The international community has diverse ways to provide resources to disaster related assistance . The World Bank, regional and bilateral agencies commonly use their regular financing instruments (loans and technical assistance). In addition, special mechanisms have been created, such as the ProVention Consortium, which promotes disaster risk reduction as an integral part of development. As indicated before, the IDB is exploring a new mechanism, the Facility for Innovation in Disaster Prevention. Co-financing arrangements are underway to finance regional prevention and mitigation funds such as managed by CEPREDENAC in Central America. 6. INSTRUMENTS FOR FINANCING RISK REDUCTION AND DISASTER RECONSTRUCTION WITH MITIGATION Various types of instruments could be taken into consideration for the first two strategies mentioned in the section above in order to improve financing related to natural disasters in Latin America and the Caribbean: (i) creation and use of market based instruments and (ii) establishment of financial instruments with prevention and mitigation objectives, and partial government intervention especially in favor of vulnerable groups. The following instruments are in different stages of development use. There is fairly good knowledge of how the formal banking system and development funds may be used as ways of mainstreaming disaster prevention and reconstruction within development investments. Further experimentation is needed for others, such as for insurance and reinsurance, and the creation of specialized funds. The creation of new innovative financial market instruments will pose the greatest challenge of the mechanisms outlined below. a) Insurance and reinsurance. The creation and strengthening of insurance markets is a long term strategic goal. Focused actions to develop insurance markets include removing legal and regulatory impediments to insurance market development; property titling, building codes, increasing information on risk, possible tax incentives for acquiring insurance and commitment by government and donors not to bail out insurable asset losses. In the absence of a well-functioning private insurance market, more immediate alternatives should be explored such as solidarity and group insurance mechanisms and government limited-liability insurance and reinsurance schemes. b) Improved financial services through the formal banking system (commercial banks, credit cooperatives including for micro-credit) and informal credit. Promoting a healthy system of private banks and credit associations for savings and lending, and supporting micro-finance institutions are worthy goals for the development of disaster related funding. A self imposed protocol for funding reconstruction and development projects by national banking systems could be established. It would have the objective of breaking the vicious cycle of funding construction and reconstruction with inadequate standards to avoid repeatedly damages to the property. Criteria for land use planning, vulnerability assessments, building standards, etc. could be established to avoid funding of high risk projects. c) Specialized funds. Financing instruments may be structured to provide contingent financing in the case of a disaster, with special rules that direct ex-ante resources to prevention and mitigation as condition of eligibility for post-disaster resources. The Mexican Fund for Natural Disasters, for example, provides ex post disaster reconstruction assistance and at the same time promotes investment in mitigation measures. Financing may be directed specifically to prevention such as through vulnerability reduction funds in the U.S. Environmental funds in the Latin American and Caribbean countries may also be used for this purpose. d) Development funds, with tied resources and rules for mitigation investment and technical assistance as part of transfers for such sectors as social development, housing and municipal development. Similar funds could be designed for other countries in the hemisphere. Many opportunities for integrating risk management into these development funds exist throughout the region. Some success has been achieved in reconstruction programs executed through these funds, primarily in the areas of social infrastructure such as schools and hospitals. Good practice guidelines will be needed to help design the criteria for selecting the types of prevention and reconstruction investments that would be sustainable and economically effective. e) Innovative financial market instruments. This category includes such instruments as catastrophe bonds and options, weather indices and others. It also includes contingent financing vehicles, such as Cat-Equity-Put options or Reverse Convertible Debt which enable a firm to re-capitalize at low cost to finance the post-loss investment,. With innovations in risk modeling, such as parametric risk modeling, these instruments can be developed with increasing investor confidence. While the use of these instruments in developing countries is at an early stage and requires careful testing and pilot projects, they could prove to bring worthy rewards for the countries. The World Bank is also exploring the use of guarantees for disasters. For example, with a Partial Credit Guarantee, the Bank covers a portion of debt services, enabling the country to borrow in commercial debt markets at a lower interest rate cost over a longer period than would otherwise be available based on its own credit standing. Compared with a direct Bank loan, a Partial Credit Guarantee would enable the government to mobilize larger amounts of financing. 7. PROPOSED AREAS OF ACTION TO OAS MEMBER STATES The traditional strategy of risk taking and reliance on continuous external support for reconstruction has proven costly to developing countries hit by natural disasters. Therefore, the actions of disaster reduction should be mainstreamed into the general development process. The following items are recommended for action by the OAS member states. These actions will be complementary to those taken in the areas of other IACNDR working groups on natural disasters: coordination of disaster preparedness and response, and vulnerability assessments and indexing.
