Bolivia - Emergency Social Fund Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4594-BO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT OF SDR 7.8 MILLION TO THE REPUBLIC OF BOLIVIA FOR THE EMERGENCY SOCIAL FUND PROJECT June 4, 1987 This docmet has a retricted distribution and may be used by recpients only In the pelformance of their ofRclii dutes. Its contenis may not oterwise be disclosed witht World Bank authoriatlon.  UIuctr rUIvALRus 1.00 boliviano ($b) - US$0.50 US$1.00 - 2.00 bolivianos ($b) SDR 1.00 = US$1.29 US$ 1.00 = SDR 0.78 FISCAL YRAR January 1 to December 31 A T IATTONS COMIBOL - Corporacion Minera de Bolivia ESP - Emergency Social Fund (Fondo Social de Emergencia) NGO - Non-governmental organization NIS - National Institute of Statistics (Instituto Nacional de Estadistica) OPEC - Organization of Petroleum-Exporting Countries UNDP - United Nations Development Programme USAID - United States Agency for International Development  FOR OFFICLAL USE ONLY I. CMRIT AID PROJECT SUhMMAY Borrower: Government of Bolivia Executing Agency : Emergency Social Fund (ESF) Amount; SDR7.8 million (US$10.0 million equivalent) Temss: Standard IDA terms Relending terms: Passed on to ESP and secondary borrowers as a grant Project Description: The proposed operation is designed to support the Bolivian Government's Emergency Social Fund in its efforts to address the social consequences of the eoonomio crisis afflicting Bolivia since 1980. It would support the first year of the ESP's program, whieh consists of small-scale employment- and income-generating sub-projects (75% of funding) and social assistance sub-projects (25% of funding). The ESF program is targeted to those suffering most from the effects of the crisis and the economic adjustment process, such as short-term unemployed, particularly those affected by the collapse of the mining industry. The project would support the strengthening of the ESP through the testing and elaboration of procedures and criteria for sub-project selection and implementation. Finally, it would provide support for planning the second and third years of ESF's program and associated monitoring mechaniims. Benefits: The project offers benefits of three kinds: first, it would create about 20,000 man-years of employment. Second, the sub-projects, including road improvements, erosion control, and urban upgrading, would improve infrastructure and the environment. Third, it would allow the Government to test mechanisms prio7 to embarking on a larger program. Risks: This is an unusual and relatively risky project which has been prepared rapidly to address urgent social problems. The Bolivian Government is under considerable pressure to relax its economic austerity policies, in order to provide relief to the unemployed. The ESF program, designed t lbisdocument ha axstiktod distdbudmw maauybe used by mciphnWonlyIn Me PMt MaUco of thmofflkW dutbzlItsconNtsn may tmohorwn sbe dniosed wkhou Wod Book au9dnlzkdn.I  - ii - diffuse these pressures, involves some risk of uneconomic use of funds. However, given the modest soale of this initial phase, strong iS? management and carefuIly elaborated selection criteria, this risk is manageable and worth taking. Furthermore, close IDA supervision is envisaged, with prior approval of sub-projects costing over US$250,000, and special audit arrangements to ensure transparent financial management. lstimated Costs: Local Foreign TOTAL -----------US$ million------- - 1. Employment/Income-generation Sub-projects 33.68 3.74 37.43 2. Social Assistanee Sub-projects 11.23 1.25 12.48 3. Technical Assistance 0.33 0.08 0.41 Total Project Costs: 45.24 5.07 50.31 Finanecig Pla: (US$ million) Government 10.00 IDA 10.00 Other Donors 16.291/ Financing Gap 14.02 Total: 50.31 21 Of this, US$5 million is tentative. Estimated Disbursements: (US$ Million) IDA FISCAL YhARS 1988 1989 Annual 9.50 0.50 Cumulative 9.50 10.00 Antraisal Report: The attachsd Technical Annex was prepared in lieu of a staff appraisal report. MR:S IBRD 16591  XITUIAYIONAL MX14PXMT ASOCIATION IlRAUDIJN AND O F 0T OE PRU3SIlET TO TMEEKIJIV DIRECTORS ON & PROPOSED CREDIT OF S1D17.8 JmlIO (us$ic =MOIiNO 3QUIVAxT) TO T EIIIPUNIC O BOLIVIA FOR A1N 1. The following memorandum on a proposed development credit to Bolivia for SDR7.8 million (US$10.0 million equivalent) is submitted for approval in response to a request from the Government of Bolivia for emergency assistance in addressing the social problems associated with the acute economic crisis which Bolivia has been facing since the early 1980's. The proposed credit, on standard IDA terms, would help fimance the start-up phase of the Emergency Social Fund (ESF), involving all ESF operations for 1987. It would be implemented by ESP. 2. Background: Bolivia's economic program, initiated in August 1985, constitutes a coherent and comprehensive policy package to address the economic crisis. The focus was, initially, on stabilization, to halt inflation (which was running at some 24,000% a year) and restore balance in the external account. Key features of the stabilization program were sharp reductions in Government expenditures and tight monetarr controls. The Government also launched longer-term structural adjustment measures aimed at dismantling most price controls, reforming the trade regime, restructuring ailing public enterprises, and overhauling the tax system. The challenges inherent in the Bolivian situation were compounded by sharp reverses in the terms of trade, and above all, the collapse of the world market for tin, until then Bolivia's chief export. The Government has pursued its economic policies with remarkable tenacity and has reduced inflation to less than 20% in the last 12 months. However, staying the course on policy reform has been difficult, as successive crises detract from the medium-term effort, which is vital to returning to a sustained economic growth path. 3. One important problem is that the pressure of events has allowed little leeway to address social issues--both the short-term unemployment problems linked to the depression and, more directly, stabilization measures, and the enormous baeklog of work that is neeued to improve social conditions in Bolivia, which rank among the worst in the hemisphere. Recent figures indicate that the maternal death rate is the highest in the world and that infant mortality is the highest in the Western Hemisphere. The Government has concluded that effective action to address social issues is critical to the success of the economic program, and policies to address them must come immediately to the forefront.  -2- 4. To this end, the Government in November 1986 launohed an Emergency Social Fund, whose aims are to provide emergency relief and to carry out an employment-generating/economic reactivation program designed to assist the population groups most acutely affeoted by the economie crisis, and the most depressed areas. The decree which set up the ESP in its present form explicitly limits its life to three years: 1987-89. The estimated cost of the program is about US$50-70 million per year. The Government has asked for IDA support in: (a) advising on strengthening the program's desigi- and operating procedures and monitoring its implementation; (b) mobilizing international financial support; and (e) financing part of the 1987 program. The Government intends to request IDA support for the 1988-89 program also; a lending operation for the purpose is tentatively scheduled for FY88 (subject to good progress with the 1987 nrogram). In conjunction with the second Reconstruction Import Credit, we are discussing the Government's soeial development policy broadly, including issues on public sector expenditure and employment policies. The ESP is thus an integral part of the medium term strategy for addressing social issues. We will seek to mobilize and coordinate financial support for the ESF both through this project and, more broadly, under the aegis of the Consultative Group. There is great interest in the program among donor agencies, and Bolivia has already secured substantial finanoing eommitments (see Teehnical Annex, para. 12). Now that the first year ESP program has been clearly defined, and ESF procedures well elaborated, the government expects to secure commitments to fill the remaining financing gap within the next three months. 5. The Emergency Social Fund reports directly to the Presidency of the Republic. It is designed to be temporary and to work outside the Government bureaucracy so that speedy, effective action is possible. It is to remain a small organization, relying largely on existing loeal institutions (local communities, non-governmental organizations, etc.) to identify, prepare, and implement sub-projects. ESP's primary concern so far has been to establish a sound financial management system and clear criteria for sub-project desig , selection, and supervision. As of May 22, ESF had 70 sub-projects under implementation or finally approved, totalling US$6.8 million, with an average size of US$98,000. Its target for the end of 1987 is to approve about 60 sub-projects a month, totalling about US$6 million, subject to availability of funding. The sub-projects are directed to creating temporary Jobs among critically affected groups, notably the 21,000 miners who lost their jobs through the restructuring of COQIBOL (the state mining company) and their families, and women working in the informal sector affected by the economic depression. 6. ESP is staffed by well-qualified inJividuals, most recruited from the private sector. It is a well-managed, dynamic institution with well thought-out procedures and sound financial management, but it has yet to stand the test of extensive experience. The sub-projeots selected to date promise good economic returns; implementation has begun quickly, and the volume of sub-project approval is now building up to the point where the establishment of field offices beoomes warranted. ESP thus offers two important advantages: it is one of the few institutions which can move quickly in the difficult environment of Bolivia today, and it offers a program well designed to make a significant impact in alleviating the immediate consequences of the current depression.  - 3 - 7. ProJect Objectives. The proposed project would support ESF's start-up phase, which is defined as the 1987 program. Its objectives would be, first, to verify through actual operations (and thereby strengthen) the managament procedures, operating oriteria and financing of the Emergency Social Fund; second, to support viable sub-projects; and third, through monitoring of poverty indicators, to help the Government shape its future policy on poverty alleviation. During this first phase ESF, with IDA support, would complete its staffing, gain direct operational experience, aAd, in ths light of that experience, refine its procedures. The aim would be to make all of ESF's functional units fully operational by September 1987. 