Peru - Primary Education (Second Education) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4487 d-PE STAFF APPRAISAL REPORT PERU PRIMARY EDUCATION PROJECT (EDUCATION II) June 20, 1984 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (May 15, 1984) Currency Unit = Sol. Peruano (S/) US$1 = S/3,025 S/l,OO ,OOO = US$331 MEASURES 1 kilometer 0.62 mile 1 meter 3.28 feet ABBREVIATIONS CARE - Cooperative for American Relief Everywhere CEB - Basic Education Center CECABE - Center for Professional Training COPO - "Cooperacion Popular" program for school building CORDES - Departmental Development Corporations ECIEL - Joint Latin American Studies on Economic Integration EPPA - Public Promotional Enterprise for Handicraft Industries ESEP - Upper Secondary School for Professional Education GTZ - German Agency for Technical Cooperation INIED - National Institute of Education Infrastructure INIDE - National Institute of Research and Education Development IDB - Interamerican Development Bank. MOE - Ministry of Education NEC - National Education Council ORDES - Regional Development Organizations SENATI - National Service for Industrial Training SENCICO - National Service for Construction Industry Training Fiscal Year January 1 - December 31 Academic Year April 1 - December 20  FOR OFFICIAL USE ONLY PERU STAFF APPRAISAL REPORT PRIMARY EDUCATION PROJECT Table of Contents Page No. BASIC DATA ................................................... i I. INTRODUCTION . .................... I1 II. MAIN ISSUES IN PRIMARY EDUCATION ....... .......... 2 Overview ............................................... 2 A. Few Children Finish Primary Education ,.... 3 Late Entrance to School............. ......... 3 School Absenteeism..... .oo .. . ,. . ... .............. . 3 Inadequate Physical Facilities.............,... 5 Inadequate Evaluation System 5 Language Problemsobm..... o...... o..... o.o 5 Poor Economic Conditions of the Families ......... 5 Consequences.. ... .... . ... 6 B. Learning Achievement Levels are Low ...... ...... 6 Deficient School Management............... ................ 6 Unqualified Teachers............... ...... ...o .... . 7 Inadequate Teaching Materials.......o. ........ 8 Frequent Changes of Curricula .................... 9 C. Education Management is Weak ..................... 9 Overview ....... reseve@@svos**@ ..... ........ ........... o.f.o...... 9 Organizational Problemso .............. 9 Staffing Problems ..... ............ ............- 10 Financial Problems ... ,..o... ......... . ...... ,.. 11 Possible Solutions..o.. .. .o.o..... ...... . f . . . 12 III. GOVERNMENT OBJECTIVES AND STRATEGY ..................... 12 A. Provide Sufficient Student Places as.. ....... 12 B. Improve Quality and Efficiency..o......o.......... 15 C. Improve Education Management..o ................. 16 This report is based on the findings of an appraisal mission that visited Peru in July 1982 and on discussions with MOE authorities during a post-appraisal mission of September 1983. The appraisal mission consisted of A.Cespedes (Senior Educator, mission leader), S. Apergis (Senior Economist), R. Corradine (Facility Planner), H. Martinez (General Educator), N. Dutcher (Bilingual Education Specialist), and A. de Guzman (Textbook Specialist, Consultant). A contribution on the auditing system of the MOE was made by Mr. J. Graves (LCP). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  table of Contents (Continued) Page IV. THE PROJECT .. ...... . . ............. 16 A. Overview.o. .......................... 16 B. Objective 1: Provision of Sufficient and Adequate Student Places ........ 17 C. Objective 2: Improvement of School Efficiency and Quality ............ ............ 19 D. Objective 3: Improvement of Management ........ o- 24 E. Summary of Technical Assistancey.................... 26 V. MANAGEMENT AND IMPLEMENTATION.......... . o.... .. .... 28 A. Project Organization. ........ . ........ -. ......... . 28 B. Textbook Program Organization.....o.......... - ...... 31 C. Staffing Plans ............. . - . . ..... o.. 31 D. Implementation ......... ... ...... 0. ..... 33 Professional and Technical Services .......... . 34 Procurement ....... .. ......... . ........ . 34 Working Fund ................. . 35 Accounting and Auditing...........o...........o .... 35 E. Status of Readiness .. . . .... ...... ... . 36 F. Implementation Schedule ...................... o-oo 36 VI. PROJECT COSTS, FINANCING AND DISBURSEMENTS.........o..... 37 A. Project Costs ................ . .. ..... .... 37 Base Cost0*0.*.0..*..0 ............ ....... 00 37 Contingency Allowances ...................... .. 37 Foreign Exchange Cost ......... o .............. 40 Duties and Taxes ..... ................ .... .. 40 Recurrent Expenditures...................... 40 B. Financing Plan. ....... . @ , ..... ....... . 41 C. Disbursements ..... ...0.......... 41 VII. BENEFITS AND RISKS ........................ ............ 43 Benefits ............ 43 Risks .. ...................... 44 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ........... 44 TABLES Table 2.1 Primary Education (1981) Table 2.2 Average Promotion, Repetition and Dropout Rates (1977-1981) Table 2.3 Enrollment Rates by Age (1979) Table 2.4 Education Expenditures in Relation to GDP and Total Government Expenditures  Table of Contents (Continued) TABLES (Continued) Table 3.1 School Construction Program Table 4.1 Peru: Physical Facilities by City Table 4.2 Phasing of Textbook Development and Production (1984-1993) Table 4.3 Summary of Technical Assistance Diagram 5.1 Project Organization Diagram 5.2 Textbook Program Organization Table 6.1 Summary of Project Cost by Project Element Table 6.2 Summary of Project Cost by Category of Expenditure Table 6.3 Expected Price Increases during Project Implementation Table 6.4 Estimated Schedule of Expenditures and Disbursements ANNEXES 1. Comparative Education Indicators 2. The Education System 3. School Textbook Needs 4. Puno Bilingual Textbook Program 5. In-service Training Programs 6. Implementation Schedule 7. Project Incremental Recurrent Costs by 1987 8. Selected Documents Available in the Project File   BASIC DATA (1983) Adult Literacy Rate 90% Net Enrollment Ratios Pre-school (3-5 years) 32% Primary (6-11 years) 90% Secondary (12-16 years) 47% Higher Education (17-23 years) 16% Language of Instruction: Spanish (Vernacular-Speaking Children: 30%) Educational Finance (1980) % of Total Public Expenditures Devoted to Education 14.3% Educational Expenditures as % of GDP 3.6% Per Capita Expenditures on Education US$35   I. INTRODUCTION 1.01 The Bank Group has supported education development in Peru through two projects (Loans 949-PE for US$24 million and 2208-PE for US$17.3 million). The First Project, under Loan 949-PE, assisted the government in introducing work-oriented curricula into secondary education. Thirty-five (35) schools were built with 31,000 student places. Following efforts to solve project implementation problems (weak administration of the project unit, delays in the definition of the post-secondary vocational curricula and bureaucratic procedures blocking the use of funds allocated for technical assistance), the project was completed on June 30, 1982. The Higher Education Project, under Loan 2208-PE, is now being implemented as scheduled. It is assisting the government in accelerating the development of Peru's agricultural sector by improving the National Agrarian University facilities and quality of instruction. 1.02 The present Government of Peru, which took office in mid-1980 has formulated a new set of education policies and objectives. On May 18, 1982, a law was passed modifying the educational structure. The structure now comprises two years of preschool, six years of primary, five years of secondary, and four to six years of higher education. Primary education continues to be free and compulsory for 6-11 year-olds. Secondary education (12-16 year-olds) has been subdivided in two cycles: one for two years of basic education, the other for three years of diversified education. The ESEPs (Upper Secondary Schools for Professional Education) are being converted into post-secondary technical institutes, and students do not need to enroll in these schools as a prerequisite for entering higher education institutions. The education law has also decentralized the country's school supervision system by establishing supervisory units at the municipal and provincial levels. Finally, the law established a National Education Council in charge of policy-making. 1.03 The new government has given priority to primary education. Accordingly, it has submitted a request for a loan to improve and to expand primary education. The proposed loan--US$27 million to cover 60% of the net-of-tax estimated total project cost of US$45 million--would directly support the first three-year phase of a ten-year education program which aims at: (a) providing sufficient and adequate student places for school-age children; (b) improving the quality of primary education; and (c) improving primary education management. 1.04 The proposed project is recommended for Bank financing mainly because: (a) the project would address the main problems of primary education in the marginal urban areas and poor towns and villages of selected departments;  (b) it would finance implementation of major education policies concerning: (i) language of instruction for the non-Spanish speaking population; (ii) production and distribution of school textbooks; and (iii) a decentralized supervisory school system; and (c) it would strengthen the government's administrative capacity in needed units of the MOE. II. MAIN ISSUES IN PRIMARY EDUCATION Overview 2.01 This chapter focuses on the issues and features of primary education mainly because (a) the development of this subsector has been given a high priority by the government and (b) the iissues concerning other subsectors (secondary, vocational and higher eduacation) are in part being addressed through the projects mentioned in Chapter I or will be addressed by future operations of the Bank or other external aid agencies (IDB, USAID, UNDP, UNESCO). Table 2.1 gives an overview of the primary education subsector. In 1981 this subsector comprised 3.2 million students, accommodated in 21,000 schools and taught by 86,000 teachers. About 450,000 children were not attending school. Annex I presents the comparative education indicators. Annex 2 shows the structure of the system in Peru. Table 2.1 PRIMARY EDUCATION (1981) Private Public Sector Sector Urban & Urban Rural Rural Total Enrollment 1,621,266 1,175,054 419,002 3,215,322 a/ Estimated Net Enrollment t%) - - - 83 Schools (Complete and Incomplete) 3,936 14,821 2,224 20,981 Incomplete Schools (with less than six grades) 680 8,500 20 9,200 Teachers 42,915 30,196 13,138 86,249 Classrooms 43,300 40,020 13,000 96,320 Students/School 412 79 188 153 Classrooms/School 11 2.7 6 4.6 Students/Classroom 37 29 32 33 33 Students/School Group 50 39 NA 44 Teachers/School 11 2 6 4 Students/Teacher 38 39 32 37 Area M2/Student 1.14 1.40 NA 1.24 Service Personnel/School 0.48 0.02 NA 0.13 a/ Approximately 450,000 youngsters (ages 6-11) were not enrolled in 1981. Sources: MOE-Estadisticas de la Educacion-1981 (Cifras provisionales), Lima, Peru. MOE-Indicadores Zonales, Direccion de Estadistica, Unidad de Estudios y Analisis Estadisticos, Lima, Peru, 1980.  - 3 - 2.02 There were some significant developments in education in the 1970s. During that time gross enrollment at the primary level increased by 35% (from 2.3 million in 1970 to 3.2 million in 1981). As can be noted in Table 2.1, well over 13% of this enrollment is attending private sector schools. At present the net enrollment rate, in both public and private sector schools, is 83%, which is about average compared with other countries in the region. However, there are still major issues confronting the Peruvian primary education system: (a) few children finish primary education; (b) children do not learn enough and the achievement levels of those who graduate are poor; and (c) the Ministry of Education is not adequately organized, staffed or financed to deal with the above-mentioned issues. A. Few Children Finish Primary Education 2.03 Although most children (95%) have initial access to primary education, only 56% of the students who enroll in first grade finish the six-year program. This problem is particularly acute in the country's poor urban and rural areas. The low completion rate is caused by high repetition and dropout. Thirty percent of the students registered in 1981 were repeaters. On the average, about 37% of the children repeat first grade (Table 2.2). Repetition rates for the second, third, and fourth year are higher than 20%. Moreover, about 45% of the children who started first grade in 1975 dropped out before entering sixth grade. On the average, 4% of the children drop out in each grade before completing the school year. In addition, 4% of those who are promoted do not enroll the following year. 2.04 High repetition and dropout rates are caused by: (a) late entrance to school; (b) school absenteeism; (c) inadequate physical facilities; (d) an inadequate evaluation system; (e) language problems; and (f) poor economic conditions of the families. Late Entrance to School 2.05 Late entrance to school is a major cause for dropping out before finishing primary education. More than half of the first-grade children are overage, and approximately 10% are ten years or older (Table 2.3). As a result, in a typical Peruvian school less than 35% of the students are attending the grade which corresponds to their age. Children who start school at a late age do not remain long enough to complete their primary education either because they have to start working or because they feel out-of-place when confined with younger children. School Absenteeism 2.06 On a daily average, 15% of the children are absent from urban schools and 30% of the children are absent from rural schools. After being absent from school, children seldom receive remedial help from their teachers. Since they have neither textbooks nor facilities to study on their own, children who miss school get far behind in their school work and fail to pass the final exams.  -4- Table 2.2 AVERAGE PROMOTION, REPETITION AND DROPOUT RATES (1977-1981) kin percent) Grade 1 2 3 4 5 6 Promotion a! 59 70 73 76 84 91 Repetition 37 26 23 20 13 6 Drop out b/ 4 4 4 4 3 3 a/ Children who pass do not necessarily enroll the following year. b/ Children who drop out before ccompleting the school year. Source: Bank estimates Table 2.3: ENROLLMENT RATES BY AGE (1979) (in percent) Grades Age 1 2 3 4 5 6 5 yrs. 4 6 yrs. 42 5 7 yrs. 24 35 4 8 yrs. 13 25 32 4 9 yrs. 9 15 24 31 5 10 yrs. 3 8 15 22 30 5 11 yrs. 2 5 10 15 23 28 12 yrs. 1 3 7 12 16 24 13 yrs. 2 4 8 16 26 43 Source: Bank estimates.  -5- Inadequate Physical Facilities 2.07 The tendency in Peruvian primary schools is to have small classrooms, with small windows, poor lighting and insufficient space for children's work. Moreover, classrooms tend to be unfurnished and poorly maintained. It is estimated that about 40% of the existing public schools need major repairs, and that only 2% of the schools do not need any repairs. In addition, about one-third of the children (about 1.0 million) do not have desks or chairs. This lack of appropriate physical facilities results in children not being able to follow the lessons when they have no space to work, and not being able to do their school work when they have no place to sit and write. 2.08 The inadequacy of the physical facilities is compounded by overcrowding. About 80% of urban classrooms are crowded. There are no data on rural crowding, but field observations reveal that often 70 children share the same classroom with one teacher, which is particularly noted in the incomplete rural schools (see Table 2.1 above). In this situation, teachers are forced to concentrate on teaching the average students, leaving the slow learners behind and giving them no opportunities to catch up with the group. Slow learners are thus likely to be repeaters or dropouts year after year. Inadequate Evaluation System 2.09 The government established an evaluation committee in 1981 and evaluation guidelines were distributed to the teachers. Despite these efforts, the promotion system is still haphazard: children who should be promoted are often forced to repeat, and children who should repeat may be promoted. This situation is aggravated by the fact that there are no standardized exams, comparisons among outcomes from different schools or educational research covering evaluation variables and procedures in Peru. This is so because the MOE evaluation department employs inadequately trained tectnicians who have little experience in testing procedures. Language Problems 2.10 About 30% of the Peruvian school children are native speakers of vernacular languages. Vernacular-speaking children have great difficulty in learning in the Spanish-medium classroom, which more than 96% of them attend. Often they do not adjust to the Spanish language schools. As a result, most of the non-Spanish-speaking children do not complete primary education or acquire fundamental literacy and numeracy. Poor Economic Conditions of the Families 2.11 Many youngsters do not complete six years of schooling because they lack financial resources. Approximately 30% of the total Peruvian popullation lives under conditions of absolute poverty, i.e., earning incomes that do not permit the consumption of an adequate volume of food and non-food basic items. I/ A. a result, parents are often unable to finance the direct and indirect costs of six years of schooling. Direct costs, which include 1/ World bank Report 34-38-PE "Major DevelopmenL Policy Issues a1id Recommendations," April 27, 1981.  -6- clothes, shoes, books and transportation, are estimated to be US$20 per child per year. Indirect costs include the need oi poor parents for the services and labor of their children. Consequences 2.12 Incomplete primary education results in high illiteracy rates. Illiteracy limits the social, political and cultural development of individuals and their communities. It also limits access to further education and middle and high-level occupations, and reduces possibilities for ascending the job ladder for those who find jobs. Moreover, farmers and self-employed urban workers who are illiterate may have little chance to be efficient in their activities. Their inability to read and write reduces the possibility of utilizing modern production and marketing techniques. B. Learning Achievements are Low 2,13 Children in Peruvian schools do not learn enough and the achievement levels of those who graduate are poor. Although documentation on achievement in Peru is scarce, the few studies and field observations available reveal that completion of primary school in Peru does not assure functional literacy. On a scale of 0-20, the average reading level of urban sixth grade students was 14.5 and that of rural students only 7.6. Science achievement was 13.3 for urban students and 8.5 for rural students. 2/ 2.14 Low achievement can be attributed to: (a) deficiencies in school management; (b) unqualified teachers; (c) lack of consumable teaching materials and textbooks; and (d) frequent changes of curricula. Deficient School Management 2.15 Deficient school management is an important factor determining low achievement levels in Peruvian schools. School management explains 40% of the variance found among science achievement scores, and 25% of the variance found among reading scores. 3, 2.16 Among the school management variables that have been shown to affect learning achievement one finds: (a) Use of class time: The amount of class time spent on teacher explanations is negatively associated with student achievement in Peru, particularly because of rigidly organized classroom periods. Therefore, less formal classroom time should be encouraged in public schools. Teachers should be trained to program their time so that they can improve their produlctivity; 2/ Data from ECIEL (Joint Latin American Studies on Economic Integration). 3/ Arriagada, Anamaria. Determinants of Sixth Grade Student Achievement in Peru. (Washington, World Bank, Education Department, January 1983) (mieo).  - 7 - (b) Remedial Programs. Remedial programs have been shown to have a major effect on reading achievement. However, few public schools have any such programs. Teachers who lecture large classes should be encouraged to organize children's work so that they can spend more time with slow learning children while fast learners are working on their own; (c) Rate of absenteeism: Better organized schools have better control of student attendance; and (d) Criteria of class groupings: Students in more homogeneous age groups learn more than students in heterogeneous age groups. 2.17 Finally, the above-mentioned management variables which have an impact on student achievement are present at different organizational levels. Some are at the classroom level and are thus handled by the teachers. Others are at the school administration level and are handled by school principals. Still, others are at the departmental levels and are handled by supervisors and departmental administrators. Clarity in defining decision-making levels and formulation of specific programs at each level would lead to improvements in school achievement levels in Peru. Unqualified Teachers 2.18 About three-fourths of primary school teachers have graduated from normal schools with four years of post-secondary education. This norm is high compared with the rest of the region, where primary school teachers are only secondary school graduates. The reasons why Peru's teacher training needs are not fully met are that: (a) there is an inadequate supply of teachers for rural areas (30% of teachers in those areas are unqualified) mainly because the normal schools were closed in 1976 (following a government policy of cutting off an over-supply of teachers in the mid-1970s) and only reopened in 1981; (b) there has been no pre-service teacher training in bilingual education, which is badly needed for most of the rural teachers; (c) there are no stable policies for in-service training, incorporating the experiences gained by INIDE (the National Institute of Research and Education Development); and (d) the unit in the MOE in charge of coordinating teacher training is understaffed. 2.19 In 1982 approximately 5,000 teachers who had no formal training were appointed to teach in rural areas. It was necessary to hire these unqualified teachers because of the reason explained in para. 2.18(a). It is expected that during 1983/1984 approximately 12,000 untrained teachers will be appointed. The government will need to provide opportunities for in-service training for all of them. 2.20 The lack of stable policies for teacher training has affected the quality of teaching. In-service teacher training programs have been subjected to radical changes both in their coverage targets and in their  8- content. In the early 1970s, the training content emphasized increasing the level of political awareness and political organization to allow teachers to participate fully in the process of social ciange. In 1976, the political orientation of the courses was no longer sponsored by the government, thus few courses were offered from 1976 to 1979. In the 1980s, teacher training has been given a high priority, and various clivisions in the MOE were designated with the task of promoting the training of teachers with varied orientations. These changes in the quality and in the curricula of teacher training courses have had a negative impact on teaching practices. Teachers have not been allowed sufficient time to beccime skillful in any one of the areas they have been trained in and their formal training has not always been geared towards improving their classroom methods. Basic topics such as the teaching of reading or techniques for multigrade teaching and methods for meeting the needs of non-Spanish speaking children have not been covered. 2.21 Although there are several agencies in charge of various aspects of teacher training, each university, normal school and MOE office makes decisions as to the content and the length of the course offered. Nobody coordinates these teacher training programs. As a result, teachers are exposed to a wide variety of topics, not always related to their main concerns and not always helpful for improving their teaching methodologies. Moreover, the same teachers take the same courses year after year. Various research papers have been produced by INIDE and a good diagnosis of the problem has been advanced. However, weak links between INIDE, the MOE offices and the Regional Directorates, as well as lack of funds, have prevented INIDE from having a more direct and a more effective impact on the training courses offered throughout the country. Inadequate Teaching Materials 2.22 Learning Materials. There are shortages of basic learning materials, i.e., pencils and paper, in Peruviian classrooms. The cost of these materials is US$15 per student per year, but the government does not appropriate funds for them. Moreover, parents usually cannot afford them. The absence of these teaching materials minimizes student participation in the learning process. Classrooms constitute an impoverished learning environment, with only a map, some charts or similar learning aids. There are no other resources to stimulate children's learning and to help them in understanding and remembering basic facts. 2.23 Textbooks. Two-thirds of the Peruvian school children do not have use of even one textbook (the norm is that each student ought to have at least one book). Rural teachers do not use textbooks because there are none in rural areas. In addition, there are virtually no teachers' manuals or guides, keys to correction, achievement test samples or professional literature. Moreover, efforts to distribute textbooks have failed due to lack of adequate distribution plans and lack of appropriate warehouses. Annex 3 outlines Peru's textbook needs for grades 1-4. No assessment has been conducted for the needs of grades 5-6. 2.24 Not having textbooks implies that children cannot develop good reading skills or acquire reading habits that will allow them to continue learning when they leave school. In addition, practice and drill exercises consume valuable time when children copy in their notebooks all the  - 9 - instructions and illustrations that are usually supplied in the textbook. The lack of books creates a passive and dull atmosphere at school, increasing the absenteeism and dropout rates of children. Frequent Changes of Curricula 2.25 During the last decade, there have been frequent changes in Peru's primary curriculum (1972, 1974, 1980, 1982). As a result, many children have been subject to more than one program of study. These drastic changes in curricula affect learning achievements of students in the following ways: (a) the development of literacy, numeracy and language skills is affected when the graded sequence in which the topics are taught is changed and children must adapt to a different sequence; and (b) teachers are expected to know the new content; however, since this is not the case, and since no training has taken place, teachers skip the subjects they do not know. 2.26 In order to overcome these difficulties, the government has planned to keep the present curriculum for at least six years so that children following it will be evaluated at the end of their primary education course. Time will then be allowed for adjustments, modifications and the sequential introduction into the classrooms. C. Education Management is Weak Overview 2.27 The new education law (para 1.02) will encounter major obstacles if measures are not taken to improve the managerial capacity of the Ministry of Education (MOE). The Ministry's organizational, staffing and financial problems are discussed in sequence below and possible solutions are briefly outlined. Organizationl Problems 2.28 The responsiblities of the central, regional and local administra- tion offices are not clear. The new education law abolished the nucleariza- tion system and a new structure for education administration has been prepared by the MOE. Under this new structure the education system will be administered at four levels: (a) national policy-Waking, by the National Education Council (NEC); 4/ (b) national-level administration, by the MOE; 4/ The NEC has seven members (Article 126 of Law 23384 of May 1982), representing the President of the country, the university council, scientific and cultural organizations, public and private schools, PTAs, and teachers' unions.  - 10 - (c) regional administration, by MOE regional offices which are being established in each one of the 25 clepartments including Lima; and (d) school supervision, by the local supervision offices being estab- lished to replace the school nuclei at the provincial/municipal level. 2.29 Since the new operational guideline!s for these offices are still in the design process, confusion occurs at all levels of education management. The NEC has not advised the MOE on policy matters. Moreover, horizontal and vertical coordination is weak among offices in the education sector. Coordination among MOE officers of the same rank is weak and vertical coordination among several levels is almost non-existent. Delegation of authority from the MOE central headquarters to the regions is virtually absent and regional directors report to all 25 MOE major offices with little coordination. Similarly, supervisors and school principals report to local provincial directors and regional directors, as well as to the MOE central offices. 2.30 The poor use of available computer systems further aggravates the management weaknesses of the education sector. Although the MOE has rented equipment, the existing files are incomplete; therefore, administrative matters that could be fully automated are still partially done manually. The budget accounting process, which has just been partially computerized, needs to be synchronized with other programs. For accounting purposes, the computer is being used as a printing machine which provides computer-printed lists but does no processing. Similarly, payroll, which is a major task in the MOE since 180,000 staff are paid monthly, is only partially computerized. Since the personnel file is incomplete, monthly salary additions or deductions are manually calculated and the computer is only used to print paychecks. The experience gained through implementation of the Public Sector Management Project under Loan 2204-PE is being utilized to overcome these problems. 2.31 In summary, there is poor coordination and lack of delegation of authority among the various administrative levels concerned. This is compounded by a lack of initiative to use modern technologies efficiently. Therefore, there are two major consequences emerging from this situation: (a) the system continues to be inadequately managed, and (b) the human resources available in the regions are underutilized. Staffing Problems 2.32 The MOE faces three major staffing problems: (a) lack of trained managers; (b) poor salaries; and (c) uneven d:istribution of the education staff between Lima and the regions. Education administrators are, for the most part, either teachers or liberal-arts graduates who have received no training in administration. This situation is aggravated by the low civil service salaries which lately have lagged behind inflation and do not allow for recruitment of trained managers. To compensate for this, staff have been promoted to higher posts, resulting in higher level staff not always having the qualifications required for their jobs. In addition, most of the MOE specialists in curriculum development, education planning and evaluation are located at headquarters (50-60 persons), leaving the regions with only  - 11 - supervisory staff. The majority of the regions lack specialists in curriculum, evaluation, education planning, and bilingual education and have mostly school supervisors who are usually too overburdened with administrative work to carry out their own duties. Financial Problems 2.33 Education has been in continuous financial difficulties as the result of the drastic reduction of its share in public expenditures. While in 1965 education (MOE budget only) absorbed 25% of total central government revenues, in 1975 it absorbed 17%, and in 1982 (after a temporary increase in 1980 and 1981) 11% or, in real terms, less than in 1970. Expressed as a percentage of GDP, the corresponding figures were 5% in 1965, 3.7% in 1975 and 2.5% in 1982 (Table 2.4). Table 2.4: EDUCATION EXPENDITURES IN RELATION TO CDP AND TOTAL GOVERNMENT EXPENDITURES 1965 1975 1982 Education expenditures in relation to GDP (%) 5.0 3.7 2.5 Education expenditures in relation to total government expenditures (%) 25.0 16.6. 11.0 Sources: Gbvernment data and Bank estimates. 2.34 The principal causes of this trend have been: (a) constant political friction, especially at the university level, which seems to have cooled the successive governments' enthusiasm for education; (b) the economic crisis that started in 1975, which triggered reduced participation of the labor-intensive education sector in the CDP; and (c) government policy, in the face of economic crisis and limited public revenues, to favor investment in sectors that promise shorter pay-off periods. 2.35 The financial stringency has adversely affected teacher salaries, capital investments, and non-salary operational expenditures. For example, in 1982 the monthly salary of a married, fully qualified, full-time primary school teacher with ten years experience is currently the equivalent of about US$100-130 and, in real terms, about 35% of what it had been in 1973 (when salaries reached their peak). Important salary increases were granted in 1981, which pushed salaries to about 70-75% of their 1973 level, but continuing inflation rapidly eroded these gains. Nevertheless, teachers' salaries, especially outside of Lima, remain fairly competitive, since wages in all sectors have been adversely affected by the country's economic difficulties. Capital investment (in constant prices) suffered even more, registering in 1979 a level below all but five years between 1965 and 1974. Equally severe has been the impact of the contraction on the all-important non-salary current expenditures (school maintenance, travel and per diem for supervision and teacher upgrading, etc.), and on the availability of textbooks for primary and secondary school students (para. 2.22).  - 12 - Possible Solutions 2.36 The solution of organizational, staffing and financial problems mentioned above requires multiple and sustained efforts at the central, regional and local levels. At the central level, administrative improvement requires addressing the root problems that pervade all of Peru's public administration system, i.e., span of control, budgeting procedures, civil- service incentive systems, and auditing practices. Internally, the MOE requires upgrading of its managerial capacity anid decentralization of its routine administrative procedures. At the regional/departmental level, the reform of the regional education offices must include collaboration of the newly established CORDES (Departmental Development Corporations). The role that the CORDES will play in relation to educatiLon management and school construction at the regional level must be defined. Furthermore, regional offices must be reorganized in order to assume the responsibilities called for by the decentralization policies. At the provincial level various problems must be addressed; school administration procedures must be established emphasizing school maintenance and aLdequate timing of teacher transfers and adequate scheduling of teacher and student activities. At all levels, it is necessary to establish information systems that allow proper monitoring of schools as well as timely decision making. Fmphasis should be given to development of the computer software thiat would allow proper processing of budgeting, accounting and payroll, as well as statistical data necessary for basic analysis of the education sector. III. ODVERNMENT OBJECTIVES AND STRATEGY 3.01 Primary education has a high priority in the government's develop- ment plan, as it is considered a prerequisite for overcoming the economic, cultural and social constraints of the poor urban and rural populations. Accordingly, and despite the severe budget constraints, important primary education sector investments including school construction entrusted to the CORDES as well as this project, have been decided upon by the government. Following up on these decisions, the Ministry of Education has prepared a program for expanding and improving the primary school system. The program aims at: (a) providing sufficient and adequate schooling places for all primary school-age children by 1993; (b) improving the quality of primary education; and (c) modernizing education administration. The Gbvernment's strategy in primary education is in line with the Bank's development strategy for Peru. Important elements of the latter are, inter alia, increases in the yield of resources devoted to education through :Lmproved management and school quality and in labor productivity through improved education and training. A. Provide Sufficient Student Places 3.02 About 20,000 new classrooms are needed in Peru to provide universal primary education to all school-age children by 1993. To meet this need, a three-phase school construction program (1984-1993) has been prepared by the government. There are now three main construction agencies involved in project preparation and implementation: INIED (National Institute of  - 13 - Education Infrastructure) 5/ CORDES (the Departmental Development Corporations) and the "Cooperacion Popular" program for school building (COPO). Table 3.1 shows the implementation responsibilities of each of these agencies in the school construction program. INIED will be responsible for building 17% of the primary classrooms planned (Phase I) and of all the student places for teacher training throughout the program. The CORDES (25 departmental units including Lima) which have evolved from the former ORDES (the Regional Development Organizations) are now in the process of reorganizing and restaffing themselves in line with a new legislative decree issued in 1982. As can be noted in Table 3.1, the CORDES are responsible for building the greatest number of planned public classrooms (50% of the program: Phase I), which will be financed exclusively with government funds. The "Cooperacion Popular" program (33% in Phase I) will be financed partly with government funds (an estimated 60%) and the rest (40%) with community resources. Implementation of the "Cooperacion Popular" program has been strengthened through technical assistance from CARE (Cooperative for American Relief Everywhere). 3.03 Because the above program is an ambitious one, it has been planned in 3 phases. The first phase of the program would meet the needs of poor urban areas and of selected rural villages. The fast growing cities, have been selected by the government for this phase because they have high concentrations of poor people, and because their education needs are well identified and would be comparatively easy to meet in the starting phase of the program, particularly in view of the managerial and administrative problems being faced by MOE and the recently established CORDES. All cities are located in areas where immigration has been high in recent years and where the government is making efforts to provide social services to the urban poor. One of these cities is Iquitos, the major city in the jungle area of Peru located by the Amazon River. At least 70% of the facilities would be built in the marginal urban neighborhoods of the selected cities, that is, in the so-called "Pueblos Jovenes" (poor urban neighborhoods in the outskirts of fast growing cities) and the rest (30%) would be built in the rural areas of selected departments. 3.04 The second phase of the program would meet the needs of rural areas in coastal departments as well as part of those in the altiplano (high altitude) departments. The third phase would aim at meeting the remaining school needs in the altiplano and the jungle areas. 5/ INIED, under the Ministry of Education, has been established as the major education infrastructure building unit of the central government, in charge of implementing education projects financed by external agencies (IDB, IBRD, OEA, UNDP). Since its inception in 1981, INIED has organized itself into two general directorates: School Planning and School Construction. Both directorates have at the present about 280 staff, including some 114 professionals (25 architects, 42 engineers, 2 economists and 45 liberal arts graduates) and 166 support staff.  - 14 - Table 3.1 SCHOOL CONSTRUCTION PROGRAM Phase I Phase II Phase III (1984-1987) (1988-1990) (1991-1993) Total Areas covered poor urban rural coastal altiplano areas and and altiplano and jungle selected rural areas areas neighborhoods New Classrooms 6,000 9,000 5,000 20,000 INIED 1,000 a/ 1,000 1,000 3,000 CORDES 3,000 6,000 3,000 12,000 b/ COPO 2,000 2,000 1,000 5,000 c/ Student Places (primary schools) ('000) 230 360 210 800 Student Places (teacher training institutions) d/ 6,000 9,-000 5,000 20,000 Estimated cost - (US$ million) 125 190 115 430 a/ Partly financed (60%) by IBRD and the rest (40%) by the government. b/ Entirely financed by the government. c/ Partly financed by government (60%) and by community resources (40%). Technical assistance provided by CARE. d/ Partly financed (60%) by IDB and the rest (40%) by the government. e/ Construction costs without contingencies. Source: Ministry of Education.  - 15 - B. Improve Quality and Efficiency 3.05 The education program also envisages improvement of the quality and efficiency of primary education. The strategy to accomplish these improvements calls for: (a) improved school administration practices; (b) adaptation of the curriculum to meet needs of local populations; (c) provision of textbooks and related teaching materials; and (d) training of teachers and school administrators. 