75322 FONDEN Mexico’s Natural Disaster Fund – A Review May 2012 Schweizerische Eidgenossenschaft Confédération suisse Confederazione Svizzera Confederaziun svizra Swiss Confederation Federal Department of Economic Affairs FDEA State Secretariat for Economic Affairs SECO < ii > FONDEN: Mexico’s Natural Disaster Fund – A Review © 2012 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved This publication is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover design: Miki Fernandez Table of Contents Acknowledgements...................................................................................................................... iv Foreword .................................................................................................................................... v Abbreviations and Acronyms....................................................................................................... vii Executive Summary...................................................................................................................... ix Chapter 1: A Brief History of Civil Protection and Disaster Management in Mexico.............. 1 Chapter 2: FONDEN Mandate and Financial Accounts............................................................... 9 Chapter 3. FONDEN Operating Guidelines for Reconstruction Financing................................ 17 Chapter 4. FONDEN Financial Management.............................................................................. 29 Chapter 5: An Ever Evolving System........................................................................................... 39 References....................................................................................................................................... 44 Glossary........................................................................................................................................... 46 Annexes........................................................................................................................................... 49 FONDEN: Mexico’s Natural Disaster Fund – A Review iv> Acknowledgements This report is co-authored by Rubem Hofliger (Director General, Natural Disaster Fund FONDEN, Ministry of Interior, Mexico), Olivier Mahul (Disaster Risk Financing and Insurance Program Coordinator, Financial Capital Markets Non-Bank Financial Institutions (FCMNB), and Global Facility for Disaster Reduction and Recovery (GFDRR), World Bank), Francis Ghesquiere (Manager DRM Practice Group at the World Bank and Head of GFDRR Secretariat), and Salvador Perez (Deputy General Director, Insurance, Pensions, and Social Security, Ministry of Finance, Mexico) with inputs from Laura Boudreau (FCMNB, World Bank), Laura Dorling van der Oord (Consultant, World Bank), Charlotte Benson (Consultant, World Bank), Daniel Clarke (Consultant, World Bank), and Ligia Vado (Consultant, FCMNB and GFDRR). Special acknowledgements are extended to the Government of Mexico, and especially to José Jaime Pérez González (Director, Analysis and Evaluation, FONDEN) and Juan Miguel Adaya Valle (Coordinator of Risk Analysis Projects, Insurance, Pension, and Social Security Unit, Ministry of Finance) for sharing valuable information and insights on the inner workings of FONDEN and experiences to date. The team gratefully acknowledges funding support from the Mexico Country Unit of the World Bank, the Global Facility for Disaster Reduction and Recovery (GFDRR), and the Swiss State Secretariat for Economic Affairs (SECO) through the Disaster Risk Financing and Insurance Multi-Donor Trust Fund. Foreword Natural disasters constitute a significant fiscal risk in relief and reconstruction. FONDEN was originally the form of a contingent liability in disaster-prone established as a budgetary tool through which fed- countries. If disasters are not anticipated and finan- eral funds were annually allocated for expenditure cially planned for, there can be considerable delays on post-disaster response. Since then, FONDEN has in post-disaster response, potentially significantly evolved significantly; changes to its operating rules exacerbating the adverse human and economic con- and procedures have improved FONDEN’s overall ef- sequences of an event. Governments may also be ficiency and effectiveness, and the introduction of compelled to draw heavily on budgets intended for several additional windows have further strength- development purposes, hindering long-term growth ened disaster risk management. In 2005, the Gov- and development. ernment of Mexico empowered FONDEN to develop a catastrophe risk financing strategy to leverage its Governments are becoming increasingly aware that resources, relying on a layered combination of risk they can no longer ignore the fiscal risk posed by retention and risk transfer instruments. In 2006, disasters. Many governments face trends of rising FONDEN issued the world’s first government catas- disaster losses as capital stocks increase. And while trophe bond, which was renewed in 2009. FONDEN exposure of populations and assets rises, insufficient now provides one of the most sophisticated disaster attention is paid to resilience against hazards. In- financing vehicles in the world – and the FONDEN creases in the incidence and magnitude of climato- system continues to evolve to meet Mexico’s finan- logical hazards are anticipated as a consequence of cial requirements related to natural disasters. climate change, fuelling the trend of rising losses. Much greater emphasis on proactive disaster risk The World Bank has a long history of partnering management, including disaster risk financing and with the Government of Mexico on disaster risk insurance, is essential in stemming this tide. management. Between 2000 and 2004, the World Bank provided advisory services to the Natural Disas- Mexico stands at the forefront of initiatives to devel- ter Management Project. In 2005, the World Bank op comprehensive disaster risk management struc- supported the Federal Government of Mexico on tures and programs, including disaster risk financing the issuance of its first catastrophe bond.When the and insurance strategies to manage the fiscal risk Government of Mexico issued a second catastrophe posed by disasters. Mexico is exposed to a large bond, it was the first country to use the World Bank variety of geological and hydro-meteorological phe- MultiCat program, a cat bond platform that allows nomena. It is ranked as one of the most seismically for the issuance of cat bonds with multiple perils, active country in the world, experiencing more than regions, and countries; Mexico issued a US$290 mil- 90 earthquakes with a magnitude of 4.0 or above lion multiperil cat bond in October 2009 for cover- on the Richter scale on average annually. Around age against earthquake and hurricane in different two-fifths of Mexico’s territory and over a quarter regions of the country. The collaborative effort on of its population are exposed to storms, hurricanes, disaster risk management between Mexico and the and floods. World Bank continues through today, with projects to strengthen the population’s resilience to disasters As part of its disaster risk management efforts, the and to improve the government’s fiscal risk manage- Federal Government of Mexico established the Fund ment of disasters. Throughout the years, the World for Natural Disasters FONDEN to support disaster Bank has extensively used the case of Mexico in its < vi > FONDEN: Mexico’s Natural Disaster Fund – A Review dialogue on disaster risk management with other plicability to other disaster-prone countries. The governments. report is of particular relevance to middle-income countries but also contains important messages for This report, FONDEN: Mexico’s Natural Disaster Fund both high- and low-income countries. – A Review, continues the World Bank and the Gov- ernment of Mexico’s productive collaboration on di- We hope that this report will contribute to the dia- saster risk management. It aims to share Mexico’s logue on financial disaster risk management and in- considerable achievements on financial manage- spire innovation elsewhere, leading to the improved ment of natural disasters with other governments. financial management of natural disasters around The report outlines the evolution of FONDEN to date the globe. and highlights aspects of particular bearing and ap- Gloria Grandolini Laura Gurza Jaidar Country Director, Mexico and Colombia National Coordinator of Civil Protection World Bank Ministry of Interior, Mexico < vii > Abbreviations and Acronyms BANOBRAS Banco Nacional de Obras y Servicios Públicos (National Bank of Public Works and Services) CENAPRED Centro Nacional de Prevención de Desastres (National Centre for Disaster Prevention) CADENA Componente de Atencion a Desatres Naturales (Agricultural Fund for Natural Disasters) CONAGUA Comision Nacional de Agua (National Water Commission) DGRMSG Dirección General de Recursos Materiales y Servicios Generales (Directorate General of Resources, Materials, and General Services) FIPREDEN Fideicomiso Preventivo de Desastres Naturales (Natural Disaster Preventive Trust) FOPREDEN Fondo para la Prevención de Desastres Naturales (Natural Disaster Prevention Fund) FONDEN Fondo de Desastres Naturales (Natural Disaster Fund) GFDRR Global Facility for Disaster Reduction and Recovery GIS Geographic Information System PACC Programa de Atención a Contingencias Climatológicas (Climate Contingencies Program) R-FONDEN Riesgo-FONDEN (FONDEN Risk) SAGARPA Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (Ministry of Agriculture, Livestock, and Rural Development) SCT Secretaría de Comunicaciones y Transportes (Ministry of Communications and Transportation) SEDESOL Secretaría de Desarrollo Social (Ministry of Social Development) SEGOB Secretaría de Gobernación (Ministry of Interior) SEP Secretaría de Educación Pública (Ministry of Public Education) SHCP Secretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit) SSA Secretaría de Salud (Ministry of Health) Conversion rate US$1 = MXN 12.5 < viii > FONDEN: Mexico’s Natural Disaster Fund – A Review < ix > Executive Summary FONDEN, Mexico’s Fund for Natural Disasters, programs. Should this appropriation be insufficient, was established in the late 1990s as a mech- the law stipulates that additional resources must be anism to support the rapid rehabilitation of transferred from other programs and funds, such as federal and state infrastructure affected by ad- the oil revenue surplus. verse natural events. FONDEN was first created as a budget line in the Federal Expenditure Budget of The FONDEN Program for Reconstruction is 1996, and became operational in 1999. Funds from FONDEN’s primary budget account. It channels FONDEN could be used for the rehabilitation and re- resources from the Federal Expenditure Budget to construction of (i) public infrastructure at the three specific reconstruction programs. In the aftermath levels of government (federal, state, and municipal); of a disaster, funds committed to a specific recon- (ii) low-income housing; and (iii) certain components struction program will be transferred to a dedicated of the natural environment (e.g., forestry, protected sub-account in the FONDEN Trust for execution. natural areas, rivers, and lagoons). The FONDEN Trust holds these resources until re- construction programs are implemented and makes FONDEN consists of two complementary bud- payments for reconstruction services to implement- get accounts, the FONDEN Program for Recon- ing entities. It also acts (through BANOBRAS) as the struction and FOPREDEN Program for Preven- contracting authority for market-based risk transfer tion, and their respective financial accounts. mechanisms, including insurance and catastrophe The original, and still the primary, FONDEN Program bonds. Over the years, dedicated subaccounts for is the FONDEN Program for reconstruction. In the emergency relief and recovery actions as well as pri- early 2000s, however, in recognition of the need to ority reconstruction activities, the Revolving Fund and promote stronger ex ante disaster risk management, Immediate Partial Support Mechanism, respectively, the Government of Mexico began to allocate fund- have been established to address funding require- ing specifically for preventive activities. Although re- ments during earlier post-disaster phases. Further- sources for prevention remain significantly less than more, FONDEN strives for reconstruction activities to those for reconstruction, the Mexican Government not recreate vulnerabilities – FONDEN funding can continues its effort to shift focus and funding from be used to rebuild infrastructure at higher standards ex post response to ex ante disaster risk manage- (the “build back better” principle) and to relocate ment. Fiduciary responsibility for the financial ac- public buildings and/or communities to safer zones. counts lies with BANOBRAS, Mexico’s state-owned development bank. The FOPREDEN Program for Prevention sup- ports disaster prevention by funding activities FONDEN is funded through the Federal Ex- related to risk assessment, risk reduction, and penditure Budget. The Federal Budget Law re- capacity building on disaster prevention. Akin quires that an amount of no less than 0.4 percent to the FONDEN Program for Reconstruction and the of the annual federal budget should be available to FONDEN Trust, FOPREDEN is a budget account that FONDEN, FOPREDEN, and the Agricultural Fund for funnels resources to specific prevention projects un- Natural Disasters at the beginning of each fiscal year. der FIPREDEN, FOPREDEN’s financial trust. FOPREDEN This amount is net of the uncommitted funds in the promotes informed decision making about invest- FONDEN Trust at the end of the previous fiscal year. ment in risk reduction by requiring states to com- In practice, the minimum 0.4 percent requirement – plete a risk assessment (including the development equivalent to around US$800 million in 2011 - has of a risk atlas) before being eligible for financing for become the standard budget appropriation for these risk mitigation projects. The FOPREDEN Program for < x > FONDEN: Mexico’s Natural Disaster Fund – A Review Prevention remains much smaller than the FONDEN dition, it secured US$290 million of parametric rein- Program for Reconstruction, with its annual alloca- surance coverage for the same three zones for three tion currently totaling about US$25 million. years, bringing its total protection to US$450 mil- lion. When this cat bond expired in 2009, FONDEN The process for accessing and executing re- increased its cover by issuing a three-year, US$290 construction funding from FONDEN balances million multi-peril parametric catastrophe bond for the need for time-efficient disbursement with earthquake and hurricane. Most recently, in 2011, it accountability and transparency concerns. The secured indemnity cover for government assets and Ministry of Interior, SEGOB, holds responsibility for low-income housing with a US$400 million excess- managing this process. First, SEGOB must issue a of-loss reinsurance treaty. declaration of a natural disaster in order for FONDEN resources to be accessible by affected federal agen- Working in close collaboration with the Minis- cies or state governments. Once this declaration try of Finance and Public Credit, FONDEN has has been made, the federal agencies and/or state established a strong link between its technical government(s) can apply for funding and the dam- and financial arms for natural disasters. The age assessment process can begin. FONDEN avails National Centre for Disaster Prevention (CENAPRED) of innovative information technology, such as geo- acts as the technical arm for disaster risk reduction coding and digital imagery, to ensure efficiency and and works closely with FONDEN, the financial vehicle accuracy of the damage assessment process. Based for disaster management. The latest in the evolution on the findings of the damage assessment, SEGOB of this partnership is the development and utilization reviews the related funding applications, determines of R-FONDEN, a probabilistic catastrophe risk model the appropriate allocations, and requests the Min- that calculates risk metrics for government assets istry of Finance and Public Credit to convene the and low-income housing for major perils. While R- FONDEN Technical Committee to authorize transfer FONDEN continues to be refined and developed for of funds to a subaccount for the reconstruction pro- different applications, it has already been used to gram in the FONDEN Trust. From this subaccount, improve insurance coverage for some federal agen- resources are transferred to the service providers im- cies and constitutes an important reference for the plementing reconstruction works. FONDEN resourc- allocation of the excess of loss reinsurance treaty. es finance 100 percent of the reconstruction costs for federal assets and 50 percent of those for local The FONDEN system is continuously evolving assets. (The first time that the assets are impacted to integrate lessons learned over the course by a disaster – this percentage declines thereafter if of years of experience. The Mexican Government insurance is not purchased for reconstructed assets.) modifies the FONDEN system with the goals of en- hancing its efficiency and effectiveness and moving FONDEN resources are leveraged with mar- toward a comprehensive disaster risk management ket-based risk transfer instruments. Despite framework. The lessons from FONDEN’s evolution FONDEN’s stable annual budget appropriation, vari- that are captured in this report, including in its poli- ations in funding needs related to the occurrence cies, procedures, and use of financial instruments, of one or multiple disasters means that shortfall can be usefully applied by other governments. The can occur in any given year. To manage the volatil- FONDEN story provides a compelling study of how ity of demand on its resources, FONDEN is allowed governments can establish successful government to transfer risks through insurance and other risk systems to support effective post-disaster interven- transfer mechanisms such as catastrophe bonds; tions while promoting disaster prevention and, im- FONDEN is not, however, allowed to contract debt. portantly, of how such systems should be continu- FONDEN first transferred disaster risk to the inter- ously improved to integrate new understandings. national capital market in 2006 for US$160 million parametric catastrophe bond against earthquake risks in three zones for a three year duration. In ad- Chapter 1 A Brief History of Civil Protection and Disaster Management in Mexico <1> < 2 > FONDEN: Mexico’s Natural Disaster Fund – A Review Mexico is highly exposed to multiple natural hazards; the country is affected by natural disasters of varying magnitude on a recurrent basis. Since the mid-1980s, when major earthquakes devastated Mexico City and triggered a national dialogue on disaster risk management (DRM), the Government of Mexico has been strengthening its DRM policy framework and accompanying institutional arrangements for imple- mentation. A critical component of this effort has been the establishment of its Natural Disaster Fund (FONDEN), initially to finance post-disaster reconstruction, and more recently, to finance all stages of the DRM cycle. This chapter presents an overview of Mexico’s disaster risk profile and the Mexican Govern- ment’s DRM efforts, including the establishment of FONDEN. Disaster risk profile tropical cyclones along both the Pacific and Atlantic coasts to heavy rainfall events occurring throughout Due to its diverse geography, Mexico is exposed to a the territory to high intensity storms, among others. wide variety of geological and hydro-meteorological Drought is also a significant concern, particularly for hazards (see Figure 1.1). Earthquakes, volcanoes, Mexico’s agricultural sector. Other hazards with no- tsunamis, hurricanes, wildfires, floods, landslides, table impacts on the country include forest fires and and droughts can all impact the country; between landslides. 1970 and 2009, approximately 60 million people were affected by natural disasters in Mexico1. The Exposure to the abovementioned natural hazards country is ranked as one of the world’s 30 most ex- in Mexico is on the rise – while Mexico’s economic posed countries to three or more types of natural development improved the quality of life for its citi- hazards2. See Table 1.1. Annex 1 provides an in- zens, growth of Mexico’s asset base and population depth overview of Mexico’s disaster risk profile. translate into increased exposure to natural hazards. As of 2009, 77.5 percent of the population of near- Located along the “fire belt” where 80 percent of ly 110 million lived in urban areas – by 2050, this the world’s seismic activity occurs, Mexico is at high figure is expected to rise to nearly 90 percent of a risk of geological disasters. On average, Mexico ex- projected 130 million people3. With a tendency for periences more than 90 earthquakes per year with lower-income populations to reside in more hazard a magnitude of 4.0 or above on the Richter scale prone locations, these figures convey the potential (FONDEN 2011). Almost all of Mexico’s territory, in- for the significantly increased exposure of an already cluding the capital, Mexico City, is highly exposed to vulnerable population. Mexico City4, the fifth largest earthquake risk. Mexico City is also located within urban agglomeration in the world, represents the the Trans-Mexican Volcanic Belt, which contains highest concentration of risk in Latin America and nine active volcanoes. Furthermore, tsunami rep- continues to grow. States such as Veracruz, Jalisco, resents an important threat along Mexico’s Pacific and Puebla, among others, also have pockets of coasts. Annex 2 lists major earthquakes experienced high population density and face significant poten- in Mexico since 1887. tial disaster losses. See Annex 3 for data on popula- tion growth by state. Hydro-meteorological disasters occur with high fre- quency in Mexico. These events range from severe 3 United Nations. Urban and Rural Areas 2009. 