August 1995 The positive experience with the latest rural development intervention in Northeast Brazil suggests that rapid progress can be made if community participation is enhanced and decisionmaking authority is decentralized to lower levels of government and other institutions. In Northeast Brazil, despite sustained efforts to reduce rural poverty and more than $3.2 billion in spending, the rural poor are little better off than they were two decades ago. Brazil's difficult macroeconomic environment has tended to restrict the amount of funds available for rural development. In addition, project implementation has often been seriously undermined by the excessive centralization of decisionmaking in Brazil prior to the approval of a new constitution in 1988. A preliminary evaluation of the latest rural development intervention in the Northeast--the reformulated Northeast Rural Development Program--suggests that rapid progress can be made if community participation is enhanced and decisionmaking authority is decentralized to lower levels of government and other institutions. To support this new approach, van Zyl, Barbosa, Parker, and Sonn recommend that the next generation of rural development projects in the Northeast incorporate several features: * Expansion of the existing commmunity-based approach into a municipal fund program. This hands responsibility for the management of fiscal resources and project implementation to municipalities and communities, further promoting decentralization of decisionmaking and encouraging greater municipal cost-sharing on projects. * Implementation of a poverty-targeting methodology based on poverty-related criteria, backed by a strong system of checks and balances to thwart mistargeting and misappropriation of resources. * Establishment of clear rules for the composition and operating procedures of municipal councils, to improve participation and transparency. * Establishment of a system of checks and balances to promote transparency. This paper--a product of the Sector Policy and Water Resources Division, Agriculture and Natural Resources Department--is part of a larger effort in the department to develop a new strategy for rural development.