Argentina - Housing Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY AAV A?97-4 Report No. 7190-AR STAFF APPRAISAL REPORT ARGENTINA FIRST HOUSING SECTOR PROJECT August 24, 1988 Country Department IV Latin America and the Caribbean Regional Office This docutsent 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 witbout World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Australes (A) July 1988 US Dollar Austral Commercial Rate (official) $ 1 A 9.25 A 1 $ 0.11 Free Market Rate $ 1 A12.00 A 1 $ 0.08 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS AC - Advisory Committee (Comite Asesor) BHN - National Mortgage Bank (Banco Hipotecario Nacional) DNRP - National Directorate of Social Security (Direcci6n Nacional de Recaudaci6n Provisional) FONAVI- National Housing Fund (Fondo Nacional de la Vivienda) INDEC - National Census and Statistics Institute (Instituto Nacional de Estadistica y Censos) IPV - Provincial Housing Institute (Instituto Provincial de 1 iivienda) SIGEP - Sindicatura General de Empresas Publicas SVOA - Secretariat of Housing and Environmental Management (Secretaria de Vivienda y Ordenamient3 Ambiental)  FOR OWICAL USE ONLY ARGENTINA FIRST HOUSING SECTOR PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. LOAN AND PROJECI SUMMARY ........................ iii-v I. SECTORAL CONTEXT .......................................... 1 A. General ............................................... 1 B. Policies, Institutions and Programs . . 3 C. Sectoral Issues .. 6 D. Rationale for Bank Involvement .. 6 II. THE PROJECT............................................... 6 A. Project Origin .. 6 B. Project Objectives .. 7 C. Project Description .. D. Project Costs .. 9 E. Financiog Plan ........................................ 10 F. Design of Works ....................................... 11 G. Implementation ........................................ 11 H. Disbursements ......................................... 12 I. Procurement ........................................... 13 J. Financial Analysis, and Loan Recovery System .......... 15 K. Proposed New Mortgage System . . 17 L. Accounts and Audits ................................... 22 III. PROJECT JUSTIFICATION ..................................... 22 A. Economic and Fiscal Benefits .......................... 22 B. Urban Poverty Impact .................................. 24 C. Risks and Safeguards .................................. 24 IV. AGREEMENTS REACHED AND RECOMMENDATIONS . . 25 This report is based on the findings of an appraisal mission consisting of Messrs. Artaza (Mission Leader); Ringskog (Principal Economist); Hicks (Financial Economist); Linder (Procurement Adviser); Abbott (Lawyer) and Mr. Soto and Mrs. Sancho (Consultants). Mmes. Tate, Cruz and Harper assisted in the production of the report. This document has a restricted distribution and may be used by recipients only in the perform nce of their official duties. Its contents may not otherwise be disclosed without World Bank authofiyAtion.  - ii - Table of Contents (cont) Page No. ANNEXES Annex Il Population and Housing Sector Profile ................... 28 Annex 2: Organizational Charts: SVOA AND IPVS .................... 30 Annex 3: Government's Policy Letter ............................. 34 Annex 4: Selection of Beneficiaries ............................. 38 Annex 5: Construction Details, and Housing Designs .............. 41 Annex 6: Key Indicators for Monitoring Housing Sector Performance ........................................... 53 Annex 7: Application of new Mortgage Repayment System ........... 61 Annex 8: Technical Assistance Program ........................... 63 Annex 9: National Household Income Distribution ................. 67 Annex 10: Total Project Cost ..................................... 68 Annex 11: Project Implementation Schedule ........................ 69 Annex 12: Disbursement Schedule .................................. 70 Annex 13: FONAVI Flow Charts and Tables .......................... 71 Annex 14: Internal Rate of Return of Project Components .......... 76 Map: IBRD No 12432 October 1984.  - iii - ARGENTINA FIRST HOUSING SECTOR PROJECT LOAN AND PROJECT SUMMARY Borrower: The Argentine Republic Beneficiary: Secretariat of Housing and Environmental Management (SVOA), National Housing Fund (FONAVI), and Provincial Housing Institutes (IPVs) Amount: US$300.0 million equivalent Termst Repayment in 15 years including five years of grace, with interest at the Bank's standard variable rate. Project Objectives: The overall objective of the proposed loan would be to support the Government in its efforts to reform its sectoral policies. The main purposes of the policy reforms are to increase the productivity of the housing programs financed by FONAVI, improve the financial performance of FONAVI and reduce subsidies and improve their targeting. The project would achieve this through: (i) reducing the unit cost a-d the size of FONAVI houses and the time required to build them; (ii) establishing standard bidding procedures; (iii) improving the selection of beneficiaries by establishing national and provincial registries; (iv) improving the recovery of FONAVI loans through a new mortgage payment system; (v) promoting and mobilizing family savings, with special emphasis on the participation of non- governmental organizations, such as cooperatives; (vi) redirecting and reducing housing sector subsidies; and (vii) improving the administrative and financial procedures of the FONAVI system. Project Description: The proposed project wouid include a package of policy improvements, as evidenced in a Government Housirp olicy Letter, covering inter alia: (i) the estab. ent of national and provincial registries of pot 1 beneficiaries; (ii) the introduction of new ec, iical housing designs to lower unit costs; (iii) tU. relaxation of such standards that unduly restrict innovative and more economical housing designs; (iv) the introduction of improved and standard bidding procedures; (v) the introduction of a new mortgage system to improve cost recovery; (vi) the promotion of savings to be applied as down payments; (vii) the establishment of explicit and transparent subsidies; and (viii) a line of credit directed to improving and rehabilitating sub- standard housing. The proposed project would  - iv - include technical assistance to carry out studies and implement recommendations in several areas required to make SVOA and IPVs more efficient, including, inter alia, the creation of a sector information system, new procedures for the management and control of FONAVI's portfolio, new procedures to collect and administer FONAVI's resources, new ways to capture savings for the housing sector, and a more stable and modern legal framework. The proceeds of the proposed loan, together with FONAVI's own resources and beneficiaries' down payments, would finance the full costs of the housing units to be constructed or improved under the project. FONAVI would assume the cross-currency exchange risk and the US dollar exchange risk. The proceeds of the proposed loan would be made available to the IPVs in accordance with allocation criteria satisfactory to the Bank, under participating agreements which would define the IPVs' obligations, including the recovery of the loans made to the beneficiaries. The funds so recovered are to be returned to SVOA. Loans for home improvements would be provided by SVOA through BHN or other financial agents satisfactory to the Bank, with SVOA assuming the loan repayment risk. Benefits: The proposed project would yield both economic and fiscal benefits. On the economic side, the project would provide about 60,000 additional houses at a much lower cost than before, while another 39,500 would be upgraded and expanded. Other economic benefits are provided by the sharper targeting of subsidies and the creation of about 180,000 man- years of employment. On the fiscal side, the proposed project would decrease the housing sector's fiscal deficit through its lower subsidies and higher savings and recuperation of mortgages. Under the project, 43? of the cost of the most economic two-bedroom houses and 84% of the cost of three- bedroom houses would be recuperated in real terms as compared to about 1OZ at present. This would lessen the fiscal deficit for a comparable level of housing production and potentially lower the level of Government expenditure per unit. Special Risks: The main risks are financial, legal and institutional. FONAVI tax receipts and loan recoveries are sensitive to high inflation rates and have fluctuated in the past. In part, these financial risks are not specific to the project. In order to ensure a more steady flow of revenue, a new mortgage repayment system will be introduced, and the technical assistance component would strengthen the management and control of FONAVI's portfolio. In order to minimize the project risks,  - v - disbursements after the initial US$150 million would be subject to compliance with clearly defined improvements in FONAVI's financial and operational performance. All agreed FONAVI reforms would be introduced through FONAVI Resolutions. Legal authorities have confirmed that the implementation of proposed reforms through FONAVI Resolutions and backed by the Loan Agreement would be permitted under the current FONAVI legislation. SVOA is understaffed and its personnel is underpaid and unmotivated. The result has been administrative weaknesses, low productivity and staff morale. The proposed institutional arrangements would facilitate project implementation while increasing efficiency. The technical assistance component, through the introduction of new procedures, training and provision of equipment, would also contribute to improve SVOA's performance. Estimated Project Costs (In US$ million) FEC I Percent of COMPONENT Local Foreign Total of Total Base Costs 1. Civil Work: A. Two-bedroom houses 149.9 88.0 237.9 37 46 B. Three-bedroom houses 98.3 55.3 153.6 36 30 2. Housing Improvement Loans 39.4 23.1 62.5 35 12 3. Supervision 15.4 -- 15.4 -- 3 4. Technical Assistance and Auditing 5.3 2.8 8.1 35 2 Base Cost 308.3 169.3 477.6 35 92 Taxes and Duties 38.6 -- 38.6 -- 8 Total Base Cost 346.9 169.3 516.2 33 100 Physical Contingencies 34.7 16.9 51.6 33 10 Price Contingencies (8Z) 27.0 13.2 40.2 33 8 Sub-total Contingencies 61.7 30.1 91.8 33 118 Total Project Cost 4r8.6 199.4 608.0 33 118 Note: Totals may not add up due to rounding. Estimated Disbursements: Bank FY 1989 1990 1991 1992 1993 --------------- US$ Million------- Annual 35.0 70.0 80.0 70.0 45.0 Cumulative 35.0 105.0 185.0 255.0 300.0 Rate of Return: 17 percent  ARGENTINA FIRST HOUSING SECTOR PROJECT STAFF APPRAISAL REPORT I. SECTORAL CONTEXT A. General 1.01 The 1986 population of Argentina is estimated at 30.9 million inhabitants of whom 26.1 million (842) are urban, 1.3 million (4Z) rural concentrated, and 3.5 million (12Z) rural dispersed (see Annex 1). Argentina's urban growth has differed from that of most other Latin American countries. As early as in 1914, 572 of its population was uro.n. Overall, the annual population growth rate was 1.76X per annum in the 1970s. Argentina's census bureau (INDEC) estimates that by the year 2000 the urban population will reach 32 million, or 89Z of the total population. 1.02 The urban population is mostly concentrated in Gran Buenos Aires, with a population in 1980 of about 12 million inhabitants or 46Z of the total urban populatior.. Buenos Aires' population is ten times higher than the population of the second and third cities, Cordoba and Rosario with almost 1 million inhabitants each. 1.03 Argentina's medium-size cities have recently grown faster, however, than the large cities. In 1947, there were only nine cities excluding Buenos Aires with a population over 100,000. These constituted 202 of the country's urban population. By 1980 there were 17 cities with between 100,000 and one million inhabitants, comprising 27? of the urban population. The fastest growing urban areas are in the Patagonia region (Chubut and Neuquen) and in the north-east (Chaco, Formosa, and Misiones). 