THE GEORGE WASHINGTON UNIVERSITY

Institute of Brazilian Business and Public Management Issues

Instituto Cultural Minerva

"Theory and Operation of a Modern National Economy"

INVESTMENTS IN THE STATE OF BAHIA

TOURISM: A WAY TO DEVELOPMENT

By FRANCISCO ALFREDO MARCÍLIO DE SOUSA MIRANDA and

MARIA DE FÁTIMA ARAÚJO D’OLIVEIRA SANTOS

Fall 1998

1 - INTRODUCTION

In this paper, we will trace a broad profile on the State of Bahia, focusing on the dynamism of its economy and on its capacity of attracting new investments. We will try to show the adjustment made by the public administration, aiming to adapt the State’s role to the new reality under the globalization process, giving emphasis to the State Government’s priorities, strategically tuned with the new social and economic development cycle.

To start with, we will provide a brief description on the state’s geographical and demographical aspects. Then, we will analyze the economic and financial situation of the State as well as the discrimination of general investment programs in progress and for the future. Finally we will focus on the strategy for the development of the tourism in Bahia.

The development of the tourism in Bahia and its investments, which will be the main subject of this paper, constitute an additional guidance consolidated by the Government of the State of Bahia. Through the Tourism Development Program – PRODETUR, it proposes a strategy for the development of the State through tourist activity, considering that this is a segment that has proved to produce fast economic growth.

This proposal is based on the fact that the country’s new cycle of tourism development will have to be fundamentally organized on a decentralization strategy, in order to reduce the concentration that prevails today concerning Rio de Janeiro, for instance. The opening of new frontiers has been greatly demanded, particularly by international tourism, what widely enlarges the perspectives of Brazil’s Northeastern Region. Due to the peculiarities of its weather as well as for its singular historical and cultural characteristics, Bahia stands out within the territory.

From the understanding that there is a dynamic interface among the existing tourist centers, the development strategy presents basic guidelines of intervention for the achievement of greater urban and regional development. Therefore, the main purpose of the Program is to arrange the tourist space within the State for the implementation of Integrated Tourist Centers, located in zones with manifested tourist potential.

The perspectives of the Program are not limited to tourism affairs; the development dynamics of this segment produces a better quality of life, since tourist territories begin to perform the role of job-generating sources. However, such process cannot take place without effective planning. Therefore, the Bahia Tourism Development Program – PRODETUR should produce particular actions by municipal governments and free enterprises towards its effective implementation.

2 - STATE’S GENERAL INFORMATION

2.1. GEOGRAPHICAL FEATURES

At 561 thousand km² (217 mi²), Bahia is the largest state of the Northeastern region. It has boundaries with the following states/areas: North – Piauí, Pernambuco and Sergipe; South – Espírito Santo and Minas Gerais; West – Goiás and Tocantins; and East – Atlantic Ocean. It has had 415 municipalities for the last eight years.

In addition to its considerable size, it has the longest coastline of the country: 1.103 km long (685 miles: north coast – 143; Todos os Santos Bay – 124; and southern - 418). With 68% of its territory located in the semi-arid zone, the State presents diversified climates and an average rainfall that varies from 363 mm to 2,000 mm/year, depending on the region.

Regarding the weather, Bahia is one of the most privileged states of the country with the following temperatures: 19.2 to 26.6^oC (66.6 to 79.9^oF) annual average; 6.1^oC (42.5^oF) absolute minimum at the municipality of Caetité; and 41^oC (105^oF) maximum at the municipality of Remanso.

2.2. DEMOGRAPHICAL FEATURES

Bahia is the fourth most populated state of the country, with 12.5 million inhabitants (according to the population census done by IBGE in 1996), and the most populated one in the northeastern region, with 28% of the region’s population. The annual population growth rate has been falling. Between 1980 and 1991 the average growth rate was 2.1% and it fell to 1.1% between 1991 and 1996. Within this same period the annual growth rate of the Brazilian population decreased from 2.0% to 1.4%. The Economically Active Population in 1996 totaled 5.7 million people, equivalent to 44.3% of the total population of the state.

The Salvador Metropolitan Region - RMS, with 10 municipalities and 2.7 million inhabitants, concentrates approximately 22% of the state population. Its Economically Active Population totals about 1 million and 302 thousand people.

Major Municipalities - 1997

3 – ECONOMIC ANALYSIS

Bahia is the sixth largest economy of the Country. In the mid 1950s, the Bahian economy could be considered a typical example of the primary-exporting model, which followed the subsistence production. For ten years this dynamic was led by cocoa crop that used to be the state’s main product and its most important source of income.

With the acceleration of the industrialization process in the 70s’, which started in the 50s, the productive structure began to change. This process, which was not limited to the regional market, was inserted in the Brazilian industry matrix through the chemical (specially petrochemical) and metallurgical segment.

Consequently, for the last twenty years, the dynamism of the Bahian economy has surpassed the national economy and the State was able to present higher growth rates than the ones presented by the national economy.

3.1. GDP

In 1997 the Gross Domestic Product of Bahia reached US$35.6 billion and the per capita income US$2,850. In that year, its growth rate was 4%, a significant result, in face of the 3% increase of the national GDP. For 1998 the GDP growth of Bahia was firstly estimated in 3.4%, while the Brazilian GDP growth was estimated in 2%. Therefore, Bahian GDP has been growing for six consecutive years.

3.2. GDP EVOLUTION RATE

Between 1992 and 1997, Bahia’s GDP grew 19.1%. The following table shows the annual growth rates of Bahia and Brazil’s GDP during the same period.

Bahia and Brazil’s GDP

1992 – 1996

Source: SEI

3.3. GDP SECTORIAL COMPOSITION

The evolution of the sectorial composition of the GDP, between 1960 and 1996, confirms the growing importance of the industrial sector within the current profile of the state economy, which results from the transformations that have happened for the last 40 years.

Sectorial Composition of Bahia’s GDP

Source: SEI

3.4. GDP GROWTH FORECAST

The Bahian economy is expected to register an average growth of 3.1% for a three-year period between 1998 and 2000, according to studies conducted by "Superintendência de Estudos Econômicos e Sociais da Bahia – SEI" (Bahia Social and Economic Studies Agency).

The industrial sector is expected to be the main contributor to this growth, particularly from 1999 on, when the investments that are being made now in the chemical, petrochemical and automotive segment, in agroindustry and food production will be consolidated.

Consequently, Bahia’s GDP over the next three years is anticipated to be the following:

GDP Evolution

1998 – 2000

Source: SEI

The Government’s goal over the next years is to achieve at the very least an average growth of 3.1%. In order to reach this goal , it’s necessary to maintain the rhythm of public and private investments. Also, the agriculture/livestock must not be severely affected by any climatic phenomenon, such as "El Niño"

3.5. EVOLUTION OF REVENUES

3.5.1. Overview

The total revenue of the State of Bahia shows such a consistent tendency for growth. Even the most conservative projections indicate that this trend is likely to continue. During the 1994 - 1997 period this revenue almost doubled in real terms, surpassing the level of US$3,111 million for a total of US$5,952 million in 1997.

The total revenue in 1997 consisted of 69.6% in current revenues (taxes, assets, and transfers) and 30.4% in capital revenues (credit operations, sales of assets, and others), representing an increase of 34.2%, as compared to the previous year.

