Disaster Risk Management Basic Concepts

31 Dec 2003RJ2 Disasters and Development Major natural hazards have larger consequences in developing countries than in industrialized nations Factors related to relatively-lower development levels contribute to magnify such consequences The impact of disasters on long term development prospects is higher in developing economies

31 Dec 2003RJ3 Disasters and Development.. In recent years, more than 90 per cent of deaths caused by disasters in the world have occurred in developing countries The effects of major disasters have negatively affected living conditions and development prospects in said countries During the past three decades, disasters have caused more than US$ 50 billion in damages and losses in selected countries of the Latin America and Caribbean region, and caused lower economic performance and living conditions

31 Dec 2003RJ4 Disasters and Development... Recent, major disasters have imposed heavy burdens on the economy and society of Latin America and the Caribbean As an example, Hurricane Mitch in Honduras -Caused damage and losses that were equivalent to 70% of GDP in And economic performance in 1998 and subsequent years suffered a serious setback

31 Dec 2003RJ5 Damage and losses in Central America Million Annually Due to Minor Events

31 Dec 2003RJ6 Frequency of disasters and magnitude of damages are increasing

31 Dec 2003RJ7 Damage, Losses, and Macroeconomic Effects Direct Damages: total or partial destruction of assets immediately following a disaster Indirect Losses: Modifications to production flows or to the provision of essential services Macro-Economic Effects: Modifications to performance of main aggregates of the affected economy

31 Dec 2003RJ8 Source:

31 Dec 2003RJ9 Hazard, Vulnerability and Risk Hazard is the probability of occurrence of a natural event that may cause significant damages, losses and other economic effects Vulnerability is the propensity that a community may have to sustain human losses, physical damage and economic losses due to the occurrence of a major natural event Risk is the probability that damage and losses may occur as a result of the occurrence of a natural event of a given magnitude, in a given time and place

31 Dec 2003RJ10 Risk Risk is the result of the combination of the occurrence of a natural hazard and of a vulnerable human settlement or activity Natural Hazard (With Damage and Loss Potential) Vulnerability (Propensity to Damage and Losses) RISK (Probability and Magnitude of Damage and Losses)

Disaster Risk Management Risk management is a process of analysis and quantification of the probability that damage and losses are produced so that prevention and mitigation measures can be implemented to reduce risk

31 Dec 2003RJ12 Disaster Risk Management Risk management involves implementing two types of activities: -Planning of vulnerability reduction -Adoption of protection measures against potential economic damage and losses A comprehensive risk management scheme should include: -Ex Ante measures undertaken before a disaster -Ex Post measures carried after a disaster occurs

31 Dec 2003RJ13 Disaster Risk Management.. Ex Ante Risk Analysis Prevention and Mitigation Measures Risk transfer Emergency Preparedness Ex Post Emergency Response (Humanitarian Assistance) Rehabilitation Reconstruction

Ex Ante Activities for Risk Management

31 Dec 2003RJ15 Ex Ante Activities for Risk Management Natural hazard frequency analysis using historical records of natural events Vulnerability analysis Physical Social Economic Environmental Risk analysis: potential damage and losses under different scenarios Mitigation Retrofitting of infrastructure Slope stabilizing Environmental protection Prevention Construction standard updating Public awareness and education programmes

31 Dec 2003RJ16 Ex Ante Activities for Risk Management.. Risk Transfer: to reduce financial impact of disasters to levels commensurate with country’s capacity for reconstruction, when mitigation and prevention measures are unable to avoid disasters Ex Ante financial sources: Without risk transfer With risk transfer

31 Dec 2003RJ17 No Risk-Transfer Financial Schemes Non-Reimbursable resources Calamity funds Reserve funds Budgetary resource allocation Development and Social Funds Reimbursable resources Contingency Funds Development and Social Funds

31 Dec 2003RJ18 No Risk-Transfer Non-Reimbursable resources Special Calamity Funds set up by governments to finance mitigation and prevention (i.e. Colombia) Reserve Funds set up by governments to finance Ex Post activities, that might be also utilized for Ex Ante endeavors (i.e. Mexico’s FONDEN) Government Budget Resources that may be reallocated to finance prevention and mitigation Development and Social Funds that may be used to finance Ex Ante activities

31 Dec 2003RJ19 No Risk-Transfer Reimbursable resources Contingency Loans (may be tapped Ex Ante and require payment of administration costs) International (IDB and World Bank) Domestic (Public and private banks) Development and Social Funds (may also provide contingency financing to finance prevention and mitigation)

31 Dec 2003RJ20 Risk-Transfer Financial Schemes Insurance and Re-Insurance with Damage and Loss Coverage Catastrophe Bonds -Reimbursement on basis of actual damage and losses -Reimbursement based on parametric activation indicators

Ex Post Activities for Risk Management

31 Dec 2003RJ22 The Three Phases after a Disaster Disaster Emergency Int’l Assistance Rehabilitation Rapid Assessment Reconstruction Strategic Assessment

31 Dec 2003RJ23 Facing Reconstruction Reconstruction requires: Diagnosis on direct damages and indirect losses caused by disaster Formulation of strategy and plan for reconstruction Specific sectoral project formulation Financing, local and international Financing of reconstruction usualley undertaken by drawing on more immediately available and lower cost resources

31 Dec 2003RJ24 Ex Post Financial Sources Non Reimbursable Funds Reallocated resources from national or municipal budget Use of Government monetary reserves Donations Reimbursable Funds Emergency Funds (IDB’s Emergency Reconstruction Facility, World Bank) Reallocation of existing loans Fresh loans

Who Bears Risk in Latin America and the Caribbean at the Present Time

31 Dec 2003RJ26 Who Bears Risk Governments are (non consciously and for moral reasons) assuming risks beyond their ownership and, at times, beyond their financial capacity: Infrastructure (roads and bridges, ports and airports, hospitals and schools, office buildings, and water and energy facilities, when not privatized) Housing for the poor

31 Dec 2003RJ27 Who Bears Risk.. The private sector normally bears risk on: Property and production, usually resorting to insurance Privatized essential services of electricity, water supply, telecommunications Housing, except for the lower income population

31 Dec 2003RJ28 Disaster Risk Management Decision makers do not perceive the need for undertaking disaster risk management due to: -Difficulties in accurately and reliably forecasting the possible occurrence of natural events -Estimated return periods are longer than their periods of office Thus, the need for risk management only becomes obvious when a major disaster – having high social, economic, environmental and political consequences – or when succesive disasters occur

Reconstruction Financing A Recent Example: El Salvador after the 2001 Earthquakes

31 Dec 2003RJ30 El Salvador Earthquakes: Summary of Damage and Losses Sector and Subsectors Damage and Losses, million US Dollars Total Direct Indirect Sectoral Distribution Public Private Social Sectors Education Health Housing Infrastructure Electricity Water Supply Transport Production Sectors Agriculture Industry, Trade, Tourism Environment Other Damages Total

31 Dec 2003RJ31 Participation in Reconstruction Financing Million US $ Reconstruction Costs 2,000 GOES 320 International Grants 404 Loans, reallocation 363 Loans, new 370 Private Sector 241 Insurance 302

31 Dec 2003RJ32 Results of reconstruction scheme After completing reconstruction of the 2001 earthquakes -- resorting to fresh and re- oriented loans, using monetary reserves, and having refinanced short-term loans through long-term ones -- El Salvador has reached a total debt that is equivalent to 47% of its GDP, or 4.6 billion US Dollars Source: ECLAC, Balance preliminar de las economías de América Latina y el Caribe 2003, December 2003.

Disaster Risk Management Basic Concepts