8. ProJect Description. The 1987 program includes: (i) consoli- dating ESP management and operating procedures; (ii) implementing a range of sub-projects covering both employment and income generation (e.g. road maintenance and repair, erosion control, urban works, small-seale irrigation, reforestation, communal buildings, family income projects--75% of funding) and social assistance (e.g. food distribution, vaccinations--25% of funding); and (iii) setting up a monitoring/studies program to assess program impact and help the Government to formulate medium- to long-term policies for poverty alleviation, health care, and rural education. The program would involve sub-contracting with local communities and NGOs; types of etitracts applioable to different eircumstances would be developed and tested. The proceeds of the Credit would be lent to the Republic of Bolivia, which would pass them on as a grant to ESF. ESF, in turn, would use the Credit, in conjunction with funds from other international donors and the National Treasury, to finance, on a grant basis, sub-projects proposed and implemented by local governments, cooperatives, and other community groups, both public and private, under the technical supervision of appropriate agencies. 9. Rationale for IDA Involvement. Bolivia, one of the poorest eountries in the Western Hemisphere, faces deep-seated social problems. These have been exacerbated by the depresaion afflicting the country since 1980. There is potential for serious unrest. The current Government has launched a courageous program of stabilization and recovery, one element of which is the innovative Emergency Social Fund which this memorandum describes. IDA's role in chairing the Consultative Group for Bolivia puts the Association in a unique position to lead the donor community in helping the Government to alleviate the social pressures which threaten the economic reform program, by supporting the ESP. IDA involvement in its start-up phase will also enable the Association to advise ESP on the design and implementation of a program which strikes a sound balanoe between aid to the poor through social assistanc versus aid via productive employment. 10. Actions Agreed Upon. The Government and ESF have aoreed on the following actions: (a) that ESF will complete its staffing according to the agreed organization chart by September 30, 1987, and consult with the Association before replacing any staff at director level and above;  - 4 - (b) evaluate all sub-projeots in accordance with its Evaluator's Guide ("Guia del Evaluador") reviewed during appraisal, duly modified to reflect agreements with IDA as to the types and eize of sub-projects for which rates of return are to be calculated; the out-off economio return will be 12% (Technical Annex, para. 30); (c) furnish a summary benefit/cost data sheet for each subprojeot submitted to IDA for finanoing (Technical Annex, para. 21 and Attachment II); (d) follow procurement procedures satisfactory to IDA (Technical Annex, para. 20); (e) carry out a survey among sub-project beneficiaries as agreed, and feed back the findings into improvements in the design of its program; a report will be submitted to IDA by January, 1988 fur review and comment (Technical Annex, para. 26); (f) set up, by September 30, 1987, an inter-agency committee to coordinate monitoring of poverty alleviation efforts and carry out macro-level monitoring of the impact of ESP's activities; the committee will prepare a report setting out proposed improvemonts to poverty alleviation projects and policies, and submit it to IDA by March 31, 1988, for review and comment (Technical Annex, para. 27); and (g) keep IDA informed, by progress reports due on September 30 and December 31, 1987, of its sources and applications of funds (including co-financing), and submit a completion report on the 1987 program by March 31, 1988. 11. Justification and Risks. The project would generate three kinds of benefits: (a) it would create about 20,000 man-years of employment; (b) the sub-projects would yield direot economic benefits in the form of erosion control, lowered transport costs, etc.; and (c) it would strengthen ES? before it embarks on a larger program. The methods adopted for selecting and implementing sub-projects endeavor to strike a balance between providing rapid and responsive assistance in a time of crisis, and ensuring that resources are allocated where they can be most effective. This implies some risk that funds may be poorly used. To counter this risk, explicit agreement has been reached on evaluation criteria and implementation procedures, on technical assistance targeted at sub-project identification, preparation and appraisal, contraot supervision and monitoring. Furthermore, IDA will review ex ante all sub-projects with en ESF contribution of US$250,000 or more, and audit by internationally recognized private auditors is envisaged to ensure transparent financial management.  - 5 - 12. Reoommendation. I am satisfied that the proposed oredlt would amply with the AasooSat0on"a Artioles of Agree.ent and recomend that the Exeutive Direotora approve the proposed oredit. Barber B. Conable President Attachments Washington, D.C. June 4, 1987  -6- SCHEDULD A ESTIMATED COSTS: Local Foreign Total Local Foreign Total ---In $b Millions- -In US$ mlllions- A. Sub-projects 89.82 9.98 99.80 44.91 4.99 49.90 Al. Employment/ Income Gen. 67.36 7.48 74.84 33.68 3.74 37.42 A2. Social Assistance 22.46 2.50 24.96 11.23 1.25 12.48 B. Technical Assistance 0.66 0.16 0.82 0.33 0.08 0.41 Total 90.48 10.14 100.62 45.24 5.07 50.31 FINANCING PLANs Other Finanoing Government IDA Donors 0ap Total ----------------(in million US$) -------------- Subprcjects 10.00 9.90 15.Ca 14.02 49.90 Technical Assistance 0.00 0.10 0.31 0.00 0.41 Total 10.00 10.00 16.291/ 14.02 50.31 1/ of this, US$5 million is tentative.  