The state’s current revenues have also been showing a tendency for growth. During the past four years alone there has been a continued growth in tax revenues, reflecting the implementation of fiscal and economic policies by the State Government.

In the fiscal field, a vigorous modernization program stands out, with an immediate positive effect on fiscal efficiency. The consequences of which imply an increase in revenues and optimize costs.

Similarly, the readjustment of the state through its privatization program, in addition to strengthening the agricultural sector, as well as the launching of incentives toward new expansion vectors such as the automobile and shoe industries, allows us to see sustainable outcomes for the development of the State of Bahia.

With respect to capital revenues, which account for 30.4% of the state’s total revenue, most noteworthy are credit operations aimed at financing new investments in accordance with the goals and objectives defined by the State Government, thus fostering the necessary conditions for the sustainable growth seen in the State of Bahia.

It should be emphasized that credit operations, while an alternative to attracting financial resources, have been utilized at levels far below legal limits, notably those established in the Resolution # 69/95 of the Federal Senate.

On the other hand, the sales of assets have had a surprising impact in 1997. It is explained through the implementation of the privatization program, which has resulted in the privatization of COELBA under extremely favorable conditions to the state.

3.5.2. Evolution Figures

During the 1994 - 1997 period, the State of Bahia’s total revenue has presented a real average growth of 24.7%.

3.5.3. Most Significant Items in the State’s Revenue

In the scope of current revenues, which comprised for 69.6% of the total revenue in 1997, tax revenues are the single most important item, responsible for 63.3% of the current revenues and 44% of the total revenue.

The revenue derived from the Federal Government transfers is very important in the composition of Bahia’s revenue since it accounted for 31.1% of current revenues and 21.6% of the total revenue in 1997. However, it is not a determining factor in the upward curve of the State of Bahia Treasury’s Own Resources, due to the outstanding performance of the already-mentioned tax revenues.

Regarding capital revenues, their share in the total revenue in 1997 was 30.4%, mainly due to the income from the sales of assets included in the State Privatization Program.

The ICMS Contribution (6th Largest in the Country)

The ICMS is the single most important revenue in the state, accounting for 93.3% of tax revenues and 41.1% of the total revenue. However, it does not mean inflexibility for the generation of additional revenues. According to the pertinent Legislation, the State of Bahia applies the ICMS minimum tax rate of 17%, like most of Brazilian states, although some apply the tax rate of 18% and others 37%. For a few services and superfluous products, again like other states, Bahia established a restricted tax rate of 25%. Regarding "basic supplies" (food products), Bahia, unlike other Brazilian states, applies a tax rate of 7%. This means that, regarding the ICMS, since the State of Bahia applies minimum tax rates, there is enough room for increases that are not implemented, because the Government understands its current fiscal policy as adequate.

In addition, the ICMS contributing base in the State of Bahia is quite diversified. It is led by the Industrial Sector – a typical configuration of mature economies that are very little dependent on seasonable circumstances to which agriculture-based economies are subject, as demonstrated in the following table:

ICMS Composition By Sector - 1997

Source: ASPLAN / SEFAZ

It is important to notice that the ICMS composition by segment is also very diversified, reducing the risk of occasional fluctuations.

ICMS Composition By Segment - 1997

Therefore, in absolute terms, the State of Bahia’s ICMS revenue is among the largest tax collections in the country (São Paulo, Minas Gerais, Rio de Janeiro, Rio Grande do Sul, and Paraná).

Worth noting is the fact that among the top-six ICMS collecting states Bahia presented the largest percent increase in ICMS collection over the 1993 - 1996 period, easily observed through the presented annual variation and the cumulative growth of approximately 69%. Over the cumulative 1994 - 1997 period, the growth rate was 31.7%, also higher than that of the other states considered.

•  
• Evolution of the ICMS

Over the past six years (1992/1997) the ICMS collection in the State of Bahia has presented real growth, especially from 1994 – beginning of "Plano Real", when ICMS revenues experienced significant increases. In 1997, however, the collection of ICMS presented a decrease of 1.7% by comparison with 1996. Such an event resulted from the exhaustion of the consumption boom caused by currency stabilization plan, and by the effects of the Kandir Law.

In order to motivate exports – an initiative of the Federal Executive Branch, the National Congress approved a bill to be adopted from 1997, named the Kandir Law. This law exempts all semi-processed products intended for exports from ICMS. The effects of the Kandir Law, however, were different from state to state depending on each one’s export inventory. In the case of Bahia the effects were negative, with collection losses. To lessen the damage, the Federal Government set up a kind of compensatory device which did not fully make up for the losses.

Despite this, there was actual growth in the ICMS for the 1992 - 1997 period. Such circumstance stems from the success of the previous and current administrations in searching for and actually attracting new investments to the state, as well as in modernizing and systematizing collection and fiscal controls.

The real growth in Bahia’s ICMS is noteworthy when compared to macroeconomic indicators such as the annual GDP growth for both Brazil and Bahia. In the 1994 - 1997 period, while both Brazil’s GDP and Bahia’s GDP grew at annual averages of 4% and 4.1%, respectively, the ICMS had an average annual growth of 14.1%.

Regarding the by-sector composition of the ICMS, we can observe that the contribution of the industrial sector represents more than half (54.8%) of the ICMS collected in the state, followed by the sectors of trade (29.7%), services (14%) and agriculture (1.5%).

3.6. EVOLUTION OF EXPENDITURES

3.6.1. Overview

With US$3,861 million in 1997, current expenses (personnel, social and debt burdens, and others) represent approximately 77.6% of total expenditures in the State of Bahia.

For the 1994 - 1997 period, current expenses maintained an average annual growth rate of 17%.

On the other hand, capital expenses (financial inversions, investments, amortization of the debt and others), represent 22.4% (approximately US$1,117 million) of an actual total expenditure for 1997 that reached US$4,977 million.

3.6.2. Evolution of Personnel Expenses

In the State of Bahia, personnel expenses have grown at an average rate of 14.1% in the 1994 - 1997 period.

In 1997, personnel expenses reached US$1,926 million, representing an increase of 6.4% in comparison with the previous year, and approximately 38% of total expenditures.

Although under control, Personnel Expenses have, as a matter of fact, shown real growth which can be explained by the legal increases in the minimum salary and cumulative remuneration (overtime, extras, vacation pay and extra classes). In 1995 the increase in the minimum salary was 42.9%. In 1996 it was 12%, and 7.1% in 1997.

•  
• Complying with Constitutional and Camata Law Limits

The portion of the state’s expenditures assigned to personnel, in relation to the Net Current Revenue, has been kept below the limits established by the Federal Constitution and additional legal rules (Camata Law).

In addition to attempting to comply with the established juridical framework, such efforts represent an absolute control of public finances applied by the State of Bahia’s current and previous administrations.

In the 1994 - 1997 period, the share of the state’s expenditures assigned to the payroll, in relation to the Net Current Revenue, has always been kept below 60%, or at 57%, in average. In 1997, the participation of the payroll was even smaller: about 55.3%.

One of Brazil’s foremost newspapers, A Folha de São Paulo, on November 26, 1997, highlights that the Camata Law is complied with by only seven Brazilian states. Among the seven largest ICMS-collecting states, only the State of Bahia is within the legal limits.

Percent Participation of Personnel Expenses

In the Net Current Revenue

From A Folha de São Paulo newspaper, November 26, 1997, page 01-06

* A projection of 52% was indicated for Bahia on the paper.