8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions This report has analyzed the grave social and economic consequences that natural disasters have on developing countries. Prevention and mitigation of natural disasters can be very profitable investments. Development investment should contribute to the prevention and mitigation of disasters, as well as building risk management capacity. Insurance is an important part of risk management strategy, and should be promoted not for its own sake, but because it can be a powerful tool to promote risk awareness and enforce risk mitigation measures. Privately provided insurance not only represents a new source of funding after a disaster (rather than adding to debt), but provides valuable pre-disaster loss prevention services. In developed countries it is considered a basic necessity. The question is how to turn it from a luxury item to an available instrument at a reasonable cost to the people and entities in Latin America and the Caribbean. A proactive stance to reduce the toll of disasters in the region requires a comprehensive approach that encompasses both pre-disaster risk reduction and post-disaster recovery. Such an approach involves the following set of activities: risk analysis to identify the kinds of risks faced by people and development investments as well as their magnitude; prevention and mitigation to address the structural sources of vulnerability; risk transfer to spread financial risks over time and among different actors; emergency preparedness and response to enhance a country’s readiness to cope quickly and effectively with an emergency; and post-disaster rehabilitation and reconstruction which supports effective recovery and safeguards against future disasters. All of these activities require funding. Financing is the last step in a disaster risk management strategy. In order to get off the vicious cycle of reconstruction- disaster-reconstruction, it is essential that the development efforts first include effective hazard and risk identification, and that they contribute to the reduction of that risk. As a final step, the risks that cannot be sufficiently eliminated or reduced, should be shared or transferred through the ex-ante and ex-post mechanisms identified in this paper. To effectively promote these activities and to prioritize them, the countries in the region face the challenge of putting risk management at the forefront of their agenda. Studies and regional dialogue should complement national efforts to identify and increase the understanding of good practices of risk reduction and sharing/transfer. 8.2 Recommendations for the Working Group The Working Group on Financing has had virtual meetings through Email where comments have been solicited on the use of financing instruments and identification of challenges and practical solutions for their use. The dialogue will continue in this format on the second and third quarters of 2000, especially on the specific financial instruments available and being developed by the public and private financial entities, including insurance and bond instruments. The other means have been through meetings organized by the participating institutions, the World Bank and the IDB and through personal contact among the Washington based staff. These contacts will be cultivated and expanded with regional entities by making use of missions and international events in Latin America and the Caribbean. The Working Group’s future actions should include the analysis of several themes. The suggested topics include:
Amplified dialogue on these themes is proposed to take place through an event to be organized in the region during the fourth quarter of 2000. ANNEX III Inter-American Committee on Natural Disaster Reduction (IACNDR) Working Group on Vulnerability Assessment and Indexing (VAI) Preliminary Report Developing Policy and Strategic Actions for the OAS Member States with Respect to Natural Hazard Vulnerability Assessment and Indexing May 16, 2000 CONTENTS Executive Summary 1. Background 2. The Need for Disaster Reduction 3. Task of the VAI Working Group 4. Relationship of the IACNDR to the Hemispheric Framework 5. Applications of Vulnerability Assessments and Indexing 6. Structure and Function of Vulnerability Assessments and Indexing Methodology 7. What the IACNDR and the OAS Permanent Council Can Achieve 8. Supporting Activities to the IACNDR 9. Areas of Action for OAS Member States 10. Proposed Structural Components of the VAI Working Group 11. Proposed Activities and Timetable for the VAI Working Group 12. Conclusions APPENDIX 1: Hemispheric Mandates Executive Summary Objectives of the Working Group on Vulnerability Assessment and Indexing The objective of the Working Group on Vulnerability Assessment and Indexing (VAI) of the Inter-American Committee on Natural Disaster Reduction (IACNDR) is to prepare recommendations on the structure, function and application of vulnerability assessments and indexing to natural hazards, for consideration by the OAS Permanent Council in order to assist the OAS member states in implementing the mandates they have adopted through OAS organs, the hemispheric summits and other declarations. These recommendations should outline policies and strategic actions that the countries might take on a regional basis as well as individually in a coordinated fashion. These recommendations should also assist those entities that generate and use – or will use in the future – vulnerability assessments and indexing to understand the needs, concerns and actions of the governments as well as the private sector and civil society acting through various mechanisms. Recommendations on Resolution AG/RES. 1682 and other items identified by the VAI Working Group to be brought to the attention of the IACNDR: Actions related to vulnerability assessment and indexing can and must identify the specific populations and components of economic and social infrastructure that are priorities to the member states in their national, regional, and hemispheric contexts. The actions are complementary to those of: (a) coordination of disaster preparedness and response, and (b) financing disaster reduction. The following actions are recommended by the OAS member states. Resolve 6.e,h Long Term Action