SCHEDULE B Procurement Method Looal Conaeultaat Total Projeot Element Shopping Guidelines Other Cost (in US$ Million) Sub-projects 24.9 (5.0) 0.0 25.0 (5.0) 49.9 (9-9) Teehnical Assistan;e Studies 0.0 .4 (.1) 0.0 .4 (.1) TOTAL 24.9 (5.0) .4 (.1) 25.0 (5.0) 50.3 (10.0) Note: Figures in parentheses are the amounts financed by IDA. IDA DISBURSEMERTS CategorZ Amount (Us$Xi -on) Sub-projeots 9.9 Technical Assistance 0.1 Estimated IDA Disbursements: IDA Fiscal Years 1988 1989 ----<(US$ Nillion)-- Annual 9.5 0.5 Cumulative 9.5 10.0  SCHUDULE C Page 1 of 2 ,SuaPlema y ProJ Dasta Sbeet Beotion I: Timetable of Key Events (a) Date of first disoussibn vith IDA January 1987 (b) Date of departure of Appraisal Mission Nay 4, 1987 (a) Date of completion of negotiations June 2, 1987 (e) Planned date of effeotiveness September 1987 Seotion II: Conditions: I1* Conditions of Effectiveness Signing of Subsidiary Agreement between Government and ESF. 2. Conditions of Disbursement (a) Prior IDA approval of sub-projects with an ESF contribution of US$250,000 or more. (b) Ex-post IDA approval of sub-projects with an ESP contribution of loes than US$250,000. Section III: Credit Conditions Staffing (a) ES? will complete its staffing according to the agreed organization ohart by September 30, 1987 (see Attachment III), and consult with the Assooiation before replaoing any staff at director level and above. Subproject Evaluation (b) ESP will evaluate all subprojects in acoordance with its Evaluator's Guide ("Guia del Evaluador") reviewed during appraisal, duly modified to reflect agreements with IDA as to the types and size of subprojeots for which a rate of return is to be calculated; the cut-off economic return will be 12% (Tecbnical Annex, para. 30); (c) ESP will furnish a summary benefit/cost data sheet for each subproject submitted to IDA for financing (Teehnioal Annex, para. 21 and Attachment I1);  -9- sa}nmM c Page 2 of 2 Procurement (d) ESP will follow procurement procedures satisfactory to IDA (Techniael Annex, para. 20); Monitoring and Feedback (e) ESP will carry out a survey among subproSoct beneficiaries and feed baok the finding into improvements,in the design of its program. A report will be submitted to IDA by January, 1988 for review and comment (Technical Annex, para. 26); (f) By September 30, 1987 an inter-agency committee will be set up to coordinate monitoring of poverty alleviation efforts and carry out maero-level monitoring of the impact of BSF's activities. A report setting out proposed improvements to poverty alleviation projeots and policies will be submitted to IDA by March 31, 1988, for review and coment (Technioal Annex, para. 27); ReDorting (g) ESP will keep IDA informed, by progress reports due on September 30 and December 31, 1987, of its sources of funds (including co-financing) and applications of funds and will submit a completion report on the 1987 program by March 31, 1988.  - 10 - SCHEDULE D Status of World Bank Group Oerations ia Bolivia 1. 3tatement of World gauk loans and IDA credits Sea of March 31, 1987) Loan or Amount (less oancellatiza) Credit #iscal Bank IDA UmdUsburse%i Number Year Borrower Purpose (In millions of U.S. dollars, Ten loans aad thirteen credits fully disbursed 233.2 98.9 9)3 1979 Bolivia Omasuyos-Loa Andes Rural Development 3.0 1.1 940 1979 Bolivia National lilneral Exploration Fund 7.j 5.5 1703 1986 Bolivia i4IC 61.0 1/ 504J 1719 1986 Bolivia Vuelta Grande 1b.0 31 13.Q 1404 1977 Bolivia Education & Vocatioaal Training 15.0 1.4 1489 1977 Bolivia Urban Development 17.0 0.2 1510 1978 Bolivia Ulla Vlla Development 9.0 4.9 1587 197d Bolivia Highway Maintenance 25.0 1.2 Total Original Principal 299.2 186.4 Legs Cancellations 17*8 0.3 Of which has been repaid 81.6 5.4 Total now outstanding 19-9. 180.7 Amount sold .05 Of which nas been repaid .05 Total now held by bank and IDA 199.8 180.7 Total wadisbursed 79.v 2. Statement of IIC investment Ias of February ad, 1987) Loan Equity Total (Yu-millions of U.S. dollars, Total s.ross commitments 8.- 1.0 9S Less cancel_ations, terminations, repayments, and sales 7.7 0.4 6.1 Total commitments now feld by IIC u.6 0.6 1.2 Total undisoursed -- / SDR equivalent is 4 .4 million 2/ 8Dd equivalent is 12.d million  - 11 - TSRCAL AS= TO TIE PRESIDENTI'S Origin of the Project 1. During the December, 1986 meeting of the Consultative Group on Bolivia, the Association accepted a lead role in helping to structure the Government's newly created Emergency Social Fund (BSE). to provide IDA resources, and to coordinate fund-raising efforts directed at other multilateral and bilateral sources. The project was appraised in early May. 1987. Technical discussions and negotiations were held in Washington from M-ay 26 to June 2: the Bolivian delegation was led by Mr. Fernando Romero. Executive Director of 1SF. Objectives 2. The project addresses the severe unemployment and loss cf income prevailing in 1987 as the cumulative result of the shrinking of the economy since 1980, the strict fiscal and monetary austerity measures introduced in mid-1985 as part of the New Bconomic Policy. and the collapse of tin prices in late 1985. By helping to finance the start-up phase of ISP's planned 3- year program, the proposed Credit will serve to develop, through actual operations. ISF's institutional capacity, with a view to preparing for further IDA support to the subsequent phase of ISF's program. At the same time the Project is intended to help mobilize support for ESP among the international donor community. Description 3. The proposed Credit will support the first year of ESF's program, from January through December. 1987. The program consists of small-scale employment-generating and income-generating sub-projects (752 of funding) and social assistance sub-projects (25X of funding), targeted to those suffering most from the effects of the economic crisis and the economic adjustment process, such as short-term unemployed. particularly those This project was appraised by Graham Smith (mission leader), Margaret Grosh (economist), Steen Jorgensen (economist) and Bruce Fuller (sociologist).  - 12 - affected by the collapse of the mining industry. The Project also provides technical assistance to ESF for institutional strengthening and. through the ESP. to the Ministry of Planning for monitoring the social impact of the economic crisis and adjustment policies. 4. The proceeds of the Credit will ba lent to the Republic of Bolivia. which will pass them on as a grant to NSF. NSF in turn will use the Credit. in conjunction witb funds from other international donors and the National Treasury, to finance. on a grant basis, sub-projects proposed and implemented by local goversments, cooperatives., and other community groups, both public and private, under the technical supervision of qualified agepcies. The Emergency Social Fund 5. The Government of Bolivia has designated the Emergency Social Fund as its primary tool for addressing. in the short term the hardships and social costs of economic adjustment. First formed in 1985. it was restructured in November, 1986, by a supreme decree as an independent institution reporting directly to the President. It is to have a life of only three years (1987-89), will be a financing and supervising agency only. and will have a staff of no more then 80 persons. At the end of this period it is to hand over its operations to the appropriate sectoral ministries or agencies. 6. ESF is headed by a widely respected and capable businessman, who has recruited a staff of able. young and highly motivated professionals. As of early May its entire staff numbered about 50. Its 1987 administrative budget is between 2 and 32 of its total program amount. By the tenms of the Supreme Decree. not more than 11 of funds received from the Treasury may be spent on administration; the remainder must be funded by external donors. All sub-projects have to be approved by a board of directors consisting of the President of the Republic as chairman, the executive director, and three members representing respectively the technical community, the political community and non-governmental social institutions. The Fund is further accountable to public opinion through its obligation to report to Congress every three months on its sources and uses of funds. 7. The Fund's principal functions are (a) fund-raising. (b) identifying and encouraging the e velopment of sub-projects addressing the needs of its target groups. (c) screening and appraising sub-projects. and (d) contracting for and supervising their implementation. It is organized and equipped appropriately. though it is still short of staff to operate at its intended full capacity (see organization chart. Attacbment III). By September 30, 1987, it intends to complete its staffing, including opening field offices outside La Paz to develop projects among its target groups and supervise projects under way. This was confirmed at negotiations. By December 31, 1987 it will also. in consultation-with the Association. organize surveys to monitor the impact of its projects and provide feedback for future operations (para. 17 and 25).  - 13 - 8. ESE plans to provide finsacing of US$50-70 million per year. the exact level depending largely on the international support forthcoming. As of May 22. 1987, it had 70 sub-projects in operation or finally approved. 122 under evaluation, and some 180 sent back for reformulation, postponed or refused (Attachment I). It was receiving about 25 requests per week and approving 10-12 per week, implying a commitment rate of about US$4-S million per month. By August 198- it intends to be committing at full capacity. i.e. US$4.8-8.4 million per month depending on financial support. The 1987 program is expected to create about 20.000 man- ears of employment. -r. 9. In order to aid in reaching effectively the various components of the target population, an outreach (tpromocion") unit has been formed to aBsist in identifying and preparing sub-projects. Its work is concentrating in the first stage on the formulation of sub-projects received by the ESF. Its emphasis will progressively shift to achieving the desired project mix by tsrget group. sub-project type and location (para. 28-9). 10. ESF has established operating procedures and selection aud evaluation criteria which are applicable to all sub-projects. These psocedures are well defined and appropriate to the circumstances under which ES! operates. They include. inter alia. specific requirements to assure assessment of beneficiaries, conformity with target group objectives, and economic rate of return standards for larger sub-projects. These criteria are being effectively applied and the sub-projects approved to date are soundly designed. Thus, they provide a good basis for the continuing execution of the first-year program. During the remainder of calendar 1987, IS? and IDA will continue to review these procedures and criteria. Purther refinements will be the subject of continuing consultation between ES! and IDA during preparation and appraisal of the Phase II program. Project Costs and Financing Plan 11. ES! plans to comuit a total of US$ 49.9 million in the project period. If sub-projects still to be approved have the same average cost as those submitted for evaluation to date (approximately US$100.000). a total of about 500 sub-projects will be carried out. The total cost of the project. including technical assistance. will be US$50.3 million equivalent. of which US$5.1 million equivalent (or 102) will be in foreign exchange (Table 1). Tax is estimated to be not more than US$3 million equivalent (6X of the total). No provision needs to be made for physical and price contingencies, in view of the time-slice nature of the project; any under- or over-estimation of prices will be accommodated by adjusting the number of sub-projects committed.  - 14 - Table 1: Sutmmary Projects Costs Local Foreign Total Local Foreign Total - In $b Millions- - In US$ Millions- A. Sub-projects 89.82 9.98 99.80 44.91 4.99 49.90 Al. Employment/ Income Gen. 67.36 7.48 74.84 33.68 3.74 37.42 A2. Social Assistance 22.46 2.50 24.96 11.23 1.25 12.48 B. Technical Assistace 0.66 0.16 0.82 0.33 0.08 0.41 Total 90.48 10.14 100.62 45.24 5.07 50.31 12. The IDA Credit of US$10 million will cover 202 of total commitments by BSF through December 1987. Sources of funding for the program are show in Table 2. Other financing will be sought to fill the funding gap of US$14.0 million. In the event that less becomes available, the IDA Credit will not be affected; ESP will defer committing sub-projects beyond those for which 1002 funding is assured. The Government already bha commitments from the following donors (though some are subject to restrictions): Canda. Federal Republic of Germany, Netherlands. Spain. Switzerland. United Kingdom. USAID, Inter-American Development Bank and UNDP. Further donation. are being discussed with several of these donors, as well as Italy and the OPEC fund. Table 2: Project Financing Other Financing Government IDA Donors GeP Total (in million US$)- Sub-projects 10.00 9.90 15.98 1/ 14.02 49.90 Technical Asoistance 0.00 0.10 0.31 0.00 0.41 Total 10.00 10.00 16.29 14.02 50.31 1/ Of this. US$5 million is tentative  - 15 - 13. The Credit will be applied against partial disbursements by ESP against all eligible sub-projects approved by ESP after May 15. 1987 (the completion of the appraisal mission) and under implementation at the time of Credit effectiveness (expected to be October 1. 1987) and thereafter until such time as the Credit is exhausted. Expenditures on eligible sub-projects made between May 15 and the signing of the Credit agreement will qualify for retroactive financing up to an aggregate of US$1 million (101 of the Credi. amount). If other donors choose to finance exclusively about 20% of all sub-projects. the Credit will be fully disbursed by the end of January. 1988. and will be applied to 400-450 sub-projects under implementation between October 1987 and January 1988. Other sources will ensure financing of the gap between the total cost of IDA-assisted sub-projects and IDA's contribution. Implementation 14. Sub-projects will be sponsored (i.e. requested) by municipalities. co-operatives. NGO's and other community organizations. Civil works and construction sub-projects will be carried out by local contractors under the supervision of either the sponsoring agency or, if it is judged to lack the capacity to do so, a technical agency such as a departmental development corporation or municipality. Social assistance sub-projects will in general be carried out by the sponsoring agency under the supervision of a government department or NGO. Each sub-project will be covered by a 3- or 4-party contract among ESF (as the funding agency), the sponsoring agency, the contractor (where appropriate) and/or the separate supervising agency. 15. Sub-projects are expected to take on average 6 months to implement, with a maximum of 24 months. ESF will disburse 20% of the cost of each sub- project as a mobilization advance upon signing of the contract. Thereafter it will make partial payments each mon.. covering the percentage of work completed, the latter having to be certified independently by both the supervising agency and an ESP field representative. These arrangements are satisfactory to the Association. 16. IDA-financed technical advisors will be hired by ESF (51 domestic expert-months and 1 international expert-month) at an average total cost per month of US$1.500 for domestic experts and US$10,000 for international experts. and on terms and conditions acceptable to the Association. 17. IDA's technical assistance to ESF will cover services in the following areas between June and December 1987: (a) assistance in establishing a database of benefit information to aid in the appraisal of sub-projects (3 domestic expert-months to assist an international expert (1 month) to be financed by UNDP); (b) assistance in evaluating sub-projects on a contract basis (18 domestic expert-months) (c) a survey of the target population to establish their needs (1 foreign expert-month and 18 domestic expert-months); and (d) monitoring of project-level effects on the target population, as well as macro-economic monitoring of the effect of ESP's sub-  - 16 - projects (12 domestic expert-months). The terms of reference for items (a) and (b) are in the project file. Those for items (c) and (d) will be presented prior to Board presentation. 18. Other international assistance has been agreed upon for project identification (outreach) and contract supervision costing about $300Q000. for 100 man-monuhs between June and December 1987. ESF has tentative commitments from other donors for this assistance. Should it not materialize, the proceeds of the Credit will be reallocated to cover these essential needs. 19. Allowing 6 months time contingency for possible implementation delays, the project will be completed by July 31. 1988. The closing date of the Credit will be January 31. 