close to infrastructure and already well endowed with the necessary complementary investment. This tended to reduce land reform to a mere redistribution of existing assets rather than the creation of new ones, by targeting underutilized lands and helping beneficiaries to undertake significant investments. To deal with these issues, it was clarified that the goal of market assisted land reform is the establishment of viable productive projects _(proyectos productivos),_ rather than the mere transfer of land. A mechanism was devised to facilitate use of grant funds to finance non land investments, thus overcoming the bias inherent in previous legal provisions." A second issue was that, to create viable agricultural enterprises, rather than a "rural proletariat", a target income from full time agriculture (equivalent to a minimum farm size of about 15 hectares) was legally required. This neglected the potential of the poor-especially those in proximity to urban areas-to derive income from a variety of sources and left little room either for the exit of unsuccessful beneficiaries or the gradual expansion of the holdings of successful ones through rental or purchase of additional land. It also demonstrated little awareness of the requirements, in terms of human capital, other assets, and experience with financial and marketing institutions, associated with operating a 15 hectare farm.<sup>19</sup> As a result, the law was in danger of concentrating large amounts of subsidies on a wellconnected "agrarian bourgeoisie" while leaving the majority of potential beneficiaries uncovered.20 To overcome this shortcoming, the target income was reduced by one third and, rather than being based on general averages, is to be assessed based on a project-specific plan elaborated by beneficiaries that included income from non-agricultural sources.

Finally, even though the law provides for an exemplary and elaborate institutional structure<sup>21</sup> to facilitate an encompassing process of reform, the fact that there was little incentive for local leaders to actually establish the necessary structures implied that it was difficult to make the model operational and ensure

- (under a residual budget) was lower than the price of land acquired by beneficiaries through "negotiated" land reform in the open market, leading to widespread dissatisfaction and calls for the return to the interventionist paradigm.

- I Given that this regulation creates another layer of bureaucracy, transaction costs, and uncertainty about approval (or scope for politically motivated interventions), it would have been more desirable to change the underlying legal framework than develop ad-hoc solutions.

- **'9** The concentration of benefits may be expedient from a political point of view - especially if thebenefts can be appropriated by the about 1015% of the peasantry that is politically well organized and that closely collaborates with INCORA. However, comparison with European standards can put the farm size issue in perspective. In 1990 (the latest year for which these statistics are available), average farm size in the EU (including former East Germany) was, with 14.8 hectares, slightly below the Colombian "minimum size" of 15 hectares. Average farm sizes in Greece and Italy are only 4 and 5.6 hectares, respectively, and even in the Netherlands and Germany, the average size of well-established farms was only 16 hectares (Eurostat 1995).

- 20 The categorical prohibition of rental of land reform land (included in the 1994 law) is unlikely to be enforceable, and may even be counterproductive in that it would discourage successful reform beneficiaries from intensification on part of their land and renting out the other part while preventing unsuccessful reform beneficiaries from exiting.

- 21 The institutional structure is exemplary from a conceptual point of view, comprising (i) decentralized decision-making characterized by maximum local participation expressed through the pre-eminent role of the local councils; (ii) private sector involvement in bringing together potential buyers, provision of complementary credit, and technical assistance to continue during the first two years of production on the land received; and the (iii) limitation of INCORA to a regulatory role preventing misuse of funds, ensuring that regulatory requirements are met, and coordinating the different government agencies involved.

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