Resolve 6.f,h Resolve 10 Immediate Term Action
Resolve 6.g,h Immediate Term Action
Resolve 6.g Resolve 10 Intermediate Term Action
Resolve 6.g,h Intermediate Term Action
Resolve 6.g,h Resolve 10 Intermediate Term Action
The VAI Working Group is complementing these actions with the following steps: Resolve 6.e:
Resolve 6.f:
1. Background The objective of the Working Group on Vulnerability Assessment and Indexing (VAI) of the Inter-American Committee on Natural Disaster Reduction (IACNDR) is to prepare recommendations on the structure, function and application of vulnerability assessments and indexing to natural hazards for consideration by the OAS Permanent Council in order to assist the OAS member states in implementing the mandates they have adopted through OAS organs, the hemispheric summits and other declarations. These recommendations should outline policies and strategic actions that the countries might take on a regional basis as well as individually in a coordinated fashion. These recommendations should also assist those entities that generate and use – or will use in the future – vulnerability assessments and indexing to understand the needs, concerns and actions of the governments as well as the private sector and civil society acting through various mechanisms. During the latter part of the 1990s a shift began to take place simultaneously at the policy, strategic action, and program implementation levels away from a central focus on disaster preparedness and response and towards vulnerability reduction of populations and their economic and social infrastructure. For certain the shift is still incipient in some countries and in some sectors. But what is obvious from the review of presidential summit, hemispheric, regional and subregional declarations, plans of actions, pilot programs, and projects dating from the 1980s, is that there has been a growing recognition that the principal issue is not the disaster itself, but rather the vulnerability that leads to death, destruction and damage. Over time, increasing emphasis has been put on the natural events, the hazards they pose, and the vulnerability of the elements at risk. Still now the vast majority of international assistance – apart from response to disaster declarations – is applied to emergency preparedness and response technical assistance, training, and technology transfer. There is now also a growing discussion in international development assistance and lending institutions as to how past and current development models have not only contributed to, if not created, vulnerability that has resulted in damage and loss. The discussion involves two types of actions. The first are actions related to emergency preparedness and response in the case of a hazardous event. These actions are often thought of as part of a vicious cycle with disasters occurring again and again, followed by a response and preparation for the next hazardous event. The other type of actions are those taken through development that consider hazardous events and their outcome as incidents in a development continuum where management of vulnerability is central not only to reducing event impact but also to avoiding the likelihood of loss in the future. Vulnerability assessment and indexing are a necessary part of lessening the impact of hazardous events for both types of actions. But vulnerability assessment and indexing are not sufficient, in and of themselves, to lessen the probability of one or more member states being forced into the situation of issuing an international appeal for assistance following a hazardous event. Vulnerability and indexing are part of a series of information needs including hazard mapping, specific risk assessments, predictions, and forecasts. With particular reference to sustainable development, it should be reiterated that sustainable development is impeded by vulnerability. The intergenerational dimension in the call for sustainable development models is not specific enough to assure that future generations will enjoy less vulnerability in the future: specific populations and their specific economic and social infrastructure must be targeted now for vulnerability reduction. Focusing priority actions on the poor is not specific enough to ensure that they develop in less vulnerable environments: specific segments of the poor and their economic and social infrastructure must be targeted for vulnerability reduction. Calling for greater public-private partnerships is not specific enough to lessen vulnerability: specific sectors and their economic and social infrastructure must be targeted for vulnerability reduction investment. In the image of the "vicious cycle," the emphasis is put on the "window of opportunity" following a disaster declaration to capture the attention of public and private sector policy and decision makers alike to act on vulnerability reduction. This image engenders using the disaster to provoke action and is, as such, self-defeating. The more appropriate image is one of the "window of opportunity before the next event." How much time is left before a member state must issue an international appeal for assistance? In reviewing the discussion below, it will be obvious that neither vulnerability assessment nor indexing approaches will meet the needs of all potential applications. None was designed for nor requested to do so. What should be obvious at this point is that the need for vulnerability assessments and indexing is quickly changing and expanding, and the applications are varied and sometimes complex. They will undoubtedly play an increasing role in policy and strategic actions as well as in the design and implementation of specific programs and projects for disaster preparedness and response and economic and social development.