1989. Procurement 20. Since all contracts must. by the terms of the Supreme Decree, be for less than US$750,000 and will be scattered throughout the country, it is unlikely that foreign contractors will be interested in participating. ESF's standard procurement procedure is direct negotiation with a contractor proposed by the sponsoring agency on the basis of a schedule of unit rates developed and continually up-dated by ESP. The Association has reviewed this procedure and, in view of the very slow and unsatisfactory experience with competitive bidding in recent years under current Bolivian law, the small size of most ESP contracts and their urgency. finds it acceptable for contracts expected to have a value of up to US$250.000. To avoid holding up implementation, and considering that about 400 small contracts are involved, IDA review of such contracts will be made, on a sample basis, by supervision missions in the field. after signing of the sub-project contract; if any are found unsatisfactory to the Association, the corresponding amounts will be deducted from subsequent reimbursements against statements of expenditures (see next para.). For contracts expected to have a value xF over US$250,000. ESF will employ a local shopping procedure, whereby bids will be sought from at least three contractors prequalified by the sponsoring agency. This is expected to apply to about 10% of projects and about 502 of total project cost. Contracts and bid evaluation for each such subproject will be reviewed by the Association before IDA makes its first reimbursement (see next para.). All contractors w..ll have to meet the criteria for eligibility under IDA's procurement guidelines. These arrangements were reviewed and agreed upon at negotiations. Disbursements and Sub-project Review 21. The proceeds of the Credit will be disbursed as follows: (a) 75% of disbursements by ESF against eligible sub-projects submitted to the Association; and (b) 100% of technical assistance.  - 17 - The initial amount, to be disbursed as soon as the Credit becomes effective, will reimburse expenses incurred on eligible sub-projects approved and committed by ESF after May 15, 1987 and meeting the targeting, evaluation and procurement criteria agreed with IDA (paras. 28-29. 30-31. and 20 respectively), A revolving fund will not be needed, since ESF has sufficient Treasury funds for working capital. Each month after effectiveness ESF will submit a request for reimbursement against a statement of expenditures. At such time the Association will carry out an ex post evaluation of those sub- projects with an ESF contribution of less than US$250,000, for which reimbursement of a mobilization advance is requested, and disburse against only those found to meet the agreed criteria. To qualify for IDA financing. sub-projects with an expected ESF contribution of more than US$250.000 will be submitted to the Association for evaluation prior to the award of contract. For each sub-project. ESF has agreed to submit a summary data sheet of key benefit/cost indicators. as the basis for the Association's review (Attachment II). Accounts and Audits 22. ESF's accounts will be available for inspection by the Association at any time. Annually audited accounts will be submitted to the Association no later than six months following the end of ESFVs fiscal year. Auditing will be done by an independent auditing firm acceptable to the Association; arrangements for appointment of this firm will be completed prior to Board presentation and will include specific arrangements for audit of statements of expenditures submitted for disbursements. Reporting 23. ESF will send IDA progress reports by September 30, 1987 and December 31. 1987, setting out (among other things) its sources of funds, including co-financing, and applications of funds. It will also submit a completion report on its 1987 program by March 31. 1988. Cost Recovery and Sustainability 24. ESF requires the same cost recovery arrangements for sub-projects as those for other projects carried out by the various sponsoring agencies. This ensures that the institutional framework of each sub-project is consistent with other similar projects carried out by the same institution. Cost recovery is explicitly required in the sub-project contracts for housing. street paving, water supply, and sewerage projects. Certain health care services funded by ESF also provide for partial cost recovery. commensurate with the purchasing power of the low-income target population. Ultimate responsibility for cost recovery lies with the sponsoring agencies. Their institutional capacity to provide for successful management beyond the investment period is one of the criteria of sub-project selection (para. 30- 31).  - 18 - Central Monitoring and Local Feedback 25. ESF staff are designing surveys to assess the effectiveness of sub- projects (pars. 17), that will (a) provide basic data on the costs, number of beneficiaries, derived unit costs, and rates of return for local sub- projects; and (b) provide more detailed data and qualitative information on how local project managers can imprQve their organizational effectiveness. This latter set of information also will inform central ESP staff and donors on how better project proposals can be identified and supported. 26. To this end. a quick survey of the target groups specified above will be supported within the Association's technical assistance allocation. Little empirical information is currently available on displaced workers' patterns of migration, employment, family structure. and social quality of life. A sample of not more than 600 displaced workers will be interviewed and a report submitted to IDA by January 31, 1988 for review and comment. The study's objectives are to determine the highest priority economic and social needs of displaced workers and to delineate how local sub-projects can be best crafted to address them. The study should be conducted in close cooperation with relevant planning and statistical agencies, NGOs and with labor associations representing displaced miners and other workers. 