1.04 These dem^graphic trends reflect a decentralization of economic activity. While the Gross Regional Product (GRP) of the country as a whole grew by 28Z in the 1970s, it only grew by 16? and 18? in the Federal Capital and the Province of Buenos Aires, respectively. This contrasts with growth rates over the same period of 123? for Neuquen and 43Z for Cordoba. This decentralization of economic activity is reflected in the more recent data on manufacturing employment. From 1975/85, the Buenos Aires Metropolitan Area lost 167,000 manufacturing jobs while the rest of the country gained 15,000 jobs. 1.05 Housing Demand. Argentina's 1980 Population and Housing Census includes the latest available information on housing demand. In defining the housing deficit, the 1980 census used minimum housing standards higher than those used in other Latin American countries. This tended to exaggerate the housing deficit. A more realistic approximation to the housing situation in 1987 can be gleaned from data on population growth, houses built, obsolete houses and informal construction. Informal construction includes rehabilitation of existing houses and construction of  - 2 - new houses. According to estimates, informal housing constructions during 1980-87 amounted to 560,000 units. Based on such estimates, the housing situation has been calculated for 1987 as shown below in Table 1: Table Is ARGENTINA'S HOUSING SITUATION, 1980 - 1987 (Millions) 1980 1987 - Population 27.4 31.5 - No. of Households 7.4 8.5 - No. of Occupied Houses 1980 7.1 - - Absolute Deficit 1980 0.3 - - Formal Housing Construction 1980-87 - 0.8 - Informal Housing Construction 1980-87 0.6 - Obsolescence 1980-87 0.5 - Total of Houses 1987 8.0 - Absolute deficit 1987 - 0.5 - Substandard Houses 2.0 2.0 - Total Deficit 2.3 2.5 1.06 The deficit of 2.5 million housing units shown above includes an absolute deficit of 0.5 million units and 2.0 million substandard houses, of which an undetermined share could be upgraded or improved. Real demand would be only measured through the Provincial Registries to be established under the proposed project. 1.07 Vacant Houses. According to the 1980 census, there were 1.1 million vacant houses, distributed as follows: 0.2 million recreational homes, 0.2 million in commercial use, and 0.7 million unoccupied houses. Since the census, all rent controls were abolished and rents were free to rise to market levels (Law No. 23091). According to recent official information, close to 882 of vacant houses are dilapidated and scheduled to be demolished. This leaves only about 0.1 million unoccupied houses, i.e. an effective vacancy level around 12 of the total housing stock, adding to the need for an increased number of housing units. 1.08 Rental Market. The number of housing units available for rent have steadily decreased in Argentina during the last 40 years. In 1947, of the total housing stock, 622 were rented. By 1960, only 252 were rented. The 1980 census showed that only 14Z of the 7.1 million housing units were rented. The main reason for this drop is to be found in a law enacted in 1976, heavily protecting the tenants. As a consequence, a good number of houses was kept vacant for years. This situation lasted until 1984 when the passage of Law No. 23,091 completely freed the rental market. As a result of the law, rents rose sharply in real terms. 1.09 Housing Supply. During the last 15 years, new housing construction has varied from 80,000 to 150,000 units per year. The availability of private resources in this sector has decreased gradually from 75Z in 1975 to less than 502 of total investment in recent years. House construction has also decreased from 150,000 units in 1975 to a  -3- little over 80,000 units in past years, not even sufficient to keep abreast of new household formation, estimated at 130,000 per year. For this reason, the public sector assumed a more important role in the financing of housing, through the Secretariat of Housing and Environmental Management (SVOA) which manages the National Housing Fund (FONAVI), the Provincial Housing Institutes (IPV) which execute the works finau.ced by this Fund, and Banco Hipotecario Nacional (BHN). B. Policies, Institutions and Programs 1.10 Policies. Until now, Argentina has lacked a clearly defined housing policy. Implicitly, a policy of sorts emerged through the many public statements on the functions and responsibilities of the different sector institutions. The FONAVI Law (No. 21581 of May 26, 1977, amended by Law No. 23060 of April 1984) includes the objective to build 'economic housing of minimum conditions of habitability for low income families'. This policy was never systematically carried out and the housing sector, in practice, developed ignoring the intent of the law. The result has been an inefficient use of resources. 1.11 The Government has prepared a Housing Policy Letter (para. 2.02 and Annex 3) which outlines the new policies that the Government intends to pursue in this sector. The Government now considers it essential to restructure the publicly financed housing programs so as to give priority to meeting the housing needs of the lower-income groups (below the 402 income percentile), through low cost housing construction with clearly explicit subsidies geared to income levels. The Government intends to expand the participation of the private sector as a whole and to establish and support private savings systems and increase the cost recovery of its housing projects, thus making it possible to reduce its total expenditures in the sector. 1.12 Institutions. Construction and financing of public sector housing are promoted by SVOA in the Ministry of Health and Social Welfare and BHN under the Ministry of Economy since 1983. There are also 24 IPVs, under the provincial governments, which receive policy guidance and financing from the central government through SVOA. There are about 4000 private construction companies active in the sector. They are grouped in several associations of which the Argentine Construction Chamber is the most important. The private construction companies compete actively in bidding for housing construction carried out by the IPVs. In the provinces there is an average of 6 bidders for each tender, while in the Capital there have been up to 28 bidders during the last few years. Concentration of many construction management decisions in the hands of SVOA and IPVs has sometimes impaired the efficiency of the construction companies. The final product, however, is generally of satisfactory quality (para. 2.16). 1.13 Secret:riat of Housing and Environmental Management. SVOA (Annex 2) is responsible for defining and executing the national housing policy; it also administers FONAVI, the main source of revenue for housing construction. SVOA fixes the technical and regulatory norms for the housing built with these resources and allocates the funds among the provinces. Regional differences, both technical and financial, are seldom considered, because of the high degree of centralization. The regional  - 4 - authorities and SVOA have 3enerally contended on the allocation of FONAVI resources, the coefficients to determine regional cost differences and the regulations for loan recovery. SVOA has a permanent staff of about 200, including management, professional and support staff. Besides the FONAVI resources, SVOA also receives a small amount from the profits of the Soccer lottery (PRODE) and special allocations from the Treasury. 1.14 National Mortaage Bank. The BHN, one of the oldest financial institutions in Argentina dating back to 1886, was originally designed to assist in the development of the agricultural sector. Until 1945 its participation in the housing sector was minimal. In that year, it was restructured as an autarchic state institution hithin the Central Bank system. Two laws were passed to permit BHN to increase its level of financing of housing. In 1962, BHN started a housing construction plan (Federal Housing Plan) with IDB financing, emphasizing low income housing and community facilities such as schools, libraries, and recreation areas. Construction credit was given to individuals and to entities such as cooperatives and mutual help associations (wmutuales"). During the fifties and sixties, BNN was the main credit institution for housing. Its importance declined in the seventies. A rapid decline in internal cash generation, only partial loan indexation and a high level of inflation, decapitalized BHN almost totally. Coordination between BHN and SVOA has been poor, since they report to different Ministries. The average number of units financed by BHN was 13,000 units per annum during the eighties. At the end of 1987, almost all of BHN resources came from the Central Bank in the form of overdrafts or straight transfers. BHN's operations, with the exception of the Federal Housing Plan mentioned above, were earlier aimed mainly at the mid- and high-income families. However, during the last few years BHN has focussed its attention on lower income families through housing programs such as "Plan Techo' and "Plan Centenario'. In December 1987, BHN's debt with the Central Bank had reached A 3.5 billion and its mortgage portfolio amounted to A 4 blllion. In that same month, the Central Bank intervened and appointed a new Board and Manager, while temporarily suspending all new loans. The permanent staff of BHN number about 4,500 at headquarters and at 50 branches throughout the country. Government's policy aims at the reactivation of BHN and the Bank would support this effort under a possible restructuring project for BHN. 1.15 National Housing Fund (FONAVI). FONAVI was created in 1972 to finance housing with minimal conditions of habitability for low income families who could not afford unsubsidized housing mortgages. The FONAVI loans are normally guaranteed by mortgages. However, in some cases, the houses may be lent to the beneficiaries until they have fully paid for it. FONAVI resources come from a tax paid by employers and the self-employed. The initial rate was 2.5? of salaries paid. In 1977 this percentage was increased to 5Z while the self-employed have to pay an amount equivalent to 20? of their social security contributions. FONAVI resources amount to about US$700 million per year, but evasion is very high (see para. 1.17). Between 1973 and 1985, FONAVI financed 211,000 housing units with an average cost of US$21,000 ptr unit (1985 prices). PONAVI's annual revenues represents about 12 of GDP. Loan recovery from 1973 to 1985 represented only 0.72 of the annual investments. Serious administrative, technical and financial deficiencies have negatively affected FONAVI's operations. Decision-making is overly centralized in SVOA in Buenos Aires, but no reliable and up-to-date information system exists at the center to guide  - 5 - decisions and permit monitoring. Technically, the centralized decision making has led to high and costly housing standards that do not take into account the repayment capacity of the beneficiaries. Public bidding is carried out without clearly defining the final product and this results in continuous negotiations between the construction companies and the IPVs, usually on account of change orders. The change orders and other variations in the terms of contract generally result in higher costs, protracted construction periods and excessive overhead costs. 1.16 Provincial Housing Institutes (IPVs). The IPVs execute the FONAVI programs in line with regulations from SVOA. Although the IPVs are formally part of the provincial governments, they receive resources and regulations from SVOA (Annex 2, pp. 2-4 contains information on nine typical IPVs covering 772 of the country's population). The quality and efficiency of IPVs varies widely, with some being excellent and others poor. The main deficiencies of the IPVs are in the areas of recording, costing, management and control systems (paLt. 2.38). Supervision is sometimes delayed because of the involvemient by professional staff in tasks like design and selection of materials and t4chnology. Professional staff is generally of good quality and there is lower turnover ratios than in other sectors of the provincial administration, thanks to a percentage of FONAVI funds (42) which is distributed among IPV staff as overhead for supervision. 