3.06 The program calls for improvement of school organization and administration practices. It aims at improving ways in which schools make use of available resources. Specifically, the program supports remedial programs for slow learners, control of student attendance, establishment of criteria for school groupings and effective use of class time (i.e., length and regularity of class time). 3.07 A new curriculum for the whole country was adopted in 1982. Two special adaptations of this new curriculum are being designed to meet the needs of rural areas of non-Spanish speaking students. The nature of rural schools calls for a multigraded approach (i.e., one-room schoolhouses and one or two teachers for various grades). This multigraded curriculum is being tested in about 100 primary schools. It is expected that during the second phase of the education program (1988-1990) the curriculum will be implemented in the 9,000 incomplete schools found in rural areas of Peru. Similarly, various bilingual education programs are being implemented. One of them is in Puno for Aymara and Quechua-speaking children by the German Agency for Technical Cooperation (GTZ) and MOE. Under this program the Puno educational authorities are teaching almost 6,000 vernacular-speaking children in grades 1-3 to read and write in their vernacular language, as well as in Spanish. As part of this project textbooks have been developed and teachers have received special training. Plans have been developed to expand coverage to almost 40,000 children in grades 1-6 by 1987. 3.08 The production and distribution of textbooks (for grades 1-2) and other learning materials have been included in the education program. Books should become available to all primary school students, meeting demands as stated in Annex 3. 3.09 Teachers, supervisors and school administrators (about 20,000 persons) need to be trained in accordance with the changes and innovations envisaged in the new curriculum (in Phases I and II of the education program) and especially for the use of new textbooks. The preservice program, which will be partly financed by IDB, includes the construction and equipment needed for about 15 teacher training centers (20,000 student places) nationwide (Table 3.1). The in-service training needs are being proposed for Bank financing. To carry out this program the government has strengthened INIDE (The National Institute of Research and Education Development), which will be also in charge of implementing the multigraded curriculum (para. 3.07) and the program concerning the production and distribution of textbooks (para. 3.08). INIDE is now a well organized and staffed institution with about 370 staff (10 senior managers, 160 education specialists, 80 tech- nicians and 120 support personnel).  - 16 - C. Improve Education M[anagement 3.10 The education program recognizes the need to modernize education administration and management. As a result, the following actions are being taken: (a) twenty-five regional directorates are being established with the purpose of decentralizing education administration and delegating monitoring of the system to local authorities; (b) the school supervision system is being decentralized into municipal supervisory units to ensure participation of school principals in the supervision process; (c) a unit for analyzing the status of all Ministry departments and offices has been established within the Office of the Minister; (d) the MOE budgetary system is being studied as part of a management assessment scheme conducted by the Ministry of Finance; and (e) the overall institutional capacity of the MOE is being strengthened as a result of the actions that are being taken in (a), (b), (c) and (d) above. 3.11 In general terms, the government's education program is sound. However, time will be needed to address all problems in view of the finan- cial, human and managerial constraints facing Peru. Priorities concerning improvements in the primary education subsector (quality, coverage, school supervision and management) have been established so that the most pressing problems in the marginal urban areas and selected rural villages can be adequately addressed first. IV. THE PROJECT A. Overview 4.01 The proposed project has been designed in accordance with the government's policies and development strategy (Chapter III). It aims at providing student places to meet the enrollment targets of the first phase and part (30%) of those of the second phase of ithe ten-year educational program. In addition, the project would improve quality and efficiency of education for about 300,000 students by improving school administration practices, by training teachers and by providing textbooks. The project would also assist the government in its efforts to strengthen and further develop the MOE's administrative and managerial capacity. 4.02 The first project objective is to provide sufficient and adequate school places in target areas: ten fast-growing cities of Peru and rural areas of ten departments. The project would provide about 1,250 classrooms in some 150 schools. A total of about 39,000 new student places would be provided to accommodate 76,500 students in double shifts (Considers a second shift for existing facilities at 75%).  - 17 - 4.03 The second objective of the project is to improve the quality and efficiency of primary education in all schools located in ten selected departments included in the first phase of the government's educational program. This objective would be achieved by: (a) improving school management practices; (b) training 4,000 school principals, 1,000 regional and local supervisors and 16,000 school teachers; (c) providing textbooks and other learning materials for about 300,000 children; (d) developing the curriculum for the multigraded schools that function in rural areas of Lambayeque as a pilot program; and (e) supporting the institutionalization and expansion of the bilingual education project for Aymara-and Quechua-speaking children in Puno. 4.04 The third objective of the project is to assist the government in strengthening the MOE's project implementation capacity.. This objective would be achieved by: (a) developing INIDE's (the Pedagogical Unit of the MOE) capacity to implement in-service training programs and produce textbooks and other printing materials; (b) strengthening INIED's (the Physical Implementation Unit) managerial capacity through: (i) training of senior staff and (ii) improving construction planning, overall management and supervision capacity; and (c) supporting a follow-up study of the assistance provided by the Public Sector Management Project (Loan 2204-PE mentioned earlier) for improving the budgeting processes of the Ministry of Education. B. Objective 1: Provision of Sufficient and Adequate Student Places (Proposed outlay without contingencies: about US$24.0 million) 4.05 The project would provide sufficient and adequate student places for 53,500 primary school-age children in ten rapidly growing cities and for about 23,000 students of the poor rural areas of ten departments of Peru. A school mapping exercise conducted by the MOE revealed that about 910 classrooms would be needed in the ten cities and some 340 classrooms in the rural areas of the selected departments to meet expected demand for primary education by 1988 (Table 4.1). Accordingly, the project would finance: (a) construction and renovation of, and furniture and equipment for about 90 schools in urban centers (910 classrooms); and (b) construction and renovation of, and furniture and equipment for about 60 schools (340 classrooms) in rural neighborhoods and villages.  - 18 - Table 4.1: PERU: PHYSICAL FACILITIES BY CITY Project Schools Classrocns Enrollments Total Enrolhmnt Urban Riral a/ Urban Centers Rural Areas a/ Student in lbuble Centers Areas New bT Extensions b/ Ne b/ Etensions b/ Places Shifting c/ Arequipa 12 3 80 30 '3 6 5,000 7,400 (Arequipa) Cajamarca 4 10 32 8 32 18 3,600 5,700 (Cajanmrca) Cidclayo 12 4 106 34 15 10 6,600 11,800 (Tlantayeque) Chimbote 8 10 70 10 36 14 5,200 7,000 (Ancash) Ica 6 4 40 10 12 8 2,800 4,000 (Ica) Iquitos 5 - 45 15 - - 2,400 3,200 (Loreto) Liina/Call 20 8 190 10 32 18 10,000 15,700 (lT.m) Piura/Sullana 10 6 90 30 32 18 6,800 10,000 (Piura) Trujillo 9 5 73 7 18 12 4,400 7,200 (La Libertad) Puno/Juliaca 4 10 24 6 32 18 3,200 4,500 (Puno) Total: 90 60 750 160 218 122 50,000 76,500 a/ Includes rural schools facilities in the selected departoents as a whole. b/ 'W" means new classrooms in schools to be constructed and 'Extensions" eans new classrooms in existing schools. Classroonrs to be renovated are not shawn in this Table. c/ Considers only a second shift for the existing facilities at 75% utilization in such a shift.  - 19 - 4.06 School location criteria and standards for school designs are acceptable to the Bank. Urban schools would be located in poor neighborhoods of the project cities. Classrooms would have a maximum of 40 student places and they would be used in two shifts in at least 75% of the schools. Rural schools financed by the project would be located in neighborhoods that have 500-1,500 inhabitants. These schools would be located no more than three kilometers from students' homes. They would have one to three classrooms with a maximum class size of 40 students and would provide multigrade teaching. The MOE has already applied these criteria for the school designs of about 47% of the new schools to be constructed. During negotiations, the government provided assurances that all the project schools would be located according to criteria agreed upon with the Bank. C. Objective 2: Improvement of School Efficiency and Quality (Proposed outlay without contingencies: about US$7.7 million) 4.07 Improvements in school efficiency and quality would be sought in all ten departments which constitute the target areas of the first phase of the government's educational program. In order to improve school efficiency, drastic reductions in repetition and dropout rates are required and provision of learning inputs is necessary to increase student achievement levels. This would be achieved in Peru through (a) strengthening and improving school management practices through technical assistance and in-house training; (b) providing textbooks and other learning materials; (c) training school teachers; (d) developing a special curriculum for multigraded schools in rural areas; and (e) expanding bilingual programs in communities with vernacular-speaking children. 4.08 Within this framework, the project would finance: (a) technical assistance for improving school management; (b) provision of textbooks and other learning materials for about 300,000 public school children; (c) in- service training of 1,000 regional and local school supervisors, 2,500 school principals, and 17,500 school teachers; (d) technical assistance for developing the unitary school curriculum to be piloted in Lambayeque; and (e) printing of bilingual textbooks and training of bilingual teachers for Aymara- and Quechua-speaking areas of the Puno department. Improvements in School Management (Proposed outlay: about US$250,000) 4.09 As stated in para. 2.16, weak school management practices have a significant impact on low public school student achievement levels. In order to identify existing problems better and to design and implement new mana- gerial procedures that address existing deficiencies, the project would support technical assistance for: (a) a thorough analysis of current school administrative practices; and (b) development of school administration and school supervision procedures. Special attention would be given to defining the role and responsibilities of school principals, school supervisors and departmental administrators in establishing adequate school calendars for rural areas and defining school maintenance procedures.  - 20 - 4.10 One specialist in school administration would work in the Regional Directorate of Chiclayo assisting the regional director in the above- mentioned tasks and in the training of staff in the use of the managerial guidelines and procedures to be designed. Once these new administrative practices are implemented in the regional directorate, a seminar for five other regional directors would be conducted in Chiclayo and procedures for similar developments in other regions would 'be designed. Within this framework, the project would finance: (a) salaries for the specialist in school administration for two years; (b) printing of the school administration and supervision manuals; and (c) the seminar for the other regional directors and their senior staff. During negotiations, the government provided assurances that recommendations of the Chiclayo seminar on school administrative practices would be taken into account for strengthening the project school administrative practices. The Government would review these recommendations with the Bank and put into operation those agreed upon. Provision of Textbooks (Proposed outlay: about US$5.4 million) 4.11 The project would support the first phase of a ten-year textbook program aimed at providing low cost textbooks to all children enrolled in public schools nationwide. The ten-year textbook program is shown in Table 4.2. During the first phase some 3.0 million textbooks and 15 manuscripts (including 7 that are ready for field testing) would be developed, printed and distributed to children in the ten project departments. 4.12 Textbook development would be undertaken by INIDE. Field testing and revision of prototypes would be conducted in about 12 project schools, in actual classroom conditions, for a whole school year, under the supervision of INIDE staff. The textbook development unit of INIDE would then be responsible for revising the manuscripts based on field observations and teachers' suggestions. INIDE would also be responsible for securing the necessary official approval, including copyrights. The project would finance (a) contracts with individual authors and editors for textbook writing and revision; (b) paper for try-out editions; (c) field testing of manuscripts; and (d) the necessary supplies and equipment for textbook graphics and page designs. 