2010. 4 This represents the Mexico City metropolitan area, which 1 United Nations. 2011 Global Assessment Report on Disaster comprises of the Mexican Federal District and the State of Risk Reduction. 2011. Mexico, an independent Mexican State of 125 municipalities 2 World Bank. Natural Disaster Hotspots. 2005. and with its own Constitution and Governor. Chapter 1: A Brief History of Civil Protection and Disaster Management in Mexico < 3 > Figure 1.1. Risk maps of natural hazards in Mexico Source: FONDEN (2012). Table 1.1. Exposure of Land and Population to Specific Hazards Natural hazard(s) Exposed area Exposed population Km 2 As percentage of Millions As percentage of national territory total population Storm, hurricane, flood 815,353 41 31.3 27 Earthquake 540,067 27 31.0 27 Drought 573,300 29 21.2 19 Forest fire 747,574 37 28.4 25 Source: CENAPRED (2010). < 4 > FONDEN: Mexico’s Natural Disaster Fund – A Review Creation of Civil Protection System services. In light of this study, the Sistema Nacional in Mexico de Protección Civil (SINAPROC) was created as an organized group of structures, functional relations, The Mexico City earthquakes of September 19 and methods, and procedures involving all levels of gov- 20, 1985, with magnitudes of 8.1 and 7.3 on the ernment and engaging the private sector and non- Richter scale, respectively, marked a shift in disaster governmental and civil society organizations. risk management in Mexico. More than 20 million people in Mexico felt the tremors; the earthquakes The Ministry of Interior (Secretaría de Gobernación, killed 6,000 people and generated direct and indi- commonly referred to as SEGOB) is responsible for rect losses totaling an estimated US$8.3 billion at coordinating and supervising SINAPROC under Mex- 2010 prices (CENAPRED 2000). Damage to build- ico’s Law of Federal Public Administration. As such, ings and infrastructure accounted for approximately SEGOB, through its General Coordination of Civil 87 percent of the losses. The remaining 13 percent Protection, manages the mechanisms and policies comprised loss of income or production, increased for disaster prevention and post-disaster response costs of service provision, emergency response, and and reconstruction activities. Figure 1.2 illustrates temporary rehabilitation. Nearly 1,700 schools were the functional and coordination roles among the damaged, and 30 percent of the hospital capacity in General Coordination of Civil Protection and the Mexico City was destroyed. Approximately 250,000 various other national and sub-national offices and people became homeless and nearly 900,000 were agencies responsible for civil protection. left with damaged homes. These earthquakes trig- gered an immediate interest in improving the coun- Since its establishment, SINAPROC has institutional- try’s capacity to manage disaster risks. ized disaster risk management in Mexico. The GoM broadly defines DRM as the process of planning, Following the earthquakes, the Federal Government participation, intervention, decision-making, and of Mexico (GoM) took steps both to support recon- design and implementation of sustainable develop- struction needs and to strengthen the civil protec- ment policies aimed at: (i) understanding the causes tion system. A National Commission for Reconstruc- of risks; (ii) reducing risks; (iii) mitigation of societal tion was established in October 1985 under the impact of disasters; and (iv) strengthening the resil- President’s leadership as an initial step to address ience of government and society against natural di- the needs of the affected population. The Commis- sasters. This definition implies a multidisciplinary ap- sion was also requested to establish the necessary proach requiring strong commitment from all levels mechanisms, systems, and organizations to better of government and the society as a whole. assist populations affected by future disasters. The GoM has made DRM a national priority and has On May 6, 1986, a study on the creation of a Na- integrated it into the country’s planning processes. It tional System of Civil Protection was published in has strengthened the capacity of national and local the Official Journal of the Mexican Federation. The institutions to reduce risk ex ante, to plan for poten- study defined the mandate of civil protection as the tial disasters, and to respond efficiently in the event protection of the individual and society in the event of an adverse natural event. The Government also of a natural or man-made disaster by preventing or considers DRM as a tool to address climate change reducing loss of human life, destruction of property, adaptation (CCA) by strengthening resilience to cli- damage to nature, and disruption of lifeline public matic extreme events. Chapter 1: A Brief History of Civil Protection and Disaster Management in Mexico < 5 > Figure 1.2. Flow Chart of the Civil Protection System (SINAPROC) in Mexico President of Mexico National Council for Civil Protection Ministry of the Interior (SEGOP) General Coordination of Civil Protection General Directorate of the General Directorate National Center for Natural Disaster Fund (FONDEN) of Civil Protection Disaster Protection (CENAPRED) State Civil Municipal Civil Protection System Protection System State Council Municipal Council of Civil Protection of Civil Protection Internal Civil Protection Units in Various State Civil Municipal Civil Departments and Agencies Protection Unit Protection Unit (including public/private sectors and society) Mexican Population Source: Authors, from Mexican Civil Protection (2010). Establishment of Mexico’s Natural FONDEN was established as a line item (line 23) in Disaster Fund (FONDEN) the annual Federal Expenditure Budget. Despite the adoption of SINAPROC, government FONDEN has evolved significantly since its creation. agencies were still regularly required to reallocate The GoM has introduced various changes to its op- planned capital expenditures toward financing post- erating rules and procedures to improve the overall disaster reconstruction efforts. Budget reallocations efficiency of its resources, and a budget account for created delays and scaling back of investment pro- disaster prevention has been created under FOND- grams, while also slowing deployment of funds for EN to further strengthen disaster risk management. recovery efforts. In response, in 1996, the GoM in- Changes are published in the Official Diary of the troduced the Natural Disaster Fund (Fondo Nacional Mexican Federation. Of particular note, in 2006, de Desastres Naturales), commonly known as FON- budget shortfalls for post-disaster reconstruction DEN, as an inter-institutional financial vehicle for led to the introduction of a law that requires the natural disasters. Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público or SHCP) to commit a FONDEN’s original mandate was to ensure that ad- fixed percentage of its annual budget to FONDEN equate financial resources were immediately avail- and to the Agricultural Fund for Natural Disasters able in the aftermath of a natural disaster to finance (Componente de Atencion a Desatres Naturales or the reconstruction of public infrastructure and low- CADENA), which is managed by the Ministry of Ag- income housing without compromising existing riculture. According to Article 37 of Mexico’s Federal budgetary plans and approved public programs. Budget Law, this annual allocation together with < 6 > FONDEN: Mexico’s Natural Disaster Fund – A Review the uncommitted funds from the previous fiscal year FONDEN will continue to evolve to improve the ef- cannot be less than 0.4 percent of the total Federal ficacy and efficiency of its operations as well as to budget, approximately US$800 million per annum. respond to increasing exposure to natural disasters On average, 87 percent of this annual appropriation in Mexico. For example, in response to the upward goes to FONDEN. trend in potential scale of natural disaster losses at the state and federal level, FONDEN, in partnership At the end of 2010, further significant changes were with the Ministry of Finance and Public Credit (SHCP) made to FONDEN that simplify its procedures and and the General Coordination of Civil Protection, is streamline reconstruction activities by concentrating considering incorporating new financial instruments responsibility for reconstruction with FONDEN resourc- to increase capacity for larger-scale responses. es within the federal agencies, rather than spread- FONDEN is also promoting a comprehensive risk ing them across both federal and state agencies. Box management approach to deal with disaster risk 1.1 below describes the key dates in the evolution of (see Chapter 5). FONDEN. Further details on the current structure, na- ture, and role of FONDEN and related legal and institu- tional arrangements are provided in Chapter 2. Box 1.1. Key Dates in the Evolution of DRM & FONDEN in Mexico 1985: Soon after the devastating earthquakes in Mexico in September, the National Commission for Reconstruction is created to conduct a study on the establishment of a national system of civil protection. 1986: The Official Diary of the Federation publishes the study “Basis for the Establishment of the National System of Civil Protection” in May. 1988: The Vice Ministry of Civil Protection, Prevention, and Social Recovery and the General Directorate of Civil Pro- tection are created in the Ministry of Interior (SEGOB), which is mandated to establish the mechanisms, systems, and organizations to better assist populations affected by future disasters.5 1996: Mexico’s Natural Disaster Fund, FONDEN, is created as a line item in the Federal Expenditure Budget (Budget line 23 of the ‘Economic Provisions’ budget) to ensure that resources are made available to efficiently finance the post-disaster reconstruction and restoration of damaged public infrastructure, low-income housing, and forestry, protected natural areas, rivers, and lagoons. The program is introduced as a budgetary instrument administered by the Ministry of Finance and Public Credit (SHCP). 1999: A first set of rules is established to provide general guidance on damage assessments and access to FONDEN resources, including regulations on the mechanisms, requirements, procedures, milestones, and deadlines to be met by state and federal agencies. The Federal FONDEN Trust is established. SEGOB becomes the coordinator of FONDEN and the entity in charge of issuing and publishing declarations of natural disasters. 2000: FONDEN’s operating procedures are modified to include emergency declarations and the establishment of sec- tor committees to support damage assessments. Representatives from both federal and state governments are desig- nated to participate in joint damage assessments to determine the level of FONDEN resources required in response to eligible disaster events. Legal agreements are also established with each of the 32 state governments, creating state trust accounts to hold FONDEN resource allocations for specific disasters. continues 5 The Vice Ministry of Civil Protection, Prevention and Social Recovery used to sit above the General Directorate of Civil Protection. In 2001, the Organic Law for Public Administration was reformed to create a new Ministry of Public Security. The Vice Ministry of Civil Protection, Prevention, and Social Recovery was then disbanded, and the General Coordination of Civil Protection was created within the Ministry of Interior. Chapter 1: A Brief History of Civil Protection and Disaster Management in Mexico < 7 > Box 1.1. Key Dates in the Evolution of DRM & FONDEN in Mexico (cont.) 2002: The Natural Disasters Preventive Trust, FIPREDEN, is created under Article 32 of the General Law of Civil Protec- tion to support federal agency and state government preventive actions in case of imminent and potentially adverse events that could not have been foreseen. 2003: The Fund for Natural Disaster Prevention, FOPREDEN, is created through Decree Sections 3 and 4 of the Gen- eral Law of Civil Protection to support federal agency and state government investments in risk identification and risk reduction. SEGOB is designated responsibility for the coordination of FOPREDEN. 2004: FONDEN’s operating rules are revised to give state governments a more prominent role in accessing post- disaster resources. The new rules indicate that the Fund’s resources will be made available to state governments within 23 working days. 2006: A new Federal Budget Law is approved to address the regular shortfall in FONDEN’s budgetary resources. Ar- ticle 37 of Mexico’s Federal Budget Law requires the SHCP to commit an annual percentage (no less than 0.4 percent) of its annual federal budget to FONDEN and related activities. Additional modifications are made to FONDEN’s rules to simplify its allocation approval process and thereby further expedite resource authorizations. FONDEN issues the world’s first government catastrophe (cat) bond, Cat MEX (US$160 million), which is combined with a parametric reinsurance scheme (US$290 million) for coverage against earthquakes totaling US$450 million (US$150 million for each zone) and a three-year maturity. 2009: Further reforms are adopted to expedite approval of FONDEN resources and a new mechanism is introduced to provide “Immediate Partial Support” (referred to as Apoyos Parciales Inmediatos – APIN) to finance urgent post- disaster actions while the full damage assessment and fund approval process is undertaken. These advance payments are later reconciled with the approved allocation. With assistance from the World Bank, FONDEN issues a multi-peril cat bond, covering hurricane and earthquakes risks in specific regions of the country for an amount of US$290 mil- lion, to replace Cat MEX. 2010: At the end of the year FONDEN issues new rules and guidelines whereby federal agencies are assigned respon- sibility for the management of all federal and 50 percent of state infrastructure reconstruction works. FIPREDEN and FOPREDEN are merged into one single window for prevention. New operating rules are also announced for the pre- ventive window in December 2010. Major disasters (including hurricanes and floods) affect several Mexican States, resulting in the approval of 58 requests for FONDEN support. 2011: A new Reconstruction Fund for state-level governments is introduced on a pilot basis as part of Mexico’s 2011 Federal Budget. In June, FONDEN places in the international reinsurance market a US$400 million insurance coverage in excess of a US$1 billion FONDEN expenditure in reconstruction of public assets and low income housing. vbn5 5 < 8 > FONDEN: Mexico’s Natural Disaster Fund – A Review Chapter 2 FONDEN Mandate and Financial Accounts <9> < 10 > FONDEN: Mexico’s Natural Disaster Fund – A Review FONDEN is central to the GoM’s ability to enact swift response and reconstruction efforts in the aftermath of a disaster. Financing post-disaster reconstruction is the core of FONDEN’s mandate – FONDEN’s primary budget and financial accounts, the FONDEN Program for Reconstruction and the FONDEN Trust, respec- tively, are the mechanisms used to execute this work. In addition to these accounts, FONDEN has evolved to include preventative budget and financial accounts, FOPREDEN and FIPREDEN, to finance investment in disaster risk reduction. This chapter provides an overview of FONDEN’s mandate and administrative structure as well as descriptions of FONDEN’s budget and financial accounts and flow of funds. FONDEN’s Mandate and Scope of Box 2.1. Overview of definition of natural Activities disasters and qualifying events for FONDEN under Mexican Law FONDEN is an instrument for the coordination of Mexico’s Civil Protection Law defines a disaster as “... a situa- intergovernmental and inter-institutional entities to tion in which the population of one or more state entities suf- quickly provide funds in response to natural disas- fers severe damage from the impact of a natural or man-made disaster calamity, resulting in loss of life, infrastructure, or en- ters without compromising existing budgetary plans vironment, in a way that disrupts the social structure and dis- and approved public programs. FONDEN is anchored turbs the essential activities of society, affecting livelihoods.” within SINAPROC, and is administered by SEGOB. The mandate of FONDEN is threefold: (i) to finance Main Types of Adverse Natural Events Eligible for FONDEN Support: emergency assistance to affected populations in the Geological Hydro- Other* aftermath of a natural disaster; (ii) to finance post- Avalanche meteorological Forest fire disaster rehabilitation and reconstruction of public Volcanic eruption Severe hail Tsunami Hurricane infrastructure (including the restoration of certain Slope movement River flooding components of the natural environment); and (iii) Extreme wave Rain flooding to finance the rehabilitation and reconstruction of Earthquake Severe rain Subsidence Severe snow low-income housing. Box 2.1 defines “disaster” un- Severe drought der Mexican Law and lists the main types of natural Tropical storm events eligible for FONDEN support. Tornado * Damage resulting from any other natural phenomenon or weather situa- tion with characteristics similar to the phenomena listed above, in terms of FONDEN resources can be made available for the re- origin, frequency and severity of impact, can also be considered for FONDEN resources. covery and reconstruction of both federal and state Source: FONDEN (2011). infrastructure. To access FONDEN resources, the af- fected federal and state agencies must demonstrate that the magnitude of reconstruction needs exceeds FONDEN’s Budget & Financial their financial capacity and file specific request de- Accounts tailing the extent of the damage and estimated cost of reconstruction. FONDEN does not provide direct FONDEN’s primary budget and financial accounts support to municipalities. State governments, how- are the FONDEN Program for Reconstruction and the ever, have traditionally applied for FONDEN resourc- FONDEN Trust, repectively. A number of subaccounts es to restore municipal assets and have then provid- for specific applications have been established un- ed municipalities with assistance for the execution der the FONDEN Trust, such as the Revolving Fund, of these resources. which provides resources for immediate relief in the Chapter 2: FONDEN Mandate and Financial Accounts < 11 > aftermath of a disaster. In addition, the GoM has amount is net of uncommitted funds for the pre- established a smaller budget and linked financial vious fiscal year; in 2011, US$800 million was ap- account for ex ante disaster risk management, the proved for FONDEN. This amount is primarily allocat- Natural Disaster Prevention Fund (Fondo para la Pre- ed to the FONDEN Program for Reconstruction, with vención de Desastres Naturales – FOPREDEN) and its about US$25 million allocated to FOPREDEN. Figure trust account, Fideicomiso Preventivo, or FIPREDEN. 