1.17 The most common distortion in the use of the FONAVI resources is caused by the common belief that housing has to be provided by the State, without any payment in return from the beneficiaries. In addition, FONAVI's financial viability is threatened by the widespread evasion of the FONAVI payroll tax. Currently, in Argentina's highly inflationary environment, employers may prefer to invest the funds due FONAVI in the short-term market at 12 to 142 monthly interest, and pay a monthly fine of 102 for the delayed tax payment. The liquidity of FONAVI is further jeopardized since work is programmed based on the estimated tax revenue, without taking into consideration the high level of tax evasion. The program can easily become overambitious as a consequence. In early 1988, awarded construction contracts with approved FONAVI financing amounted to about four times the annual production volume of FONAVI houses. The final housing costs are increased by costly design standards which are traditionally used. These are inappropriate since beneficiaries do not have the income to make the monthly payments necessary to pay for this type of housing. The authorities are forced to establish lower monthly payments, thus introducing an important implicit subsidy. Mortgage payments may become so low that in some cases the administrative costs exceed the amounts recovered. Although norms and regulations to sstablish registries of beneficiaries exist in almost all provinces, the criteria for selection of participants are unclear. The rules are usually so complex that they leave ample room for arbitrary interpretation and as a result the beneficiaries are not always the neediest, nor those who have the repayment capacity required. Procurement is carried out by the IPVs. However, each province uses different bidding documents and awards at time lack transparency.  C. Sectoral Issues 1.18 The inefficient use of FONAVI resources constitutes the main sector issue. Houses built with FONAVI funds have traditionally borne little relation to Lhat the beneficiaries and the country could afford. In the last few years housing unit costs have been reduced from US$20,000 to levels around US$14,000. These costs are still too high. PONAVI's main objective to supply housing to the most needy groups has thus become increasingly unattainable. Criteria for selecting FONAVI recipients are obscure and the system for awarding FONAVI houses has lacked transparency. 1.19 FONAVI's policies and procedures result in low recovery of investments. In addition, the present system provides no incentive for families to save for a house, since it generates expectations that a house can be obtained almost for free. Monthly mortgage payments are low, and erode rapidly with the country's high inflation rate. This is because payments are adjusted only twice a year according to an industrial wages index. There has been little interest among construction companies in keeping costs within established limits and contractors have little incentive to introduce innovative solutions in designing and building houses. D. Rationale for Bank Involvement 1.20 Bank involvement in the sector is the logical culmination of several years of sector policy dialogue with the Government at a time when the sector is experiencing an acute shortage of investment funds. A 1987 UNDP-financed sector study identified the aforementioned flaws of the Argentine housing sector. The study demonstrated that the gap between demand and supply for affordable low-income housing had been widening for a number of years as a result of the disappearance of a long-term capital market for housing funds and the insufficient supply of FONAVI housing. The end to Central Bank transfers to the BHN and a worsening of the FONAVI finances in late 1987 (para. 2.43) has made Bank assistance especially timely. By supporting far-reaching reforms of the sector's socioeconomic, financial, institutional and technical policies, the Bank would endorse the Government's objective of improving the allocation and effectiveness of public housing investments. The proposed sector investment project would improve capital recovery, ensure better use of scarce public funds and strengthen SVOA's institutional capability. II. THE PROJECT A. Project Origin 2.01 The Argentine Government in September 1987 requested significant Bank support to the housing sector. The proposed project was identified in late 1987 and was prepared by SVOA on the basis of studies requested by the Bank identification mission. The preparatory work also took into consideration the findings of the UNDP study for which Bank staff prepared terms of reference and the Bank's review of the status of the Social Sectors in Argentina (IBRD Report No. 6900-AR dated July 20, 1987).  2.02 The Government recognizes that the complete reform of the Argentine housing system will require significant policy and procedural changes to be developed over time. On this basis, the Government has prepared a Housing Policy Letter (para. 2.07 and Annex 3) which sets forth the medium- and long-range objectives of its housing policy, which the Bank supports. Progress in achieving the objectives of the program outlined in this Policy Letter will be reviewed by the Bank (see paras. 2.21 and 2.48). The proposed project should be seen as a first step towards concrete cooperation in the housing sector. B. ProJect Objectives 2.03 The overall objective of the proposed loan would be to sur rt the Government in its efforts to reform its sector policies and reuuce its currenot housing deficit. 2.04 The main purposes of the policy reforms are to increase productivity of the housing programs developed through FONAVI; improve the financial performance of FONAVI and improve the targeting of subsidies. 2.05 The project would assist the Government in achieving this by: (a) increasing the number of houses built or improved; (b) reducing the unit cost and time required to build new housing units; (c) redirecting and reducing the public sector subsidies; (d) promoting and mobilizing savings with special emphasis on the participation of intermediate groups, such as cooperatives, mutual assistance associations, etc.; (e) establishing standard nation-wide bidding procedures to ensure the transparency of the procurement procedures; (f) ascertaining that newly built houses are assigned based on criteria of need and previous savings; and (g) improving the administrative and financial procedures at SVOA/FONAVI. Several measures would be introduced to improve the targeting of FONAVI: (a) new provincial registries that would favor those families with a proven need will be established, taking into account their capability to mobilize savings (Annex 4); (b) the basic housing unit size, where the bulk of FONAVI's investments will be concentrated, would be drastically reduced from historical overly generous standards to 36 square meters for two- bedroom units and 48 square meters for three-bedroom units, with maximum unit costs at US$6,700 and US$8,500, respectively. The Bank may agree to changes in these costs taking into account the impact of geographic and climatic factors, cost of labor and other inputs in the technical specifications of specific biddings. The maximum cost of the housing units would be adjusted periodically in accordance with the Construction Cost Index (para. 2.14 and Annex 5). Until now most housing units constructed under FONAVI had an area of at least 70 square meters; (c) the explicit subsidy for the US$6,700 houses would be capped at 712 of the total amount of the mortgage for the lowest 52 income percentile. The subsidies for higher incomes would be capped at 57Z while the subsidy for the US$8,500 houses would be capped at 212, making them affordable to low-income families (Annex 7). 2.06 The promotion of savings by the potential beneficiaries would reduce the initial debt of the families, thus mobilizing additional resources for the sector and stimulating family and communal efforts to obtain a new house. The criteria for the selection of housing beneficiaries would give priority to those willing to save more and  - 8 - contribute larger down payments. Until recently, Argentina lacked savings mechanisms which may ensure the current value of small savings. A system has been recently approved by the Central Bank and would be utilized in this project. Moreover, the introduction of a new loan recovery system (para. 2.39-2.41 and Annex 7) is considered important. C. Project Description 2.07 The proposed project would include a package of policy and procedural improvements, as evidenced in the Government's Housing Policy Statement, covering, inter alia: (a) the establishment of national and provincial registries of potential beneficiaries (Annex 4); (b) the introduction of more economical housing through new designs; (c) the requirement of lower unit costs; (d) the establishment of explicit and transparent subsidies; (e) the promotion of savings through the requirement of down payments; (f) the improvement of cost recovery; (g) the modification of those norms that unduly restrict innovative and more economical housing designs; (h) the introduction of improved and standard bidding procedures; (i) the introduction of a new system of allocating FONAVI funds among provinces according to effecti7e demand and other factors, such as repayment record and IPV's effectiveness. 2.08 The proposed project includes the construction of about 39,000 two-bedroom houses, 20,500 three-bedroom houses, and the improvement and rehabilitation of about 40,000 existing houses (Annex 11). Houses will be built in drastically shorter periods than before (an average of 11 months compared to the previous 24-36 months), and their costs will be considerably lower. The Government has agreed to utilize norms and criteria, which would promote, through competition, a variety of designs and construction techniques. Procurement methods, uniform throughout the country, would ensure transparency of the bidding process. 2.09 A line of credit, up to 15Z of the base cost of the project, would be directed to improve and rehabilitate sub-standard housing. The upgrading of these housing units would require credits up to an amount equivalent to US$1,800 each. No subsidy would be granted to the beneficiaries of these loans (paras. 2.14, 2.21 and 2.27). 2.10 The proposed project would support the participation of non- governmental institutions such as cooperatives, mutual societies, unions, etc. into the FONAVI system. Their participation has been considered in the new procedure for selection of beneficiaries (Annex 4), taking into account their capacity to mobilize savings and provide land and project design. 2.11 The proposed project would also include a technical assistance program to carry out studies and implement recommendations on several aspects required to make SVOA a more capable and efficient organization, with more modern and speedy procedures, including, inter alia, a modernized sector information system; new procedures for the management and control of FONAVI's portfolio; new procedures to collect and administer FONAVI's resources, thus reducing evasion and increasing recoveries; new ways to capture savings for the housing sector; and a more suitable and modern legal framework for FONAVI operations (Annex 8). The Government and the  - 9 - Bank will discuss the findings of all these studies and the Government will prepare plans of action to put into effect their recommendations, taking into account the Bank's comments (para 2.48). 