2. The Need for Disaster Reduction The forces helping member states to move at this time to deal directly with natural disaster reduction issues include:
The public sector is entering an era of scrutiny of its treatment of risk reduction to natural hazards. Will the public sector treat risk reduction as an external force that acts on its development actions? Or will the public sector internalize risk reduction as an objective of development through active and passive means? The choice is particularly critical regarding the infrastructure the public sector owns and/or operates, as well as risk reduction of the poor who are the most vulnerable segment of the population. Development policy and strategic actions on the side of governments will be evaluated in the future in part as to whether they internalize or externalize vulnerability to natural hazards. When does risk reduction become an objective rather than a variable in development? When does the private sector take active measures to reduce financial risk? When does the public sector reduce the vulnerability of public buildings of assembly? When do social programs for the poor include investments in lessening possible loss of life and property? 3. Task of the VAI Working Group The task of the VAI is extremely important because:
4. Relationship of the IACNDR to the Hemispheric Framework See Appendix I for a list of the hemispheric mandates covering disaster reduction in the context of development. The relationship of the IACNDR to the larger framework that has been created by the member states in the hemisphere can be described as follows:
5. Applications of Vulnerability Assessments and Indexing Vulnerability assessments and indexing are steps leading to an understanding of risk, which is the basis upon which investment decisions will be made. Vulnerability assessments identify probable losses given specific types of hazards. Vulnerability indexing rates or summarizes the level of vulnerability across a geographical unit, such as a country, and may serve as a benchmark for emergency preparedness as well as risk reduction activities. Risk, a term often used interchangeably with vulnerability, refers to an identifiable component of the population or economic or social infrastructure and its expected level of damage given a specific event (earthquake, hurricane, volcanic eruption, flood, landslide, etc.) in a specific place and with a specific severity and frequency. Vulnerability assessments and indexing are usually done prior to risk assessments, which are more costly and time consuming to prepare. Risk assessments should be carried out in the context of anticipated actions (programs, projects and investments) to reduce the vulnerability of the identified component. Reducing risk includes vulnerability assessments and indexing, as appropriate. The risk is considered to impact on a physical asset such as a road, a school, or an irrigation canal. Risk from the impact of natural hazards can be categorized as one of three types: financial, economic, and physical. For the purposes of discussion of vulnerability assessments and indexing, these three categories of risk can be defined in the following way.
Vulnerability and risk can be dealt with through passive or active measures. Passive measures are usually implemented by the society through the public sector and they apply to the entire population as part of developing infrastructure (building codes, mandatory insurance, hazard zoning, etc.). Active measures are those that, once the individual is aware of the vulnerability and specific risk, the individual may elect or not to reduce his or her exposure. Active measures are usually associated with the private sector. The public sector may pursue a public good (safety in buildings of public service delivery or assembly) by using passive measures (building codes and ordinances). But critical to using vulnerability assessments and indexing is to understand the limits of passive measures. Passive measures might have little impact on the informal housing market - illegal or uncontrolled housing construction – when perhaps more than 40% of a country’s housing is constructed in such a manner. Added to this is the challenge to local authorities as governance is being decentralized and increased responsibilities are being placed with provincial and municipal governments. For both the public and private sectors alike, disaster reduction will necessitate increased active measures, which implies investments. And the sectors will have to choose between active measures that deal with financial risk (purchasing insurance or self-insuring) or measures that deal with economic and physical risk (investing in redundancy in key public infrastructure components or retrofitting vulnerable infrastructure components). Vulnerability and risk assessments are well enough developed in theory and practice in the hemisphere to discuss risk reduction in specific terms of hazard type, production or social sector, economic level, and geographical place. In each case, it is now possible to determine in a preliminary fashion the vulnerability levels, if not the specific risk |