3.6.3. Evolution of Investments and Outlays

•  
• Outlays

Outlays expenses in the State of Bahia have been kept between 14 and 20% of total expenditures. A certain acceleration has been observed lately, due to new services being rendered to the population, and also to the outsourcing of some of them. Such increments, however, have been compensated with the reduction of personnel's cost and the improvement in the quality of the services offered. As a matter of fact, increments could have been even greater if a series of successful actions had not been implemented, among them, the following:

•  
• Downsizing of the administrative structure by closing state companies and agencies, as well as buyouts and mergers;
•  
• Reduction of personnel expenses by developing the Program for Voluntary Dismissal and Motivated Retirement;
•  
• Implementation of the Policy for Privatization, Concession and Outsourcing of public services, reducing the size of the State;
•  
• Establishment of a social security fund, the FUNPREV, to be responsible for the payments of pensions and retirements, as well as for the provision of health assistance service, the latter to be managed by private companies, making financial resources available for the State to carry out new investments;
•  
• Upkeeping personnel expenses at a level that is compatible with its payment capacity – as a function of the state’s Net Current Revenue, always within the Constitutional limit and, moreover, below the limit of the Camata Law;

•  
• Investments

The State of Bahia has been assigning a significant part of its revenues to public investments.

The investment programs of the state have been backed basically by its own resources and, in a complementary fashion, with resources originating from credit operations signed with international organizations (World Bank, IDB, KFW, OECF, etc.), and with national creditors (CEF, BNDES, etc.).

There are governmental investments in progress in the fields of environmental and urban sanitation (Bahia Azul), popular housing (Viver Melhor), transportation (Corredores Rodoviários), tourism (Prodetur), urban development (Produr), and regional development (Sertão Forte).

Social areas have also been given priority by current and previous administrations. The construction of new teaching facilities, the set up of a training and career development center for teachers, as well as new hospitals and health centers, and the acquisition of equipment and the modernization of the civil and military polices are examples of this Government’s action.

The significant increase in the amount of investments in the year 1997 is explained by the success of the state privatization program, confirming the purpose of the government in intensifying public development projects throughout the state.

3.7. BUDGET RESULTS

Current Result

Current Result is defined as the current revenue minus current expenses. Over the 1994 - 1997 period, the State of Bahia has been capable of generating surpluses for financing new investments, as well as for the amortization of debts contracted essentially for the expansion of the state’s capital stock back-feeding the growth process. Therefore, we see positive results for all years: US$604 million in 1994, US$450 million in 1995, US$363 million in 1996, and US$280 million in 1997.

Net Current Result

This is defined as the Current Result minus amortization. With this equation, the State is able to identify its payment capacity, as well as outline the State’s Net Savings earmarked for capital formation. A significantly positive result of US$435 million was observed in the first year of the series, while slightly negative results of US$68 million and US$11 million were observed in 1995 and 1996, respectively, although they may be easily made up for by the positive results of the previous year and the following year. In 1997, there was a positive result of US$35 million, generating surpluses after all the amortization payments for investment financing.

Primary Result

In the 1994 - 1997 period, as we deduct the financial income and credit operations from total revenues, and we subtract total expenditures and debt burdens from the result, we display extremely comfortable results, considering the surplus of US$1,129 million for the years 1994 and 1997, as opposed to only US$42 million for the years 1995 -1996.

Operating Result

This, defined as the primary result plus financial income minus burdens and amortization, demonstrates the reaction of the state to face up all of its duties using its own financial resources. Such a fact is owed to the increase in its own resources, an outcome of fiscal efficiency gains and attenuation in its debt profile, as well as the decline in its debt stock.

3.8. PROJECTIONS

3.8.1. Revenues

The projection of total revenue for the 1998 - 2000 period shows an upward perspective, even with conservative indicators drawn out from the historical evolution of the figures for the 1994 - 1997 series.

Current revenues are also keeping this upward tendency, and the same is observed with tax revenues, given the demonstrated historical performance. However, this is now somewhat moderate and conservative, for once we assume the exhaustion of the effects from the increase in fiscal efficiency, further growth shall become more related to GDP growth both at state and national levels, variables that were considered in our methodology for the projection of these revenues.

Furthermore, a downward trend is projected for assets revenues as a result of the reduction in financial participation because of the economic stability. On the other hand, current transfers keep their growth trend because of the increase in Brazil’s GDP, also projected in a conservative and consistent way.

Regarding capital revenues, given existing and prospective credit operation contracts, we observe a continuous decrease in the annual amounts concerning releases from 1998, which justifies the comfortable situation of the state with respect to its debt engaging capacity, as it allows the identification of alternative sources for the attraction of financial resources.

Still with regards to these revenues, we understand that revenues from sales of assets were projected under the privatization program – the privatization of BAHIAGÁS, for instance, is scheduled for 1998 – and, as the privatization process follows the schedule, revenues from sales of assets ceases to be significant.

3.8.2. Expenditures

Total expenses projected for the 1998 - 2000 period shows a declining tendency.

In current expenses, the determination of the state with regards to the rationalization of current expenditures is evident. The compliance with the legal parameters mentioned above makes possible, for example, the establishment of a new configuration for the expenditures on personnel and social burdens starting in 1998 with the creation of the Social Security Fund.

Debt burdens, as we can see, are declining due to the deceleration in the signing of new contracts, according to what was mentioned in item "Credit Operation Revenues," while the same trend is observed for the transfers to funds, autarchies, and foundations. The stability of the transfers to municipalities is a consequence of their link to State Revenues, according to a constitutional provision, and their projection was based on these parameters.

Finally, it is interesting to observe the profile projected for capital expenses, as amortization has a steady behavior, with more significant influence in the year 2000. However, it is also important to emphasize the maintenance of the State’s investment capacity along the period under consideration, where a decrease verified in the projected series suits the Government’s "Pluri-annual Plan of Investments," in addition to the legal elements and financial markers of these investments.

3.9. PUBLIC DEBT

3.9.1. Introduction

The present item intends to explain the Public Debt of the State of Bahia, its origin and evolution over the 1990s. The goal is to give an overview of the sources and the destinations of the financial resources that have been attracted from national and international organizations.

Financial resources from the state’s tax collection alone are not enough to meet the demands of the several sectors where governmental action is needed. For that matter, it is necessary to contract credit operations where resources are earmarked for specific investments, provided that there is compliance with the basic principles for the management of public assets, and that a cost/benefit analysis is carried out.

3.9.2. Composition and Historical Evolution of the Debt Balance: 1994 - 1997

The public debt balance of the state reached US$4,700 million in December of 1997. 93.8% consists of internal credit operations, and 6.2% of foreign credit operations.

The contracted internal debt is US$4,411 million held in federal banks, private banks, and the Federal Treasury, the latter participating with 92.5%. This reflects the exemplary performance of the state, given the profile of longer-term, lower-cost debt engaging. The bonds debt, with a balance of US$805 million in December 1^st, 1997, was fully refinanced, according to agreement signed on that date under the terms of Law # 9.496/97.

External operations make up only 5.4%, corresponding to US$289 million, which were signed with multilateral and bilateral organizations.

The increase over the 1994 - 1997 period was, in absolute terms, US$843 million. The primary cause was bonds debt, whose increase reached US$357 million, due to the high interest rates policy imposed by the federal government for the security market.

Therefore, an accrued growth of 21.9% is observed for the period, where the bonds debt alone grew 79.5%. The average growth was 6.8%.