2.1 illustrates FONDEN’s resource allocation process, Each of these budget and financial accounts are dis- including post-disaster financial flows. FONDEN is cussed in depth below. Table 2.1 provides a sum- responsible for allocating resources in accordance mary of FONDEN’s budget and financial accounts. with its operating rules. Any funds that are unuti- lized at the end of the fiscal year are transferred to FONDEN, comprising all of these accounts, is re- the FONDEN Trust (80 percent of unused funds) and quired by Mexico’s Federal Budget Law (Article 37) FIPREDEN (20 percent) as reserves for use in subse- to receive no less than 0.4 percent of the federal quent years. budget at the beginning of each fiscal year6. This While the original, and still the primary, budget ac- This allocation also includes a small amount for CADENA, the 6 count created under FONDEN is the FONDEN Pro- Agricultural Fund for Natural Disasters. Table 2.1. Overview of FONDEN’s Financing Instruments Purpose Instruments and activities Reconstruction Budget and Financial Accounts FONDEN Program for Reconstruction: A budget account that provides resources for the reha- bilitation and reconstruction of uninsured or underinsured public assets. The FONDEN Program for Reconstruction focuses on: (i) financing emergency assistance to affected populations in the af- termath of a natural disaster; (ii) financing post-disaster rehabilitation and reconstruction of public infrastructure (including the restoration of certain components of the natural environment); and (iii) financing the rehabilitation and reconstruction of low-income housing. Recovery, recon- struction, and FONDEN Trust: A financial account managed by BANOBRAS through which resources from the contracting of risk FONDEN Program for Reconstruction are funneled. Once funding is approved for a specific pro- transfer instru- gram, these resources will be held in a dedicated sub-account of the FONDEN Trust. The FONDEN ments Trust (through BANOBRAS as the fiduciary agent) also acts as the contracting authority for insur- ance and other risk transfer instruments. Aid supplies and Revolving Fund: An instrument that is financed by the FONDEN Trust that emergency re- provides resources for the acquisition of aid supplies to respond to the im- sponse mediate needs of the population affected by a natural disaster. Qualifying expenditures include, among others, medicine, food, water, cleaning sup- plies, and temporary shelter supplies. Prevention Budget and Financial Accounts FOPREDEN: A budget account that provides resources to support ex ante proactive risk manage- ment activities, which include (i) identification and assessment of hazards, exposure, and vulner- Risk identification abilities; (ii) ex ante disaster risk reduction and mitigation activities; and (iii) local community capac- and risk reduction ity building around disaster prevention. FIPREDEN: A financial account managed by BANOBRAS through which resources from FOPREDEN are funneled to approved preventative activities. < 12 > FONDEN: Mexico’s Natural Disaster Fund – A Review Figure 2.1. FONDEN’s Resource Allocation Process Additional federal Mexico’s Federal Budget, Line 23 budget resources As per Article 27 of the Federal Budget Law, no less than As per Article 19 of the 0.4 percent of the Federal Budhet allocated to FONDEN Federal Budget Law As required FONDEN FONDEN Program FONDEN Program for Prevention Budget sub-allocation for Reconstruction 20% of any remaining funds at end of FY 80% of any remaining funds at end of FY Loss payment FIPREDEN (Preventative Trust) FONDEN Trust Agrosemex Funding transfers if needed Risk transfer premiums Requesting Any Federal Sub-account unused Agency for each Revolving Fund Revolving for funds Prdetermined project return to for State (Emergency Relief) each disaster FONDEN contribution Government Trust Trust managed by Sub-account Sub-account for each for each Banobras affected sector affected sector Service Service Service providers providers providers implementing implementing implementing works works works Source: Authors, from FONDEN (2011). gram for Reconstruction, over the years, the addi- FONDEN’s accounts for post-disaster financing tion of sub-accounts under the FONDEN Trust and the preventative accounts has enabled FONDEN to FONDEN Program for Reconstruction provide more effective financing for the disaster risk The FONDEN Program for Reconstruction is FON- management cycle. The addition of FOPREDEN, for DEN’s primary budget account. As discussed above, example, has helped the GoM to begin to transition this account receives the budget transferred to from a reactive approach to disasters to a preventa- FONDEN for post-disaster activities at the begin- tive approach by making resources available at the ning of the fiscal year. Its primary purpose is to federal and state level for investment in prevention. channel resources for the reconstruction of public And FONDEN continues to evolve as its administra- infrastructure, (uninsured) low-income housing, and tors recognize vulnerabilities in Mexico’s defences restoration of forestry, protected natural areas, riv- against disasters. For example, FONDEN plans to in- ers, lagoons, and other natural resources affected troduce state-level natural disaster funds in recogni- by adverse natural events7. In the aftermath of a tion of the need for improved reconstruction financ- ing for local assets. Figure 2.2 illustrates the role of Damage to the agricultural (crop and livestock) sector is 7 FONDEN instruments in the DRM cycle in Mexico. covered by a special fund, known as CADENA, which is the Natural Disasters Attention Component of the Agricultural, Chapter 2: FONDEN Mandate and Financial Accounts < 13 > Figure 2.2. Role of FONDEN’s Instruments in Mexico’s National System of Civil Protection Occurrence of Natural Disaster Emergency and Disaster Disaster Prevention Response and Reconstruction (Ex-ante) (Ex-post) Years to Days Hours, Weeks, Days Days, Weeks, Months Timeframes Before Disaster After Disaster After Disaster Instruments IMMEDIATE FUND/ NEW RECONSTRUCTION FOPREDEN FONDEN TRUST REVOLVING FUND FUND FOR LOCAL ENTITIES Activated by an emergency declaration Activated by a disaster declaration Activities Support to the Resources for Affected Population Reconstruction All federal plans and programs are activated for disaster reponse Source: FONDEN (2011). disaster, funds committed to a specific reconstruc- million budget. Should resources made available to tion program are transferred to a subaccount un- FONDEN at the beginning of the year prove insuf- der the FONDEN Trust for execution. Funds from ficient, Article 19 of the Federal Budget Law allows the FONDEN Program for Reconstruction can also for exceptional budget allocations to be made to be transferred to FIPREDEN to finance prevention FONDEN. In this case, SHCP is allowed to allocate activities. At the end of the fiscal year, 80 percent resources from the federal budget surplus directly of uncommitted funds in the FONDEN Program for to FONDEN. To date, Mexico’s oil revenue surplus Reconstruction are transferred to the FONDEN Trust has been the main source of additional resources for and 20 percent are transferred to FIPREDEN to build FONDEN. When there is no excess revenue in a giv- reserves. en fiscal year, Article 32 of Mexico’s Civil Protection Law stipulates that SHCP should seek transfers from While in recent years (2005-2010) FONDEN has other programs to provide FONDEN with sufficient spent, on average, US$789 million, in some years financing to cope with natural disasters. with high occurrences of disasters, its costs run significantly higher than its approximately US$800 FONDEN Trust Livestock, and Fishery Sector of the Prevention and Risk Man- agement Program managed by the Ministry of Agriculture, The main purpose of the FONDEN Trust is to hold Livestock, and Rural Development. Damage to infrastructure, federal resources approved by FONDEN Technical however, for fisheries and aquaculture, as well as restoration Committee for specific reconstruction programs and of lagoon systems, coastal estuaries, bays, and inland wa- to hold resources for emergency relief in the Revolv- ters within the public domain can be covered by FONDEN in accordance with its General Rules and Specific Operating ing Fund. The FONDEN Trust (through its fiduciary Guidelines. agent, BANOBRAS) also acts as financial vehicle to < 14 > FONDEN: Mexico’s Natural Disaster Fund – A Review purchase risk transfer instruments such as insurance submission of invoices and other documentation by and catastrophe (cat) bonds. implementing entities. The FONDEN Technical Com- mittee directs payments from the FONDEN Trust to The FONDEN Trust is managed by BANOBRAS, Mex- the submitting federal agencies or service providers. ico’s national development bank for public works This committee is chaired by SHCP and meets ev- and services, which acts as fiduciary agent and ery trimester, although additional meetings can be trustee for the resources transferred to the FON- called as necessary. Table 2.2 lists the members of DEN Trust. Transfers to the FONDEN Trust are ap- the FONDEN Technical Committee and respective proved by SHCP. In accordance with the “Specific voting authority of each of its representatives at the Operating Guidelines for the Natural Disaster Fund” federal level. Annex 4 lists the members of the FON- published on January 31, 2011, the FONDEN Trust DEN Technical Committees at both the federal and honors payments for reconstruction activities upon state level. Table 2.2. Members of the FONDEN Federal Technical Committee and their voting authority* Technical Committee Member Voting Authority Two Representatives of the Ministry of Finance and Public Credit Voting Power Representative of the Ministry of Interior (SEGOB) Voting Power Observer Status Representative of the Ministry of Civil Service (No Voting Authority) Representative of BANOBRAS as the Fiduciary Agent of the FONDEN Trust (Permanent invita- Observer Status (No Voting Authority) tion with mandatory attendance required at all Technical Committee meetings) Source: FONDEN (2011). * All representatives designate an alternate to ensure participation. In the rest of the text, the Committee is referred as the FONDEN Technical Com- mittee The FONDEN Trust can also be used to pay premi- prior to or upon occurrence of a disaster. The Revolv- ums and receive any loss payments from risk transfer ing Fund is structured as an instrument financed by instruments, such as insurance and cat bonds8; its the FONDEN Trust and provides resources for imme- experience with these risk transfer instruments is de- diate response and for the acquisition of emergency scribed in Chapter 4. In addition to the financing of supplies. It allows FONDEN to provide humanitarian post-disaster reconstruction activities, the FONDEN assistance directly to an affected population through Trust is able to provide resources for preventive proj- local service providers before, during, and after a di- saster; such assistance may include food and medi- ects by transferring resources to FIPREDEN if neces- cal supplies, articles for temporary shelter (such as sary. blankets and mattresses), search and rescue equip- ment, and other relief items. FONDEN Revolving Fund The Revolving Fund is managed within SEGOB The Revolving Fund, also referred to as the Immedi- through the National System of Civil Protection. Al- though the Revolving Fund is financed by the FON- ate Fund, is FONDEN’s small, flexible financial instru- DEN Trust, it operates under its own rules, governed ment to support emergency activities immediately by the “Agreement establishing the guidelines for 8 Stipulated in Article 4, Section V and 21 of FONDEN’s General issuing declarations of emergency and the use of the Rules and paragraphs 35 to 37 of the FONDEN Guidelines. Revolving Fund,” as published in the Official Journal Chapter 2: FONDEN Mandate and Financial Accounts < 15 > of the Mexican Federation on December 31, 2008. viding a breakdown of all products received. These A declaration of emergency is required in order for invoices are then forwarded to SHCP, which calls for states to request urgent support from the Revolving a FONDEN Technical Committee meeting, in order Fund. The state’s request must include an explana- for the payment of the invoices from the Revolv- tion of the purpose(s) of the goods or services re- ing Fund to be approved under the FONDEN Trust. quested and an indication of the number of affected FONDEN’s fiduciary agent, Banobras, transfers the people that would be supported. Figure 2.3 outlines approved funds directly to the suppliers and service the design and functional differences between the providers. Revolving Fund and a reconstruction subaccount un- der the FONDEN Trust. The Revolving Fund is financed through the annual budget appropriation for FONDEN’s Program for Re- Figure 2.3. Activation Triggers and Timing of construction. This appropriation is allocated to the FONDEN’s Resource Allocations Revolving Fund through the FONDEN Trust as need- Financing Instruments ed. Since its inception, it is estimated that alloca- FONDEN Trust tions to the Revolving Fund have averaged less than Revolving Fund Reconstruction 10 percent of the total resources used for FONDEN’s (Immediate Fund) Subaccount post-disaster activities. Activation Declaration of Disaster Declaration trigger* Emergency Reconstruction of Acquisition of Aid FONDEN’s accounts for prevention financing RESOURCES Public Infrastructure Supplies and Human PROVIDED and Low-Income Rescue Efforts Housing FOPREDEN and FIPREDEN POST-DISASTER Recovery and Emergency PHASE Reconstruction El Fondo para la Prevención de Desastres Naturales, FUND ALLOCATION Within Hours to Within Days to commonly referred to as FOPREDEN, is FONDEN’s pri- AFTER EVENT Months Months OCCURRENCE mary mechanism to support investment by the GoM Source: FONDEN (2011). in ex ante risk reduction. The “new” FOPREDEN was * All federal plans and programs are activated for disaster response once established in 2010 as the second generation tool triggered. of the GoM to support disaster prevention; its pre- decessors, which were merged to form the “new” FOPREDEN, are the Preventative Trust (Fideicomiso The Directorate General of FONDEN considers the Preventivo, or FIPREDEN) and “old” FOPREDEN. validity of requests for support under criteria issued FIPREDEN and the “old” FOPREDEN were estab- by the General Coordination of Civil Protection. lished in the early 2000s to help the GoM achieve its If approved, the Directorate General of FONDEN submits the requests to SEGOB’s Directorate Gen- long-term objective to transition from a reactive di- eral of Resources, Materials, and General Services saster management system to an integrated disaster (DGRMSG). The DGRMSG fulfills the requests by risk management system focused on ex ante risk re- procuring the goods and/or services, which are de- duction. FIPREDEN’s original mandate was to finance livered to the requesting states for distribution to the preventative actions in cases of imminent adverse affected populations in municipalities under the de- events that could not be foreseen, while FOPREDEN clared state of emergency. The invoices, containing financed investment in risk identification and risk re- a detailed breakdown of the products ordered and duction. In the “new” FOPREDEN, FIPREDEN func- delivered, are submitted to the Directorate General tions as FOPREDEN’s financial trust (akin to FONDEN of FONDEN. Delivery notices are also included, pro- Trust for the FONDEN Program for Reconstruction). < 16 > FONDEN: Mexico’s Natural Disaster Fund – A Review The mandate of the “new” FOPREDEN merges and FOPREDEN receives an annual budget allocation each builds on the mandates of its predecessors. Pre- year through line 23 of the Federal Budget amount- ventive actions financed by the “new” FOPREDEN ing to around US$25 million. In addition, at the end focus on: (i) identification and assessment of haz- of each fiscal year, 20 percent of any uncommitted ards, exposure, and vulnerabilities; (ii) ex ante disas- funds in the FONDEN Program for Reconstruction ter risk reduction and mitigation activities; and (iii) are transferred to FIPREDEN. If needed, FIPREDEN local community capacity building around disaster can receive transfers from the FONDEN Trust. Con- prevention. FOPREDEN is administered by SEGOB’s versely, uncommitted funds can be transferred from General Coordination of Civil Protection. The Gen- FOPREDEN or FIPREDEN into the FONDEN Trust if ad- eral Coordination of the Civil Protection, through ditional resources are needed for post-disaster activi- the General Directorate of FONDEN reviews appli- ties. Any funding remaining in FOPREDEN’s ordinary cations to FOPREDEN to ensure that the projects budget (line 23) allocation at the end of the fiscal are solely focused on preventative actions against year are transferred to FIPREDEN to build reserves, natural disasters and that they enable technical sup- rather than reverting to the Federal Treasury. port to be provided for cases where there have been previous efforts to assess and better manage high Box 2.2. Improving early estimation of priority risks. Before the General Coordination of trapped persons in case of earthquake in Civil Protection will consider a state’s application for Mexico City a project to invest in risk mitigation, the state must conduct a risk assessment and produce a risk atlas. The September 19 and 20, 1985, earthquakes that devastated Mexico City took the lives of Project proposals can be presented for financing 6000 people – and the potential for an earth- from FIPREDEN throughout the year. A Technical quake to inflict major fatalities in Mexico City re- Committee (similar to the FONDEN Technical Com- mains high, particularly depending on the time of mittee) reviews and approves the proposals, and day that an earthquake would strike. The ability to map damaged buildings, infrastructure, and Banobras acts as the FIPREDEN’s fiduciary agent. the dispersion of potential victims in real-time As with reconstruction projects under the FONDEN following an earthquake could save the lives of Program for Reconstruction, there is cost-sharing people trapped in damaged, unstable buildings between the federal and local governments for and under collapsed infrastructure. prevention projects under FOPREDEN. Unlike the FONDEN Program for Reconstruction, however, the For this reason, in 2010 the Distrito Federal was percentage varies depending on the type of project approved to use FOPREDEN resources to develop and the level of marginalization of the state or mu- studies that will enable the establishment of a sys- nicipalities in which the project will be implemented. tem to generate maps which allow authorities to Also different from the FONDEN Program for Recon- have an early estimation of potential victims and struction, under FOPREDEN, the applicant (whether damages of strategic assets and infrastructure a federal or state entity) for FOPREDEN funding must within 15 minutes of the beginning of a seismic occurrence. With this information, the Civil Pro- deposit its predetermined contribution to the proj- tection Department can have an informed proba- ect’s subaccount in FIPREDEN before the project can bilistic view of damage scenarios to improve qual- commence. FOPREDEN’s rules are articulated in the ity and speed of decision making in alignment “Agreement setting out the rules of operation of the with protocols for emergency response. Fund for Natural Disaster Prevention (FOPREDEN),” Source: FONDEN (2012). published in the Official Journal of the Federation on December 23, 2010. See Box 2.2 for an example of a FOPREDEN-financed project in Mexico City. Chapter 3 FONDEN Operating Guidelines for Reconstruction Financing < 17 > < 18 > FONDEN: Mexico’s Natural Disaster Fund – A Review The FONDEN operating guidelines are designed to ensure the time-efficient disbursement of appro- priate levels of reconstruction financing while balancing accountability and transparency concerns. The process for accessing and executing reconstruction financing can be broken into four phases: (i) declaration of a natural disaster; (ii) damage assessment and request for FONDEN resources; (iii) disbursement of resources and implementation of reconstruction activities; (iv) public reporting on post-disaster activities. FONDEN continues to innovate to improve its operations throughout these phases; for example, it has been an early mover in adopting information technology to streamline the damage assessment process and has adopted a “build back better” approach to reconstruction financing. This chapter presents the FONDEN approach to post-disaster reconstruction financing and highlights some of FONDEN’s forward-looking practices. Overview (ii) Damage assessment and request for FONDEN resources; FONDEN’s Program for Reconstruction, with its re- (iii) Disbursement of resources and implementation sources allocated through the FONDEN Trust, forms of reconstruction activities; the cornerstone of building back (and building back (iv) Public reporting on post-disaster activities. better) in a timely manner following a disaster in Mex- ico. The Program’s operating guidelines are intended Each phase in the process to access and execute to ensure time-efficient disbursement of financial re- FONDEN resources for post-disaster reconstruction is sources for reconstruction of federal and state assets, discussed below. Further information on this process with cost-sharing between federal and state govern- prior to changes made in early 2011 is available in ments for state assets, while prioritizing accountabil- Annex 5. Annex 6 provides an in-depth illustration of ity for the execution of funds. As is true for the broad- the new procedure to access and execute FONDEN er FONDEN system, this process continues to evolve; resources discussed below. Finally, Annex 7 includes over the years, new features have been incorporated two case studies that outline the FONDEN process in such as innovative information technology for dam- the context of an earthquake in Baja California and age assessment and the Immediate Partial Support a hurricane in Nuevo León. Mechanism for urgent reconstruction needs, among others, to improve the efficiency, effectiveness, and transparency of this process. Phase 1: Emergency Declaration and Declaration of Natural Disaster SEGOB is responsible for the overall coordination of the FONDEN financing is accessible upon SEGOB’s