27. An inter-agency committee will be formed by September 30, 1987, to assess the aggregate impact of local sub-projects on macro-economic conditions, especially in reducing under-employment and the resulting social costs. The committee will be chaired by the Minister of Planning or his representative, and include representatives of ESF, the National Institute of Statistics (NIS) and the Unit for Economic Policy Analysis. The aim of this effort is to determine the adequacy of the ESF initiatives in addressing the broad effects of the on-going economic adjustment. ESF projects will reach but a fraction of all unemployed, under-employed and impoverished people that are touched by the current crisis; and ESP relief will only be of a short-term nature. Therefore, as the Government and the Association track the long-run social impact of economic adjustment, an assessment of ESF's discrete impact within this broader context is important. As a part of this study. ESF staff will explore the feasibility of expanding the existing urban household survey (conducted by NIS) to include a sample of rural households and to identify the rates of participation by displaced and under-employed workers in ESF-funded projects. The schedule for these project-level and macro-level monitoring actions was confirmed at negotiations. Target Groups and Beneficiaries 28. The target group of ESP is the part of the population most affected by the economic crisis and other segments of the population whose nutritional and health levels have reached critical levels. This specifically includes the unemployed miners, other workers dependent on the  - 19 - mining sector, and dismissed public sector employees. as well as the fa-ilies of the above, and women in the informal sector. 29. In selecting sub-projects. BSF matches their location with available information on local unemployment rates and social indicators. Targeting is also achieved through the setting of commitment goals by sub-project type. as each affects particular portions of the target population. For example. road or street paving sub-projects typically attract a relatively high proportion of women workers, erosion control sub-projects usually employ ex- miners, and food supplement schemes are targeted to mothers and infants. The beneficiaries are explicitly considered in two groups: those wbo receive employment during the investment period. and the beneficiaries of the completed sub-project. For example. an erosion control project in a poverty-stricken area (either urban or rural) will be preferred to a similar project in a wealthier area. Benefits 30. The scope of the economic appraisal carried out by ESP depends on the sub-project's type and size. They are first categorized into those for which a rate of return calculation is feasible and those for which it is not. The latter include sub-projects for social assistance. construction of schools and medical centers, training, and some infrastructure, as well as bridging loans. Among the former. a 12% economic return is required as a minimum for all sub-projects expected to cost US$100.000 or more. For smaller sub-projects and those excepted above, less detailed benefit information is gathered. and multiplier effects are proxied by consideration of total cost per month of work created (US$165 has been the average on sub- projects approved to date), labor cost as percent of total cost (the goal is 60X or more). and import costs as percent of total costs (the goal is less than 102)-all of which are acceptable. As a check on the evaluation process. Association staff evaluated four representative sub-projects among the first approved by LSF (an urban landslide prevention project. a mixed erosion control/reforestation/rural road project. a street paving project. and an irrigation rehabilitation project). and found their economic rates of return to range between 15% and over 1001. (Details are available in the project file). In approving sub-projects, ESF tempers the results of the economic evaluation with the expected impact on the target population and the sustainability of the sub-project. 31. To strengthen the evaluation system. Association support will include technical assistance for the development of a data bank on project benefits in the various sectors concerned (para. 17). Benefits to be surveyed will include the following: (a) Improvements in pbysical infrastructure and the environment- resulting in economic benefits for which standard rates of return can be determined;  - 20 - (b) Direct social benefits* for instance, eontruction of basic shelter, provision of simple health care. and improvement of cbild cars ed school organizations - resulting in economic benefits in both the ahort and long run; and (c) Strengthened organizational capacity in both public and non- governmental organizations (NGO's) - resulting in institutional benefits that are more difficult to quantify. Risks 32. The methods adopted for selecting and implementing sub-projects endeavor to strike a balance between providing rapid and resposmive assistance in a tine of crisis, and ensuring that resources are allocated where tbey can be most effective. The risks associated with excessive speed of response are that funds would be poorly used; they would be diverted from other investments and inflationary pressures would be increased. The consequence of too slow a responsoe would that the sought-for alleviation of the social impact of adjustment would not be achieved. thereby intensifying social pressures that might endanger the economic reform program. In order to counter these risks, explicit agreement has been reached on evaluation and implementation procedures, and on teecnical assistance cargeted at sub- project identification, preparation and appraisal, as well as contract supervision and monitoring. The start-up nature of the credit in explicitly designed to allow for early evaluation of success and adjustment of procedures before proceeding to consider a larger project.  EtNCY SOCIAL FUND'S SUBPROJECTS IN TUE PIPELINE (A. of Nay 22. 1987) 0 Pow"M asmmswam IN*usoaO SO O a OW10 BOD-6M-*An 264300 ~~ N whum N 5 1U?A~~LM 70OU?O& A 10.1.66.* .MU