3.9.3. Evolution of the Debt Balance: 1994 - 2006

Starting in 1994, the state experienced a decrease in its external debt, which was made possible by means of a renegotiation with the Federal Government of debts along international private banks – the Brady Plan. The renegotiated amount then entered the balance of internal debt, which partially explains the growth of it.

The tendency for the total debt balance, however, is declining due to three fundamental reasons:

1.  
2. The last operations signed have an average grace period of three years. Therefore, the principal (amortization) will only start being paid for after the year 2000, and from then on we will feel the reduction impact on the debt balance;
3.  
4. Some operations are nearing the redemption term;
5.  
6. The Government of the State established the goal of getting to the year 2006 with a one-to-one relationship between Actual Net Revenue (RLR) and Debt Balance, that is to say, US$1.00 of RLR for each US$1.00 of Debt Balance.

Finally, it must be concluded that the State of Bahia finds itself in a privileged position of financial stability, with its own resources available for investment, positive balances in public accounts and room for debt in-taking – a result of the implementation of administrative reforms, positive economic tendencies, and political will -, giving rise to an array of reasons that make it stand out from other states. Only one or two other states, observed their particular circumstances, may be seen as in more similar conditions.

One aspect that should not be forgotten is that, in order to turn Bahia into a more efficient state, the Government started to face an important restructuring process. The reduction of its size through the privatization of its companies or outsourcing of services is absolutely necessary to allow the State to focus on the execution of its basic functions. Some measures taken toward the reduction in the size of the State are:

•  
• Privatization of "CNB - Cia de Navegação Baiana" (State navigation company);
•  
• Privatization of "Coelba – Cia de Eletricidade da Bahia" (State eletricity company);
•  
• Privatization of "Baneb – Banco do Estado da Bahia" (State bank) (to be accomplished in 1999).

4 – STATE PLANNING

4.1. SUSTAINABLE DEVELOPMENT STRATEGY

The State Government has strategically adopted the principle of self-sustainable development based on its planning concept. This concept assumes that the planning process must adjust in terms of space and time the economic growth, the rational use of the natural resources and social equity.

4.2. PLANNING INSTRUMENTS

Under the Federal and State Constitution, the planning of the public sector is made through three basic instruments: the Pluri-Annual Plan, in which the medium term guidelines, objectives, goals and priorities are established; the Law of Budgetary Guidelines, in which the goals and priorities of the Administration for the following term are set; and the Annual Budget, composed by tax, companies’ investments and social security budgets for each fiscal year.

4.3. PLURI-ANUAL PLAN

The Pluri-Annual Plan - PPA, which due to a constitutional condition must last four years, sets the guidelines, objectives and goals of the Public Administration for capital expenses or capital related expenses, and also for the expenses related to continuous programs. The PPA is structured on development dimensions that include the central policies of the government, which are a set of guidelines, priorities and criteria that orient the different programs underway.

As an extension of the PPA, considering the strategic importance of the Industrial Sector within the development dynamics of the economy of Bahia, the State Government together with the local businessmen, represented by the "Federação das Indústrias" (Bahian Industries’ Association) is concluding the Strategic Program of the State Industrial Development, which has been created with the participation of highly skilled technical consultants. This program extrapolates the boundaries of a merely sectorial approach and includes four structuring programs, whose objectives are to support the transition of the Bahian economy to a new industrial development pattern.

Its scope is the definition of a new industrial development pattern, based on the consolidation of more compact productive chains, reinforcing its inter-sectorial links downstream and upstream, introducing products of higher aggregate value, as well as stimulating the constitution of a business network along other links of the chain.

4.4. OBJECTIVES OF THE STRATEGIC INDUSTRIAL DEVELOPMENT PROGRAM

The objectives of the Strategic Program of Industrial Development are:

4.5. NORTHEAST’S INITIATIVE (CLUSTERS)

Following the innovative approach of public policies - through a higher degree of integration with the public sector - the "Projeto Iniciativa pelo Nordeste" (Initiative Project on behalf of the Northeast) ought to be distinguished. The latter results from a partnership among the state governments of the Northeast, the private initiative, the World Bank and other governmental and non-governmental institutions, aiming the application of the clusters methodology for regional development. Initially, the fruit crop, grain and tourism clusters are being developed, to which new segments ought to be added in the future.

4.6. OPERATIONAL PARTNERSHIPS

The planning strategy of the State Government also involves the establishment of partnerships with the private sector at an operational stage, aiming to solve infrastructure problems. This is the case of the Transportation Intermodal Operative Consortium of Bahia, whose objective is to coordinate the interests and actions related to the implementation of the Transportation Intermodal Corridor of Bahia. Twenty-four institutions, public and private companies, involved in transport logistics, have already joined this consortium. This intermodal corridor includes: the Waterway of San Francisco river, 1,371 km long; the new fluvial port of Juazeiro, now under construction by the State Government for future privatization, and the modernization of the railroad connection to the port complex by Todos os Santos Bay, in Salvador Metropolitan Region.

4.7. PPA EXECUTION

The Pluri-Annual Plan has been taking place, physically and financially, with the necessary adjustments determined by circumstantial variations. In this manner, the State Government has been developing its administrative action, according to the guidelines included in the axes or dimensions of the PPA

4.8. STATE BUDGET

Considering the legal instruments of Planning, already mentioned, it’s important to relate to the annual budgets, which have an "authorizing" role. The annual budgets must be duly compatible with the Pluri-Annual Plan, in which the priorities mentioned are preserved, and the goal of reducing regional inequalities remains intact.

Composed by the fiscal budgets, social security and by companies’ investment, the State General Budget for 1997, reached US$6.6 billion, including the share of the resources coming from the State Treasury (US$6.1 billion)

It’s worth mentioning that the average percentage of accomplishment of the budgetary revenue of the State Treasury, throughout 1994 to 1996, was 82.8%, while the percentage of the expenses was 86.5%.

4.8.1. Bill of Projects, its Financing and its Effects on the State’s Accounts

In order to accomplish the investments needed to the State’s economic growth, the State’s own resources have been supplemented by loans coming from national and international financial institutions.

Currently, the bill of foreign loans total US$2.1 billion, from which US$1.8 billion are already being spent and US$292 million are being negotiated. From the total resources, US$1.1 billion come from direct financing and US$993 million come from resources originated from domestic and foreign loans and from the State Treasury.

4.8.2. Sources and Destinations

From the total investments programmed (US$2.1 billion), direct financing is distributed among IDB (32%), World Bank (20%), and FIDA and KFW (1% each). The counterparts come from OECF (4%), National Banks (11%) and the State’s own resources (31%).

These resources are destined, as a priority, to the social area, to economic infrastructure, and to tourism supporting areas.

4.8.3. Execution Stage

The financing of two of the12 programs underway has already been concluded (PRONI and the Metropolitan Project); two programs (Sanitation Sector Modernization Project - PMSS and Transport Corridors’ Project), which are being negotiated must be concluded in 1998. The other contracts, including the Environmental Sanitation of Todos os Santos Bay - BTS and the Regional Development ones (PRODETUR and PRODUZIR) must be concluded by the year 2001. The PRODUR (Urban Development Program) and the Hydro-Resource Management Program are expected to be concluded by the year 2002.