is- post-disaster reconstruction process. It issues emergen- suance of a declaration of natural disaster. Articles cy and disaster declarations, announces these declara- 29-37 of Chapter VI of the Mexican General Law of tions in the Official Journal of the Mexican Federation, Civil Protection specify the requirements for declara- and coordinates the allocation of FONDEN resources. tions of disaster9.In the absence of such a declara- SEGOB also monitors the reconstruction of both feder- tion, requests for funding by federal agencies, line al and local infrastructure to ensure proper use of these ministries, or state entities are ineligible. resources. The overall process for accessing FONDEN support and executing related activities can be sum- The requirement for declarations of emergency and disaster 9 was originally foreseen in the General Law of Civil Protection marized in four main phases: which was published in the Official Journal of the Mexican Federation on May 12, 2000, even though previous FONDEN (i) Declaration of a natural disaster; rules already contemplated that process. Chapter 3: FONDEN Operating Guidelines for Reconstruction Financing < 19 > Figure 3.1. Process to access and execute FONDEN resources for post-disaster reconstruction Phase 1: Occurrence and Declaration of a Natural Disaster YES Collaboration of Request for Declaration Emergency situation Installment of the Occurrence of a disaster occurrence of Disaster presents risk to damage assessment natural disaster (By relevant federal (By Head of State Government human life committee technical agency) or by Federal/State Entity) YES Federal and State Entities Declaration of act immediately Natural Disaster (By SEGOB)) Phase 2: Damage Assessment and Request for FONDEN Resources Application to Recommendations by Federal and State Authorization of Inter-ministerial the Inter-ministerial YES Entities quantify FONDEN resources SEGOB informs federal Commission Commission damages and plan and State Authorities post-disaster activities (Through SEGOP) NO Review of post-disaster activities (State and Federal Entities with Local Government Consensus) Phase 3: Disbursement of Resources and Implementation of Post-Disaster Activities Federal entities execute 1. Federal infrastructure 100% Federal post-disaster activities FONDEN resources resources FONDEN Federal entities and service providers 1. Support for low-income resources execute post-disaster activities populations 2. State and municipal State and municipal infrastructure resources Service providers execute post-disaster activities Phase 4: Dissemination of the Report on Post-Disaster Activities Publication of Post- State and Federal Reporting on execution of post-disaster activities Disaster Activities and Entities and disbursement of resources Disbursed Resources in Print Media Source: SHCP (2011). SEGOB can issue a declaration of natural disaster if Upon occurrence of a disaster, the governor(s) of an adverse event has caused damage that exceeds the affected state(s) or relevant ministers must re- local response capacity. Applications for the decla- quest the relevant technical federal agency to con- ration of a disaster can be submitted to SEGOB by firm within three days of an event the occurrence of state governments, when disaster response and re- a disaster in at least one municipality. Each technical covery needs exceed their operational and financial federal agency is pre-assigned to events based on the response capacity, and/or by federal agencies and types of natural hazards under its respective areas of line ministries. responsibility (see Table 3.1). The technical agency fo- < 20 > FONDEN: Mexico’s Natural Disaster Fund – A Review cuses its analysis on the severity of the natural disas- ernments and federal entities have 30 calendar days ter according to parameters defined by FONDEN rules from the day the disaster declaration is published to and does not assess damage. The technical agency submit documented request for FONDEN’s financial either confirms the occurrence of a natural disaster support10. Box 3.1 discusses the frequency and inter- to FONDEN or denies that the event’s impact is severe state distribution of declarations of natural disasters enough to merit the declaration of a natural disaster. in Mexico in recent years. In the latter case, the FONDEN process ends here. 10 The General Law of Civil Protection allows for a longer 12 calendar days from the date of application for the declara- If the technical agency issues a confirmation, then tion of a natural disaster to the issue of a disaster declaration. the application for the declaration of natural disas- FONDEN’s rules and guidelines are stricter and require that ter is verified, and SEGOB has 12 calendar days to the declaration be published in the Official Journal of the publish the declaration of natural disaster in the Of- Mexican Federation no later than four working days from the time of the request, whether or not the damage assessment ficial Journal of the Mexican Federation. State gov- process has been completed. Table 3.1. Technical agencies responsible for confirming the occurrence of severe natural disasters Technical agency Natural hazard(s) under its responsibility National Water Commission (CONAGUA) Hydro-meteorological hazards National Forestry Commission (CONAFOR) Forest fires National Center for Disaster Prevention (CENAPRED) Geological and other hazards Box 3.1. Frequency of declarations of natural disasters in Mexico Between 1999 and 2011, Mexico experienced an average of 30 disaster declarations every year. 2003 was the year with least declarations (13), while 2010 counted the most with 58 declarations of natu- ral disasters.11 Declarations of Natural Disasters in Mexico by Year, 1999-2011 60 58 50 44 40 38 37 38 38 36 30 23 20 17 19 16 14 13 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: FONDEN (2011). It should be noted that the number of disasters declaration in any given year is not necessarily indicative of the scale of 11 disaster impact since the latter depends on the location, magnitude, number of municipalities declared, and geographical scale of each event. Chapter 3: FONDEN Operating Guidelines for Reconstruction Financing < 21 > Box 3.1. Frequency of declarations of natural disasters in Mexico (cont.) The number of disaster declarations also varied considerably across states during this period. Veracruz experienced the most declarations by far, with 48, followed by Nuevo León and Chiapas, with 31 and 29, respectively. Number of Declarations of Natural Disasters by Mexican State (1999-2011) 60 50 48 40 31 29 30 22 20 17 15 14 14 12 11 11 11 10 9 9 9 9 10 8 7 7 7 5 5 4 4 4 4 3 3 3 2 1 0 Veracruz Nuevo León Chiapas Oaxaca Puebla Chihuaha Hidalgo Tamaulipas San Luis Potosí Durango Michoacán Quintana Roo Sonora Baja California Sur Coahuila Sinaloa Tabasco México Guanajuato Jalisco Zacatecas Baja California Tlaxcala Aguascalientes Colima Quétaro Yucatán Campeche Morelos Nayarit Guerrero Distrito Federal Source: FONDEN (2011). Phase 2: Damage Assessment and Box 3.2. Members of the Damage Requests for FONDEN Resources Assessment Committee Federal Government Representatives: The Damage assessment process ■■ Representative of the FONDEN General Directorate of FONDEN Operating Procedures prescribe that a the Ministry of Interior (SEGOB) Damage Assessment Committee is to be established ■■ Representative of the Policy and Budget Control Unit at within twenty-four hours following written confir- Ministry of Finance and Public Credit (UPCP) mation by the relevant technical agency that a se- ■■ Representatives of each affected Federal Ministry and vere natural phenomenon has occurred in at least Agency one municipality. The Damage Assessment Commit- ■■ Additional Representatives (when applicable): tee is comprised of both federal and state represen- – The Unit of Insurance, Pensions, and Social Security tatives from affected agencies. (See Box 3.2.) of the Ministry of Finance – The Responsible Technical Agency (as per Table 3.1) Damage assessments are initiated at an opening ses- State Government Representatives: sion held by the Damage Assessment Committee. ■■ State Governor who acts as Chairman of the Dam- age Assessment Committee (or a representative with At this session, subcommittees are formed for each delegated authority) affected sector, such as housing, roads and bridges, ■■ Representative of the Ministry in charge of Budget and hydraulic infrastructure, urban infrastructure, educa- Public Expenditures tion, health, etcetera. Field work and site visits are ■■ Representative of the State Civil Protection Unit then expeditiously conducted to assess the damage. ■■ Representative of Local Control Authority The Damage Assessment Committee identifies af- ■■ Representatives of each affected Local Agency fected public infrastructure at the federal, state, and Source: FONDEN (2011). municipal levels and determine the extent of losses < 22 > FONDEN: Mexico’s Natural Disaster Fund – A Review incurred. Each sector team has ten working days by an additional ten working days in exceptional cir- from the date of the Committee’s establishment to cumstances. FONDEN uses innovative information assess the damage and confirm the resources need- technology to ensure the efficiency and accuracy of ed for reconstruction. This period can be extended this process. (See Box 3.4.) Box 3.4. FONDEN’s innovative use of information technology FONDEN is a first-mover in the adoption of information technology for DRM applications. FONDEN has imple- mented geocoding and digital image capture to provide evidence of damage in affected sectors while improv- ing the accuracy of post-disaster damage assessments. The use of geo-referencing also facilitates the expedi- tious collection and recording of data on disasters’ impacts. The approach allows for increased transparency and precision in the damage assessment process while reducing errors. The geocoding and digital image capture process entails three key steps, summarized below. Examples of handheld devices used to collect information on damaged infrastructure Step 1: Collecting information on damaged infrastructure by using georeferenced photos Every agency requesting FONDEN support following a disaster must submit at least four georeferenced photo- graphs for each reconstruction work requested. Pictures must be georeferenced and uploaded to FONDEN’s au- tomated system for submission to the Damage Assessment Committee as evidence of the impact of the disaster in their sector. The georeferenced photographs are complemented by polygons, which provide visuals of the affected area, and by data quantifying the damage in each sector. As part of damage assessment, the Damage Assessment Committee uses handheld devices with GIS capabilities to collect information and take pictures of damaged infrastructure, including the location and the date. Geo-referenced image of damage caused by severe rain in Mexico continues Chapter 3: FONDEN Operating Guidelines for Reconstruction Financing < 23 > Box 3.4. FONDEN’s innovative use of information technology (cont.) Step 2: Capturing the information online The Directorate General of FONDEN compiles these records into a validated system of requests for FONDEN resources and creates an inventory of post-disaster activities. Step 3: Storing the information in FONDEN’s database The pictures are stored in a database for subsequent analysis of future risk reduction. The data are used regularly for information requests, preparation of graphics and statistics, calibration of loss models, validation of past FONDEN support to reconstruction of public infrastructure, and identification of insured infrastructure. Source: FONDEN (2011). The request for funding process Results Meeting chaired by the Governor of the af- fected state. Critical information and evidence must In order to apply for FONDEN resources, both federal be provided for each sector including: (i) geocoded and state agencies must demonstrate that the scale photographs documenting the type of damage to of relief and reconstruction requirements exceeds each affected asset in all of the municipalities under the resources earmarked in their programs to man- the disaster declaration; (ii) itemized reconstruction age natural disasters. needs and related costs; and (iii) proposed improve- ments as part of the reconstruction work to miti- Within ten days of the establishment of the Damage gate and even prevent future disaster damage (i.e., Assessment Committee, each subcommittee pres- to “build back better”), related costs, and a com- ents its findings on the identification and quantifica- parison of these costs with the replacement cost of tion of damage and related reconstructed needs at a each public asset. Box 3.5 contains an overview of Box 3.5. FONDEN’s effort to build back better and to encourage risk financing measures The FONDEN Technical Committee can approve post-disaster rehabilitation funding not only for the replace- ment (to restore the asset to as it was before the disaster) but also for the improvement of damaged assets to strengthen their resilience against future disasters -- to “build back better.” About 25 percent of approved FONDEN resources for post-disaster program are generally allocated with this purpose. To further encourage proactive risk reduction, FONDEN has established rules limiting repeat eligibility for FON- DEN resources. FONDEN will only finance 50 percent of the reconstruction cost for eligible uninsured federal assets that have received support in the past (assuming the same assets remain uninsured) and 25 percent of the cost of reconstruction of eligible state assets. Thereafter, the assets are rendered ineligible for further FONDEN support. These rules apply to both federal and local assets. In contrast, insured assets are eligible for FONDEN funding (covering 100 percent of reconstruction costs for federal assets and 50 percent for local assets) irrespec- tive of the number of times the assets have received reconstruction support from FONDEN in the past. FONDEN’s financing of insured and uninsured federal and state assets Insured federal asset Insured local asset Uninsured federal asset Uninsured local asset First disaster 100% 50% 100% 50% Second disaster 100% 50% 50% 25% Third and subsequent disaster 100% 50% 0% 0% Source: FONDEN (2011). < 24 > FONDEN: Mexico’s Natural Disaster Fund – A Review FONDEN’s “build back better” policy, and Box 3.6 to reducing Mexico’s vulnerability to natural disasters. provides case studies of how this policy contributes Box 3.6. Implementing FONDEN’s “build back better” policy in Tabasco and Nuevo León In recent years, FONDEN has increased its commitment to ensure that each natural disaster event is used as an opportunity to reduce Mexico’s vulnerability to future events. As described in Box 3.5, the FONDEN Technical Committee can approve post-disaster rehabilitation funding not only for the replacement but also for the im- provement of damaged assets to strengthen their resilience against future hazard events. These resources can be used to ensure that reconstruction programs do not recreate the same vulnerabilities. Two examples, severe flooding in the State of Tabasco and Hurricane Alex in the State of Nuevo León, provide insight on these “build back better” initiatives. Such initiatives are proving to be cost-effective in terms of avoided damage and losses. Extreme hydro-meteorological events lead to a comprehensive water plan in Tabasco In October 2007, a number of tropical depressions and cold fronts in the southeastern states and the Gulf of Mexico generated intense and continuous rains throughout the country. Tabasco was particularly affected, with water covering most of its territory, including the capital city, Villahermosa. This event was the worst flooding ever recorded in the state. In the aftermath of the flood, the authorities took immediate action to develop a Comprehensive Water Manage- ment Plan aimed at reducing the vulnerability of Tabasco’s population, economy, and ecosystems. The Plan encom- passed a series of analytical studies and outlined a broad structural investment program, including construction of dams, reinforcement of levees, cleaning and dredging of channels and drains, building and reconstruction of dikes and protective walls, construction of floodways and other risk reduction investments. Initial investments took place from November 2007 to the end of 2008, with MXN 1.8 billion (US$150 million) in funding provided by FONDEN and the Mexico’s National Water Commission (CONAGUA). Additional investments amounting to MXN 2.8 billion (US$233 million) were implemented in 2009 and 2010 with resources provided by CONAGUA. Longer- term studies and activities costing MXN 4.8 billion (US$400 million) are now underway and should be completed by the end of 2012. The benefits of these investments have rapidly become clear. In 2010, Tabasco again experienced extreme weather, with cumulative rainfall exceeding that experienced in 2007. Moreover, the state experienced monthly rainfall in excess of 550 millimeters in two consecutive months in 2010, compared to only one month in 2007. Despite this excessive level of rain, losses were be limited to MXN 7.2 billion (US$570 million) in 2010 compared to MNX 32 billion (US$2.9 billion) in 2007, a direct consequence of Tabasco’s efforts to strengthen its resilience to extreme hydro-meteorological events. Hurricane Alex and risk reduction efforts in Nuevo León The State of Nuevo León was heavily affected by floods caused by Hurricane Alex in 2010. At the request of the state authorities, FONDEN funded a number of hydrological, hydraulic, and geotechnical studies to determine how best to reduce the risk of flooding in the state. Interventions were subsequently designed for the restora- tion of a hydraulic section of the Santa Catarina River, channel dredging of 27 kilometers in the Santa Catarina River, and the construction of four kilometers of protective walls. Extensive flood mitigation efforts were also implemented to protect population centers in the Topo Chico Creek in Apodaca, Nuevo León, and the munici- pality of Monterrey. Source: FONDEN (2011). Chapter 3: FONDEN Operating Guidelines for Reconstruction Financing < 25 > Within seven days of the Results Meeting discussed ■■ Develop and submit to SHCP a consolidated re- above, each federal agency must deliver its final di- quest for funding for all sectors affected, includ- agnosis for its sector (covering both federal and local ing SEGOB’s opinion on whether the application assets) to the Directorate General of FONDEN. With- complies with FONDEN’s requirements for re- in a further two days of receipt of these documents, source authorization. the Directorate General of FONDEN must: Once SHCP receives SEGOB’s request, it has five ■■ Verify that there is no duplication of effort among days to convene a meeting of the FONDEN Technical the federal and state entities; Committee to authorize transfer of the resources to a specific account established in the FONDEN Trust. ■■ Verify that the requested resources are only in- Annex 8 provides examples of FONDEN resources tended to address damage caused by the disas- authorized for reconstruction in Mexico in 2011. ter (not preexisting damage); While FONDEN’s process ensures that funds can be ■■ Verify that each reported damaged asset has not allocated through the FONDEN Trust for a recon- previously received any reconstruction financing struction program, in recent years, FONDEN recog- from FONDEN. If any have, and catastrophe in- nized that more immediate access to financing was surance was not secured for the asset following often needed to take urgent recovery actions and the disaster, then lower levels of support will be developed the Immediate Partial Support Mecha- made available for those assets, in accordance nism, discussed in Box 3.7. with FONDEN’s policies (see Box 3.5); Box 3.7. The Immediate Partial Support Mechanism In 2009, a new financing mechanism was introduced under FONDEN’s rules known as ‘Immediate Partial Sup- port’ (Apoyos Parciales Inmediatos - APIN). APIN provides partial financial support immediately after a disaster to finance urgent post-disaster needs and actions while the full damage assessment and fund approval process is completed. Upon installation of a Damage Assessment Committee, federal and state agencies may request APIN for the implementation of urgent activities such as the restoration of federal and local communications and lifeline in- frastructure, debris removal, equipment and heavy machinery rental, rental of provisional classrooms, and other activities to help normalize the situation in the affected areas. APIN resources are authorized by SHCP within 24 hours of the receipt of a request for support from a federal or state entity and are made available through the FONDEN Trust. The advance payments are later reconciled with the total approved FONDEN allocation. In the case of state support, if APIN disbursements exceed 50 percent of the total agreed cost of reconstruction at the state level (a very rare situation), then this over-payment is returned to the FONDEN Trust. This procedure allows FONDEN to provide resources to meet urgent