2.12 The proposed policy reforms, to be implemented by SVOA through FONAVI Resolutions (Secretariat Directives) would cover all future FONAVI funded housing. As a consequence, the utilization of about US$1.9 billion of FONAVI resources (over and above the project counterpart funds)(para. 2.15) would be affected by the proposed project policies in the next four years. A portion not exceeding 1OZ of the FONAVI funds not committed as counterpart in the proposed project could be used for other more expensive types of housing solutions. At the present time there are about 140,000 houses under construction or with approved FONAVI funding. For these houses, SVOA would apply a method of cost recovery which would be similar to the methods to be implemented under the proposed project but without interest (para. 2.44). In all cases, the houses would be awarded to beneficiaries who belong to lower income groups. D. Project Costs 2.13 The total project cost is estimated at US$608 million equivalent including US$38.6 million in taxes and duties. The total foreign exchange cost is estimated at US$199.4 million, or 33Z of total costs. Costs are based on December 1987 estimates which were updated to June 1988 prices. The proposed Bank loan of US$300 million equivalent would finance 49Z of these total costs. A suammary of project costs is presented in Table 2, and details are given in Annex 10, Table 1. Table 2: ESTIMATED PROJECT COSTS (In US$ millions) ' of Foreign Exchange Percent of Components Local Foreign Total Component Base Costs (1) Civil Works A. Two-bedroom houses 149.9 88.0 237.9 37 46 B. Three-bedroom houses 98.3 55.3 153.6 36 30 (2) Improvement Loans 39.4 23.1 62.5 35 12 (3) Supervision 15.4 -- 15.4 -- 3 (4) Technical Assistance and Auditing 5.3 2.8 8.1 35 2 Net Base Cost 308.3 169.3 477.6 35 92 Taxes and Duties 38.6 -- 38.6 -- 8 Total Base Cost 346.9 169.3 516.2 33 100 Physical Contingencies 34.7 16.9 51.6 33 10 Price Contingencies 27.0 13.2 40.2 33 8 Total Project Cost 408.6 199.4 608.0 33 118 X8=a:G m= ==  - 10 - 2.14 Cost estimates for the two- and three-bedroom housing units are based on designs with updated prices from local distributors and suppliers in the Province of Buenos Aires. More details on quantities and unit prices are included in Annex 5. These costs include basic urban infrastructure such as electricity, gas where applicable, water supply and sewerage. A summary of the minimum requirements of the two- and three- bedroom houses appears in Annex 5, page 1. The minimum technical specifications will be included in bidding documents. Bidders will then be able to propose different types of designs, materials and technology to comply with the minimum specifications within a fixed maximum price. The unit cost for the house improvement loans has been estimated at US$1,800, which is the cost of a sanitary unit of 8 m2, but beneficiaries may propose other kinds of improvements within the above maximum. Costs for technical assistance and other professional services are based on UNDP's experience with locally and internationally recruited experts in the region. Costs are expressed in US dollars because of the unpredictability of national inflation and devaluation rates during the implementation period. Annual rates of inflation estimated for international price trends for manufactured goods and civil works were used to estimate the project's price contingencies: 1988-90, 3Z; 1991 and thereafter, 4Z. Physical contingencies averaging 82 have been added. The project's foreign exchange component is estimated at 33Z. E. Financing Plan 2.15 The total project cost will be financed with the proposed Bank loan of US$300.0 million (492), an estimated US$27.6 million (52) of savings from the beneficiaries, and US$280.4 million (46X) from FONAVI. The proposed loan would be made at the standard variable interest rate with repayment in 15 years, including five years of grace. It would cover 1002 of the foreign exchange cost and approximately 252 of local costs. Local cost financing is recommended because of the current financial constraints of FONAVI (para. 2.43) and serious fiscal constraints of the Government. It is also recommended because of the high social and institutional impact of the proposed project, in line with decisions already adopted for the Public Sector Management Technical Assistance, Municipal Development and Social Sectors Management Technical Assistance Projects in Argentina. Table 3: FINANCING PLAN (in US$ millions) Source Local Foreign Total 2 Bank 100.6 199.4 300.0 49 FONAVI 280.4 --- 280.4 46 Beneficiaries 27.6 --- 27.6 5 TOTAL 408.6 199.4 608.0 100 Percentage (X) 67 33 100  - 11 - F. Design of 'Works 2.16 CGrrent costs of housing financed by FONAVI would be drastically reduced by application of the following criteria agreed with SVOA: (a) reduction in low cost housing standards so that units with two or three bedrooms, living and dining rooms, kitchen and bath could be built in a minimum area; (b) exclusion of interior finishings, which the beneficiary could do in the future; (c) reduction in size of each plot, within municipal urban regulations; (d) public competitive bidding with fixed price and terms, including all costs (land, internal infrastructure, construction, design, taxes, etc.); (e) reduction of time of execution of the works; (f) timely payments to contractors in line with the physical and financial programming of the works; and (g) flexibility in housing design to allow the use of materials and other regional comparative advantages, thus minimizing cost differences among provinces. Other measures agreed with SVOA, i.e., shifting as much as possible to construction companies the responsibilities for selecting and purchasing the land, for the design, for the selection of the materials and the technology to be used, would assist the construction companies to build more efficiently and would free IPVs' staff to carry out improved supervision. 2.17 For the purposes of public bidding, the land could be owned by the IPVs or contributed, as a down payment to the IPVs by cooperatives, "mutuales,a and other non-profit organizations. The construction companies could also use their own land. In the first case, the cost of the land and technical description would be included in the bidding documents, to be considered by all bidders in their cost estimates. In the case of land owned by the construction companies, the cost would be made explicit and will be included in the total bid cost. 2.18 Loans for home improvement or rehabilitation would be provided to individuals who already have title to their property. These loans would be provided by SVOA through BHN or other financial agents satisfactory to the Bank, with SVOA assuming the loan repayment risk. The loans would be for five years, adjusted monthly and with a real interest rate of 8.73Z per year, plus a charge to cover the financial agent's administrative costs (paras. 2.21 and 2.24). G. Implementation 2.19 The project would be implemented by the Secretariat of Housing and Environmental Management (SVOA) and by the Provincial Housing Institutes (IPVs) (Annex 2). SVOA is weakly staffed. A program of institutional strengthening, included in the technical assistance component (Annex 8), aims at reinforcing its capabilities and improve its performance. 2.20 An Advisory Committee (AC), attached to the office of the Secretary of Housing, would be established and staffed by four consultants, with terms of reference acceptable to the Bank and appointed in accordance with the Bank's Guidelines, and by three high level graduates of the Instituto Nacional de Administracion Publicas (Public Service Institute). The AC would assist the Secretary on pro4ect monitoring, reporting and as a liaison with the Bank. Horeover,. SVOA would assign responsibilities to specific individuals in its line departments to carry out project related activities. This staff would be strengthened with up to four senior staff  - 12 - in light of the added responsibilities of these units. In addition, IPVs' staff would be seconded on a temporary basis to SVOA to reinforce line departments and exchange experience. The AC would maintain working relations with the Secretariat's line units and assist them with specialized support as necessary. The AC would prepare and submit implementation progress reports to be submitted to the Bank, not later than 30 days after the end of each trimester, which would include inter alia monitoring information on procurement and every six months would consolidate all provincial evaluations (para. 2.46(e)). The AC would also ensure that selection and appointment of consultants for the technical assistance component follow Bank guidelines and would include in the reports to the Bank information on progress on their specific tasks and studies. The IPVs are generally well staffed and most of them have the necessary capability to develop properly their activities but their quality and efficiency vary widely (Annex 2). The technical assistance program would also increase their project administration capacity through the improvement of their management information systems. Moreover, special, semi-annual, performance evaluations of the IPVs would make effective Bank supervision manageable. These evaluations would aim to monitor IPVs' compliance with operative and financial efficiency indicators (Annex 6) and with legal agreements related to cost recovery, unit costs, selection of beneficiaries, price savings and bidding procedures. 2.21 The Borrower for the proposed Bank loan would be the Argentine Republic. The project is expected to be completed by December 31, 1992 (Annex 11). The Government's progress in implementing its Housing Policy Letter, the project, and the new FONAVI Resolutions, would be monitored during project supervision and reviewed periodically with the Government. As a minimum, there will be an annual review. The Bank and SVOA have agreed upon the key indicators to be used in connection with these annual reviews (Annex 6). The proceeds of the proposed loan, together with FONAVI's own resources and beneficiaries' down payments, would finance the full cost of the housing units to be constructed or improved under the project. FONAVI would assume the cross-currency exchange risk and the US dollar exchange risk. The proceeds of the loan would be made available to the IPVs in accordance with allocation criteria satisfactory to the Bank (paras. 2.07 and 2.37), under participating agreements, satisfactory to the Bank, which would define the IPV's obligations, including the recovery of the loans made to the beneficiaries (paras. 2.24, 2.40 and 2.41). The funds so recovered are to be returned to SVOA (para. 2.37). H. Disbursements 2.22 Disbursements would be made for: (a) 502 of total expenditures for civil works and loans made to beneficiaries for home improvement; (b) 1002 for total expenditures for technic&l assistance and training (including consulting services and contract hiring); (c) 10OZ for total expenditures for auditing services of the project's accounts (when provided by a private firm under contract satisfactory to the Bank); and (d) 1002 of foreign expenditures for imported equipment and 802 of total costs for locally procured equipment. Loan funds would be disbursed over a period of about five years and the Closing Date would be June 30, 1993. The projected disbursement schedule is in line with other housing projects in the Region and is given in Annex 12. The proposed loan would have a relatively rapid disbursement rate because of the drastic reduction (to  - 13 - less than one year) of the construction period. Disbursements would be made on the basis of full contractual documentation in the case of studies and technical assistance and for all local currency contracts valued at the equivalent of US$500,000 or more, and for foreign currency expenditures contracts valued at US$50,000 or more. All other disbursements wou:d be made on the basis of certified statements of expenditures (SOE). The documentation for the SOE expenditures would not be sent to the Bank but would be retained by SVOA and made available to the Bank upon request. The first two contracts for civil works would, however, be fully reviewed by the Bank. Disbursements under these two first contracts would be made using the SOE procedure provided the amounts of the contracts fall within the above-mentioned limit. A Special Account in US dollars would be set up at the Central Bank of Argentina in accordance with procedures acceptable to the Bank. The initial deposit to the Special Account would be for US$15.0 million, which represents an estimated four months of expenditures under the loan. The Special Account would be managed by SVOA. Withdrawals would be made by SVOA in local currency at the rate of exchange applicable on the day the corresponding expenditure payments were made if such payments were made, within 90 days prior to the request for withdrawal from the Special Account. Otherwise, the exchange rate of the date of withdrawal would apply. 