4.8.4. Balance and Disbursement

Throughout 1998 and 1999, there will be more resources from financing coming in. From US$ 2.1 billion relative to the contracts underway, the State had already received by November 1997, US$ 338 million from foreign sources, US$ 137 million from domestic sources, and US$ 156 million from the State Treasury. These values correspond to around 30% of the total.

In conclusion, the State’s credibility within international development institutions, like the World Bank and the Interamerican Development Bank - IDB, can be demonstrated by the recent decision of the latter to support not only the public sector but also the private sector, through the IDB Group (CII - Interamerican Investment Corporation; FUMIN - Multilateral Investment Fund; and PRI - Private Sector Department). Under this scope, it has formulated a strategic program for supporting the participation of the private sector in the state economy, including the tourism segment, in order to boost the business activities. This initiative has also led the IDB to finance wide-spanning programs, not only specific projects.

Regarding the support from the national development institutions, it must be mentioned the variety of programs that contribute to the growth of the tourism sector, through many different financing possibilities to the public and private investment. Some examples are: BNDES (National Program of Financial Tourism, Automatic Finame / Competitive Northeast), BNB (PNE / Various Programs), and Desenbanco (Proturismo).

5.1. EDUCATION

The State of Bahia has been concentrating investments on the improvement of the quality of education. The governmental project for educational sector is directly linked with the transformations that have been taking place in the social context. In order to meet the current expectations for improving the quality and raising the schooling level of the population, the following actions are being introduced:

5.1.1. Main Actions

•  
• organization of the managerial processes;
•  
• recovery and expansion of the school system;
•  
• appraisal of the education professionals (teachers, coordinators and technicians);
•  
• improvement of the quality of the teaching-learning process;
•  
• development of practices focused on technological advances.

The State public school system has 4,345 schools, elementary and high schools, in which there are 1.8 million students. The state public network is complemented by municipal schools and by private schools.

It’s worth mentioning Anísio Teixeira Institute’s role within the education program, for its double objective: appraisal of the education professional and improvement of the quality of public schools. Its priorities - teachers’ qualification, and technological and educational experiments - represent the search for renewing teaching-practices alternatives, and consequently, for achieving public schools’ credibility. Between 1995 and 1997, Anísio Teixeira Institute trained 292,335 teachers at 3,141 events and conducted research and educational experiences at schools. The Teachers’ Training Program has enabled teachers to obtain wage incentives that vary from 5 to 15% of the salary, according to the course duration (40 to 360 hours).

5.1.2. State Program of Informatics at School

Focused on the modernization and upgrading of the efficiency patterns of public schooling, the State Program of Informatics at School is initially installing 8,910 computers in 681 schools of the state system, in 238 municipalities. Together with the Education Ministry - MEC, another 16 Centers of Education Technology are being installed, in order to train teachers in the use of computers in the classroom.

5.1.3. Reading-Learning for Youngsters and Adults

Through the Reading-Learning Program for Youngsters and Adults - AJA BAHIA, the State Government has been fighting illiteracy.

•  
• Goal of AJA BAHIA

Its goal is to reduce by 1999, illiteracy among adults and youngsters above 15, by 40%. This is expected to benefit more than one million people, assuring their right to education and consequently to a more honorable life.

Illiteracy Drop

As a result of governmental action that has been progressively improving the conditions for attending school, the illiteracy rate of the 5-year-old and older population, in Bahia, between 1990 and 1995, presented a significant fall of 16.8 percentile points, a result that is much above the one reached during the whole 80 decade, according to the data collected by PNAD/IBGE - National Research by Household Sampling (Pesquisa Nacional por Amostra de Domicílios)

Drop of the Illiteracy Rate, According to the Ages, in Bahia

1981 – 1996

Source: IBGE-PNAD

•  
• College Education

Bahia has seven universities: five public universities (a federal and four state universities), and two private; and 17 independent colleges.

5.1.4. Education Program for Competitiveness

The Education Program for Competitiveness, which is to be introduced, is focused on the rise, in medium term, of the education patterns and professional qualification, in order to absorb new technologies and new organizational practices, which should contribute to the improvement and expansion of the professional education in strategic areas, and consequently to Bahia’s economic development.

•  
• Components: Three Projects

The proposed Program is composed of three projects:

•  
• Long Distance Education;
•  
• Professional Education in Emerging Sectors; and
•  
• Development of a Business Culture and Incentive to Partnership.

5.2. TRANSPORTATION

Through the period from 1995 to 1997, there were significant investments in building, pavement and recovery of roads, corresponding to a total of 3,104 km. Moreover, there was the regular maintenance of 2,739 km of roads, in which the Transportation Roadways Program was the most important tool used by the Government. US$297 million, financed 50% by the IDB and 50% by the State’s own resources was invested. The Program involved the construction and pavement of 2,000 km of roads.

The Government policy for transportation, during the current administration, has emphasized the integration of different transportation systems aiming to facilitate the flow of production, to reduce costs and to increase the competitiveness of the Bahian economy. For this purpose, the Government has conceived and is already implementing the "Corredor Intermodal de Transporte" (an intermodal transportation system), situated in the San Francisco River, that combines in one system waterways, roads and a railway. The system connects all the sailable part of the river (1,371 km within the State) to many roads and to one railroad, the "Centro Atlântica". This system conducts to the Salvador and Aratu ports all the economic production of the West and San Francisco regions, at a reduced cost.

The airports of the State received special attention from the Government, in the same period of time (1995 – 1997), with the development of a systematic program of reforms and improvements of the small airports of the interior, and, simultaneously, with the construction and/or improvements of the airports of the regions with some tourist appeal. Some distinction must be given in this work, for instance, to the construction of the airports of Piritiba and Mimoso do Oeste, in Barreiras region, both finished by now; to the landing runway and marshalling yard enlargements of the Porto Seguro airport, enabling it to receive large aircrafts like the 767-400 Boeing; to the construction (in progress) of two new airports in the interior: one in Valença, near Morro de São Paulo, and the other in Lençóis, in the Diamantina Tableland region; also to some repairs and improvements of the airports of Jequié, Irecê, Barreiras, Feira de Santana and Esplanada, among many others.

5.2.1. Some Studies and Projects for the Road system

In the period from 1995 to 1997, the State Government prioritized the improving and strengthening of the State’s transportation infrastructure, which were deemed fundamental to the policies and programs of the economic development strategy. Bahia’s geographic location, at an important obligatory road junction of the country, in all the North/South and Northeast/Central connections, elevates even more the importance of a well planned transportation system.

Within this context, in which the internal and external transportation systems are equally relevant, the State Government has been developing a plan to identify and eliminate the strangling points still existing in its road system. The current road system is composed of 4,463 km of roads under federal jurisdiction and of 18,377 km of state roads, in addition to around 100 thousand km of non-paved municipal roads. Among the actions regarding the State’s transportation system, it is important to highlight the elaboration of projects and studies for new road sections, aiming to create conditions for future financings and investments.

In this period of time (1995 – 1997) some final engineering projects for a total of 2,080 km of new road sections, in many different regions of the State, comprising resources of about RS$4.5 million was elaborated.

5.2.2. Enlargement and Improvement of the Road system

The State’s road system, with its 18,377 km (of which 7,094 are paved, 4,102 have TCP – anti-dust treatment, and 7,180 have primary revetment) and its heavy traffic, demands a permanent effort and a significant investment in maintenance and repairs. The main instrument of the Government to develop and execute its policy of strengthening the State’s transportation infrastructure, basically the road system, is the Transportation Roadways Program, one of the most important programs of the current administration.