needs in the immediate aftermath of a disaster while maintaining its cost- sharing arrangement with state governments. Annex 9 provides examples of immediate partial support funds approved by FONDEN during 2011. Source: FONDEN (2011). < 26 > FONDEN: Mexico’s Natural Disaster Fund – A Review Phase 3: Disbursement of Resources ments directly to the federal agencies or third parties and Implementation of Reconstruc- in charge of reconstruction activities (upon receipt tion Activities of documented requests for disbursement).The rel- evant federal agencies submit financial statements Since January 2011, when the FONDEN Specific and quarterly reports on physical and financial prog- Operating Guidelines were issued, federal agencies ress to the Directorate General of FONDEN for ex- have been solely responsible for the execution of all amination during meetings of the FONDEN Technical FONDEN-supported rehabilitation and reconstruc- Committee. tion activities. Federal agencies are responsible for the design, contracting, and supervision of all reha- Reconstruction of local infrastructure bilitation and reconstruction works using their own operating procedures. They can, however, contract Immediately following the FONDEN Specific Operat- third-party service providers for the reconstruction ing Guidelines were issued, SEGOB and SHCP signed works or agree to transfer some of the work to the an agreement with each of the 32 Mexican States, state or municipality if they do not have sufficient which was a new mandate in order for a state to be capacity to undertake all of it. When utilizing FON- eligible to receive funds from FONDEN. The agree- DEN funds they are required to submit regular prog- ment’s main purpose was for the states to accept ress reports to FONDEN using a standardized tem- the new FONDEN process, in which for every new plate. The FONDEN Technical Committee monitors disaster, the federal agencies would use FONDEN the implementation of reconstruction activities. If funds to execute up to 50% of the reconstruction any approved FONDEN funds are not used, or any costs of the local infrastructure. reconstruction activities are cancelled, the funds are released back into the FONDEN Trust for use in fu- Thus, if a natural disaster occurs, within the four ture programs. (See Figure 2.1) days after the Results Meeting of the damage as- sessment committee, each federal and local agency Reconstruction of federal infrastructure responsible for an affected sector should sign an addendum of the agreement in which the parties FONDEN resources can be used to finance the recon- agree on a specific list of reconstruction activities to struction of eligible federal infrastructure in full with be undertaken by the federal agency for up to 50 no requirement for counterpart funding. Resources percent of the budget allocation. State-level enti- are allocated directly for implementation by the rel- ties remain responsible for financing the remaining evant federal agencies – for instance, to the Minis- activities. Every addendum lists infrastructure to be try of Communication and Transportation (SCT) for rehabilitated by federal agencies together with an road and bridge construction, the Ministry of Health implementation plan and estimated execution peri- (SSA) for hospital reconstruction, the Ministry of ods. These implementation plans are signed by the Education (SEP) for school reconstruction, the Na- relevant federal agencies that will be responsible for tional Water Commission for hydraulic infrastructure executing the reconstruction activities. Box 3.8 pro- reconstruction, and the Ministry of Social Develop- vides an overview of recent changes to FONDEN’s ment (SEDESOL) for low-income housing and urban operating guidelines on reconstruction of state in- infrastructure reconstruction. frastructure. FONDEN resources to finance the reconstruction FONDEN resources are provided on the understand- remain in sub-accounts within the FONDEN Trust. ing that the remainder of the reconstruction activities Banobras, FONDEN’s fiduciary agent, makes pay- will be conducted by state and municipal agencies Chapter 3: FONDEN Operating Guidelines for Reconstruction Financing < 27 > drawing on their own resources. Since catastrophic share (see Chapter 4). Although this fund is likely to losses triggered the establishment of the Recon- cease operations in the near future, the GoM is ad- struction Fund for Local Entities in 2010, state gov- vancing another initiative to improve understanding ernments have been able to access resources from of risk and to facilitate risk financing for states. this fund if they are unable to meet their 50 percent Box 3.8. FONDEN’s new operating guidelines on reconstruction of state infrastructure Prior to 2011, FONDEN’s rules mandated that resources allocated for the reconstruction of local assets should be transferred to State Trusts under FONDEN. These funds were then disbursed to match state contributions for work goods or services executed by state agencies, service providers, and municipalities as appropriate. The state’s 50 percent counterpart contribution was required in order to release the support of these funds. In some instances, however, there were difficulties in securing this contribution. In these cases, the inability to disburse FONDEN funds led to significant delays in post-disaster reconstruction. Since 2011, new operating guidelines dictate federal agencies to execute all of FONDEN’s resources, including the federal resources allocated for the reconstruction of state-owned infrastructure. As a result, FONDEN re- sources are no longer transferred to FONDEN State Trusts. A decision is made at the time of resource allocation to clearly separate what local infrastructure will be financed with FONDEN resources and what local infrastruc- ture will remain the responsibility of the state, which is then responsible for financing 100 percent of remaining reconstruction needs, using either its own resources or drawing on a line of credit from the Reconstruction Fund for Local Entities. Source: FONDEN (2011). Phase 4: Dissemination of the Report tions and post-disaster reconstruction activities are on Post-Disaster Activities carefully monitored and reported publicly. Real time information on FONDEN allocations for post-disaster Transparency is a top priority for FONDEN and efforts reconstruction by disaster and sector are publicly dis- are made to ensure that FONDEN’s resource alloca- closed through SEGOB’s website (see Annex 8). < 28 > FONDEN: Mexico’s Natural Disaster Fund – A Review Chapter 4 FONDEN Financial Management < 29 > < 30 > FONDEN: Mexico’s Natural Disaster Fund – A Review Disasters represent a highly variable, often significant cost to the Government of Mexico at the federal and the sub-national levels. The cost of disasters to the government varies across states, assets, and types of disasters; most of the cost of disasters is incurred for the reconstruction of key public assets, mainly roads, hydraulic in- frastructure, and low-income housing, and the primary hazards driving these costs are hurricanes and floods. FONDEN has developed a layered risk financing strategy utilizing both risk retention and risk transfer (e.g., parametric catastrophe bonds) to manage these costs. This chapter reviews and analyzes FONDEN’s financial disaster risk profile and describes the disaster risk financing strategy developed by FONDEN to manage its portfolio of assets at risk. Disaster Risk Profile of Federal and government averaged US$1.46 billion per annum (in State Governments 2011 constant dollars), of which 77 percent were re- lated to local (state and municipal) assets. The high- Disasters can impose a significant burden on the est costs were incurred in 2010, when major floods public budget; over the period 1999 to 2011, the generated rehabilitation needs exceeding US$5 bil- costs of post-disaster reconstruction of public assets lion. Local assets (including low-income housing) ac- and low income housing financed by the Mexican counted for two-thirds of this total. See Figure 4.1. Figure 4.1. Post-disaster reconstruction costs for federal and local assets (including low-income housing), 2011 constant US dollars 6,000 100% 5,000 in calendar year (US$ million) 80% Reconstruction cost incurred 4,000 60% 3,000 40% 2,000 20% 1,000 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Year n Federal assets n Local assets n Federal assets n Local assets Note: Local assets refer to assets owned by states and municipalities. Source: Authors, from FONDEN (2011). As per FONDEN’s operating guidelines, reconstruc- to 2011, the federal and state governments spent tion costs are shared by the federal and state gov- an average US$939 million and US$521 million (in ernments – the federal government finances all costs 2011 constant dollars), respectively, each year on re- for federal assets and 50 percent for local assets, construction. The federal government accounted for and states are responsible for the remaining 50 per- 64 percent of total public reconstruction expendi- cent of costs for local assets. Over the period 1999 ture. See Figure 4.2. Chapter 4: FONDEN Financial Management < 31 > Figure 4.2. Post-disaster reconstruction costs paid by the federal government and state governments (in constant 2011 US dollars) 6,000 100% 5,000 in calendar year (US$ million) Reconstruction cost incurred 80% 4,000 60% 3,000 40% 2,000 20% 1,000 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Year n Share of federal government n Share of state governments n Share of federal government n Share of state governments Source: Authors, from FONDEN (2011). Financial Risk Profile of FONDEN of federal assets and US$600 million per year on the reconstruction of local assets and low-income hous- Over the period 1999 to 2011, on average FONDEN ing. See Figure 4.3. spent US$339 million per year on the reconstruction Figure 4.3. Post-disaster reconstruction costs paid by FONDEN for damaged federal assets and local assets (in constant 2011 US dollars) 4,000 100% in calendar year (US$ million) Reconstruction cost incurred 80% 3,000 60% 2,000 40% 1,000 20% 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Year n Share of federal government n Share of state governments n Federal assets n Local asstes Note: Local assets refer to assets owned by states and municipalities. Source: Authors, from FONDEN (2011). < 32 > FONDEN: Mexico’s Natural Disaster Fund – A Review Much of this expenditure was concentrated on the Excess rainfall, flooding, and windstorms were re- reconstruction of roads, hydraulic infrastructure, sponsible for the vast majority (93 percent) of re- and low-income housing. The reconstruction of fed- construction costs between 2000 and 2011. eral and local roads alone accounted for over half of Earthquakes, droughts, and landslides were each re- FONDEN’s total reconstruction spending, followed sponsible for less than 3 percent of total reconstruc- by the reconstruction of hydraulic infrastructure (27 tion costs. Figure 4.5 shows FONDEN’s spending by percent) and low-income housing (9 percent). Fig- peril for the period 2000 to 2011. ure 4.4 shows FONDEN’s spending by type of assets for the period 2000 to 2011. Figure 4.4. Post-disaster reconstruction costs Figure 4.5. Post-disaster reconstruction costs covered by FONDEN, by type of assets, 2000-2011 covered by FONDEN, by type of peril, 2000-2011 Hydraulic Excess rainfall/ Earthquake infrastructure Flood 2.9% 27.0% 48.5% Drought 1.9% Low-income Roads 8.5% 57.0% Landslide 1.7% Education 1.9% Other Windstorm 1.0% Health 44.0% 1.3% Other 4.4% Source: Authors, from FONDEN (2011). Source: Authors, from FONDEN (2011). A majority (67 percent) of reconstruction costs met Figure 4.6. Post-disaster reconstruction costs by FONDEN between 2000 and 2011 benefitted just covered by FONDEN, by state, 2000-2011 five states, over half of which (36 percent) of to- Hidalgo tal reconstruction costs related to windstorms and 4.1% flooding in 2010. Most of the reconstruction costs Oaxaca in respect of assets in Nuevo León (90 percent) were 5.7% caused by events in 2010, as were around half (be- Chiapas Other tween 44 and 45 percent) of the costs of the other 12.1% 29.3% four states with the largest historical reconstruction costs paid by FONDEN, Veracruz, Tabasco, Chiapas, Tabasco 13.0% and Oaxaca. Figure 4.6 shows FONDEN’s spending by state for the period 2000 to 2011. Nuevo León Veracruz 12.9% 22.9% Source: Authors, from FONDEN (2011). Chapter 4: FONDEN Financial Management < 33 > Risk Financing Strategy higher FONDEN allocation in 2011 – the highest yearly allocation yet, totaling US$833 million. FONDEN’s support for post-disaster reconstruction is financed through FONDEN’s annual federal bud- FONDEN’s approved expenditures have exceeded get appropriation and from reserves in the FONDEN the combined financing available from its annual Trust. Over US$500 million per annum was allocat- federal budget allocation and the FONDEN reserves ed from the federal budget to FONDEN in the early in five years from 1999 through 2011, with the most years of the program (1999-2001), but this alloca- dramatic deficit in 2010. In this year, the federal gov- tion was drastically reduced in subsequent years, ernment had to transfer over US$3.3 billion from as shown in Figure 4.7. Despite the cut in federal elsewhere in its budget to meet FONDEN’s post- budget allocations from 2002 onward, the FONDEN disaster reconstruction commitments. Article 19 of Trust was able to build up some reserves over time, the federal budget allows for additional exceptional reaching US$857 million in 2009. However, these budget allocations of this nature for FONDEN, draw- reserves were severely depleted in 2010 due to ma- ing on resources from the federal surplus (such as jor flood losses; this experience prompted a much the oil revenue surplus) and other programs. Figure 4.7. Resources and expenditures of FONDEN, 1999-2011 (in constant 2011 US dollars) 4,000 3,500 3,000 US$ million 2,500 2,000 1,500 1,000 500 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 n FONDEN program n FONDEN Trust Approved expenditures Source: Authors, from FONDEN (2011). Since 2004, to help FONDEN meet its mandated re- of risk transfer instruments, enabling FONDEN to ac- sponsibilities, the SHCP has been working with the cess the reinsurance and capital markets. General Directorate of FONDEN to develop a more sophisticated financial protection strategy. This strat- FONDEN’s disaster risk financing strategy as of 2011 egy has evolved over the years, based on a ‘bottom is illustrated in Figure 4.8 below. The bottom layer up’ risk layering approach. FONDEN’s strategy was of risk, up to US$1 billion, is retained by FONDEN to secure funds for more frequent events first while through its annual budget appropriation and, if nec- considering a series of market-based risk transfer essary, by an exceptional additional federal budget instruments, such as indemnity-based reinsurance allocation (mainly from oil surplus revenues). The and catastrophe bonds (cat bonds), for less frequent US$400 million layer in excess of this US$1 billion events. Also in 2004, modifications were made to is covered through an indemnity-based insurance FONDEN’s operational manual to allow for the use policy on the whole FONDEN portfolio. Should to- < 34 > FONDEN: Mexico’s Natural Disaster Fund – A Review tal reconstruction costs exceed US$1.4 billion, these FONDEN at the beginning of the year and the levels excess losses are financed through a further excep- of resources required for post-disaster activities. De- tional budget allocation. FONDEN also issued a mand for funding varies between years depending three-year cat bond in 2009 to provide immediate on a combination of the frequency and intensity of liquidity for emergency losses should a major earth- natural hazard events each year and the exposure quake and/or hurricane occur in pre-defined areas of and vulnerability of affected populations and public the country. These market-based risk transfer instru- assets. While the FONDEN Trust acts as multi-year ments are further described below. reserve fund, the budget allocation law means that this reserve is de facto capped at 0.4 percent of the Figure 4.8. 2011 FONDEN disaster risk financing federal budget. strategy Low frequency If the annual budget allocation proves insufficient, Mexico high severity event FONDEN can receive an exceptional budget alloca- FONDEN Retention MultiCat Bond (Exceptional Budget Allocation) tion from the federal government’s reserve funds or US$ 290 million other programs, as already noted. In recent years, Indemnity-based insurance US$ 400 million some of the income surplus from Mexico’s oil rev- FONDEN Retention enues has been redirected to cover FONDEN financ- Exceptional Budget Allocation US$ 200 million ing gaps for post-disaster activities. In 2010, the exceptional allocation needed to meet all FONDEN’s FONDEN Retention commitments for losses was around US$3.3 billion, Annual Budget Allocation US$ 800 million more than three times FONDEN’s original allocation. High frequency To better manage fluctuation of demand on FON- low severity event DEN resources, SHCP, the General Coordination of Source: Authors, from FONDEN (2011). Civil Protection of SEGOB, and other federal and state agencies are working together to ensure that sufficient resources are available on a sustainable ba- Annual Budget Allocation sis via the development of an adequate reserve fund for FONDEN. This initiative is intended to reduce As discussed in Chapter 2, the federal government FONDEN’s dependence on surplus revenue from oil established a law in 2006 that requires at least 0.4 and other commodity prices, while also minimizing percent of Mexico’s federal annual budget, net of the need to redirect public finances from other fed- FONDEN Trust’s reserves, to be allocated for the eral programs to FONDEN in years of catastrophic FONDEN Program for Reconstruction, FOPREDEN, loss. and the Agricultural Fund for Natural Disasters. These funds are earmarked at the beginning of the fiscal year and subsequently financed by federal rev- Risk transfer instruments enues or reserves as needed for approved activities. These annual budget allocations represent the core Over the past five years, the federal government has of FONDEN’s resources but have increasingly proven introduced financial instruments to reduce its fiscal insufficient to address the reconstruction needs of exposure by risk transfer to the international rein- the country. surance and capital markets. FONDEN’s risk transfer arrangements are intermediated by Agroasemex, Figure 4.7 illustrates the often significant variations Mexico’s public insurance company. between the amounts of funding earmarked for Chapter 4: FONDEN Financial Management < 35 > Catastrophe bonds A parametric catastrophe bond provided an attrac- tive option to the GoM because it ensured imme- In 2006, FONDEN issued the world’s first govern- diate availability of funds for emergency losses in mental cat bond, CatMex, which provided coverage the case of a catastrophic earthquake; if triggered, against earthquakes in three specific zones of the the government would receive an expedited payout country. The US$160 million cat bond was part of from the bond. In addition, the catastrophe bond a US$450 million catastrophe risk transfer strategy. received a high-quality credit rating for high risk (low According to the terms of the cat bond, a payout probability) layers. Thus, the GoM could trust that would be triggered if two conditions were met: (i) the principle of the bond would be safe as in an an official state of emergency or disaster declaration escrow account and available if the bond were trig- was issued by the SEGOB, and (ii) an earthquake gered. The GoM also identified other benefits from with a specified magnitude, depth, and epicenter using a catastrophe bond, such as multi-year cover- within the three pre-defined zones was registered. age and no correlation with other financial instru- Figure 4.9 summarizes these parametric details. ments. Figure 4.9. Features of CatMex’s parametric triggers Zone A: Northwest Zone B: Central Cocos Zone C: Outer Mexico City Trigger magnitude (Mw) >8.0 >8.0 >7.5 Trigger depth (km) 200 200 150 Source: FONDEN (2011). After CatMex matured in October 2009, the GoM MultiCat’s parametric features. For the earthquake decided to further diversify its coverage by pooling cover, trigger levels were reduced to include more po- multiple risks across multiple regions. In October 2009, tential events and the zones covered were extended in the federal government issued a multi-peril cat bond order to protect a larger population and assets. using the World Bank’s newly established MultiCat Pro- gram. This US$290 million, earthquake and hurricane In the event of a disaster, an insurance claim will be coverage with a three-year maturity is the cat bond triggered if an official declaration of a state of emer- known as MultiCat Mexico. It provides parametric in- gency is issued by SEGOB and the event also meets surance to FONDEN against earthquake risk in three certain other criteria. The principal will be repaid to in- regions around Mexico City and