2.23 Expenditures would be disbursed for the aforementioned categories of expenses up to a total of US$150.0 million of the proceeds of the proposed loan. The release of disbursements subsequently would be subject to compliance by SVOA of conditions relating to its operational and financial performance (see para. 2.47 and 2.48). 2.24 There would be no Bank disbursement for the cost of land, design, supervision and project administration costs. Retroactive financing of US$2.0 million would be provided for technical assistance, equipment contracts and pilot civll works contracts concluded after April 30, 1988 which was required for an early initiation of the project. Execution of participating agreements between SVOA and the IPVs would be a condition of disbursement for civil works in each Province. Further, execution of an agreement, satisfactory to the Bank, between SVOA and BHN or other financial institution acceptable to the Bank, would be a condition of disbursement for the home improvement loans program. I. Procurement 2.25 The Government has agreed to utilize uniform procurement methods throughout the country to ensure transparency of the bidding process. Procurement for works and goods with Bank financing will be carried out under a standard bidding document which is in accordance with Bank Procurement Guidelines (May 1985). Procurement for works with FONAVI funds only will be carried out under a similar standard bidding document, except that this document determines that local law would govern, which implies that bids would be awarded to the bidder whose offer has been found the "most convenient". This concept will be defined in the bidding document to make it closer to Bank practice. 2.26 The bidding documents will include, inter alia, a deadline for concluslon of a housing project (an -verage of .l months); penalties for delays in project execution; and adequate cost escalation clauses, in view of the high inflation environment.  - 14 - 2.27 With regard to procurement under Bank guidelines, goods (which correspond to office equipment for the technical assistance component) costing US$25,000 equivalent or less would be procured through international or local shopping, involving at least three price quotations. This is expected to account for approximately US$60,000 equivalent or 0.011 of total project costs. Goods costing more than US$25,000 but less than US$250,000 equivalent would be procured through Local Competitive Bidding (LCB) procedures acceptable to the Bank, and would represent approximately US$90,000 equivalent, or 0.01Z of total costs. Procurement of all goods costing US$ 250,000 equivalent or more representing about US$800,000 equivalent to 0.1Z of total project costs would be through International Competitive Bidding (ICB) in agreement with Bank Guidelines for Procurement. Civil works costing up to US$ 2,000,000 equivalent would account for approximately US$498.7 million equivalent, or 822 of total project costs, and would be procured through LCB procedures acceptable to the Bank. Although no contract for civil works is expected to cost more than US$2 million equivalent, if this were to occur, such contracts would be procured through ICB in agreement with the Bank Guidelines for Procurement (1985). The project would also finance about US$ 79.6 million, or 13% of total project costs, in home improvement loans, which would be granted directly to beneficiaries who would make material purchases from local suppliers (para. 2.18). Consultant and auditing services, with an equivalent cost of about US$9,000,000, some 21 of total project costs, would be procured in accordance with the Bank's Guidelines. These procurement arrangements are summarized in Table 4. Table 4: PROCUREMENT ARRANGEMENTS */ (US Million of February 1988) b/ Procurenent Total Uethod Local Valu- Project Category/Element ICB LCB Shopping Other N.A. Procurement 1. Civil Works 498.7 498.7 (249.8) (249.86) 2. Hoem Improvement Loans 79.6 79.6 (89.8) (89.8) S. Supervlsion 19.7 19.7 (0) (0) 4. Office Equipment 0.80 0.09 0.06 1.0 (0.80) (0.06) (0.04) (0.9) S. Technical Assistance 6.00 6.0 Consulting Services e/ (6.00) (6.0) 6. Auditing c/ 8.0 8.0 (3. 0) (8.0) 0.80 498.8 0.06 88.6 19.7 608 (0.80) (249.4) (0.04) (48.8) (O) (800) */ IBRD shere in parenthsis. b/ Totals mey not add up due to rounding. c Technical assistance and Auditing procured in accordance with Bank guidelines. NOTE: The N.A. refers to costs for supervision of civil works (estimated at 4X of total works' costs) but the Dank would not disburse against thlo category.  - 15 - 2.28 The Advisory Committee (AC) (para. 2.20) would review, ex-ante, all procurement procedures, documents, bid evaluations and contract awards to ensure that the agreed procurement process is properly carried out. Inf addition, all the ICB procedures, documents, bid evaluation and contract awards would be reviewed ex-ante by the Bank. In order to ensure compliance with Bank procurement guidelines, the AC would submit, during the first year of project execution one randomly selected LCB procurement package from each participating IPV, each costing at least US$500,000, for ex-ante Bank review, including bid docuwrents, evaluation and contract awards. If, after the first year of project implementation, the Bank's supervision indicates that the agreed procurement procedures are being satisfactorily followed, then the Bank's ex-ante review of LCB bid procedures would be reduced to six randomly selected LCB procurement packages from six different provinces per year. In all cases, however, the Bank would review LCB, international and local shopping on an ex-post basis by sample surveys. If such surveys revealed that agreed procurement procedures had not been followed, then no expenditures for such items would be financed out of the proceeds of the loan, and the Bank would cancel the corresponding loan amount. J. Financial Analysis and Loan Recovery System 2.29 FONAVI Revenue. FONAVI receives its funding from a 52 levy paid by the employer on the salaries of all public and private employees, from all self-employed workers in an amount of ZOZ of their social security contributions, and from investment income, primarily debt service from the mortgages on FONAVI housing units. The 52 payroll levy provides about 942 of FONAVI's receipts, and the levy on the self-employed workers another 5Z. Annual receipts from mortgage payments comprise less than 12 of total annual FONAVI revenues. 2.30 Private companies are obligated to deposit their FONAVI contributions into the accounts that the National Directorate of Social Security (DNRP) maintains in the banking system. Receiving banks should transfer the FONAVI funds within 24 hours into the master account that the DNRP has in the Banco de la Nacion. The funds are later transferred to the FONAVI account in the Banco Hipotecario Nacional (BHN). Public entities pay the FONAVI levy in different ways. The National Treasury, on behalf of the Central Government and decentralized agencies, pays their contributions directly into the FONAVI account in BHN. The provincial and municipal governments pay their FONAVI obligations at the provincial branch offices of BHN that transfer the funds to the FONAVI master account in the Banco Hipotecario Nacional. BHN thus acts as the financial agent of FONAVI. 2.31 Deficiencies of FONAVI Revenue Flows. FONAVI receipts are based upon the wages and salaries earned by FONAVI tax payers in a given year and are difficult to project accurately. The problem is compounded by the significant underground economy and widespread tax evasion. The precarious financial positions of the central, provincial and municipal governments put an additional financial burden upon the system. In many cases, they have diverted their funds earmarked for FONAVI contributions to capital and recurrent expenditures. SVOA estimates that provincial and other local governments currently owe approximately US$160 million to FONAVI. These problems can be attributed mainly to poor record-keeping for tax  - 16 - collections, lack of adequate staff and equipment, poor follow-up systems and weak penalties for non-compliance. The DNRP has estimated overall evasiorn of the FONAVI levy at about 152 for the employee contributions and about 352 for the contributions from the self-employed. Perhaps even more seriously, the real yield of the FONAVI levies are sensitive to Argentina's high inflation rates in two ways. First, the penalty for not paying FONAVI levies on time is fixed at a nominal 102 per month and capped at 302 for delays of more than two months. Whenever the return of short-term liquid investments exceeds the 102 monthly penalty, employers may delay their FONAVI payments to maximize their returr on liquid assets. For example, in February 1988 short-term bank deposits were yielding 122 monthly. As a result, FONAVI receipts drop during times of high inflation. Second, the often lengthy collections and transfer procedures of FONAVI receipts, (currently ranging from 60 to 90 days), coupled with high inflation rates, erode the real value of FONAVI's income. 2.32 FONAVI Expenditures. FONAVI finances the construction of the housing programs via the Provincial Housing Institutes (IPVs). The IPVs bid and award the construction of the housing projects subject to SVOA's certification that FONAVI will finance them. The IPVs supervise and certify the construction progress and obtain funds from SVOA to pay the contractors. After the houses have been finished and awarded to the beneficiaries, the latter assume the obligation of repaying a portion of the cost of the house to the IPVs, in accordance with their ability to pay (proportion of household income for payment). The IPVs, in turn, are obligated to repay FONAVI on a schedule that, without inflation, would recover the original cost, without interest, of the house. With decreasing real incomes and high inflation in the economy, there is an obvious discrepancy between IPV mortgage revenue and IPV obligations to FONAVI, generally resulting in IPV arrears. Although FONAVI has the legal authority to lay claim to Provincial revenue sharing to cover these arrears, it has never done so. Thus, the original objective of making FONAVI a revolving housing fund has failed. Annex 13, Chart 1 illustrates the current revenue and expenditure flows of the FONAVI system. 2.33 Operating expenditure for SVOA is provided from the Central Government budget. Operating funds for the IPVs come from the provincial government budget and from a three percent administration fee on implemented works and a one percent fee on loan collection which they charge against FONAVI funding. This fee arrangement has enabled IPV salaries to be higher than in the provincial government for similar categories of employment. Consequently, it has led to higher quality staff being recruited by the IPVs, with a lower turnover rate. 2.34 Deficiencies of FONAVI Loan Recovery. The exceedingly low recovery of FONAVI loans is due mainly to: (a) underpricing of the units being sold; (b) mortgages that do not carry interest and are not protected against inflation; and (c) a poor portfolio information and collection system. Also, housing beneficiaries eften do not receive clear title to their houses, which makes it difficuit for the IPVs to initiate legal proceedings against those who are late in their payments. 