After reaching a critical point, at the beginning of the ‘90s, the Bahian roadways (state ones and the federal ones), were recovered 6 years ago, when the Government initiated this huge project concerning the repairs and improvement of all state roads. In the period 1995 – 1997, the Transportation Roadways Program performed an important role in this strategy, helping the flow of the agricultural, industrial and mining production and fostering tourist activity.

During this period, 2,523 km of roads, 747 km with the State’s own resources and 1,776 km from the IDB program, totaling to an investment of R$168.4 million, were constructed.

Interventions in the Road system 1995 - 1997

Source: Derba

5.2.3. Roadways, Waterways and Air Transportation Infrastructure

As mentioned earlier, the State Government has adopted a transportation policy that aims to integrate the different kinds of transportation means, to rationalize the flow of State production, reducing costs and, in this way, increasing competitiveness. Within this policy, one of the most important strategies is the development of the waterways system, taking advantage of the many sailable parts of the State’s rivers and linking them to the railways and roadways systems. This is actually the proposal of the "Corredor Intermodal de Transportes" (an intermodal transportation system), a territorial integration model that uses in only one system three different kinds of transportation means, creating the necessary infrastructure to solve at last the problem of production flow.

Besides the Intermodal System, the State Secretariat of Energy, Transportation and Communication has developed, in the years 1995 – 1997 many other different actions to foster the waterways transportation system, including among them the concession to the private initiative of Salvador/Bom Despacho/Salvador line and to "COMAB - Consórcio Marítimo da Bahia" of the ferry-boat system for 25 years. Adding to this, the Government has conducted some studies of economic viability for a better use of the waterways system and has taken some actions concerning the improvement of the sailing system in the areas of Baía de Todos os Santos, Valença and Camamu.

Among the investments made by the State with the objective of improving the waterway transportation system, the Government has invested R$1 million in the construction of Ponta do Curral/Bom Jardim harbor, in the municipality of Valença, and the enlargement of the Gamboa/Ilha de Itacaré harbor, facilitating access to Morro de São Paulo, which is one of the most important tourist atractions of the Bahian coast. The waterways terminals of Santa Cruz de Cabrália, Tombador, Porto Seguro, Apaga Fogo e Barra de Serinhaém were completed between 1996 and 1997. Still in progress are the Cairu, Juazeiro, Ponta do Curral and Gamboa terminals. There are some studies and projects for the implementation of waterway terminals in Ilha Grande, Barra Grande and Maraú, in the Camamu Bay, in Ponta de Nossa Senhora (Ilha dos Frades), in Cacha Prego (Ilha de Itaparica), in Botelho and Itamoabo (Ilha de Maré), and in Ibotirama (San Francisco River).

Waterway Terminal – 1996 – 1997

Source: DTT

The Government of the State is developing a systematic program of reforms in small airports all over the State, with the main objective of offering logistic support to commercial aviation, and creating faster locomotive alternatives for the population of these regions. A policy of construction and improvement of airports in the regions with some tourist appeal has also been developed during the same period of time (1995 – 1997). This is the case of the airport of Porto Seguro, where the State invested R$5.6 million in the enlargement of the landing runway (more 200m in length and 15m in width), giving it the necessary dimensions for receiving large aircrafts like the 767-400 Boeing. Besides this, the marshalling yard has been enlarged in 15,456m, doubling its previous capacity. The construction of two other big airports are in progress: one in Valença – Guaibim, near Morro de São Paulo, and the other one in Lençóis, in the Diamantina Tableland region, both permitting the landing and taking off of large airplanes, like the Boeing 737-400.

The airports of Piritiba and Mimoso do Oeste, in the Barreiras region, in which the Government invested resources of about R$516 thousand were constructed. Both airports have landing runways of 1,200m, marshalling yards with 4,800m² and asphaltic revetment. One must mention as well, the reforms of the airports of Teixeira de Freitas, and some improvements in the airports of Adustina, Poções, Santa Maria da Vitória and Esplanada.

A very important project in this area was iniciated in 1998: the enlargement of the International Airport Luís Eduardo Magalhães, in Salvador, through an agreement with Infraero and financing from the IDB, PRODETUR. The project, which will represent an expressive improvement of the Bahia’s airports complex, will have a significant impact on tourism in the State, increasing its operational capacity from 2 million to 4 million passengers/year. This reform will classify the airport among the largest and most modern ones in Brazil, completely computorized and safe, able to receive 22 airplanes at the same time. The conclusion of the project is expected for the end of 1999, with a total investment of R$105 million.

Between 1995 and 1997, the Secretariat of Energy, Transportation and Communications improved the roadway transportation system for passengers, adopting some measures for a better performance in this area. Among others, one should mention the procurement for the concession of 17 intermunicipal lines, the contracting of services for 4 new lines, with the placement of 10 new buses in the system, without any additional cost to the user; a vigorous inspection in all intermunicipal buses, taking out of circulation the ones in bad condition, replacing them with new ones and guaranting to the public more comfort and safety. The firms that operate the passenger transportation system have acquired 520 0km buses, representing 30% of total buses in circulation. Finally, one should mention as well the agreements signed by the State with the municipalities of Mata de São João, Camaçari, Itacaré, Simões Filho, Dias D’Ávila, Itaparica and Camacã for the inspection of the passenger transportation system, and the agreement signed with the Military Police of the State for the inspection of the public transportation system (within each city).

Projects of the Airports - 1995 - 1997

Source: DTT

* In progress

5.3. HEALTH

5.3.1. Structuring the Service System

The Government of the State of Bahia, through the Secretariat of Health – SESAB, between 1995 and 1997, acted in many different ways towards the common objective of increasing and providing adequate health services system to the population needs and improving the quality of the assistance given. Some of the measures adopted were the decentralization of services, the improvement and modernization of the buildings, the training of personnel and the adoption of a third party administration method.

To achieve this objective, one of the important actions of the period was the Program of Decentralization of Emergency Assistance in the Metropolitan Region of Salvador. This program, through the construction, reform and enlargement of health units and the implementation of high resolution units in hospitals and health centers of the peripheral and populous areas of the city, has offered the best quality and most complete service within the district, avoiding the super-occupation of hospitals like the State General, Roberto Santos and Ernesto Simões.

Another important action was to invest more than R$25 million in the recovery, reform, enlargement and construction of various health centers, like the ones that integrate the Program of Decentralization of Emergency Assistance in the MRS. Examples are: the 8^th Health Center, Hospital Eládio Lassere, Hospital Menandro de Farias, Pirajá Emergency and Hospital João Batista Caribé, that serves the railway suburb, and in the interior the constructions of the Ibotirama, Guanambi, Mairi and Porto Seguro Hospitals, the last three works still in progress.

Medium and Large Projects

In this period, the State Government, through SESAB, has also recovered and adapted the Hospital Prof. Carvalho Luz, changing it into a special assistance center to chronic diseased and burned patients and patients with recoveries that need constant care. In 1997, the reforms of the Central Hospital Roberto Santos and the State’s General Hospital were initiated and are still in progress. The Engineering and Maintenance Service of the Health Units (Semus) is executing another 50 works, totalling an investment of R$22.8 million.

The policy of decentralization of the public services, adopted since 1993 and that, this year, has transferred 824 centers from the State’s control to the municipalities was reinforced.