against hurricanes on vestors if no claims are triggered over the life of the cat the Atlantic and Pacific coasts. Figure 4.10 illustrates bond. Table 4.1 summarizes MultiCat’s main features. < 36 > FONDEN: Mexico’s Natural Disaster Fund – A Review Figure 4.10. Features of MultiCat’s parametric triggers Earthquake hazard Zone Zone A Zone B Zone C Trigger magnitude (Mw) >7.9 >7.4 >8.0 Trigger depth (km) 200 200 200 Sum insured (US$ mil) US$140 mil Hurricane hazard Zone B: Zone C: Zone D: Zone South Pacific Area – Baja California North Pacific Area - Michoacán Atlantic Yucatán Trigger Category 4 4 5 Sum Insured (US$ mil) 50 50 50 Source: FONDEN (2011). Chapter 4: FONDEN Financial Management < 37 > Table 4.1. MultiCat Mexico 2009 – Summary of Terms Class A Class B Class C Class D Peril Earthquake Pacific Hurricane Pacific Hurricane Atlantic Hurricane National (US$ million) 140 50 50 50 S&P rating B B B BB- Maturity October 2012 October 2012 October 2012 October 2012 Interest Spread (over US Treasury Money Market Fund) 11.50% 10.25% 10.25% 10.25% Annual Expected loss 4.65% 4.07% 4.22% 2.39% Multiple 2.47 2.52 2.43 4.29 Source: FONDEN (2011). Indemnity-based insurance proven challenging. In 2010, in light of the excep- tional needs created by disasters during that year, In June 2011, the federal government placed an Banobras, in collaboration with SHCP, established indemnity-based excess-of-loss insurance treaty of the Reconstruction Fund for Local Entities (Fondo US$400 million in excess of US$1 billion. The pay- de Reconstrución de Entidades federativas). The outs are based on cumulated losses borne by FON- Fund, created with a US$360 million (MXN 4.5 bil- DEN, as reported by local and federal entities when lion) contribution from the federal budget, is used to a disaster occurs. Only the replacement costs, which guarantee zero coupon loans with a 20-year matu- on average represent 75 percent of total reconstruc- rity issued by the SHCP through Banobras to states tion costs, are covered by this insurance treaty. The that have suffered disasters since January 1, 2010, insurance program covers all perils and assets pro- and that have requested FONDEN support. tected by FONDEN rules, and benefits from its op- erational procedures, as well as technological plat- Under this Fund, Banobras can issue loans up to a form, to gather damage information necessary for combined total value of US$1.8 billion (MXN 22 bil- loss assessment and claims settlement. lion). State governments can apply for loans up to a value not exceeding their required contribution to The public asset inventory database constructed FONDEN-supported reconstruction efforts as deter- as part of Mexico’s ongoing effort to improve risk mined by the FONDEN Technical Committee. At the assessment, for improved DRM and disaster risk fi- end of the loan period, the state only pays the in- nancing strategies, was a fundamental input for the terest on its loan while the Reconstruction Fund for exposure and risk profile analysis necessary to place Local Entities pays the principal. The Fund, however, this insurance scheme; see Box 4.1 below for infor- did not receive an allocation under the 2012 Federal mation on how Mexico is advancing on disaster risk Expenditure Budget. Once its initial allocation is fully assessment. utilized, the Fund will probably cease to operate, as it was primarily created to address primarily the 2010 catastrophic losses. Reconstruction Fund for Local Entities Throughout FONDEN’s history, FONDEN’s require- ment that state governments finance on average 50 percent of the cost for reconstruction of local infra- structure through their own budget resources has < 38 > FONDEN: Mexico’s Natural Disaster Fund – A Review Box 4.1. Using risk assessment to support FONDEN’s risk financing strategy The FONDEN Technical Committee has conducted various studies to better assess natural disaster risks in Mexi- co since 2007. The initiative Design of financial mechanisms to protect the assets of the FONDEN Trust against the risks of earthquake, flood, and tropical cyclone aimed to identify the assets exposed to natural disasters: roads and bridges, hospitals, schools, hydraulic infrastructure, and low-income housing. The initiative relied on three components: 1) Data Gathering. An asset inventory was developed that included the key variables required for evaluation of vulnerability and loss of infrastructure in the database. Hazard information was also included. 2) Hazard Risk Modeling: Earthquake, tropical cyclone, and flood hazard models were developed to assess the impact of those disasters on the assets. Vulnerability functions for each type of infrastructure were also developed. 3) Financial Modeling: Probabilistic risk modeling and actuarial analysis of historical losses were conducted to develop a disaster risk financing strategy (retention and transfer) for the infrastructure. The Institute of Engineering of the Universidad Nacional Autónoma de México (UNAM) was in charge of the technical coordination of the initiative. UNAM integrated the results into the Loss Estimation System for Federal Risk (R-FONDEN). R-FONDEN is a probabilistic catastrophe risk model that simulates disaster events and provides risk metrics such as annual average loss and loss exceedance probability curves. R-FONDEN has been used to improve the individual insurance policies of the Federal agencies. For instance, it enabled the design of an insurance program for the Ministry of Transport (SCT) in charge of federal roads and bridges – a scheme that was difficult to insure due to insufficient asset information. It has also contributed to improve the design of the insurance program of the Ministry of Education (SEP). Source: FONDEN (2011). Chapter 5 An Ever Evolving System < 39 > < 40 > FONDEN: Mexico’s Natural Disaster Fund – A Review The FONDEN system is continuously improved to meet Mexico’s financial requirements related to natural disasters. This chapter describes the ongoing development of an integrated risk management framework in Mexico, including remaining challenges. The lessons learned from Mexico’s experience with FONDEN can be shared with other countries that are interested in developing an integrated disaster risk management strategy, including a disaster risk financing and insurance strategy. A system progressing toward FONDEN’s Operational Guidelines12 with an increase comprehensive risk management in financial support. It aims to assist state govern- ments in developing inventories of public assets and Since FONDEN’s establishment in 1996, key lessons low-income housing (including attributes such as have been learned resulting in changes to FONDEN’s type of construction, year of construction, replace- procedures. A number of these changes merit recall- ment cost, location, and past damage) that are eligi- ing here. First, FONDEN administrators have promot- ble for insurance and in conducting studies to iden- ed proactive DRM through the establishment and tify and quantify these assets’ vulnerability to natural subsequent merging of FOPREDEN and FIPREDEN to hazards. FONDEN provides state entities with techni- finance investment in prevention. In addition, they cal and/or financial support for the development of have increased FONDEN’s capacity to provide fund- integrated risk management systems. Once a state ing to ensure effective government response during files a formal request and the FONDEN Technical relief, recovery, and reconstruction phases through Committee approves it, financial support is available the establishment of the Revolving Fund for emer- through the FONDEN Trust for several activities, as gency relief (humanitarian aid) and the Immediate listed in Table 5.1. Partial Support Mechanism for urgent recovery ac- tions, respectively. Adoption of innovative technol- Table 5.1. Financial support to promote integrated ogy has improved efficiency, accuracy, and transpar- risk management systems (through FONDEN Trust) ency of post-disaster damage assessments; it has also enabled the related data to be stored for ad- Financial Support Actions to Support from FONDEN Trust ditional applications in DRM. In addition, the devel- Integrated Risk (Percentage of Total Timeframe for opment of a layered disaster risk financing strategy Management Costs of the Strategy) Implementation increases FONDEN’s resilience to catastrophic events Identification of Up to 70% 6 months by leveraging the private sector through risk trans- Assets fer. Such continuous improvements have allowed Risk Assessment Up to 70% 5 months the Government of Mexico to progressively enhance Identification of Risk Up to 70% 3 months Transfer mechanisms FONDEN’s role and its ability to efficiently and effec- tively manage its resources to support ex ante and Source: Mexico’s Ministry of Finance and Public Credit (2011). ex post activities. Likewise, the federal government is investigating financial risk transfer mechanisms for low-income The FONDEN system continues to evolve. In 2009, housing. The housing sector remains one of the through the FONDEN rules, the federal govern- most vulnerable to natural disasters, with approxi- ment launched a new initiative to improve states’ mately 41 percent of housing in Mexico classified as understanding of disaster risks and to increase their involvement in the design of financial risk transfer As elaborated in Chapter 7 of FONDEN’s Operational Guide- 12 schemes. This initiative was enhanced in the 2011 lines. Chapter 5: An Ever Evolving Systems < 41 > low-income housing according to the Ministry of So- also additional costs required to build back better cial Development (SEDESOL). Approximately 2.8 mil- and to reduce physical vulnerability to disasters in lion houses of low-income residents are located in the long run. Furthermore, these guidelines can pro- high earthquake risk zones, and 3.2 million in high mote reduced financial vulnerability by requiring ca- hurricane risk zones. These homes are particularly tastrophe insurance purchase in order to be eligible vulnerable to disasters due to low-quality construc- for repeated reconstruction funding. tion standards. The federal government is investigat- ing financial risk transfer schemes against floods in Lesson 2: Promoting ex ante disaster risk addition to earthquakes and hurricanes for public management assets and low-income housing. A financial mechanism for natural disasters can promote ex-ante DRM to reduce reconstruction re- Lessons for other countries pursuing quirements (as well as social costs) in the long-term. proactive disaster risk management In Mexico’s case, establishing the preventative fund FOPREDEN and linking its financial trust, FIPREDEN, The Mexican Government’s experience illustrates to the FONDEN Trust for post-disaster reconstruction how the establishment of a financial mechanism for financing is helping to facilitate a shift to proactive DRM designed with understanding of the country’s DRM. By providing resources for risk assessment and ex ante and post-disaster needs can enhance the ef- prevention projects, a financial mechanism for natural ficacy and transparency of its DRM system. Other disasters can improve understanding and ownership countries considering how to improve their finan- of risk by government entities and communities; for cial resilience to disasters while promoting proactive example, multi-hazard risk assessments can facilitate DRM can apply the lessons learned from FONDEN to integration of disaster risk considerations into urban their own context. Five lessons that countries may planning and investments in federal and local infra- find useful are discussed here, although numerous structure, influencing both the design and location of others can be extracted from FONDEN’s experience. assets. Resources for risk mitigation can ensure that the methods and materials used for the construction Lesson 1: Matching post-disaster funding needs of these assets will make certain that they will be resil- A dedicated financial mechanism for natural disas- ient to disaster impacts; it can also enable retrofitting ters can ensure that appropriate levels of financing of existing buildings and infrastructure to increase are available for government response throughout their ability to withstand disasters. post-disaster phases. Akin to FONDEN’s Revolving Fund, Immediate Partial Support Mechanism, and Lesson 3: Increasing overall financial resilience subaccounts for approved reconstruction programs, through integrated disaster risk financing and a financial mechanism for natural disasters can com- insurance prise of unique funding windows with differential Countries can strategically enhance the capacity of access requirements for emergency relief, urgent re- their DRM programs by developing an integrated di- covery actions , and reconstruction phases. In this saster risk financing and insurance strategy. Such a way, the funding mechanism’s design can balance strategy builds bottom-up, first relying on risk reten- time-efficiency and accountability concerns across tion through budget mechanisms such as reserves post-disaster phases. and contingency budgets, complemented if pos- sible by contingent debt for more severe, less fre- A “build back better” policy for the operating guide- quent events, and then leveraging the private sector lines of providing reconstruction funding can allow through risk transfer for catastrophic but infrequent resources to cover not only replacement costs, but events. For high-risk layers, risk transfer to the rein- < 42 > FONDEN: Mexico’s Natural Disaster Fund – A Review surance and capital markets can ensure immediate damaged infrastructure. Additionally, the develop- availability of funds following a catastrophic event ment of the probabilistic catastrophe risk model, and/or during high-loss years, when post-disaster R-FONDEN, has numerous applications to improve government support is most likely to be needed. Al- the effectiveness of Mexico’s DRM system, includ- though exposure data may be limited for public and ing informing decision making about the design of private assets for which the government assumes re- FONDEN’s risk financing and insurance strategy and sponsibility, such as low-income housing, parametric risk mapping for visualization and increased own- options can enable the government to access cover- ership of disaster risk. Governments that invest in age for socially or economically important high-risk risk information and assessment systems will benefit regions. FONDEN’s experience with risk transfer, pro- from reduced costs and increased effectiveness of gressing from the 2006 CatMex catastrophe bond their DRM system in the long run; policy makers can for earthquake, to the 2009 MultiCat for earthquake also avail of these tools to improve communication and hurricane, to the 2011 indemnity-based excess- to their constituents about the benefits of ex ante of-loss reinsurance treaty, demonstrates how the investment in risk reduction and the execution of government can take an iterative approach to diver- funding for post-disaster reconstruction. sifying sources of financial protection and improving financial resilience over time – leveraging parametric Lesson 5: Empowering local entities to take products to secure essential coverage while working ownership of disaster risks in parallel to improve exposure data for indemnity- While most decisions impacting physical and finan- based coverage where desirable. cial exposure and vulnerability to disasters are taken at the local level, available expertise and funding The scope for application of alternative risk trans- for DRM is often concentrated at the national lev- fer tools, however, depends on a country’s technical el. In recognition of this dynamic, the government capability and extent of access to capital markets. can increase the overall resilience of the country by It is useful for countries to consider the strength of empowering local entities to take ownership of di- domestic capital markets and their level of access saster risks. Shared responsibility for local disaster to international capital markets in exploring feasible response and reconstruction costs between federal financing instruments. Technical assistance from an and subnational governments increases responsibil- impartial convening power with relevant expertise, ity of local authorities while ensuring federal gov- such as the World Bank or a regional development ernment support for local recovery as needed. FON- bank, could help to alleviate this concern for inter- DEN’s cost-sharing system and recent initiative to ested countries. improve local risk assessment and financing capac- ity demonstrates how the government can balance Lesson 4: Adopting technology for improved shared national and local responsibility. Importantly, performance and accountability in Mexico shared responsibility for disaster impacts The innovative use of technology can improve the by local and federal governments is paired with the quality and timeliness of information and informa- provision of federal resources for ex ante DRM at the tion flows throughout a DRM system. Equally im- local level through FOPREDEN (e.g., risk assessment, portant, it can increase transparency and control risk mitigation, and capacity building on DRM). This of resources for both prevention and post-disaster dynamic empowers local authorities and communi- reconstruction. In the case of Mexico’s FONDEN, ties to take ownership of their exposure and reduce the requirement for geo-referenced photographic their expected disaster losses. Adoption of similar images to be provided to the Damage Assessment policies by other governments could promote ami- Committee has helped FONDEN to efficiently record cable relations between the federal government and and manage its resources for the reconstruction of local governments and communities throughout the Chapter 5: An Ever Evolving Systems < 43 > DRM cycle and empower local communities to in- 3. Conduct additional analysis to strengthen un- crease their ownership of disaster risks. derstanding of disaster risks and to identify ap- propriate risk reduction measures in order to support a shift in emphasis from post-disaster Opportunities to improve FONDEN’s support toward ex ante risk reduction. effectiveness 4. Continue to promote information and training to enhance the public’s awareness of opportunities Based on FONDEN’s experiences to date, several ar- for and benefits of disaster risk reduction and eas have been identified for further consideration prevention to foster a culture of self-protection. and subsequent action to maximize the Government of Mexico’s ability to effectively protect its people 5. Further develop an integrated disaster risk fi- and public infrastructure against disasters: nancing and insurance strategy for FONDEN and the Mexican states, building on the various 1. Incorporate disaster risk management into na- risk retention and risk transfer instruments cur- tional development policy through legal reforms. rently available, including regional risk pooling This would help to ensure that analysis of disas- mechanisms, to increase the fiscal resilience of ter risks is undertaken before federal budget the federal and state governments against natu- decisions are made, helping to reduce disaster ral disasters. risks while also potentially avoiding or minimiz- These options for the Mexican Government’s con- ing post-disaster funding shortfalls. sideration are not exhaustive, and their implementa- 2. Further strengthen financial instruments for the tion would likely result in the identification of ad- prevention of natural disasters to help ensure a ditional activities to further increase the efficacy of cost-efficient balance of expenditures between the FONDEN system. They will, however, continue post-disaster response and reconstruction and to propel the system toward increased capacity to prevention and risk reduction. Continued ef- manage and finance disaster risks. In the context of forts to increase integration of prevention and increasing exposure of population and assets, the disaster risk reduction components into Mexico’s FONDEN system, like all disaster risk management public investments are contributing to this ob- systems, must always continue to evolve. jective. < 44 > FONDEN: Mexico’s Natural Disaster Fund – A Review References Cummins, J.D. and O. Mahul (2009). “Catastrophe Risk Financing in Developing Countries: Principles for Public Intervention”. The World Bank, Washington, DC. Secretaría de Gobernación (2009). FONDEN Operating Rules, Published in the Official Diary of the Mexican Federation, 27 May 2009. Secretaría de Gobernación (2008). National Program of Civil Protection 2008-2012. Published in the Official Diary of the Mexican Federation, 19 September, 2008. Secretaría de Gobernación (2011). New General Rules and Specific Operating Guidelines for FONDEN, Pub- lished by Mexico’s National Civil Protection. 