2.35 With respect to portfolio management, most IPVs actively bill and implement follow-up measures in order to assure beneficiary repayment. However, because of the Housing Law's provision of not charging interest  - 17 - rates, and the government's past policy of capping payments and indexing them only bi-annually to the industrial wage index, inflation has made the value of many mortgage payments less than the cost of col'ecting such payments. Facing this unsatisfactory situation, SVOA passed regulations for minimum mortgage payments of about US$10 equivalent in 1987. Although this could be interpreted as violating existing contracts, compliance has been relatively good. If this measure is not sustained, the IPVs dispose of low-yield mortgages (e.g., by arranging with the borrower for a lump sum payment, handing them over to municipalities for collection with other utility charges, or even writing them off). 2.36 Proposed FONAVI Flow-of-Funds. Under the Bank project, measures would be introduced to speed up the transfer of FONAVI levies from the time they are received until they are available in the FONAVI account in BHN. (para. 2.46(a)). Likewise, ways to reduce evasion and tardy payments of the FONAVI levy would be agreed (para. 2.46(b)). 2.37 The reduction in evasion and tardy payments would be achieved through two key initiatives: (a) decentralization of the primary responsibility for mortgage collections to the IPVs; and (b) competition in billing procedures. A fundamental proposed change in the FONAVI flow of funds would be the introduction of a system of incentives by which SVOA may reward efficient IPVs through the allocation criteria. This would increase the IPV's incentive to implement effectively the new mortgage procedure (para 2.38 below). In the short term, to emphasize the need to increase IPV responsibility, portfolio cost recovery would be an important element in allocation of FONAVI funds among Provinces and of eligibility to participate in the Bank-financed program (para. 2.46(d)). Another important feature of this decentralization would be to make each IPV responsible for collection procedures and follow-up. Each IPV would decide on its financial agent: i.e. private, provincial or national banks (e.g., BHN) would compete for the task and earn commissions. 2.38 To support these reforms, the proposed project contains a technical assistance program aimed at strengthening the FONAVI/IPV system as a whole (Pee Annex 8). With improved record and monitoring systems, better-trained staff and appropriate follow-up and penalty actions in place, FONAVI tax evasion and arrears in loan payments could be substantially reduced. At the IPV level, a review of nine IPVs indicates that the quality of their recording, costing, management and monitoring and control systems varies substantially, and requires periodical management evaluations (para. 2.46(e) and technical assistance, as well as special safeguards for Bank financing (para. 2.46(c) and (d)). K. Proposed New Mortgage Repayment System 2.39 The proposed new system aims at establishing the basis for an overall re-orientation of policies regarding cost recovery, with all subsidies being explicit and clearly quantifiable. Given the long tradition of implicit subsidies, along with existing socioeconomic conditions, the new system will need to be phased in stages increasingly reducing the level of explicit subsidy of beneficiaries. 2.40 Two key mortgage policy reforms are proposed: (a) method of subsidy calculation; and (b) indexation of mortgage payments. Regarding  - 18 - subsidy calculation, the proposed policy would replace an implicit subsidy determined by capping mortgage payments to a proportion of reported family income, with an explicit subsidy based on full mortgage repayment, and after taking into account a minimum level of household savings applied to home purchase. In order to proceed within the current FONAVI Law it is recommended as practical in the short-term to determine the mortgage subsidy based on beneficiary income and allocate the subsidy over time in a transparent fashiont, thus producing an annuity with a present value equal to the full cost of the unit, less beneficiary down payments, less the subsidy determined up-front. This would represent a considerable improvement over current practices, primarily in that the IPVs would have greater leverage in collections and avoiding beneficiary resale in order to cash in their subsidies (currently the IPVs cannot include first buy-back option claims). Annex 7, Table 1 summarizes key features of the current and proposed systems, while Annex 7, Table 2 illustrates how the proposed new system would operate. 2.41 The second policy reform refers to indexation of mortgage payments. Under the current system, even when payments never reach the family income proportion cap, repayment does not include any interest; semi-srunual payments are calculated simply by dividing the outstanding amount by twice the number of years for amortization (up to 40 years). Under the FONAVI Law, these payments may be indexed only according to the Industrial Wage Index (ISPI), on a semi-annual basis. Under the proposed project, all new (not already legally committed) housing financed with FONAVI funds, would have the following characteristics: - real, annual interest rate of 8.72; - maximum repayment period of 25 years; - semi-annual payments replacea with monthly payments; indexed to expected inflation over the six month period, with accounting adjustments for actual inflation, as measured by the ISPI, made at the end of each period; 2.42 Projected Financial Viability of FO:AVI. In order to ensure the financial viability of FONAVI over the project implementation period 1989-1992, and beyond, two conditions must hold: (a) the consolidated FONAVI funds would guarantee annual surpluses that could be applied as counterpart funds t.o the Bank disbursements and as a complement to the anticipated household saAngs; and (b) as a result of the policy reforms under the Bank loan, FONAVI should be able to guarantee incremental revenues, at least sufficient to service the Bank debt. The latter is equivalent to requiring that FONAVI's capacity to finance a given volume of houses should not be impaired by the borrowing from the Bank. 2.43 Available Counterpart Funds. Annex 13, Table 1 provides a consolidated flow of funds, actual for the years 1985-198i and projected for the years 1988-1995. Past annual surpluses have been quite irregular, with a sharp increase in 1986 over 1985 due primarily to the Austral Plan. In 1987, net resources turned negative. The explanation is two-fold. First, the yield of the FONAVI payroll tax decreased in real terms by about 8Z between 1986 and 1987 due to higher inflation rates in the economy.  - 19 - Second, and more importantly, the amount of resources allocated to housing units initiated or completed rose by about 622 between 1986 and 1987. The result was a short-term liquidity crisis that could have been avoided with a programming of works that considered more fully the financial consequences of approving too many requests from the IPVs for financing. 2.44 It should be emphasized that the new SVOA administration is operating with a very serious lack of consistent, reliable data on the status of past operations it has financed (termed *old pre;raml here), on operations to which it is cortmitted (as of 12/31/87) but that have not been formally transferred to beneficiaries ("transition program"), and on operations that are planned but not committed ("new program"). From the financial perspective, the old program is essentially a sunk cost and only historic levels of cost recovery may be expected. The transition program, however, is key to the project's financial feasibility, especially with regard to the availability of counterpart funds, in the short run. The transition program is estimated to be 140,000 units, at average costs ranging from US$13,000 to US$16,000 equivalent. These will require approximately Us$880 million equivalent over 1989/91 to complete. For these units, SVOA will apply a transitory repayment system, which includes previous savings, monthly debt service adjustment but no interest (Resolution 120 of May 23, 1988). It should be noted that the new housing commitment process begins in the IPVs, and there is a serious time lag, caused by a poor to nonexistent SVOA information system, before SVOA learns of its potential new commitments. As the FONAVI Flow of Funds Analysis over the 1989/92 period {X-monstrates, there should be sufficient counterpart funds for the proposed Bank operation if: (a) FONAVI baseline tax receipts (without reforms introduced under the project) stabilize from 1988 forward at approximately US$690 million equivalent (or 93Z of the average for 1985/87); and (b) the transition program does not require more than approximately US$0.5 billion equivalent in 1989, US$0.3 billion equivalent in 1990 and about US$80 million in 1991 to be completed (see Annex 13, Table 1, and Chart 3 for detailed assu,nptions used for the flow of funds analysis). In order to ensure that these assumptions are met, dt"ring appraisal: (a) SVOA notified all IPVs that SVOA would not agree to f-inance any additional transition program requests; and (b) it was agreed that only those provinces which have awarded all the houses of the transitional program would be eligible to participate in the FONAVI/IBRD program. 2.45 Incremental FONAVI Revenues. The proposed project would introduce the following key financial reforms (for details, see Annex 7 and Annex 13, Table 2): (a) implementation of "FONAVI Tax Compliance Plans" through which SVOA would reach agreement with the Provinces regarding the amounts owed to FONAVI by each Province and its respective sub-provincial governments on account of employers' contribution. These agreements would include a plan and timetable concerning the payment of such tax to be complied with by the municipalities as a condition of the availability of FONAVI funds in the jurisdiction of those provinces and municipalities; (b) through improvements in FONAVI portfolio management financed under the project, improved annual cost recovery from FONAVI's "old program" by 102 over historical (baseline) levels; and  - 20 - (c) application of a transition repayment system (para. 2.44) to 140,000 houses, with payment arrears for this program not greater than 40? in FY89 and FY90 and 352 in all fiscal years thereafter. Estimates of the financial impact of these reforms is presented in Annex 13, Table 2, where the incremental revenues are limited to the project induced improvements over the baseline (continuation of historical patterns) of Table 1, Annex 13. These are compared with expected recurrent expenditures (increased operational expenses and debt servicel ) resulting from the proposed project, and produce an estimated incremental, net financial flow of about US$80 million per year beginning in 1993. Table 2, Annex 12 also demonstrates that, with the successful financial management reforms applied to a FONAVI tax base and transitional housing program commitments as stated in para. 2.44, the following relationships are feasible: (a) incremental rev .nues introduced under the project would be at least two tl!et the total FONAVI debt service from 1993 forward; (b) after fulfilling its commitments to the transitional program and to the new FONAVI/IBRD program over 1989/92, FONAVI would have a "surplus" for "independent housing" of almost US$750 million equivalent beginning in 1993, at the current 52 levy on salaries; (c) the FONAVI tax could be reduced to 42 (without expanding the taxable base) in 1993, and FONAVI still could finance almost 100,000 units (at the lower unit costs introduced under the project) per year, which meets SVOA's current estimate of the needed annual supply of "social housing", requiring some form of subsidy. 