In the period 1995 – 1997, there were 36 agreements signed to complete projects in 29 municipalities, in the amount of R$7.4 million. As well there were 229 other minor works executed by regional administrative units.

In the first quarter of 1997, in the perspective of the proposed financing by the Project "Reforço à Reorganização do SUS – Reforsus" (efforts for the reorganization of the health system), which is an initiative from the Ministry of Health and financed by the World Bank and IDB, SESAB assessed and analyzed 153 proposals presented in response to the proclamation # 01 – Material and Technological Readequacy of the Assitancial System. Sixty-nine of the proposals were considered eligible, for a total amount of R$42.3 million; 51 of these were from the public sector.

5.3.2. Acquisition of New Equipment to the Health System

In 1997, SESAB invested R$10.1 million in the equipment and upgrading of health services all over the State. The investment involved the acquisition of new high technology equipment such as an automatic cell counter, for the Cican, and bronchofibroscopies with high image resolution for the Hospital Otávio Mangabeira, which were only available before in private hospitals. Other equipment of high resolution were acquired for Teofilândia and Araci and for the Hospital of Serrinha. The perfect functioning of these and other equipment is assured by the Medical Equipment Maintenance Center – Cemeq/BA.

From the point of view of the decentralization policy adopted in the period (1995 – 1997), the acquisition of new equipment for the health system also included the transfer of some special equipment, priced at R$7.3 million, to the municipal units and the distribution of 359 ambulances to the administration and health centers of 312 municipalities.

5.3.3. Improvement of the Quality of Actions and Services

•  
• Reorientation of the Assistance

SESAB is reorganizing the basic assistance to health and creating a new assistancial model in Bahia. For this, it has elected the implementation of the following programs: "Agentes Comunitários de Saúde – PACS" (community health agents), "Saúde da Família – PSF" (family health), and "Redução da Mortalidade na Infância – PRMI" (reduction of infant mortality) as one of its priorities.

At the same time, SESAB has searched to improve the secondary and tertiary medical assistance, mainly in small and medium municipalities, where it has supported the formation of "Consórcios Intermunicipais de Saúde" (inter-municipal consortiums of health).

•  
• Assistance to Women and Children’s Health

Keeping the pact established by the Northeast Health Secretaries about the reduction of infant mortality, Bahia has given priority to the actions regarding the prevention of women and children’s health, in those municipalities considered to be of high risk. The strategy is based on sectorial and inter-sectorial decentralized actions, reinforcing the process of municipalization of health.

•  
• Reduction of Infant Mortality

Aiming to achieve the goal of reducing infant mortality by 50% in 5 years, the Government of the State has been using strategic programs like PACS, PRMI and PSF.

PACS is one of the programs that has experienced fast growth in the State. Implemented in 1995, it’s been demonstrating efficiency in the basic assistance to rural and urban peripheral populations, giving emphasis to the mother-child segment. In its implementation, it had 1,805 community agents and covered 270,750 families. In its first year, the areas covered by the program presented a reduction in infant mortality, showing the necessity of enlarging its range of actions, that up to that moment was only 75 (18.1%) Bahian municipalities.

The data collected from the information system of PACS, Sipacs, confirm the impact of the agents’ actions in the beneficiary communities. In 51 municipalities, the infant mortality ratio, which in 1994 was 111/1000 live births, has fallen to 49,5/1000 live births, in the second semester of 1996. In the first semester of 1997, the very same ratio was 48.3/1000 live births in 93 municipalities that had informed Sipacs. This ratio when compared to the 1994 one shows a reduction of 62% in the infant mortality rate in the municipalities where PACS was implemented.

Another important instrument of the new health assistance model of the State, based on the decentralization and intersection of actions, is the PRMI, which spreads information regarding the mother-child health issues. Its execution involves Municipal Health Secretariats, ISC, "Pastoral da Criança" and Unicef.

During the period 1995 – 1997, PRMI was implemented in 113 municipalities. Regional Working Groups in 28 Regional Head-offices, and 102 Municipal Working Groups in 93% of the expected municipalities were created for this reason. There is a significant increase in the number of municipalities where all the actions related to the health of women and children are effectively implemented in the health units.

In 1997, the program has relied on resources from the contract signed in Oct/1996 with Vale do Rio Doce Co., in the amount of R$1.17 million, which included the pilot project of Serrinha region (5 municipalities).

Another strategic program, PSF, which was created in 1996, elects the family and its basic social influence as an approach to health. This program is already implemented in 9 municipalities – Jussari, Ituberá, Guanambi, Itagi, Rodelas, Jaguaquara, Itacaré, Itabuna and Pedrão – while another 101 municipalities have applied for its implementation.

The PSF program acts in those municipalities with high rates of infant mortality and low basic health actions, which had already integrated the PACS and "Comunidade Solidária" programs. Counting on a multi-disciplinary team, the program considers the necessity of a new primary assistance model based on lower cost and higher productivity actions.

The workers’ health, mental health, prevention and assistance of deficiencies and the creation of the Health Care Center for Old People are some of the specialized services provided by the State’s public health system, together with the above mentioned programs. In addition, the State has also made some investments in the areas of clinical assistance, hospital assistance, blood control, epidemiological vigilance (inspection), sanitary vigilance (inspection), laboratories and the training of personnel.

5.4. PUBLIC SECURITY

The State’s policy for safety and public defense, during the period 1995 – 1997, presented wide characteristics such as the interiorization, expansion and modernization of its administrative and operational agencies, a continuous investment on training of the Civil and Military Police, and the enlargement of the number of vehicles of all forces, including the Fire Brigade.

Such a policy has reinforced the reputation of the State of Bahia as a place where the level of safety is considered to be satisfactory. Contributing to this, as well is a greater efficiency of the security organisms. Another factor has been very important: the great number of projects and governmental programs aimed at the generation of employment and the increase in income levels, which are reducing the social and economical pressures that act to induce criminality.

For these reasons the State presents a downward slope criminality curve. Actually, in the last three years the number of police occurrences diminished in 38% in Salvador and 11% in the State. That’s an extremely significant event, especially when one considers the tourist appeal of the State, which demands favorable conditions of infrastructure and services, among which public safety is one of the most important.

The State is investing in projects that give priority to the preventive aspects of police actions, instead of those merely repressive. That’s the case of the Project "Polícia Cidadã", which is promoting a better integration between the Military police and the community in various districts of Salvador, from traffic educational campaign to the public services, among many other initiatives of the Secretariat of Public Security.

Through these actions, the Government aims to keep making the State of Bahia a better and safer place for its citizens and tourists.

5.4.1. Modernization of the Security Services

Aiming to create a better integration with the community and let this relationship become a tool for a more efficient and preventive security, the Military Police has assumed a new operational conduct for the year 1997. A modernization program, supervised by the Administration and Technology Center (Cetead), from UFBA, was implemented. The project "Polícia Cidadã", that approaches the issue of public security in an educational perspective, was also created. The initiative represents an important step for the Military Police regarding the quality of services provided to society.

The State also created the 11^th Military Police Independent Company that, operating under the philosophy of Polícia Cidadã, assists the districts of Barra, Graça and Vitória Square. With 290 policemen and 14 vehicles, the unit is responsible for the reduction of accidents in the area, without registering bank or bus assaults. In the first three months of activities, the company had only car accidents without victims as its major occurrences.