31 January 2011. Information can be accessed online at www. proteccioncivil.gob.mx. RMS Database Report, “Design of financial mechanisms to protect the FONDEN Trust patrimony against earthquakes, floods and tropical cyclones” – Data base creation and processing, by UNAM’s Instituto de Ingeniería, (2008) UNAM (2010). “Design of financial mechanisms to protect the FONDEN trust patrimony against earthquakes, floods and tropical cyclones”. Prepared by UNAM Instituto de Ingenieria. World Bank (2005). “Natural Disaster Hotspots: A Global Risk Analysis”. Disaster Risk Management Series No. 5, Hazard Management Unit, The World Bank UNISDR (2011) Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations International Strategy for Disaster Reduction. Secretaría de Gobernación, Fondo de Desastres Naturales, http://www.proteccioncivil.gob.mx/Portal/PtMain. php?nIdHeader=2&nIdPanel=391&nIdFooter=22. Secretaría de Hacienda y Crédito Público, Cuenta de la Hacienda Pública Federal, varios años 2000-2009, México, D.F. Secretaría de Hacienda y Crédito Público, Presupuesto de Egresos de la Federación, varios años, 2000-2009, México, D.F. Websites < 45 > Websites http://earthquake.usgs.gov/earthquakes/recenteqsww/Quakes/ci14607652.php http://redalyc.uaemex.mx/pdf/417/41702304.pdf http://specialpapers.gsapubs.org/content/402/253.abstract http://www.cefp.gob.mx/publicaciones/nota/2010/junio/notacefp0192010.pdf http://www.cefp.gob.mx/notas/2007/notacefp0402007.pdf http://www.cenapred.gob.mx/es/QuienesSomos/ http://www.diputados.gob.mx/LeyesBiblio/pdf/141.pdf http://www.eclac.cl/publicaciones/xml/5/33645/PrincINGFinal.pdf http://www.eclac.org/publicaciones/xml/4/31414/Serie_92.pdf http://www.eird.org/wikien/index.php/Mexico http://dof.gob.mx/busqueda_detalle.php http://www.proteccioncivil.gob.mx/en/ProteccionCivil/Apoyos_parciales_inmediatos_APIN http://www.proteccioncivil.gob.mx/en/ProteccionCivil/Normatividad http://www.proteccioncivil.gob.mx/en/ProteccionCivil/Preguntas_Frecuentes#q10 http://www.proteccioncivil.gob.mx/en/ProteccionCivil/Reconstruccion_FONDEN http://www.proteccioncivil.gob.mx/upLoad/Publicaciones/Ley_General.pdf http://www.shcp.gob.mx/EGRESOS/PEF/pef/pef_00/documentos/expo_motivos/capitulo8.pdf http://www.un.org/en/ga/president/65/initiatives/isdr/rubem.pdf http://216.122.62.22/attach/258/EDOCS/SRed/2010/11/T023600004520-0-FONDEN-SEGOB_Instumentos_ financieros_de_prevencion_y_atencion_de_desastres.pdf < 46 > FONDEN: Mexico’s Natural Disaster Fund – A Review Glossary Adverse Selection Adverse selection occurs when potential insurance purchasers know more about their risks than the insurer does, leading to participation by high risk individuals and nonparticipation by low-risk individuals. Insurers react by either charging higher pre- miums or not insuring at all, as in the case of floods. Average Expected Loss Expected loss per year when averaged over a very long period (for example, 1,000 years). Computationally, AEL is the summation of products of event losses and event occurrence probabilities for all stochastic events in a loss model. Basis Risk The risk with index insurance that the index measurements will not match individual losses. Some households that experience loss will not be covered, for example, and some households that experience no loss will receive indemnity payments. As the geographical area covered by the index increases, basis risk will increase as well. Catastrophe A severe, usually sudden, disaster that results in heavy losses. Catastrophe (Cat) Bond A high-yielding, insurance-linked security providing for payment of interest and/or principal to be suspended or cancelled in the event of a specified catastrophe, such as an earthquake of a certain magnitude or above within a predefined geographical area. Catastrophe Risk Model A computerized model generating a set of simulated events to calculate losses aris- ing from a catastrophe. Claim An insurer’s application for indemnity payment after a covered loss has occurred. Direct Loss Recovery cost of the damaged assets. Diversification Development of a portfolio containing a variety of assets in terms of geographical or sectoral spread, or credit quality. In general, risk is reduced as portfolio diversifica- tion increases. Ex ante risk management Action taken prior to a potential risk event. Making preparations before a disaster helps avoid inefficient, quick-response coping decisions. If ex ante strategies are not in place, resort will be to short-term coping strategies that have no significant benefit in the long run. Ex post risk management Risk-management strategies that are developed in reaction to an event, without prior planning. Although ex post strategies have a role to play in a risk-management program, risk-management mechanisms can be more effective when introduced ex ante. Exposure The amount (sum insured) exposed to the insured peril(s) at any one time. Geo-reference To establish something’s location in terms of map projections or a coordinate system (e.g., the position of an aerial photograph within a map or the geographical coordi- nates of a physical asset). Hazard A physical or moral feature that increases the potential for a loss arising from an insured peril or that may influence the degree of damage. Indemnity The amount payable by the insurer to the insured, in the form of cash, repair, re- placement, or reinstatement, in the event of an insured loss. This amount is mea- sured by the extent of the insured’s pecuniary loss. It is set at a figure equal to but not more than the actual value of the objects insured just before the loss, subject to the adequacy of the sum insured. Glossary < 47 > Indirect Losses Economic consequences of the damaged assets (e.g., foregone revenue). Insurance A financial mechanism that aims to reduce the uncertainty of loss by pooling a large number of uncertainties so that the burden of loss is distributed. Generally, each policyholder pays a contribution to a fund, in the form of a premium, commensurate with the risk he introduces. The insurer uses these funds to pay the losses (indemni- ties) suffered by any of the insured. Insurance Policy A formal document (including all clauses, riders, and endorsements) that expresses the terms, exceptions, and conditions of the contract of insurance between the in- surer and the insured. It is not the contract itself but evidence of the contract. Layer A range of potential loss that is covered by insurance. For example, an insurance contract may pay indemnities only for losses within a specified range of magnitude. Moral Hazard In insurance, moral hazard refers to the problems generated when the insured’s behavior can influence the extent of damage that qualifies for insurance payouts. Examples of moral hazard are carelessness, fraudulent claims, and irresponsibility. Parametric Insurance A form of insurance that makes indemnity payments based not on an assessment of the policyholder’s individual loss, but rather on measures of a parametric index that is assumed to proxy actual losses. It is also referred to as index or index-based insurance. Premium The monetary sum payable by the insured to the insurers for the period (or term) of insurance granted by the policy. Premium = premium rate x amount of insurance Also, the cost of an option contract paid by the buyer to the seller. Premium Rate The price per unit of insurance, normally expressed as a percentage of the sum in- sured. Probable Maximum Loss (PML) The largest loss believed to be possible for a certain type of event in a defined return period, such as 1 in 100 years or 1 in 250 years. Reinsurance Insurance purchased by an insurer. When the total exposure of a risk or group of risks presents the potential for losses beyond the limit that is prudent for an insurance company to carry, the insurance company may purchase reinsurance. Reinsurance has many advantages, including 1) leveling the results of the insurance company over a period of time; 2) limiting the exposure of individual risks and restricting losses paid out by the insurance company; 3)possibly increasing an insurance company’s solvency margin (percent of capital and reserves to net premium income), hence the company’s financial strength; and 4) enabling the reinsurer to participate in the profits of the insurance company, but also to contribute to the losses, the net result being a more stable loss ratio over the period of insurance. Risk Assessment The qualitative and quantitative evaluation of risk. The process includes describing potential adverse effects, evaluating the magnitude of each risk, estimating poten- tial exposure to the risk, estimating the range of likely effects given the likely expo- sures, and describing uncertainties. Risk Financing The process of managing risk and the consequences of residual risk through prod- ucts such as insurance contracts, cat bonds, reinsurance, or options. < 48 > FONDEN: Mexico’s Natural Disaster Fund – A Review Risk Layering The process of separating risk into tiers that allow for more efficient financing and management of risks. Risk Management Care to maintain income and avoid or reduce loss or damage to a property result- ing from undesirable events. Risk management involves identifying, analyzing, and quantifying risks and taking appropriate measures to prevent or minimize losses. Risk management may involve physical mechanisms, such as spraying a crop against aphids, using hail netting, or planting windbreaks. It can also involve financial mech- anisms such as hedging, insurance, and self-insurance (carrying sufficient financial reserves so that a loss can be sustained without endangering the immediate viability of the enterprise in the event of a loss). Risk Mitigation Actions taken to reduce the probability or impact of a risk event, or to reduce expo- sure to risk events. Risk Pooling The aggregation of individual risks to manage the consequences of independent risks. Risk pooling is based on the law of large numbers. In insurance terms, the law of large numbers demonstrates that pooling large numbers of roughly homogenous, independent exposure units can yield a mean average consistent with actual out- comes. Thus, pooling risks allows an accurate prediction of future losses and helps determine premium rates. Risk Retention The process whereby a party retains the financial responsibility for loss in the event of a shock. Risk Transfer The process of shifting the burden of financial loss or responsibility for risk financing to another party, through insurance, reinsurance, legislation, or other means. Total Economic Losses Sum of direct and indirect losses. Annexes < 49 > Annexes Annex 1. Description of Phenomena Identified in Mexico’s General Law of Civil Protection Annex 2. Selected Earthquakes in Mexico of General Historic Interest Annex 3. Mexican States and Federal District Populations Annex 4. Members of FONDEN Technical Committees – Federal and State Trusts Annex 5. FONDEN’s Previous Fund Allocation Process until 2010 Annex 6. Overview of FONDEN’s New Procedures from 2011 Annex 7. Practical Examples of Disaster Events and Access to FONDEN Resources in 2010 Annex 8. Examples of Authorized Resources for Disaster Declarations in 2011 Annex 9. Examples of Funds Approved for Immediate Partial Support in 2011 < 50 > FONDEN: Mexico’s Natural Disaster Fund – A Review Annex 1: Mexico’s Exposure to tions, hurricanes, wildfires, floods, landslides, and Adverse Natural Events droughts (see Figure A1.1). This Annex provides an overview of disaster risks and related vulnerability in Mexico is ranked as one of the world’s most exposed Mexico. It reviews each type of disaster risk affect- countries to multiple types of natural hazards. Due ing in the country. Box A1.1 presents an overview to its diverse geography, Mexico is exposed to a of the General Law of Civil Protection’s treatment of large variety of geological and hydro-meteorolog- natural hazards. ical hazards, including earthquakes, volcanic erup- Figure A1.1. Percentage of geographic area in Mexico exposed to natural hazards 0% 20% 40% 60% 80% 100% Droughts Floods Electric Storms Hailstorms Tornados Storm Surges Winter Storms Tropical Storms Tsunamis Volcanic Eruptions Earthquakes None Low Moderate Notable High Very high Source: Inter-American Development Bank’s Disaster Risk Indicators, 2010, http://idbdocs.iadb.org/wsdocs/ getdocument.aspx?docnum=35160020, Original Source (MunichRe, http://mrnathan.munichre.com (2010). Annexes < 51 > Box A1.1. Natural hazards as identified in Mexico’s General Law of Civil Protection13 Geological Phenomenon: A disaster caused by the actions and violent movements of the earth’s crust. This category includes seismic movements or earthquakes, volcanic eruptions, tsunamis or tidal waves, and soil in- stability, also known as earth movements. The latter may take a number of different forms: slow movement or creeping, sliding, flow or current, avalanche or landslide, collapse or sinking. Hydro-meteorological Phenomenon: A disaster caused by the violent action of atmospheric forces, such as hurricanes; floods from rains, rivers, coasts, and lakes; snow, hail, dust, and electrical storms; freezes; droughts and heat and cold waves. Chemical-Technological Phenomenon: A disaster caused by the violent action of different substances resulting from their molecular or nuclear interaction. Includes destructive phenomena, such as fires of any kind, explo- sions, toxic leaks, and radiation. Sanitary-Ecological Phenomenon: A disaster caused by the pathogenic action of biological agents that attack a human population, animals, and/or crops, causing their death or affecting their health. Epidemics or plagues constitute a health disaster in the strict sense of the term. This category includes air, water, soil, and food con- tamination. Socio-Organizational Phenomenon: A disaster caused as a result of human error or by premeditated actions, which takes place in large crowds or mass population movements. Source: FONDEN (2011). Geological hazards the ancient lake bed sediments that lie underneath Mexico experiences more than 90 earthquakes with the city. Refer to Annex 2 for a list of earthquake a magnitude of 4.0 or above on the Richter scale events in Mexico. on average per annum (FONDEN 2011). As such, the country’s seismic activity is ranked as one of the A Trans-Mexican Volcanic Belt extends from east to highest in the world. This seismicity is mainly due to west across central-southern Mexico and contains the activity of several tectonic plates upon which the nine volcanoes that have erupted in the past.14 The country is situated, in addition to a series of conti- metropolitan area of Mexico City is located within nental and regional faults that cross and surround this belt. The city is exposed to potential volcanic the country. The tectonic plates include the Cocos eruptions of Popocatépetl, Nevado de Toluca, and Plate, off the Pacific and the San Andreas Fault, and Jocotitlán, and to monogenetic scoria cones in the the Clarion Plate, running north to south and east Sierra Chichinautzin Volcanic Field (Figure A1.2b).15 to west. The Mexican states with the highest inci- dence of earthquakes are located in a belt stretch- Tsunamis are also an important threat along Mexi- ing from Chiapas to Jalisco and taking in the states co’s Pacific coasts. A tsunami is a sequence of waves of Oaxaca, Veracruz, Guerrero, Michoacán, Colima, generated by an earthquake occurring at the bot- Mexico, Morelos, Puebla, and the Federal District tom of the ocean in coastal zones. Waves of high (See Figure A1.2a). There is also a strip of seismic activity along the country’s Pacific coastline, extend- 13 Source: National System of Civil Protection (2009) ing through the states of Nayarit, Sinaloa, part of 14 Source: http://rmcg.unam.mx/9-1/(6)Nelson.pdf Sonora, Chihuahua, and Baja California. The capital, 15 Source: http://specialpapers.gsapubs.org/content/402/253. Mexico City, is highly exposed to earthquakes due to abstract < 52 > FONDEN: Mexico’s Natural Disaster Fund – A Review altitude can hit the coast and cause destructive ef- A1.2c. Tsunami risks fects in terms of human losses and material dam- ages. Most tsunamis affecting Mexico are caused by seismic activity occurring in the coastal contour of the Mexican Pacific Ocean that normally originate in low-lying edges of tectonic plates which constitute the crust of the marine bottom (see Figure A1.2c). Figure A1.2. Main geological hazards in Mexico A1.2a. Seismic risks Source: CENAPRED (2011). Hydro-meteorological hazards Hurricanes, heavy rains, and floods occur in Mexico with high frequency. The most vulnerable regions to cyclones and floods are the Yucatan Peninsula and coastal regions in the Gulf of Mexico and along the Pacific Ocean. Mexico experiences tropical cyclones during the summer months and polar fronts associ- ated with heavy rainfall throughout its territory in Source: CENAPRED (2011). the winter. Figure 2.1 (iv) illustrate the trajectory of tropical cyclones potentially impacting Mexican ter- ritory, and Figure 2.1 (v) presents a spatial illustration A1.2b. Active volcanoes of flood risks in Mexico. In addition, heavy, albeit short, storms occur. See Figure 2.2 for satellite im- ages of hurricanes approaching Mexico. Figure A1.3. Tropical cylones and flood hazards in Mexico A1.3a. Historical tropical cyclone trajectories Source: CENAPRED (2011). Source: CENAPRED (2011). Annexes < 53 > A1.3b. Flood risks in Mexico Mexico over the last decade. The strategy is imple- mented through the National Program for Protec- tion against Wildfires, with participation of the three governmental levels (federal, state, and municipal), civil organizations, and volunteers. A large portion of the Mexican territory is highly ex- posed to drought. A large extension of the Mexi- can territory is located in the high-pressure belt of the North latitude, coinciding in latitude with the vast African, Asian, and Australian desserts. These areas of the Mexican territory are characterized as Source: CENAPRED (2011). arid and semi-arid and are mostly comprised of the Northern states of the country. In descending order The control of forest fires, both in terms of limit- of exposure, the states of Chihuahua, Coahuila, Du- ing the number and spread of fires, has historically rango, Nuevo León, Baja California, Sonora, Sinaloa, been poor in Mexico. Forest fire events have caused Zacatecas, San Luis Potosí, Aguascalientes, Guana- significant damages on woods and forests as well juato, Querétaro, Hidalgo, and Tlaxcala are the most as on vegetation of arid or semi-arid regions. Most affected by drought. forest fires occur from January through May, which coincides with the frost and drought season, when Mexico is also highly exposed to landslides, pre- combustible material is relatively abundant. Mul- dominantly triggered by excessive rainfall. The most tiple factors can trigger these events and contrib- landslide-prone areas lie along the southern coast ute to their development, and each of these factors of the country, from the states of Chiapas to Guer- has distinctive preventive measures. Some of these rero, including the coasts of Jalisco, Veracruz, Ta- factors are weather, inflammable material, terrain basco, Puebla, Hidalgo, Guanajuato, the northern topography, and human activity. Wildfires caused part of Baja California, and Mexico City. The states by human activity represent 97 percent of the to- of Sinaloa, San Luis Potosí, Durango, Zacatecas, and tal number of fires produced in the country. In this Nuevo León are also exposed to landslides, although context, an integrated strategy for prevention and to a lesser extent. control of wildfires has been under development in < 54 > FONDEN: Mexico’s Natural Disaster Fund – A Review ANNEX 2: Major Earthquakes Since 1887 DATE16 (MONTH/DAY/YEAR) LOCATION MAGNITUDE FATALITIES 05/03/1887 Northern Sonora 7.4 51 04/15/1907 Guerrero 7.7 -- 06/07/1911 Off Guerrero 7.7 45 01/15/1931 Oaxaca 7.8 114 06/03/1932 Jalisco 8.1 45 06/18/1932 Colima 7.8 -- 07/28/1957 Guerrero 7.9 68 08/26/1959 Vera Cruz 6.8 20 05/11/1962 Guerrero 7.0 4 05/19/1962 Guerrero 7.1 3 07/06/1964 Guerrero 6.9 30 08/23/1965 Oaxaca 7.3 6 08/02/1968 Oaxaca 7.1 18 10/15/1979 Imperial Valley 6.4 -- 09/19/1985 Michoacán 8.0 9,500 06/15/1999 Central Mexico 7.0 -- 09/30/1999 Oaxaca 7.5 -- 02/22/2002 Near Mexicali 5.7 -- 12/10/2002 Mexicali, Baja California 4.8 -- 01/22/2003 Offshore Colima 7.6 29 09/11/2003 Near Mexicali, Baja California 3.7 -- 06/15/2004 Offshore Baja California 5.1 --- 01/04/2006 Gulf of California 6.6 -- 08/11/2006 Michoacán 5.9 -- 02/12/2008 Oaxaca 6.5 -- 08/03/2009 Gulf of California 6.9 -- 12/30/2009 Baja California 5.9 -- 04/04/2010 Baja California 7.2 2 Source: http://earthquake.usgs.gov/earthquakes/world/historical_country.php#mexico. All earthquake dates listed are UTC. 16 Annexes < 55 > ANNEX 3: Mexican States and Federal District Populations RANK MEXICAN STATE POPULATION (2000) POPULATION (2005) POPULATION (2010) 1 Mexico 13,096,686 14,007,495 15,175,862 2 Mexican Federal District 8,605,239 8,720,916 8,851,080 3 Veracruz 6,908,975 7,110,214 7,643,194 4 Jalisco 6,322,002 6,752,113 7,350,682 5 Puebla 5,076,686 5,383,133 5,779,829 6 Guanajuato 4,663,032 4,893,812 5,486,372 7 Chiapas 3,920,892 4,293,459 4,796,580 8 Nuevo León 3,834,141 4,199,292 4,653,458 9 Michoacán 3,985,667 3,966,073 4,351,037 10 Oaxaca 3,438,765 3,506,821 3,801,962 11 Chihuahua 3,052,907 3,241,444 3,406,465 12 Guerrero 3,079,649 3,115,202 3,388,768 13 Tamaulipas 2,753,222 3,024,238 3,268,554 14 Baja California 2,487,367 2,844,469 3,155,070 15 Sinaloa 2,536,844 2,608,442 2,767,761 16 Coahuila 2,298,070 2,495,200 2,748,391 17 Hidalgo 2,235,591 2,345,514 2,665,018 18 Sonora 2,216,969 2,394,861 2,662,480 19 San Luis Potosí 2,299,360 2,410,414 2,585,518 20 Tabasco 1,891,829 1,989,969 2,238,603 21 Yucatan 1,658,210 1,818,948 1,955,577 22 Queretaro 1,404,306 1,598,139 1,827,937 23 Morelos 1,555,296 1,612,899 1,777,227 24 Durango 1,448,661 1,509,117 1,632,934 25 Zacatecas 1,353,610 1,367,692 1,490,668 26 Quintana Roo 874,963 1,135,309 1,325,578 27 Aguascalientes 944,285 1,065,416 1,184,996 28 Tlaxcala 962,646 1,068,207 1,169,936 29 Nayarit 920,185 949,684 1,084,979 30 Campeche 690,689 754,730 822,441 31 Colima 542,627 567,996 650,555 32 Baja California (South) 424,041 512,170 637,026 Source: http://en.wikipedia.org/wiki/List_of_Mexican_states_by_population. < 56 > FONDEN: Mexico’s Natural Disaster Fund – A Review ANNEX 4: Members of the FONDEN Technical Committees FONDEN Technical Committee (Federal Level) Two Representatives of the Ministry of Finance Voting Power Representative of the Ministry of Interior(SEGOB) Voting Power Representative of the Ministry of Civil Service No Voting Authority Representative of BANOBRAS as the fiduciary agent of the FONDEN Trust (permanent No Voting Authority invitation with mandatory attendance required at all Technical Committee meetings) FONDEN Technical Committee (State Level)* Two Representatives of the State Government Voting Power Representative of Each Affected Municipality Voting Power Representative of the FONDEN Trust (permanent invitation with mandatory attendance No Voting Authority required at all Technical Committee meetings) Permanent Invitees from Federal Government17: - One Representative from the Ministry of Finance (SHCP) - One Representative from the Ministry of the Interior (SEGOB) - One Representative from each of the participating federal agencies Note: All representatives designate an alternative to ensure representation. (*): State-level technical committees no longer exist under the revised FONDEN operations procedures, but they are still active for past reconstruction projects. Source: FONDEN (2011). Note: Federal representatives participate within their respective scope of mandate and responsibilities. 