4.13 Textbook printing would be undertaken by INIDE when less than 5,000 copies are required; otherwise, they would be contracted with private firms.Production quantities would be based on enrollments plus a reserve stock of at least 30% to cover enrollment increases and the expected replacement of copies over the four to five-year period of implementation. The project would finance (a) extension of the physical facilities of INIDE printing shop; (b) equipment, paper and printing supplies for textbooks to be printed by INIDE; and (c) contracts with private printing firms.  - 21 - Table 4.2: PHASING OF TEXTBOOK DEVELOPMENT AND PRODUCTION (1984-1993) Phase I Phase II Phase III (1984-87) (1988-90) (1991-93) Production of Grades 1-2: Languages & Mathematics (7 titles) a/ Development of Grades 1-2: Production of Grade 3: Science & Social Studies --- Science & Social Studies (4 titles) (4 titles) Development of Grade 3: Development of Grade 3: Production of Grade 3: Language & Mathematics --- Science & Social -- Science & Social (4 titles) Studies Studies (4 titles) (4 titles) Development of Grade 4: Production of Grade 4: Language, Mathematics, -- Language, Mathematics, Science & Social Studies Science & Social (8 titles) Studies (8 titles) Development of Grades 5-6: Language, Mathe- matics, Science & Social Studies (16 titles) Production of Grades 5-6: Language, Mathe- matics, Science & Social Studies (16 titles) Total: 15 20 40 Production: 7 titles 8 titles 28 titles Development: 8 titles 12 titles 16 titles a/ Developed and ready for production at the start of the project.  - 22 - 4.14 Textbook distribution would be organized by INIDE on the basis of one book per student for first and second grades, and one book per two students for third grade. Distribution would be done from INIDE to the Regional Directorates and from the Regional Directorates to the schools. The project would finance: (a) construction of a textbook warehouse in INIDE; (b) delivery of textbooks from INIDE to the regional directorates; and (c) expenses incurred by the Regional Directorates in distributing textbooks to schools. In the long-run, distribution of textbooks would be financed by the proceeds of selling textbooks to children in private schools. The text- books for public schools would be school property and would be utilized mainly within school premises. Unit costs of textbooks for sale would be the production cost plus 30-40% profit which is estimated to be 50% less than the commercial price of textbooks in Peru. During negotiations, the Bank reviewed an acceptable version of the textbook distribution plan. In-service Training Program (Proposed outlay without contingencies: about US$2.10 million) 4.15 The project would support training of regional and local supervisors, school principals and school teachers in the ten project departments. The training program would be planned, organized and coordinated by INIDE in close cooperation with the Primary Education Department of the MOE. Fifteen INIDE staff and five MOE staff would be responsible for planning and coordinating the program with the assistance of an internationally recruited consultant. These staff would then assist the regional education staff in implementing the training program in each one of the project departments. 4.16 Three in-service programs would be organized: (a) a program for training regional and local supervisors; (b) a program for all school principals and teachers who would be working in the project schools; and (c) an orientation program for all first and second grade teachers who would use the new textbooks. Annex 5 outlines the objectives and scheduling of these programs. 4.17 The training program for regional and local supervisors has four major objectives: (a) to improve the school administration practices, including school maintenance practices, and the adequate use of the equipment and educational materials available; (b) to improve the academic supervision practices including the training of teachers and the use of new books provided by the project; (c) to improve the student evaluation practices; and (d) to improve the utilization of community resources for the organization of nutrition and health courses and school activities. In order to meet these objectives, four one-week seminars would be organized in each one of the ten departments covered by the project. The seminars would be taught by INIDE staff and contracted professionals outside MOE. One thousand (1,000) regional and local supervisors would be trained. 4.18 The training program for school principals and teachers for the project schools has four major objectives: (a) to improve the schools' organization practices, including the planning of curriculum; (b) to  - 23 - introduce the new books provided by the project; (c) to improve the student evaluation practices; and (d) to enhance both the school and community by using community resources. To meet these objectives four one-week seminars would be organized throughout the ten departments covered by the project. The seminars would be taught by INIDE staff, contracted professionals, and regional and local supervisors. Two-thousand five-hundred (2,500) school principals and teachers, mainly for the classrooms to be built or remodeled by the project, would be trained. 4.19 The training program for school principles and teachers in the project departments has two major objectives: (a) to review effective administrative procedures for the texts and (b) to familiarize the principals and teachers with the texts and the teachers guides so that they would be able to effectively use the textbooks. To meet these objectives, two five- day seminars would be organized throughout the ten departments covered by the project. The seminars would be taught by the regional and local supervisors supplemented by radio and correspondence lessons. Seventeen-thousand five-hundred (17,500) principals and teachers would be trained. 4.20 Taking into consideration the difficulties encountered by the existing teacher training programs (para. 2.20), and in order to make sure that the supervisors, principals, and teachers acquire the skills necessary for improving their work, the in-service training component has been designed with the characteristics noted below. Each seminar will: (a) have a specific objective; (b) be followed by a period of practice in the use of the skills related to the training objective; and (c) be followed by a discussion and evaluation of the skills acquired. Under this seminar-practice-discussion format, it is expected that the new knowledge and skills would have an impact on school administration and teaching practices throughout the ten departments of the project. Moreover, it is expected that this new approach to training in specific skills would become a regular feature of the courses taught by INIDE and the regional and local supervisors in the future. INIDE would participate in the training courses by visiting schools, gathering data on school administration practices, the use of textbooks by teachers and students, and the supervision and evaluation practices used after the training courses. 4.21 The project would finance: (a) travel and per diem expenses (US$10 per day) for INIDE staff when working outside of Lima; (b) salaries for persons outside the MOE who are contracted to provide training; (c) travel and per diem expenses for participants (US$5-8 per day) receiving training outside of their own communities; (d) radio lessons, materials and equipment required for the seminars; and (e) salaries for internationally recruited consultants who would assist INIDE in refining plans for the program and developing appropriate measures for evaluation.  - 24 - 4.22 The training program is expected to be implemented after textbooks have been developed and after the school administration analysis has been conducted in Lambayeque. This schedule would allow trainers to use the school management manuals and the textbooks as materials for training supervisors, principals and teachers. Seminars for supervisors are therefore scheduled to begin the second year of the project. Seminars for school principals and teachers would take place during the third and fourth year of the project. 4.23 Curriculum for Multigrade Schools. The project would support the development of a special curriculum for multigrade schools (schools with six grades, but only one or two classrooms). This; curriculum is intended for scarcely populated rural areas where one teacher has to teach various grades simultaneously. In order to ensure that these multigrade schools can offer the six-grade primary school cycle, special provisions must be made in the curriculum, teachers must have special training and special teaching materials must be provided to schools. Within this framework, the project would finance: (a) six fellowships for three MOE staff and three staff from the Regional Directorate in Chiclayo to visit countries where a multigrade school curriculum has been implemented; (b) ten months of technical assistance for the development of the Peruvian multigrade school curriculum; and (c) training of about 20 multigrade school teachers who would pilot the new curriculum in their schools. 4.24 Bilingual Education. The project would support the institutionzalization and expansion of the bilingual education program for Aymara- and Quechua-speaking children in the Puno department (para. 3.07). About 40,000 children would receive education in both their own language and in Spanish. This would bring coverage in the Puno department from its present 4% to 36%. To do this, the project would provide for (a) publication and distribution of 220,000 already-piloted books at a cost of US$255,000; and (b) training of about 1,200 specialists and teachers at a cost of US$245,000. It is expected that the GTZ assistance mentioned in para. 3.07 will continue throughout the 1987 school year. 4.25 Additionally, and in order to assist the government in its commit- ment to bilingual education, the project would support a feasibility study to include: (a) assessment of all inputs necessary to provide bilingual education on a country-wide basis to all vernacular-speaking children; and (b) recommendations as to which phases (two or three) of the government's educational program would support bilingual education. The execution of this study would be contracted by MOE with outside experts. The cost of the study is estimated to be US$180,000. The terms of reference for the above study were discussed and agreed upon during negotiatiLons. D. Objective 3: Improvement of Management (Proposed outlay without contingencies: about US$1.1 million) 4.26 The project would support the strengthening and further development of the agencies involved in project implementation and the administrative changes that are needed to modernize management: of education in Peru. The  - 25 - project would support key actions which are feasible during the life of the project and which directly affect the primary education subsector and the project. Within this perspective, the project would assist the government in: (a) strengthening INIDE's capacity to develop, print and distribute text- books; (b) strengthening INIED's administrative capacity; and (c) carrying out a follow-up study of the outcome of the assistance provided by the Public Sector Management Project (Report No. 3383-PE, dated September 1, 1982) for improving budgeting processes in the Planning Office of the MOE. These activities are discussed below. Establishment of a Textbook Unit within INIDE (Proposed outlay: US$120,000) 4.27 The project would help in strengthening INIDE's capacity to develop, print and supply textbooks by strengthening a recently established (July 1983) permanent unit within INIDE responsible for the full range of textbook production functions: manuscript development, printing, distribution and field testing. The project would finance (a) forty eight (48) staff-months of technical assistance for assisting INIDE in planning, organizing and implementing the textbook program; (b) textbook-related operation expenses (travel expenses, office supplies, supporting staff); and (c) a study on the establishment of a permanent system to distribute the textbooks produced. The terms of reference for the study on the distribution of textbooks were discussed and agreed upon during negotiations. During negotiations the government provided assurances that all textbooks would be field-tested according to criteria agreed with the Bank, and revised on the basis of the field tests before large-scale printing. Strengthening the Administrative Capacity of the Physical Implementation Unit (INIED) (Proposed outlay: about US$700,000) 4.28 The project would address three major administrative deficiencies encountered in the Physical Implementation Unit (INIED): (a) incomplete training of its staff; (b) lack of clarity in defining the administrative functions which should be undertaken locally by the CORDES in accordance with the government's decentralization policies; and (c) lack of school construction planning and school design standards for the second and third phases of the educational program. 4.29 In order to address the above-mentioned problems, the project would finance: (a) an analysis of the functions that could be delegated to the CORDES; (b) training of senior staff in management and in school construction planning and supervision; and (c) future project preparation. The government has prepared detailed terms of reference for the above mentioned analysis. A detailed plan for the in-service training of senior INIED staff would be a condition of loan effectiveness. This should include senior personnel from the accounting, costing, overall planning and supervision units of INIED. 4.30 In order to improve school construction planning, the project would support a school mapping exercise to determine school sites for the second and third phases of the educational program. The exercise would include: (a) criteria and guidelines for locating schools (e.g., population density,  - 26 - school size, existing school deficits and appropriate walking distances); (b) data on physical conditions of existing facilities and anticipated repair needs; (c) policies for school capital investments at the national, regional and local levels; and (d) school construction standards and methods for different climatic zones. 