For the sake of this and other initiatives of public security and defense to be enlarged, the Government of the State has increased the number of policemen working and has promoted training for a greater qualification of its forces. In the last three years, 5,453 new civil and military policemen have been admitted to the police board, increasing the total number of effective workers to 28,924 people. In this period, around R$1.2 million has been invested in the training of 11,481 professionals to learn new techniques of patrolling and investigation.

Admission of Personnel - 1995 – 1997

Source: Asplan

The training included about 700 military policemen acting as security agents in the Tourist Corridor of Salvador. They have participated in the Program for Professional Qualification, with resources from FAT, through an agreement between the Military Police and the Secretariat of Work and Social Action.

5.4.2. Expansion and Improvement of the Units of the Public Security Secretariat

Between 1995 and 1997, 12 operational and security units were built, and another 21 units were recovered and enlarged, totalling an investment of R$5.2 million. In 1997 alone, 5 new units of the SSP: the Security Unit of the Battalion of the 3^rd PM Company, in Lobato, railway suburb of Salvador, and the operational units for security for the Civil Police of the municipalities of Teixeira de Freitas, Ipirá, Irecê and Brumado were built, adding up to a total investment of R$3 million.

Regarding the acquisition of new equipment for the security forces, R$4.6 million has been invested. In the period 1995 - 1997, 2,612 vests, 1,000 shackles and 2,063 guns, besides 368 thousand munitions cartridges for the Civil and Military Police, which cost R$1.7 million were also acquired.

In the same period of time, the Government, through SSP, invested R$32.9 million in the acquisition of 1,319 vehicles (791 in the year 1997), 491 for the Civil Police, 5 for the Technical Police, 99 for Detran, 20 for the Fire Brigade and 704 for the Military Police.

Acquisition of Vehicles - 1995 - 1997

Actual Investment – R$ thousand

Source: Asplan

Construction of Operational Units - 1995 – 1997

Source: Asplan

Recovery of Operational Units - 1995 - 1997

Source: Asplan

5.5. BASIC SANITATION

5.5.1. Water Resources, Sanitation and Housing Sector

Water Resources, Sanitation and Housing Secretariat – SRHSH is responsible for all the projects and executions in the area of Water Resources, Sanitation and Housing. As such, it is formed by three companies: EMBASA (mixed capital); CERB and URBIS (state-owned); and "Superintendência de Recursos Hídricos" (Water Resources Superintendency) (Autarchy).

Sectors concerned with environmental issues are growing at a fast pace not only institutionally and scientifically but, mainly, politically, with the development of a collective conscience where the concept of sustained development has been definitely adopted by society.

With this concept in mind, combining environment with life quality - within an overall development process - the State Government is implementing its main programs, prioritizing actions and investments that address the rise in social opportunities, economic growth, preservation of natural resources and social justice.

During the 80s, the accumulation of sanitation deficiencies in Bahia created increasing difficulties for the recovery and improvement of the state’s sanitary conditions. Starting from 1991 the segment showed great progress after the change-over in the political scene and the new priority applied to the sector.

In 1991, the Bahia State Government, aware of the serious social situation, sought investment alternatives for social development, since the state economy up until then had shown constant growth and stability. It tried to negotiate social investments financed with international resources intended, mainly, for urban infrastructure and basic sanitation areas, where the lack of social needs called for much needed intervention.

Sanitation coverage figures in the urban area of the State of Bahia, on a comparative analysis with those of Brazil and the northeast, reveal the precariousness of the water and sewage services in the state. On the other hand, the analysis of the investment program planned for sanitation, the government’s priority area, shows the State’s primary interest in the reversal of such a situation. Working unceasingly to accomplish, by 2001, better levels of coverage of water and sewage services, this Government’s goal is to surpass the current service level of 86% (water) and 13.5% (sewage) to 91% and 48% respectively.

After the State of Bahia recovered financial and administrative stability in 1993, the State Government was able to promote an extensive investment program aimed at improving the population’s standard of living. Originally, it negotiated with the World Bank - IBRD financing contracts for the Metropolitan and Water Sector Modernization projects and, in 1992, submitted a request for inclusion in the Interamerican Development Bank’s priority financing list of its Todos os Santos Bay Environmental Sanitation Program, currently under execution.

The availability of water and sanitary sewerage services to poorer populations, in many cases, requires the provision of unencumbered resources from the State and Federal Government in a compensatory action. Thus, the participation of the Federal Government in subsidizing the investment is part of the sector’s financing policy oriented to the universalization of the service. The subsidy on consumption, whenever necessary, is the states’ and municipalities’ responsibility, subject to the basic supply.

The National Sanitation Policy is directed towards an all-embracing availability of water supply and sanitary sewerage services in order to meet the individual’s fundamental and basic needs in harmony with environmental preservation.

As a result of this policy, the state’s investments have increased in order to further expand the levels of coverage of sanitation services to the population of Bahia, particularly the works aimed at installing, expanding and improving water supply and sanitary sewerage systems. Investments have already been made in this respect from the State Government and national financial institutions, such as "Caixa Econômica Federal – CEF" (Sanitation and ‘Better Living’ programs), Banco Nacional de Desenvolvimento Econômico e Social - BNDES, and international institutions, such as IDB, IBRD and OECF mentioned before, in the Blue Bahia program.

The housing question is being faced with the objective of reverting the existing qualitative deficit. The "Viver Melhor" Program, conceived in this approach, aims mainly at recovering encroached areas in the urbanization of shanty towns, serving primarily the population with family incomes under 3 minimum salaries (equivalent to R$130), providing the area with basic infrastructure and improving the standard of living of the benefitted population.

In the Water Resources segment, the Government’s goal is to apply basic and institutional infrastructure in the strengthening of the sanitation and water resources sectors in order to ensure availability and rational use of water and the preservation of the sources of supply.

5.5.2. Funded Resources

During the period 1995/1997, the State Government continued its financial programming strategically directed to socioeconomic issues related to the sanitation and housing sectors. It succeeded in obtaining funding in domestic and foreign markets, i.e., Caixa Econômica Federal - CEF, Banco Nacional de Desenvolvimento Econômico e Social - BNDES, Interamerican Development Bank - IDB, World Bank - IBRD, Overseas Economic Cooperation Fund - OECF and the German Bank - KFW.

The ongoing investment programs comprise funded resources totaling US$1,035.2 million, US$526.5 million of which is in external financing and US$508.7 million domestic, which is to be applied in the period 1995/2001.

Considering that a portion of these contracts is destined for the partial financing of the state counterpart of some loans, the actual disbursement value of the counterpart is US$215.5 million which, added to the US$1,035.2 million in loans, represents a total investment of US$1,250.7 million. Thus, for each US$5.81 invested, the state pays US$1.00, while the financing portion is US$4.81.

Funded Resources 95/97 - Us$ (Million)

Source: ASPLAN-SRHSH

Out of the counterpart total of US$310.0 million initially committed with the contracts signed with international agencies, SRHSH holds US$210.7 million in funds obtained from financial institutions. These are being used as co-financing, to minimize expenditure on local allocations, the state being responsible for the actual disbursement of US$99.3 million.

Source: Asplan-SRHSH

Contracts signed with CEF through FISANE (Sanitation Financing Fund), PRÓ-MORADIA, PRÓ-SANEAMENTO programs, PASS and HABITAR BRAZIL programs, are destined for works in the water supply, housing, basic sanitation and urbanization sectors, totaling US$505.7 million, including the state counterpart. Part of the FGTS resources are being used as co-financing in the Water Sector Modernization Program. There