17 Annexes < 57 > ANNEX 5: FONDEN’s Fund Allocation Process before 2011 Mexico’s Federal Budget, Line 23 FONDEN Program for Reconstruction FONDEN Trust FONDEN Trust FONDEN Trust in State X of 32 in State X of 32 States States Service providers Municipalities Service providers Municipalities implementing (only if identified implementing (only if identified works in evaluation) works in evaluation) Managed by Banobras Source: FONDEN (2011). < 58 > FONDEN: Mexico’s Natural Disaster Fund – A Review ANNEX 6: Overview of FONDEN’s New Procedures from 2011 Natural Phenomena Local State Technical entity I. Geological Issues an opinion Ask for confirmation of regarding the the occurrence of the occurrence of the natural phenomena natural phenomena Natural Disaster Opinion? II. Hydrometeorological Negative End Beginning III. Others Positive Notifies the State that its request is positive Installation of the Damage Assessment Committee SEGOB Installation Local FONDEN Trust Committee Local State Each sector evaluates and determines the Request the issue Approve the amounts required for of the natural disaster list of urgent the reconstruction declaration actions to be realized by each sector Local State Issue and publish Present to the the natural disaster committe Request for the rapid declaration their preliminary response resources in the official lists of works and to realize urgent actions national newspaper actions to be done SHCP Authorizes the Federal Agencies Local State rapid response resources to Ask for the resources realize the Ask for advances to conduct the urgent actions to start the assessment reconstruction Annexes < 59 > Federal FONDEN SHCP Federal Entities SEGOB trust Committee Approve the advances. Authorizes the total resources for the reconstruction of the federal infrastructure and up to 50% Local State Issues a positive of the local Review and present opinion for the infrastructure End the final documents documents of for the federal to access the total each sector so the entities resources for the resources can be to manage. Start the urgent reconstruction. approved. Meanwhile, the works and States manage the actions for the other reconstruction 50%+ of local with the reconstruction and advances related costs. authorized. Source: FONDEN (2011). < 60 > FONDEN: Mexico’s Natural Disaster Fund – A Review ANNEX 7: Illustrative Examples of Disaster Events and Access to FONDEN Resources in 2010 Disaster Occurrence: Earthquake in Baja California (April 4, 2010) Dates Events / Activities April 4 Earthquake occurrence in Baja California with a magnitude of 7.2 located at 32.259°N, 115.287°W4 with a depth of 10 kilometers. April 5 The Government of the State of Baja California asked the National Center for Disaster Prevention (CENAPRED) for a technical opinion regarding the occurrence of an earthquake on April 4 in the state. April 5 CENAPRED issued its opinion, confirming the occurrence of a strong earthquake on April 4, 2010, affecting the municipalities of Mexicali and Tecate. April 6 The Damage Assessment Committee was installed. The State Government requested resources for immediate partial support (APIN) to execute priority works and emergency actions arising as a consequence of the event. The State Government applied for a declaration of natural disaster. Due to technical challenges in assessing the damage, an extension was requested to deliver the assessment results within an additional 10 days. April 7 APIN resources were approved to support federal and state emergency actions and priority works in the road, hydraulic and educational sectors. April 12 The Natural Disaster Declaration was published in the Official Journal of the Mexican Federation. April 29 APIN resources were approved for federal support of the education sector. May 3 The results of the damage assessment were verified at a meeting of the Damage Assessment Committee and pre- liminary diagnoses of required infrastructure repair and reconstruction works and action presented by the affected sectors. At the same meeting, the Federal Government requested bank advances for the necessary resources to initiate urgent reconstruction activities. May 10-12, A series of fund advances were authorized to carry out urgent reconstruction activities in support of a variety May 18 of sectors, including housing, urban infrastructure, roads, hydraulic infrastructure, education, culture, sport and health. June 7 Following receipt of the final diagnoses and respective resource requests for FONDEN support, the requests were submitted for consideration by the Technical Committee of the Federal Trust Fund. This Committee held its 110th Special Session and approved the requested resources by an agreement recorded as SE.116.01. All requested resources were authorized. June 10 At the 13th Special Meeting of the Technical Committee of the Baja California State Trust Fund, implementation schedules for FONDEN-supported reconstruction works and actions were approved. The Committee also ap- proved the schedule of contributions from the State Government of Baja California, covering contributions over the period May 2010 to July 2011. July 27 At the 118th Special Session of the Technical Committee of the Federal Trust Fund, a second tranche of funding was authorized for federal support for hydraulic infrastructure reconstruction.5 This step concluded FONDEN resource authorizations for this particular disaster occurrence. Annexes < 61 > Disaster Occurrence: Hurricane Alex in Nuevo León (June 20 – July 2, 2010) July 2 The Government of the State of Nuevo León asked the National Water Commission (CONAGUA) for its technical opinion on the occurrence of severe rainfall, flooding and strong winds generated by Hurricane “Alex” over the period of June 20 to July 2, 2010 in Nuevo León. July 5 The National Water Commission issued its opinion and confirmed the occurrence on July 1, 2010 in the municipali- ties of Anahuac, Apodaca, Cadereyta Jimenez, Cerralvo, China, Cienega de Flores, Ph.D. Coss, General Escobedo, General Treviño, Guadalupe, Hualahuises, Linares, Los Aldamas, The Ramones, Melchor Ocampo, Montemorelos, Monterrey, San Nicolas de los Garza, San Pedro Garza García, Santa Catarina, and Santiago. July 5 The Damage Assessment Committee was installed and the Government of the State of Nuevo León requested re- sources for immediate partial support (APIN) to execute urgent works and priority actions arising as a consequence of the disaster. The State Government applied for the issue of a declaration of natural disaster and also requested an extension of up to a further 10 days to complete the damage assessment due to technical limitations. July 6 Immediate partial support resources (APIN) were authorized for the road, hydraulic, urban, health and housing sectors. July 9 The Declaration of Natural Disaster was published in the Official Journal of the Mexican Federation. The State Government made its second request for additional immediate partial support (APIN). July 12 The second APIN application was approved for additional support to the road, urban and educational sectors. July 22 The State Government issued a third request for immediate partial support resources (APIN). This request was au- thorized for the affected sectors, including the road, hydraulic, education, urban and housing sectors. August 4 The results of the damage assessment were verified at a meeting of the Damage Assessment Committee and pre- liminary diagnoses of required infrastructure repair and reconstruction works and action presented by the affected sectors. At the same meeting, the Federal Government also requested bank advances for the necessary resources to initiate urgent reconstruction activities. August 6 Resources were authorized as advances to carry out urgent reconstruction activities in the housing sector. September Following receipt of the final diagnoses and the respective resource requests for FONDEN support, the requests 3 were submitted for consideration by the Technical Committee of the Federal Trust Fund. This Committee held its 121st Special Session and approved the requests by an agreement recorded as SE.121.01. Resources were autho- rized for the repair of damage in the hydraulic, health, educational and environmental sectors. September At the 18th Special Session of the Technical Committee of Nuevo León’s State Trust Fund, implementation schedules 21-22 for FONDEN-supported reconstruction works and actions were approved. The Committee also approved the sched- ule of contributions from the State Government of Nuevo León, covering contributions over the period October 2010 to December 2011. September At the 122nd Special Session of the Technical Committee of the Federal Trust Fund, additional funds were authorized 29 for the repair of damage in two remaining sectors: federal highways and sport facilities. Full authorization was provided for these two sectors. October 28 The 123rd Special Session of the Technical Committee of the Federal Trust Fund authorized a third block of resources to support the reconstruction of state infrastructure in some sectors that were slow completing their requests, including roads, urban, housing and hydrologic infrastructure. This concluded the authorization of FONDEN re- sources. November Based on the earlier approval of State resources, the 22nd Second Special Session of the Technical Committee of 4 Nuevo León State Trust Fund approved the implementation schedules of works and reconstruction measures for the affected sectors, including roads, urban and housing infrastructure. Source: FONDEN (2011). < 62 > FONDEN: Mexico’s Natural Disaster Fund – A Review ANNEX 8: Examples of Authorized Resources for Disaster Declarations in 2011 DE SASTRE S 2011 AUTORI ZADOS E N 2011 Municipio s y F echa *Apoyos Acciones Aportación S olicitud de Acuerdo Aportación Aportación Aportación Delegacio publicació S ectores P arciales de Dependencia No. S tatus E s tado E v ento Declaratori C omité *Anticipos F O NDE N E s tatal T otal nes n Afectados Inmediatos R es taurac F ederal a T écnico (P es os ) (P es os ) (P es os ) P olíticas DO F AP IN ión (P es os ) Afectadas Ca r r et er o - 16 Es t at al 173,000 71,059,400 78,104,000 149,163,400 Inundación S E .133.0 Hi dr á ul i c o - 11 Autoriz ado F luvial Es t at al 3,742,856 4,015,502 7,758,358 1 1 C ampeche 01 al 21 de 1 26-oct-11 01-nov-11 Depor t i v o - 16-Dic - 3 O ctubre de Es t at al 471,913 1,329,513 1,801,426 2011 2011 Hidráulico - F ederal 5 84,222,208 84,222,208 Ca r r et er o - F eder a l 6 179,428,080 179,428,080 T otal C ampeche 2011 173,000 0 41 338,924,457 83,449,015 0 422,373,472 1 S ubtotal C ampeche (Autoriz ados ) 1 173,000 0 41 338,924,457 83,449,015 0 422,373,472 1 T O T AL C AMP E C HE 2011 1 173,000 0 41 338,924,457 83,449,015 0 422,373,472 Hi dr á ul i c o - E s t a t a l 5,648,433 33 8,776,369 16,677,489 25,453,858 Lluvia S evera E ducativo - E s tatal 1 347,303 354,373 701,676 5 de Autoriz ado S E .133.03 Ur ba no 2 21,022,560 22,064,016 43,086,576 s eptiembre de 1 C hiapas 1 14- nov - 11 21-nov-11 16-Dic- Vi v i enda 2 146,032 146,088 292,120 2011 2011 C arretero - F ederal 4 22,389,477 2,518,145 24,907,622 T ux t l a Hidráulico - F ederal 11 321,913,890 321,913,890 Gut i er r ez T otal C hiapas 2011 5,648,433 0 53 374,595,631 39,241,966 2,518,145 416,355,742 1 S ubtotal C hiapas (Autoriz ados ) 1 5,648,433 0 53 374,595,631 39,241,966 2,518,145 416,355,742 1 T O T AL C HIAP AS 2011 1 5,648,433 0 53 374,595,631 39,241,966 2,518,145 416,355,742 Incendio S E .130.2 F or es t a l - 58 Autoriz ado F eder a l 240,955,250 204,114,991 0 0 204,114,991 F ores tal 6 1 C oahuila 3 31-mar-11 06-abr-11 a partir del 17- 28-J ul- marz o-11 2011 T otal C oahuila 2011 240,955,250 0 58 204,114,991 0 0 204,114,991 1 S ubtotal C oahuila (Autoriz ados ) 3 240,955,250 0 58 204,114,991 0 0 204,114,991 1 T O T AL C O AHUIL A 2011 3 240,955,250 0 58 204,114,991 0 0 204,114,991 Hi dr á ul i c o - E s t a t a l 3,819,528 19 6,098,618 9,679,056 15,777,674 Autoriz ado Lluvia S evera S E . 132.01 E s tado de Urbano 0 10 19,820,209 22,905,707 42,725,916 1 28 de Agos to 4 02- s ep- 11 8-S ep-11 28-O ct- México 2011 2011 T otal E s tado de México 2011 3,819,528 0 29 25,918,827 32,584,763 0 58,503,590 1 S ubtotal E DO ME X (Autoriz ados ) 4 3,819,528 0 29 25,918,827 32,584,763 0 58,503,590 1 T O T AL E DO ME X 2011 4 3,819,528 0 29 25,918,827 32,584,763 0 58,503,590 Lluvia S evera C arretero - E s tatal 13,957,516 513 877,486,389 1,180,238,143 2,057,724,532 del 29 de junio Vivienda 80 2,356,067 2,429,760 4,785,827 Autoriz ado al 1 de julio S E . 131.01 Hi dr á ul i c o - E s t a t a l 15 3,432,425 5,138,545 8,570,970 1 Hidalgo 2011 54 08- j ul - 11 14-Jul-11 27-S ept- S alud - E s tatal 3 5,927,134 5,927,134 11,854,268 T ormenta 2011 Ca r r et er o - F eder a l 8 212,520,122 15,254,625 227,774,747 T ropical "Arlene" T otal Hidalgo 2011 13,957,516 0 619 1,101,722,137 1,193,733,582 15,254,625 2,310,710,344 1 S ubtotal Hidalgo (Autoriz ados ) 54 13,957,516 0 619 1,101,722,137 1,193,733,582 15,254,625 2,310,710,344 1 2011 T O T AL HIDAL G OMovimientos 54 13,957,516 0 619 1,101,722,137 1,193,733,582 15,254,625 2,310,710,344 de Laderas , C arretero - E s tatal 18 43,295,200 57,491,200 100,786,400 los días 27, Hi dr á ul i c o - E s t a t a l 5 1,539,882 1,577,390 3,117,272 Autoriz ado 28 y 31 de S O .42.18 Vivienda 303 44,183,320 44,208,000 88,391,320 1 O axaca Agos to y 4 19- s ep- 11 23-09-11 18-Nov - Ca r r et er o - F eder a l 5 61,772,988 61,772,988 1,2,3,4, 7 y 8 2011 0 de s eptiembre 0 2011 T otal O axaca 2011 0 0 331 150,791,390 103,276,590 0 254,067,980 1 S ubtotal O axaca (Autoriz ados ) 4 0 0 331 150,791,390 103,276,590 0 254,067,980 1 T O T AL E S T ADO DE O AXAC A 2011 4 0 0 331 150,791,390 103,276,590 0 254,067,980 Lluvia s evera C arretero - E s tatal 81 341,492,716 341,492,716 682,985,432 Autoriz ado S O .42.20 los días 22 y 13- S ep- 20- S ep- Vivienda 19 2,214,000 2,460,000 4,674,000 1 P uebla 29 18-Nov - 23 agos to 11 11 Ca r r et er o - F eder a l 3 15,860,000 2,860,000 18,720,000 2011 2011 T otal P uebla 2011 0 0 103 359,566,716 343,952,716 2,860,000 706,379,432 1 S ubtotal P uebla (Autoriz ados ) 29 0 0 103 359,566,716 343,952,716 2,860,000 706,379,432 1 T O T AL P UE B L A 2011 29 0 0 103 359,566,716 343,952,716 2,860,000 706,379,432 Autoriz ado Inundación S E . 131.03 C arretero - E s tatal 68 46,868,947 68,919,970 115,788,917 S an L uis F luvial y 1 19 03- a go- 11 09-08-11 27-S ept- 0 P otos í P luvial 2011 T otal S an L uis P otos í 2011 0 0 68 46,868,947 68,919,970 0 115,788,917 del 3 de julio 1 S ubtotal S an L uis (Autoriz ados ) 19 0 0 68 46,868,947 68,919,970 0 115,788,917 1 T O T AL S AN L UIS P O T O S Í 2011 19 0 0 68 46,868,947 68,919,970 0 115,788,917 S E . 132.05 Hi dr á ul i c o - E s t a t a l 0 24 2,097,680 2,098,169 4,195,849 Lluvia S evera 28-O ct- C arretero - E s tatal 0 25 14,471,178 29,366,047 43,837,225 Autoriz ado 24 - Agos to - S E .133.10 1 S inaloa 11 2 02- s ep- 11 08-S ep-11 16-Dic- E duc a t i v o - 8 E s c ui na pa 2011 Es t at al 2,489,391 3,770,775 6,260,166 y Ros a r i o T otal S inaloa 2011 0 0 57 19,058,249 35,234,991 0 54,293,240 1 S ubtotal S inaloa (Autoriz ados ) 2 0 0 57 19,058,249 35,234,991 0 54,293,240 1 T O T AL S INAL O A 2011 2 0 0 57 19,058,249 35,234,991 0 54,293,240 Lluvias Vivienda 259 737,880 743,600 1,481,480 Autoriz ado S evera S .O . 40.17 T amaulipa 14- J ul - Hi dr á ul i c o - E s t a t a l 63 13,189,280 13,328,640 26,517,920 1 los días del 30 5 8- J ul - 11 26-Ago- s 11 C arretero - E s tatal 1,200,000 17 12,874,206 25,434,720 38,308,926 de junio al 2 2011 T otal T amaulipas 2011 1,200,000 0 339 26,801,366 39,506,960 0 66,308,326 de julio-11 1 S ubtotal T amaulipas (Autoriz ados ) 5 1,200,000 0 339 26,801,366 39,506,960 0 66,308,326 1 T O T AL T AMAUL IPT AS 2011 otal 5 1,200,000 0 339 26,801,366 39,506,960 0 66,308,326 Munic ipios Ac c iones y R ec urs os 10 122 265, 753, 727 0 1, 698 2, 648, 362, 710 1, 939, 900, 553 20, 632, 770 4, 608, 896, 033 11 autoriz adas del 2011 Source: FONDEN (2011). Annexes < 63 > ANNEX 9: Examples of Funds Approved for Immediate Partial Support in 2011 13:36 17-Jan-12 DIRECCIÓN GENERAL DEL FONDO DE DESASTRES NATURALES APOYOS PARCIALES INMEDIATOS SOLICITADOS Y AUTORIZADOS DURANTE EL 2011 Estado APIN No. No. Fecha de No. Municipios Solicitado Acciones Autorizados Acciones Autorización No. Evento Sectores (Pesos) solicitadas SHCP apoyadas SHCP Carretero Federal 30,161,362 2 Inundación Fluvial 01 al 21 de Educativo Federal 4,900,925 52 4,900,925 52 07/11/2011 Octubre de 2011 Carretero Estatal 173,000 1 173,000 1 07/11/2011 1 (1) Municipio Urbano 259,223 1 129,611 1 07/11/2011 Residuos Sólidos- Estatal 45,268,293 Campeche 80,762,803 56 5,203,536 54 Total 80,762,803 56 5,203,536 54 Forestal-Federal 103,305,250 9 103,305,250 9 11/04/2011 Incedio Forestal Forestal-Federal* 137,650,000 11 137,650,000 11 19/04/2011 2 (3) Municipios Coahuila a partir del 17-Mar-11 240,955,250 20 240,955,250 20 Total 240,955,250 20 240,955,250 20 Hidráulico-Estatal 15,015,259 79 7,507,630 79 25/10/2011 Salud-Estatal 495,372 8 247,686 8 25/10/2011 Carretero-Estatal 1,568,800 10 784,400 10 25/10/2011 Residuos Sólidos- Estatal 486,600 3 243,300 3 25/10/2011 Huracán "Jova" Urbano 5,315,054 22 2,657,527 22 25/10/2011 3 (10) Municipios Colima Carretero-Estatal 3,762,480 8 1,881,240 8 26/10/2011 11-octubre-2011 Educativo-Estatal 325,000 3 162,500 3 26/10/2011 Deportivo-Estatal 324,727 10 162,363 10 26/10/2011 Urbano 7,144,954 15 3,572,477 15 26/10/2011 Educativo Federal 3,312,924 37,751,169 158 17,219,123 158 Total 37,751,169 158 17,219,123 158 Lluvias Severas 05 de septiembre de Hidráulico-Estatal 11,296,866 12 5,648,433 12 26/09/2011 2011 4 (1) Municipio Chiapas 11,296,866 12 5,648,433 12 Total 11,296,866 12 5,648,433 12 Hidráulico-Federal 46,300,000 7 46,300,000 7 04/07/2011 Lluvia Severa 1 julio 2011 Hidráulico-Estatal 11,431,000 7 5,715,500 7 13/07/2011 5 (2) Municipios Hidráulico-Federal 2a Solicitud 54,550,000 9 54,550,000 9 14/07/2011 Estado de México Carretero-Estatal * 2,000,000 1 EXTEMPORANEO 114,281,000 24 106,565,500 23 Hidráulico-Federal 50,000,000 3 25,000,000 3 15/09/2011 Lluvia Severa 3 Septiembre 2011 6 (2) Municipios Estado de México 50,000,000 3 25,000,000 3 Hidráulico-Estatal 7,639,056 14 3,819,528 14 15/09/2011 Lluvia Severa 28 Agosto 2011 7 (4) Municipios Estado de México 7,639,056 14 3,819,528 14 Total 171,920,056 41 135,385,028 40 Lluvia Severa Carretero-Estatal. 17,814,511 27 13,957,516 27 13/07/2011 del 29 de junio al 1 de julio 2011 8 Tormenta Tropical "Arlene" (54) Municipios Hidalgo Source: FONDEN (2011). 17,814,511 27 13,957,516 27 Total 17,814,511 27 13,957,516 27 Hidráulico-Federal 2,000,000 1 PENDIENTE Lluvia Intensa 25-junio-11 9 (1) Municipio Jalisco (Footnotes) 2,000,000 1 0 0 Total 2,000,000 1 0 0 Carretero-Estatal. 10,556,322 16 10,556,322 16 16/08/2011 Lluvias Severa del 14 al 15 de julio-11 10 (6) Municipios Oaxaca. 10,556,322 16 10,556,322 16 Source: FONDEN (2011).