4.31 The project would finance: (a) 15 staff-months of technical assist- ance for the above-mentioned tasks; and (b) travel expenses for INIED staff involved in conducting the school mapping exercise. Improving of the Budgeting Processes (Proposed outlay:US$300,000) 4.32 The project would support a follow-up study of the assistance provided by the Public Sector Management Project for improving the budgeting process and information system of the Ministry of Education. In addition, the project would finance an assessment of the computer software needed to implement a completely automated budgeting and accounting system for the education sector. Terms of reference for these studies would be prepared by the MOE and by the Ministry of Finance and would be sent for Bank review and comments during 1985. The project would finance: (a) about 15 staff-months of technical assistance for this project element; (b) the software needed to implement the budgeting and accounting systems. E. Summary of Technical Assistance 4.33 Table 4.3 summarizes the technical assistance and studies to be supported by the project. A total of about 206 staff-months would be financed. In addition, about 60 staff-months of fellowships would be provided to staff working in developing the mu:Ltigrade school curriculum and to the MOE senior staff involved in project implementation. A condition of effectiveness would be the preparation of a draft contract agreed upon with the Bank for the execution of the technical assistance program with private or international organizations. Such a contract should include specifics about the monitoring, evaluating and staffing procedures of the whole technical assistance program. During negotiatjions, the government provided assurances that it would hire, no later than June 30, 1985 and under contract satisfactory to the Bank, the services of a private or international organization that would execute the technical assistance program included or related to the project.  - 27 - Table 4.3 SUMMARY OF TECHNICAL ASSISTANCE Staff-Months Short-Term Long-Term Expert Services Specialists Specialists MOE Units 1. School Management 6 48 Regional Directorate of Lambayeque 2. Teacher Training 48 INIDE 3. Multigrade school Curriculum 10 General Directorate of Primary Education 4. Textbook Production 24 24 INIDE 5. Textbook Distribution 12 INIDE 6. Budgeting-MOE 6 12 MOE - Budget Office 7. INIED Construction Administration -- 10 Total 54 152 Fellowships Staff-Months 1. Staff working in developing the unitary school curriculum (Primary Ed.Directorate) 10 2. INIED senior staff training in school construction planning 15 3. Textbook production 10 4. Budgeting-MOE 15 5. In-service training 10 Total 60 Studies 1. Bilingual Education Feasibility Study 2. INIED's Administrative Structure 3. School Mapping  - 28 - V. MANAGEMENT AND IMPLEMENTATION 5.01 The government has devised special management arrangements for efficient implementation of the project. These arrangements, which are discussed in sequence below, include: (a) organization of a Project Coordinating Group, under the Vice-Ministry, and clearly defined responsibilities for all MOE units involved in project implementation; (b) organization of a permanent unit within INIDE, which ensures the carrying out of the full range of textbook production functions: manuscript development, printing, field testing, distribution and evaluation of impact; (c) a staffing plan which ensures that qualified staff would be available to carry out the project; (d) well defined implementation procedures; and (e) a realistic implementation schedule. A. Project Organization 5.02 Diagram 5.1 shows project organization. Overall responsibility for the project would be assigned to the Vice-Ministry of the MOE. Specifically, the Vice-Minister would be in charge of: (a) approving annual operational and financial plans; (b) monitoring project execution; and (c) submitting a biannual progress report to the Bank. In order to carry out these functions efficiently, the Vice-Minister would be assisted by a Project Coordinating Group. This group would consist of a Project Di'rector and representatives from each one of the executing agencies: INIED (the Physical Implementation Unit), the General Directorate of Primary Education and INIDE. In addition, and in order to ensure adequate coordination with other government agencies, key meetings of the Coordinating Group, during project implementation, would be attended by a representative from the Ministry of Finance. Specific responsibilities of the Project Coordinating Group and of the executing agencies are discussed in sequence below. During negotiations, the government provided assurances that meetings of the Project Coordinating Group, to discuss budget and financial matters would be attended by a representative of the Ministry of Finance. A condition of effectiveness would be the contractual arrangements between the MOE and INIDE and INIED stipulating INIDE and INIED participation in the project execution including the transfer of loan proceeds and budgetary resources.  - 29 - Diagram 5.1: PROJECT ORGANIZATION Ministry of Education Project ... Coordinating Vice-Ministry Group Coordinating, monitoring and programming of a/ all project activities .. .. . . . . . . . . . . . .. .. . .. . .. ... ... .. . .. The Pedagogical General Directorate The Physical implementation of Implementation Unit (INIDE) Primary Education Unit (INIED) Teacher School School Training Management Construction Textbooks Curriculum School Development Planning * 0 Bilingual Education _ . Regional _ . 0 0 0 . . . 0 0 . 0 . 0 Offices of . . . . . 0 0 0 . . 0 0 0 0 Education a/ It is understood that this setting works only for project implementation. Authority Line. Technical Coordination.  - 30 - Project Coordinating Group 5.03 The Project Coordinating Group would assist the Vice-Minister of Education in coordinating and monitoring projeci: implementation. The project director would be responsible for day-to-day coordination, guidance and monitoring activities and for liaison with the Bank. In addition, the Project Director would be responsible for planning and coordinating the technical assistance component of the project, ifor preparing the annual operational and financial plan and the biannual progress reports. The Project Director would be assisted by three or four support staff including a programmer/financial specialist. The project would finance: (a) operating costs for the project coordinating activities (travel expenses, consumable materials) and; (b) basic office equipment for the Project Director. The government would bring to negotiations an MOE resolution adopting Diagram 5.1 as the working organization for implementing the project. INIED 5.04 The Physical Implementation Unit (INIED) would be responsible for implementing the physical components of the project. More specifically, it would be responsible for (a) selecting and acquiring sites for new schools; (b) contracting private firms to design facilities; (c) preparing bid proposals and awarding contracts; (d) certifying progress of civil works and making necessary payments to construction firms accordingly; (e) furnish- ing and equipping schools (preparing master lists and bid proposals, awarding contracts and distributing all goods procured) and (f) carrying out the school mapping exercise for the second and third phases of the government's educational program (para. 3.02). In accordance with the government's wish to decentralize public administration, the Physical Implementation Unit would delegate some of these functions to the CORDES which, in the INIED's judgment, have the operational capabilities required to carry out their duties under the given contract. For delegation of activities to CORDES, contracts, satisfactory to the Bank, would be signed between the CORDES in question and INIED. During negotiations the government provided assurances that INIED would delegate only to the CORDES which have the operational capability, the construction and/or furnishing and/or equipping of project schools through adequate contracts. General Directorate of Primary Education 5.05 The General Directorate of Primary Education, in cooperation with INIDE, would be responsible for improving school management, for training school administrators and school supervisors and for developing the new curriculum for multigrade schools. In addition, the General Directorate for Primary Education would review textbook manuscripts to be printed by INIDE and would assist INIDE in planning, organizing anid implementing all the training programs to be executed in each one of the project departments (see Table 4.1). The implementation capacity of the P?rimary Education Directorate would be reinforced through the technical assistance program (Table 4.3).  - 31 - INIDE 5.06 INIDE would be responsible for in-service teacher training and for the bilingual and textbook programs. Teacher training would be carried out by the existing teacher training unit (about 15 staff) with the assistance of teacher training and supervisory staff of the general Directorate of Primary Education and of the regional education offices (about 15 staff). The bilingual education component of the project would be implemented by the existing bilingual education group within INIDE in close cooperation with the GTZ and the regional education office in Puno. As described below, a permanent unit has been created within INIDE for the textbook program. B. Textbook Program Organization 5.07 A textbook unit (about 15 staff) has been organized as a permanent division within INIDE to undertake the full range of textbook production functions: manuscript development, printing, distribution, evaluation and testing of prototypes. Diagram 5.2 shows the organization chart of the textbook unit. A textbook program director would be assisted by a procurement specialist, a financial specialist and three coordinators: one for manuscript development, one for textbook printing and one for textbook distribution. The project would finance operating expenses of the textbook unit during the life of the project (domestic and abroad travel, office supplies and equipment and short-term (2-6 weeks) consultants and support staff). The director of the textbook unit has been appointed and is now in the process of recruiting and training staff. 5.08 The manuscript development coordinator would be in charge of manuscript planning, writing, editing and field testing. The production coordinator would be responsible for textbook designs and for coordinating the printing activities. The distribution coordinator would prepare lists of recipient schools, make arrangements for contracting freight to schools, and verify deliveries. C. Staffing Plans 5.09 Arrangements are being made to ensure that qualified staff are available for project execution (Diagram 5.1). These arrangements are summarized below. Coordinating Group 5.10 Day-to-day project coordinating activities would be handled by the Project Director assisted by three to four support staff, including a programmer/financial specialist (para. 5.03). The government has now appointed the Project Director in accordance with the terms of reference already agreed upon with the Bank.  - 32 - Diagram 5.2: TEXTBOOK PROCRAM ORGANIZATION DIRECTOR (NERAL-INIDE Policy planning Budget & contracts approval Coordination with: - Vice Minister's Office - Project Coordinating Group - Primary Education - Director of INIED TEXTBOOK PROGRAM DIRECTOR Policy execution Planning, coordination, control of all publishing activities PROCUREMENT & FINANCE (2) a/ TEACHER TRAINING b/ Staffing Budget & accounting Cashier Auditing EVALUATION b/ Procurement Process and evaluation studies Quality control MANUSCRIPT DEVELOPMENT (4) PRODUCTION (4) DISTRIBUTION (4) Misc. planning & writing Book planning & Warehousing Supervision of writing design List preparation, contracts Preparation of final dispatching Editing pages Contrating freight Field testing Printing supervision forwarders Approval of final pages Verification of _ . . M . deliveries a/ Numbers in parenthesis indicate number of staff needed by 1984. b/ Existing teacher training and evaluation units of INIDE.  - 33 - INIED 5.11 The Physical Implementation Unit has the technical and admin- istrative staff required for execution of the physical component of the project (para. 3.02). Although a team of INIED staff (two architects, three engineers, one accountant and one auditor) has been assigned to the project, written assignment of responsibilities would be required. Therefore, before negotiations the government was asked to prepare: (a) a list of the Physical Implementation Unit staff who would be involved in project implementation, indicating the specific responsibilities they would have during the life of the project; and (b) a set of the curriculum vitae of the staff involved in project implementation, who are acceptable to the Bank. General Directorate of Primary Education 5.12 The General Directorate of Primary Education (GDOPE) would make use of existing staff to carry out the project activities. Five staff members would be permanently assigned to improve school management activities and to train school administrators. Three staff members would be assigned to assist INIDE in textbook manuscript review and three staff members would be assigned to develop the unitary school curriculum. The government would bring to the Bank for review and agreement a list of the GDOPE staff involved in project execution. INIDE 5.13 About 15 professional staff would be assigned to carry out the teacher training program and about 15 professionals would be assigned to the new textbook unit (Diagram 5.2). Before negotiations, the government would prepare terms of reference for INIDE staff. During negotiations the government would be asked to provide assurances that qualified staff would be selected and retained in the textbook unit. 5.14 The bilingual education program would continue being developed by five professionals in the research unit with the GTZ technical cooperation. Staffing for expansion of the program would be the responsibility of the regional education office in Puno. D. Implementation 5.15 Experience gained in implementing Loan 949-PE has been used to formulate implementation procedures. Bank guidelines would be followed in contracting professional and technical services and in procuring goods. A special working fund would be established to ensure that funds for civil works will be available in a timely manner. A project auditor and a programmer/financing analyst would be appointed to ensure transactions of the project. In addition, provisions have been made for adequate school maintenance, as described below.  - 34 - Professional and Technical Services 5.16 Specialist services would be used by the Physical Implementation Unit for architectural designs and construction supervision and by INIDE for textbook development. Architectural design and related engineering and construction supervision would be contracted by the Physical Implementation Unit following government procedures acceptable to the Bank. Textbook manuscript development and review of existing textbook manuscripts could be contracted by INIDE with individual authors and institutions on terms and conditions acceptable to the Bank. Procurement 5.17 Procurement arrangements are summarized in Table 5.1 and in the sections below. Table 5.1: METHODS OF PROCUREMENT BY PROJECT CATEGORY Procurement Method Total Excluding Project Category ICB LCB Other N.A. Contingencies (US$ millions) Civil Works 14.50 4.50 1.93 20.93 Furniture 2.63 0.30 2.93 Equipment 1.45 1.35 0.09 2.89 Textbooks 2.10 2.10 0.06 0.20 4.46 Training 1.68 1.68 Technical Assistance 0.77 0.77 Adminstration 0.70 0.70 3.55 20.58 4.95 5.28 34.36 5.18 Construction. About 85% of total construction activities would be contracted with private firms and about 15% would be executed through force account. Most of the contracts for new schools are expected to be valued below US$1 million and therefore would be awarded on the basis of local competitive bidding (LCB), following the procedeures used in Loan 949-PE, which are acceptable to the Bank. Although foreign firms would have also the right to participate in the LCB bidding, foreign contractors are not expected to participate in the tenders because (a) the country has a competitive construction industry capable of carrying out the proposed project, and (b) civil works are small and scattered. Force account activities would be carried out by the Physical Implementation Unit's Operations Division. Such activities would not in aggregate exceed US$3.3 million (excluding contingencies). Construction of facilities for a central textbook warehouse estimated to cost US$220,000 (excluding contingencies) would be procured under LCB.  - 35 - 5.19 Furniture and Equipment. Furniture and equipment contracts would be awarded on the basis of LCB because: (a) the local industry is highly competitive for the kind of goods needed; and (b) it would not be practicable to group sizeable packages for ICB (international competitive bidding) in view of the the simplicity of the equipment needs (mostly instructional equipment), number of districts involved and the differences in phasing of the execution of the project. Therefore, LCB procedures satisfactory to the Bank would be utilized. Procurement of miscellaneous furniture and equipment items, not exceeding US$20,000 per contract, would be procured through local shopping on the basis of three price quotations. Local shopping would not in aggregate exceed US$75,000, or about 14% of estimated equipment and furniture costs, including contingency allowances. 5.20 Textbooks. Printing of textbooks would be contracted under LCB when more than 5,000 copies of one manuscript were required. Interested foreign suppliers would not be precluded from bidding. For less than 5,000 copies, printing would be done by INIDE and paper would be procured on the basis of LCB. Textbook printing contracts would include the cost of paper, textbook graphics, printing and delivery to INIDE's warehouse. Miscellaneous printing items (e.g., ink) would be procured through local shopping on the basis of three price quotations and would not in aggregate exceed US$50,000. 5.21 Prior Bank review would be required for: (a) civil works contracts exceeding US$400,000. These contracts would amount to about US$9 million equivalent, or about 50% of all civil works contracts; and (b) equipment, furniture and textbook contracts exceeding US$50,000. These contracts would amount to about US$1.2 million or about 30% of total cost of these items. All contracts would be subject to random review by the Bank after contract award. Working Fund 5.22 In order to ensure that funds would be available in a timely manner for efficient project implementation, MOE would establish a working fund in the "Banco de la Nacion". The working fund would comprise two separate accounts: (a) a special account; and (b) a project account. The special account would be used for crediting proceeds from the loan. An initial amount of US$0.6 million equivalent would be deposited by the Bank after loan effectiveness. The special account would be replenished periodically when statements reflecting transactions are sent by the government to the Bank. The Bank would commence recovery of the initial deposit when the amount undisbursed in the loan is equivalent to twice the amount of the initial deposit (US$1.2 million). The project account, in the name of INIED, would be opened with an initial deposit of US$0.4 million equivalent as part of the government counterpart funds for the project. One-hundred percent of local expenditures would be paid out of this account. The project account would be replenished from the special account when the Bank's share is appropriately documented; otherwise, it would be replenished by government counterpart funds. The Bank's initial deposit of US$0.6 million equivalent will take place when INIED establishes the project account mentioned above. Accounting and Auditing 5.23 The Ministry of Education's accounting system is adequate for the recording, reporting and certification of financial transactions related to  - 36 - the project. Internal auditing of the Ministry's accounts is carried out on a continuous basis by the Inspectoria, which performs this function adequately. External auditing of all financial transactions related to the public sector is the responsibility of the Contraloria General de la Republica. Audit reports, including auditing of statements of expenditures,would be furnished to the Bank after four months of the end of the fiscal year. During negotiations the government provided assurances on appointment of the project auditor and on the scope, format, content, frequency, and timing of financial reporting and auditing requirements. E. Status of Readiness 5.24 The proposed project is now ready for implementation. The physical implementation's unit's preparation group has received about US$370,000 from the loan proceeds from the First Education Project (Loan 949-PE) to finalize project preparation. These funds have been used to complete the following activities: (a) selecting project school sites (about 30% of the total); (b) preparing standard architectural p:Lans and tender and contractual documents for about 30% of the project schools (which would be built during the first two years of project implementation, see para. 4.06); (c) preparing master lists and tender and contractual documents for the procurement of furniture and equipmient (70% of the total); (d) preparing seven textbook prototypes (about 50% of the total of Phase I Table 4.2) and completing INIDE's textbook distribution study; (e) preparing terms of reference for the textbook unit staff; (f) preparing detailed work and financial plans for the first two years of project implementation; (g) scheduling further project preparation activities (70% of the remaining civil works); and (h) preparing terms of reference for national and foreign consultants who would be contracted during the life of the project. F. Implementation Schedule 5.25 Project implementation would take approximately 84 months, assuming a starting date of July 31, 1984, a completion date of December 1990, and a closing date of June 1991. In order to assist in the effective and timely execution, the Preparation Group has prepared a general implementation schedule for the life of the project and a detailed implementation schedule for the project's first year (Annex 6). The Coordinating Group would annually review (June/July each year) the general implementation schedule in order to identify potential problems which could cause delays and cost  - 37 - overruns and to permit possible rescheduling of activities. During negotiations, the government provided assurances that the Coordinating Group, jointly with the Ministry of Finance, would annually update and review the above-mentioned implementation schedule in line with proposed eypenditures for the following year budget. This schedule would be sent to the Bank for its comments by the end of each August during the life of the project, coinciding with the preparation of the government's annual budget. VI. PROJECT COSTS, FINANCING AND DISBURSEMENTS A. Project Costs 6.01 Total project cost is estimated at US$46.8 million (US$45.0 million net of taxes an duties) (or about S/135.0 billion net of tayes and duties). The breakdown of total cost by project element and by category of expenditure is summarized in Tables 6.1 and 6.2 below. Base Cost 6.02 Cost estimates are based on May 1984 estimated prices. Civil works costs are derived from recent contracts for simple buildings representing the type of facility included in the project and actual costs of the First Education Project institutions taking into account recent price increases. Base costs range from US$167/m~ to US$245/m2, given a per student place cost of US$340, which is slightly below the Bank's median (US$350 at 1980 prices). These prices are high for small schools but reasonable considering that three-fourths of the schools would require reinforced roofing and earthquake-resistant walls. The range in prices is due to difficult access to certain sites, particularly for the rural schools of Iquitos. In order toreduce construction costs the project would: (a) use local materials and simple technology for construction; (b) seek community participation in school construction (particularly in the rural areas); and (c) use simple school designs, excluding complex workshops and unnecessary school areas (e.g., gymnasiums and school cafeterias). 6.03 Furniture and equipment lists were prepared during appraisal and would be reviewed during negotiations to ascertain that they are reasonable In scope and costs. Teacher training costs are based on detailed estimates of operational expenditures from similar INIDE programs. Textbook costs are based on current production costs of similar materials in the private sector. Cost estimates for professional services, administration and local staff for the various elements of the project are based upon those obtained under Loan 949-PE. Professional fees for school mapping, architectural design and construction supervision have been estimated at 8% of the base cost for civil works. Contingency Allowances 6.04 Contingency allowances (US$12.2 million) have been added to base cost estimates for:  -38 - Table 6.1 SUMARY CF PRQJECW GM BY PROUEC1 E[MNT (Prices as of May 1984) (US$1.0 = S/3,000) In S (million) In US$ (illion) % of Objective and Project Element local Foreign Ibtal local Tbtal Total 1. Provision of student places 56,224 15,436 71,,660 18.74 5.15 23.89 73.4 2. Q4ality improvemmnt - School Management 419 302 721 0.14 0.10 0.24 0.7 - In-servioe Trainirg a/ 4,821 1,437 6,258 1.61 0.48 2.09 6.4 - Txtbooks a/ 7,974 7,983 15,957 2.66 2.66 5.32 16.4 3. Mangement -Improvement b/ 1,784 1,290 3,074 0.59 0.43 1.02 3.1 Bseline Costs (Qt of Taxes) 71,222 26,448 97,670 23.74 8.82 32.56 100% 76,620 24,448 103,069 25.54 8.82 34.36 c/ Contingencies - Fhysical a/ 6,329 2,221 8,550 2.11 0.74 2.85 8.7 - Price 20,974 7,597 28,571 6.99 2.53 9.52 29.2 Front-end-fee (about US$67,500) - 209 209 - 0.07 0.07 TUtAL PRJECt COST (Net of Taxes) 98,525 36,475 135,000 32.84 12.16 45.00 103,923 36,475 140t398 34.64 12.16 46.80 c/ a/ TInudirg bilirgual education (about US$700,000) b/ Ticludirg US$200,000 for future project preparation c/ Includlig local duties and taxes on civil works and locaUly procured furniture and equipient (US$1.8 million in para. 6.06).  - 39 - Table 6.2: SUMMARY CF PROJECr COST BY CATE (iF CF EXPNDfrME (Prices as of May 1984) (US$1.0 = S/3,000) In S/(million) In US$ 6IllTm) % of _ _ Iocal Fore Total Iocal Total Total 1. COnstruction - Site Development 5,509 1,377 6,886 1.84 0.46 2.30 7.0 - Buldirg 40.890 9,181 50.071 13.63 3.06 16.69 47.0 - Professional services 5,226 581 5,807 1.74 0.20 1.94 6.0 Subtotal 50,625 11,139 62,764 17.21 3.72 20.93 60.0 2. Furniture 7,170 1,608 8,778 2.39 0.54 2.93 8.2 3. EquipuEnt 4,590 4,097 8,687 1.53 1.36 2.89 8.4 4. Textbooks 6,702 6,702 13,404 2.23 2.23 4.46 13.7 Subtotal 18,462 12,407 30,869 6.15 4.13 10.28 30.3 5. Technical Assistance -Fellowhips 33 621 654 0.01 0.21 0.22 0.7 - Exprt Services 82 1,568 1,650 0.03 0.52 0.55 1.7 - In-service trainirg 4,528 503 5,031 1.51 0.17 1.68 5.2 - Project Adinistration 1,890 210 2,100 0.63 0.07 0.70 2.1 Subtotal 6,533 2,902 9,435 2.18 0.97 3.15 9.7 Baseline Costs (Net of Taxes) 71,222 26,448 97,670 23.74 8.82 32.56 76,620 26,448 103,068 25.54 8.82 34.36 a/ 100.0 - Ehysical 6,329 2,221 8,550 2.11 0.74 2.85 8.7 - Price 20,974 7,597 28,571 6.99 2.53 9.52 29.2 Front-end-fee of about US$67,500 - 209 209 - 0.07 0.07 TOTAL PRFRWBX COST (Net of axes) 98,525 36,475 135L,O 32.84 12.16 45.00 103,923 36,475 140,398 34.64 12.16 46.80 a/ a/ Includirg loeal duties ard taxes on civil crks and locally procured furniture and equxipmit (US$1.8 million in para. 6.06).  - 40 - (a) unforeseen factors equal to 10% of base-cost estimates for con-struction, in-service training, textbooks and project administration, and 5% of base-cost estimates for furniture and equipment, professional services, and technical assistance; and (b) price escalation contingencies, as shown in Table 6.3 below. These contingencies were estimated in US$ Dollar equivalents on the assumptions that variations in the exchange rate would compensate for the difference between local and international inflation. Table 6.3 EXPECTED PRICE INCREASES DURING PROJECT IMPLEMENTATION (in annual percentages) Year Conti ngenci es 1984 3.5 1985 7.5 1986 8.0 1987 7.5 1988 6.0 1989 6.0 1990 6.0 1991 6.0 Foreign Exchange Cost 6.05 The foreign exchange cost is estimated at US$8.8 million, or about 27% of the total baseline cost. Foreign exchange costs were calculated on the basis of a breakdown of cost components and the analysis of local and foreign exchange content and proportion of each component. They are estimated at 20% of civil works, furniture, professional fees, local fellowships and project administration, 50% for equipment and textbooks, and 95% for fellowships and consultant services. Duties and Taxes 6.06 Local taxes on civil works and locally procured furniture and equipment would amount to US$1.8 million or about 9% of the estimated cost of these items excluding contingencies. It would be paid by the Borrower. No customs duties would be levied on directly imported equipment and textbooks. Recurrent Expenditures 6.07 When completed by 1991, the proposed project is expected to generate additional recurrent expenditures of about US$6.7 million equivalent per year (at 1982 prices). A summary of these expenditures is given in Annex 7. This amount would represent about 1.4% of MOE's total budget and 3.9% of MOE's recurrent budget for the primary education subsector in 1982. The implied additional effort appears manageable, particularly if the economy and public finances start recovering from their current depressed levels.  - 41 - However, there may be two potential sources of problems regarding the financing of recurrent costs. First, teacher salaries are extremely low at present (para. 2.35), while teacher militancy is relatively weak as the result of the economic crisis. If the economy starts recovering, stronger teacher unrest may force the government to make significant salary concessions. Second, the share of primary education in total education expenditures has been reduced in recent years. If the forces pushing in this direction continue in the coming years, there may be increased difficulties for financing project schools' recurrent expenditures along with the rest of primary education. B. Financing Plan 6.08 The total project cost of US$46.8 million (US$45.0 million net of texes and duties) would be financed as follows: (a) the proposed Bank loan of US$27 million would meet 60% of the total project cost excluding taxes and duties (100% of foreign exchange costs and about 45% of local costs); and (b) the government would meet: (i) 40% of the total project costs, excluding taxes and duties (US$18.0 million); and (ii) all taxes and duties associated with the project (US$1.8 million). C. Disbursements 6.09 The proposed loan, which would represent 60% of project cost net of taxes, would cover the following: (a) about 50% of total expenditures for civil works and professional services for design and supervision (excluding amounts withheld for performance guaranties); (b) 100% of foreign and 80% of local expenditures for furniture, equipment and textbook materials (paper, ink, glue); (c) 100% for textbook development, printing and distribution; and (c) 100% of total expenditures for technical assistance, training courses and project operating costs. 6.10 In order to ease the current financial difficulties, USAID has indicated it is willing to finance part of the counterpart funds needed by the government, during the early years of the project. In addition, retroactive financing for about US$300,000 would be authorized for civil works (see paras. 4.06 and 5.24), textbooks (see paras. 4.11 and 5.24), and for further project preparations as noted in paragraph 5.24(g). 6.11 Disbursements would be fully documented, with the exception of (a) claims for expenditures in respect of civil works by force account, (b) per diems for teacher training courses, (c) and purchases of equipment and materials under contracts of less than US$50,000 equivalent. These would be disbursed against statements of expenditures, the documentation of which would be retained by the executing agencies for review during project supervi si on mi ssi ons.  - 42 - 6.12 Disbursements are expected to occur over about seven years. The estimated schedule of expenditures and disbursement is shown in Table 6.4. This schedule is more accelerated than the disbursement profile of the previous education project in Peru (Loan 949-PE). It is expected that the adopted normal disbursement profile for this operation would be achievedbecause: (a) the advanced stage of project preparation; (b) the project organization for project execution (Diagram 5.1), which involves all parties concerned in project implementation; and (c) the expected assistance of USAID (para. 6.10) in the financing of counterpart funds, as a means to assist the government to cope with its current fiscal difficulties. Table 6.4: ESTIMATED SCHEDULE OF EXPENDITURES AND DISBURSEMENTS (US$ million) CY and Government Ban:k Cumulative Semester Semester Cumulative Semester Cumulative Percentage 1984 2nd 0.60 0.60 0.50 0.50 4 1985 1st 1.18 1.78 1.40 1.90 2nd 0.87 2.65 1.00 2.90 12 1986 ist 1.14 3.79 2.00 4.90 2nd 1.89 5.68 2.60 7.50 30 1987 Ist 2.40 8.08 4.00 11.50 2nd 2.70 10.78 4.30 15.80 60 1988 1st 3.00 13.78 4.00 19.80 2nd 2.00 15.78 4.00 23.80 89 1989 1st 1.00 16.78 1.00 24.80 2nd 0.45 17.23 1.00 25.80 95 1990 1st 0.47 17.70 0.70 26.50 2nd 0.20 17.90 0.30 26.80 99 1991 Ist 0.10 18.00 0.20 27.00 100  - 43 - 6.13 In view of the difficulties experienced under Loan 949-PE in provision of sufficient counterpart funds for timely implementation, a review procedure would be established whereby the allocation of resources for this project would be monitored. This review would take into account budget and staff allocations for programs included along the implementation period of the proposed project (see para. 5.25). VII. BENEFITS AND RISKS Benefits 7.01 The project is expected to improve primary education in poor urban and rural areas of ten departments. It will have an impact on future developments of the primary education sector by improving education management (see relevant documents in Annex 8). Specifically, the project outcomes and the target groups benefitting from the proposed investments would be: (a) Project Outcomes. At completion the Peruvian primary education subsector would: (i) have some 50,000 additional student places (Table 4.1); (ii) have produced and distributed about 3.0 million textbooks, including 15 manuscripts; (iii) have trained about 21,000 Peruvian educators and school administrators (1,000 school supervisors, 2,500 project school teachers and principals and 17,500 teachers and principals in the use of textbooks) through in-service training courses; and (iv) have provided project related technical assistance (specialist services: 206 staff-months and fellowships: 60 staff-months). (b) Target Groups. Some 76,500 school-age children would have adequate places in the poor urban areas of the project departments and in targetted rural areas and about 300,000 students would have adequate textbooks and improved teaching. The students concerned would have the opportunity to learn basic skills (literacy, numeracy, personal hygiene, and some pre-vocational skills); this would improve the productivity of those entering the labor market as farmers and enable others to seek employment as unskilled but literate workers. This group would also be prepared to continue on to secondary schooling or to enter into non formal, on-the-job training courses, which are organized for primary school graduates by SENATI (The National Service for Industrial Training) and other similar training institutes (SENCICO, EPPA, CECAPE). 7.02 The project would also assist the government in establishing the institutional framework needed for continuous improvement of the educational system. Under the project INIDE would be strengthened to coordinate and monitor the in-service teacher training programs throughout the country. INIDE would also improve its textbook development, printing and distribution systems. The Physical Implementation Unit would strengthen its links with the regional offices, enabling the local, provincial and municipal authorities to foster community participation in school construction activities. By 1988, both INIDE and the Physical Implementation Unit would be ready to undertake preparation and implementation of the second phase of the government's educational program, aimed at improving primary education in rural areas.  - 44 - Risks 7.03 The Bank's experience with Loan 949-PE (para. 1.01) and the financial and managerial constraints of the sector (para. 2.27), have been taken into account in determining the following risks concerning project implementation: (a) there might be delays in preparing school construction bidding documents for the remaining schools (about 70% para. 5.24), which may occur because of the lack of strong management of the Physical Implementation Unit. To miminize the risk, the Bank should not enter into formal negotiations with the government until an acceptable Director of the Coordination Group (para. 5.03) has been appointed, under terms and conditions acceptable to the Bank; (b) complications may arise because of the involvement of two separate agencies (INIDE and INIED); therefore, close Bank supervision of both agencies and monitoring of the Coordinating Group would be required to avoid this risk; (c) the government might be unable to provide timely counterpart funds in the face of the economic stringency facing the country. To minimize this risk, a working fund with government funds and a working fund in United States Dollars (placed in the Central Bank to be converted into Soles as needed) would be established to cover investments for about three months (S/280 million and US$600,000, respectively). Establishment of the working fund is a condition of the loan (paras. 5.22 and 8.04); and (d) project schools may be subject to future earthquakes. Therefore, to minimize this risk, structural designs should be strong enough to withstand earthquakes as strong as 7-8 on the Richter Scale. Hence, the Bank should check the structural designs to ensure that the above requirement is met. VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 During negotiations, the Bank reviewed and found acceptable the following documents: (a) The terms of reference for the director of the coordinating group (para. 5.10); and for the INIED staff who would be involved in project implementation, including their curriculum vitae (para. 5.11); (b) the terms of reference for INIDE staff who would be assigned to the textbook unit and to the in-service training program (para. 5.13); (c) a copy of the textbook distribution plan (para. 4.14); and (d) a list of INIED staff involved in project implementation (para. 5.11).  - 45 - 8.02 During negotiations the government provided assurances on the following matters: (a) all schools to be financed by the project would be located according to criteria agreed upon with the Bank (para. 4.06); (b) recommendations of the seminar on school administrative practices would be reviewed by the authorities concerned and those agreed upon with the Bank would be put into operation (para. 4.10); (c) textbook prototypes would be field-tested in accordance with criteria agreed upon with the Bank (para. 4.27); (d) a representative of the Ministry of Finance would be invited to the meetings of the ]?roject Coordinating Group in which budget and financial matters would be discussed (para. 5.02). (e) INIED would take all reasonable steps to charge to qualified CORDES the responsibilities for carrying out certain aspects of the projects in respect of specific schools through adequate contracts (para. 5.04); (f) qualified staff would be selected and retained in the textbook and in-service training units of INIDE (para. 5.13); (g) appointment of the project auditor and the financial reporting and auditing arrangement (para. 5.23); (h) review of the project implementation schedule and the allocation of resources (paras. 5.25 and 6.13); (i) establishment of the working fund in the "Banco de la Nacion" with two separate accounts and an initial deposit by the government of US$0.4 million equivalent (para. 5.22); and (j) contract the services of a private or international organization that would execute the technical assistance program (para. 4.33). 8.03 Conditions of effectiveness would be: (a) a detailed plan for training senior personnel for INIED (para. 4.29); (b) the approval by the Bank of a draft contract for the execution of the technical assistance program with a private or international organization (para. 4.33); and (c) the contractual arrangements between the Borrower and INIDE stipulating the Ministry of Education (including INIDE) and INIED's participation in the project indicating transfer of loan proceeds and budgetary resources (para. 5.02). 8.04 Subject to the above conditions the project constitutes a suitable basis for a loan of US$27.0 mIllion equivalent to the Government of Peru at terms prevailing at the time of the Board decision. This amount includes a front-end-fee of about US$67,500.  -46- Annex I Page I of 2 GONPARATV RWCATION INDICA LSI JurA 12, 1914 _CENTRAL _ _ + ~~~~~~~XPENDITURE EDUCATION COMP LETION RECURRENT ON EDUCATION X!C0RRENT ADULT RATE FOR UNIT COST PROGRESSION GNP PER AS PERCENT EXPENDITURES LITERACY PRIMARY PRIMIARY PRIMARY PRIMARY RATE FROM SECONDARY SECONDARY HIGRER EASE POP. CAPITA PERCENT GNP TOTAL CENTRAL ALLOCATED TO: RATE EIROLL. SCROOL STUDENTS EDUCATION PRIMARY TO ENROLL. STUDENTS ENROLL. YEAR MILLS. (USS3 DEVOTED TO GOVEtRNMNT PRI SEC RI (2) RATIO CTCLE PER AS PERCENT SECONDARY RATIO PER RATIO (1979) (1979) EDUCATION EXPENDITURE (X) (1976) (X) (2) TEACEER GNP/CAPITA (X) (X) TEACHER (X) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) DEVELOPED COUNTRIES AUSTRALIA 80 14.6b R.870 6.38 14.6