2.46 In summary, with the financial management reforms provided for under the project, FONAVI is projected to: (a) have uncommitted funds sufficient to apply as counterpart financing to Bank financing and to beneficiaries' savings; and (b) emerge financially stronger as a result of borrowing from the Bank, with sufficient funds, after servicing its debt, to finance fully SVOA's current estimates of the needed supply of tightly- targetted subsidized housing. For these outcomes to materialize, assurances would be obtained during negotiations that: (a) FONAVI tax collections, from June 30, 1989, forward, would be available to FONAVI within a maximum of 20 working days after actual payment of the contributions by the employers and the self- employed; (b) within seven months from the date of loan effectiveness, SVOA would, through agreements with the Provinces or other measures satisfactory to the Bank, put into effect a timetable fo implementation of a "FONAVI Tax Compliance Plan" by the Provinces (para. 2.15) acceptable to the Bank. Similar agreements would be 1 For purposes of monitoring the. project's impact, para. 2.46, it is recommended that the debt service of the ongoing IDB loan be included, as well as any other debt service obligations that may be contracted.  - 21 - reached with the municipalities within 14 months from the date of loan effectiveness; (c) SVOA would ensure that the IPVs take all actions necessary to have arrears2 not greater than 402 for the transition program during 1989 and 1990, and 35Z thereafter; (d) only those provinces with arrears for their total FONAVI portfolio below 402 in 1989 and 1990 and 352 in 1991 onward would be eligible to participate in the FONAVI/IBRD program. The allocation of the FONAVII1BRD funds among the eligible provinces would favor those provinces with demonstrated financial management efficiency; and (e) semi-annual management evaluations would be performed in each IPV by consultants/auditors with these evaluations including compliance with FONAVI Resolutions on cost recovery, unit cost, provincial allocation criteria, beneficiary selection criteria, procurement arrangements, in line with agreed key indicators (Annex 6 and para. 2.49). 2.47 Further assurances of satisfactory implementation of financial management improvements would be conditions for the release of disbursements after the initial US$150 million: (a) substantial progress, satisfactory to the Bank, on implementation of the "FONAVI Tax Compliance Plans" (para. 2.46); and (b) incremental revenue improvements over the total revenues during the period May 1, 1987 to April 30, 1988 (as measured on a cash basis) directly attributable to the project (improved FONAVI tax collection from sub-national governments, and improved cost recovery in transition and new FONAVI/IBRD programs, para. 2.45)3 would be at least double the entire FONAVI debt service payable4 2 Defined as accounts receivable from mortgage payments that are delinquent for more than three months. 3 Incremental (with project) improvements would be measured from the following baseline (without project) estimates: Provincial and Municipal FONAVI tax payments prior to loan effectiveness and receipts from baseline mortgages (zero interest rate) prior to implementation of the T.A. program financed under the project (Annex 12, tables 1 and 2). 4 Measured on an accrual basis for the IDB loan and any other debt obligation FONAVI may contract. For the exclusive purpose of monitoring the financial impact of the proposed loan, the IBRD debt service obligation would be calculated according to the IBRD loan repayment terms in effect for Argentina. prior to April 12, 1988 (15 years repayment, including three of grace).  - 22 - during the 12 months previous to the date in which the initial US$150.0 million tranche has became fully withdrawn from the project's loan account. 2.48 Satisfactory progress in carrying out the program as described in the Housing Policy Letter, the project and the FONAVI Resolutions dealing with loan repayment, eligibility for housing loans, cost, size and other specifications of housing units, national registry of beneficiaries, bidding procedures, allocation of FONAVI funds, collection procedures and participation of non-governmental institutions, will also be a condition of release of disbursements after the initial US$150 million. Moreover, satisfactory progress in the implementation of the recommendations of the studies carried out under the technical assistance program (Annex 8) will also be a condition for releasing disbursements after the initial US$150 million. L. Accounts and Audits 2.49 The Special Account (para. 2.22) would be audited by independent auditors acceptable to the Bank. They would submit every year a report on this account not later than April 30th, following the close of each financial year. SVOA and each IPV would establish project accounts to allow clear identification of the cost and financing of items financed by the proposed Bank loan. BHN or the other financial agents would also keep separate accounts for the home improvement loans program. Accounting records would be available for review by Bank supervision. These accounts would be annually audited by independent auditors acceptable to the Bank. At present such audits would be acceptable if carried out by the Tribunal de Cuentas de la Nacion, in case of SVOA, and by external, independent auditors, as required by the Bank and in accordance with terms of reference reviewed by the Bank. Their reports would include opinions on SOEs and on compliance with relevant Loan Agreements provisions. All audited reports would be sent to the Bank four months after the end of each fiscal year. The Sindicatura General de Empresas Publicas (SIGEP) and private auditors, acceptable to the Bank under contract with SIGEP, would carry out: (i) the audit of all the IPVs; and (ii) semi-annual management evaluation, in line with agreed key indicators (Annex 6). III. PROJECT JUSTIFICATION A. Economic and Fiscal Benefits 3.01 On the economic side, the project would provide on the order of 60,000 additional houses and some 40,000 existing houses would be upgraded and expanded. Under past FONAVI policies, the same amount of funding would have provided only about 28,000 houses, or a third as many. The project's drastic reduction in costs would be possible through better procurement and project administration, and economical housing designs using more appropriate construction technologies and building materials. The economic feasibility of the provision of the some 100,000 housing solutions is measured by the internal rates of return for the different components. The rates of return are estimated to be about 16Z for two bedroom houses and 17Z for three bedroom houses. The rate-of-return for the upgrading component of the project is 19Z. Sensitivity analysis shows that even  - 23 - under the most adverse scenario where benefits would be 151 lower and costs would be 15Z higher the rates of return would not drop below 102 (Annex 14). 3.02 The productivity improvement could also be measured by the increase in living space area provided under the project. The project investments would be equivalent to about a total of 2.7 million square meters. Under present FONAVI policies the same amount of funds would produce only about 1.8 million square meters. The project's productivity improvement is thus about 50?. 3.03 Other economic benefits are provided by the sharper targetting of subsidies under the project and the employment creation. The project would target subsidies to those earning up to the 40th income percentile. In contrast, under the present policies, subsidies are not transparent and are available up to the 80th income percentile of the population. The project could also be expected to create in the order of 180,000 man-years of employment which would in the main benefit the lower-earning segments of the population. The combined effect of the better targeted subsidies and the creation of employment could be expected to result in a more equal income distribution. 3.04 Environmental Impact. The proposed project would improve the environment in the project areas. First, the project would ease the congestion in the present living quarters of the future beneficiaries of project houses. Second, the project would provide all new houses with piped water supply and sewerage connections which would improve the present unsanitary conditions. The housing developments to be constructed would require a certification from the provincial or local water supply and sewerage authorities that the additional water and sewerage connections could be accommodated within the available production and distribution capacities. 3.05 Fiscal Benefits. The project could be expected to improve the housing sector's fiscal deficit through its lower overall subsidies and higher savings and recuperation of mortgages. At the present time, down payments are not required from beneficiaries of FONAVI housing and loans are interest free. Only about 1Z of annual investments flow back to the system in the form of mortgage payments from housing beneficiaries. The level of recoveries would improve under the project. First, an average down payment of 6.52 from beneficiaries would be recuperated in real terms. Second, 402 of the remaining costs of the two-bedroom houses, 80 for three-bedroom houses and 10O2 of housing improvement loans would be recuperated in real terms. The fiscal situation will be improved since the FONAVI housing output will substitute for BHN low-cost housing programs (Plan Centenario, Plan Techo) which in the past have been financed with Central Bank overdrafts. Over time the net result is expected to be lower pressure on the fiscal situation for a comparable level of housing production, either in the form of a lower fiscal deficit or through the possibility to lower the level of earmarked FONAVI taxes. The Government has indicated its willingness to study the possibility of lowering the level of the FONAVI tax and substituting higher personal savings and higher level of recovery of FONAVI mortgages houses for lost tax revenue (Annex 8, III, d).  - 24 - B. Urban Poverty Impact 3.06 The project beneficiaries will be limited to those families earning up to an equivalent of about US$3,360 per annum in prices of October 1986 (Annex 9), corresponding to the 40th income-percentile of the population. At present the FONAVI system is accessible up to the 80 income percentile of all households. The subsidies under the project would amount to a weighted average of 572 for those with a family income of US$150 per month. The mortgage payment would amount to US$22, or 152 and 172 of the monthly family income, for the two-bedroom and three-bedroom houses, respectively, and would enable low-income households to afford the mortgage payments. The very lowest income, households at the 5th income percentile, are estimated to earn some US$100 monthly. The estimated monthly payment for a two-bedroom house payable over 25 years with a 712 subsidy would amount to US$15, or 15? of the household income. This share is realistic in view of the prolonged recession and high inflation rates in Argentina that have eroded the real wages of the categories for which the FONAVI houses are intended. Moreover, it would also allow for a margin to pay for public services such as electricity, water supply and sewerage, municipal taxes and transportation costs. The corresponding monthly payment for a three-bedroom house payable over 25 years with a 212 subsidy would amount to US$49 or 202 of the household income of the 35th income percentile of the population (Annex 7, page 2). C. Risks and Safeguards 3.07 The main project risks are of financial, legal and institutional nature. FONAVI tax receipts and loan recoveries are sensitive to high inflation rates and have fluctuated in the past. In part these financial risks are not specific to the project, but to the nation's economy at large. In order to ensure a more steady flow of revenue, a new mortgage instrument will be introduced, and the technical assistance component would strengthen the management and control of FONAVI's portfolio. In order to minimize the project risks, the Bank loan would be divided into two tranches of US$150 million each, where access to the second tranche would be subject to SVOA/FONAVI compliance with clearly defined improvements in its operational and financial performance. All agreed FONAVI reforms would be introduced through FONAVI Resolutions (Secretariat Directives) to be issued in the near future. The Bank has received a legal opinion on the validity of such new Resolutions under current PONAVI legislation. Furthermore, it is proposed that as a condition for effectiveness of the proposed loan (and retroactive financing) the whole regulatory system must be in place and approved by all appropriate authorities. Moreover, SVOA is understaffed and its personnel is underpaid and unmotivated. This determines a serious administrative weakness, low productivity and staff morale. The institutional arrangements proposed for project implementation and the technical assistance component took into consideration the identified weaknesses of SVOA, without creating a parallel organization, which would further undermine the staff morale. The proposed arrangement includes the necessary transfer of knowhow, the gradual improvement of SVOA's procedures and the strengthening of the sector's basic federal and provincial institutions.  - 25 - IV. AGREEMENTS REACHED AND RECOMMENDATIONS 4.01 Assurances have been obtained during negotiations thats (a) FONAVI's programs would be restricted to housing with economic standards and lower unit costs, to be agreed with the Bank (para. 2.05); (b) the basic housing unit size would be of about 36 sq m for two- bedroom units and of about 48 sq m for three-bedroom units (para. 2.05); (c) SVOA would introduce improved and standard bidding procedures that would ensure transparency of the bidding process (paras. 2.08 and 2.25); (d) SVOA under the Technical Assistance component of the project would carry out studies and implement recommendations on several aspects required to make SVOA a more capable and efficient organization. The Government and the Bank would discuss the findings of all these studies and the Government would prepare plans of action to put into effect their recommendations taking into account the Bank's comments (para. 2.11 and Annex 8); (e) SVOA would implement transitional arrangements satisfactory to the tanK for the assignment and repayment of houses already approved by FONAVI (para. 2.12); (f) SVOA would introduce new flexible housing design specifications to assist the construction companies to build more efficiently (para. 2.16) (g) the AC would prepare and submit quarterly implementation progress reports to the Bank (para. 2.20); (h) SVOA would put into effect a new system of recovery of FONAVI loans, that would cap and make explicit subsidies necessary to rake housing affordable to low-income families (paras. 2.40, 2.41, .,d Annex 7); (i) funds collected on account of FONAVI from June 30, 1989 onwards should be available to FONAVI within a maximum of 20 days after actual payment of the contributions by the employers and self- employed (para. 2.46); (j) within seven months from the date of loan effectiveness, SVOA would reach agreement with the provincial governments in the amounts owed to FONAVI on account of employers' contributions and agree to a Provincial "FONAVI Tax Compliance Plan" acceptable to the Bank (paras. 2.45 and 2.46);  - 26 - (k) SVOA would ensure that the IPVs take all actions necessary to have arrears not greater than 402 for the transition program during 1989 and 1990, and 35Z thereafter (para. 2.46); (1) only those provinces with arrears for their total FONAVI portfolio below 402 in 1989 and 1990 and 352 in 1991 onward would be eligible to participate in the FONAVI/IBRD program. The allocation of the FONAVI/IBRD funds among the eligible provinces would favor those provinces with demonstrated financial management efficiency (para. 2.46); (m) semi-annual management evaluations would be performed by consultants/auditors contracted according to Bank guidelines, with these evaluations including compliance with FONAVI Resolutions on cost recovery, unit cost, provincial allocation criteria, beneficiary selection criteria, procurement arrangements, and key performance indicators (para 2.46); and (n) SVOA and each IPV would establish separate project accounts for the project; such accounts to be audited by independent auditors acceptable to the Bank (para. 2.49). 4.02 The following would be a condition of effectiveness of the proposed loan: the whole regulatory system (embodied in the required FONAVI Resolutions) must be in place and approved by all appropriate authorities (para. 3.07). 4.03 Execution of participating agreements with the IPVs would be a condition of disbursement for civil works in each Province. Further, execution of an agreement, satisfactory to the Bank, between SVOA and BHN or other financial institution acceptable to the Bank, would be a condition of disbursement for the home improvement loans program. 4.04 Assurances of satisfactory implementation of operational and financial improvements would be conditions of disbursements after the initial US$150 million (para 2.23): (a) substantial progress, satisfactory to the Bank, on implementation of the "FONAVI Tax Compliance Plan" (para. 2.47); (b) incremental revenue improvements (as measured on a cash basis) directly attributable to the project (improved FONAVI tax collection from sub-national governments, and improved cost recovery in transition and new FONAVI/IBRD programs) would be at least double the entire FONAVI debt service payable during the 12 months previous to the date in which the initial US$150.0 million was fully withdrawn from the project's loan account (para. 2.47); (c) Satisfactory progress in carrying out the program as defined in the Housing Policy Letter, the project and the FONAVI Resolutions dealing with loan repayment, eligibility for housing loans, cost, size and other specifications of housing units, national registry of beneficiaries, bidding procedures, allocation of FONAVI funds, collection procedures and participation of non-governmental institutions (para. 2.48); and  - 27 - (d) Satisfactory progress in the implementation of the recommendations of the studies carried out under the technical assistance program (para. 2.48). 4.05 Recommendation. With the above assurances and conditions, the proposed project would be suitable for a Bank loan of US$300.0 million equivalent, to be repaid over a period of 15 years, including five years of grace, at the Bank's standard variable interest rate.  - 28 - ANNEX I Page 1 of 2 ARGENTINA FIRST HOUSING SECTOR PROJECT Urban and Rural Population 1980, 1986 and 2000 (millions) I 9a0 1 986 -wa1 fwat 1ri d wa1 P _Ii~s Ugtm Gxttrata weum_d Toc l bm k 0lmtre?d M Total Cpitad 2ra LID - - 2.50 2.42 - - 2.82 asMe Ms 10.0 n0.2n 0.53 10.74 11.42 0.24 0.52 12.18 (stmwca 0.11 0.M0 - 0.21 0.13 0.10 - 0.23 GtL* 1.90 0.13 0.33 2.36 2.18 0.15 0.33 2.66 otraXltd 0.42 0.63 0.20 0.65 0.49 0.03 0.20 0.72 Choa0.42 0M 0.L25 0.69 0.S5 0.03 0.25 0.03 Oudt, 0.2D1 O.U 0.03 0.25 0.26 0.03 0.03 0.32 itre Ric 0.61 G.M 0.23 0.89 o.72 0.07 0.22 1.01 Prum 0.16 0.(1 0.11 0.29 0.22 0.03 (Li 0.16 .MUY 0.29 .(Mx 0.07 0.40 0.37 0.05 0.07 0.49 1a p 0.13 0.03 G0. 0.20 0.14 0.03 M00 0.21 ta Riots 0.10 0.0 O.M 0.16 0.12 O.Ml 0n. 0.18 "avia 0.62 0.03 0.33 1.18 0." 0.06 0.32 1.29 HI*{4J_ 0.29 0.3 0.27 0.51 0.'4) 0.03 0.27 0G7 0.17 0J2 (M06 0.23 0.23 0.03 0.0n 0.30 Uo sum 0.27 nOM 0.05 0.31 0.18 0.M 0.04 0.46 Sait 0.47 0G.4 0.14 0.65 059 0.05 0.13 0.77 sm ump 0.33 0.03 0.11 0.46 .0.39 0(L. 0.10 0.51 Sm lAt 0.19 0.02 0.M 0.21 0.18 0.02 0G0. 0.24 sai?aCh 0.89 0.01 - 0.10 0.12 0.01 - 0.13 smte 1b 1.99 0.Is 0.29 2.43 2.25 0.17 0.2t 2.70 Santio 4el Esteo 0.30 0.03 0.25 0.58 0.37 oO. 0.25 0.66 tbM Q0.9 G.M 0.24 0.96 0. 0.05 0.24 1.10 T. del 0.w om - o.a2 0 .o3 - - 0.03 b"I mitry n2.74 1.01 3.58 27.40 26.1 1.3 3.5 30.9 Pe,kulte 83A. 3.9g 13.12 103.13 u14t U 12 t l0 Note: 2 0 0 0 Wm cmmu PMPP mbr 32.4 1.2 2.9 36.S 89.1 U at 10( Source: 1980 census and analysis by Instituto Nacional de Estadistica y Censo (INDEC) and mission estimates. World Bank population projections for the year 2000. Urban population is defined as those residing in communities above 2000 inhabitants. Rural concentrated population is defined as those residing in communities between 150 and 2000 inhabitants. Arithmetic sums may mt add exactly due to rounding.  - 29 - ANNEX 1 Page 2 of 2 ARGENTINA FIRST HOUSING SECTOR PROJECT HOUSING SECTOR PROFILE .Puptlai SraoJi ad lhuumuld F .tla. I. hfIlt I. l ntruswtwa wiNl.() Increnental Vsa Total ka.Pm. NoveasMids Urha. hell Total Ptulat. list t4Utlamll L.9M V.4 3.16 1o.9 Inhman 61 131 59 1.U1 27.914 116 125.1 la rda 31 36 1 25 1 I* 3j.46 31,6 12743 fr taue 41 3 1 9 1 1.1 31.9 3.6 I25 *Owl 31 2 1 71 1.16 2.4U 364 13t1. 1.0 29.93 3.4 1341 bep t", 1.94 MAN61 3.4 134.15p Ir tlei 140 1 33 1 1.97 3.997 3.64 1319 lptmi tenks ga L. 31.12 3IN 141.3 ams d1 35 A 3 1 1.9 33.7 3.64 143.6 1 665 321 1.99 3.642 3.64 146.3 Sllft lcltm1 ilot eolltet 51 t t4 I  ARGENTINA RRST HOUSING SECTOR PROJECT Organizational Chart of SWOA secrtu lor oHMo aW LhSwCotmayw uow secretItofw hindu SecWrWt~o of Utn DDeb on US H r UrG Sa ecd Guwo No UNb o o Hn dHoCuNn Ofd H aDCOmdn Hf Ld gcof dd A nirm D ? T _- acd Ponces AffosAk Wald Bao* -22242 I0 oN b  FIRS HOUSING SECWR PROJECT OrgonlOor CO Td pka PMc Houakfg (1WP. Mmalj) lv 4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 -it = MESHb g m I~~~~~~~- a~~~~~ z U g C ~~~~~~~~~N l - EF~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  ISN6 AUM _oao" ( auon esonoe autooe auwtoze outs"" tsieg- aitmee aoutmae Number of staff 1.166 of *hoa 801 of oh". so0 of GhOaD let woao 61 of oh". Sig Of whoa S of oh" a1s of a 747 atG% - Prof./t.eclh. - viefoselm,e 2611 profo.oaalo M refeeolel 91 pof#eelo US prOfealMl M twofmells US eftlmle 7gm profeaa_ le Previncial uWham 2.96 *II. 2.21.11. 0.60.all. 0.56elI. 0.27 11. a.6 ll. m.1l.. 0.111I. 11.4 si. Population 1966 Staff ProdutIvity 0. i 0.60 0.46 0.62 0.16 0.U1 1.S 0.47 per -000 Phouletlon Fincingl Soureoe FISVI S al I. i AV1 106 . 11. FIMV1 11ml. POWs " ell. _ lI 00 al1. V1 1n W.11. 1111 so 1. Fo l 16 .11. ram soII. Nil, of Aarele CItby 10 aL. Provinclal proelga -- Prelagial - Proviaolal - P1rosloall 210 elf. Provincial - Pewlaolal ma il. Poelaglal .1 al. Dec. 187 Frcrle- Toal 6. el. Total 10 all. To_l tiO *11. Toll ae *0a11. To_al M0.11. Total110ala. Toal 16 ell. Ttal 4d0l11. Homeo" der 6.26 6.11 O, 00 .100 U2D0 O,OilO 4.S CO UlaD oeitruction "D. of Mortgaee 81.400 6S.U 16.800 *,.CO 26.000 .400 .m ,.l Nb. of Appl icant. 6.9 eo _ad At leas 10l.,i 4,.000 ro. 81.01) Go" 15.000 eveO 1110.000 ape 1_ 11.41001 sgom sO.,CO _Go _ I latr by .jio geroangat la 1676 beE... and peeamneat ad pormaftt NWd poragt atd PeaMeMAt eNW peomamo and emoWK6a regloty reglatr closed reglotrJ rgl"ay r-Wlep reglotr -flows relaw Urban Population, Ron Cordabe IU II.A. 12 abowa 20.000 1 a_g 70.0,0 bar o%d.o. US * SW 1600.011 Sy sIll.. oad 0rm 1eama Alt.. m Dietribut,ion 1 10.000 6 U.OO100i0 I t0.00-,.C of70.00 o . on" Oro. Lo Po t. 2 60.000 11 bolem 1.00 C 10.000.25.000 7 too" 1mi ae &lI Eme. a 7 i0.000 4 2,000-10.000 af peg. b. des rPlat 41i 4 40,0D 10 C.O ltba U t 11.00-18.161 u1 7 10.000.15.000 a of peg. 1 1.0040.6 n O.erd.e Accouni. 4011 of aler Urbncan N.A. O66 of number of 251 of Member of 0 of numbor of Us OF auwD s of th. amat d of ad _ of of aceount. a cceUnt. lcca e, of o acota du U thu aeount duo E.tarnal Acd.to.a nicipal General Slndi,.* appoint" N.A. Tribunl Vribual Trib;al TribeaI Tribunal tlb6al AconVt0 Off"ice by tA. Co onor *- Co""* do Ca- tee, 4d Cue de Caoto do Cagt.. de Cuinto. Proc.,-enL 20 b.d.,r n 5b6 bdd.,e on B1164.,.F e b*sdera on 10 biddar on O bifddr. co a 6idars ON 10fbrI oe m,_ avoraga evereuc Overage anrag. a.erage avera *vre 0  First Hioino Pooiect vescri.tio of Sol ted Institetions P"enirA1 A. vienwa IIPVeI ASiSUhi.L... fL -L o1U mii CH4 OOM MMO SANTA FE, "EAA V I Project Soupe.riGio Non-ocoeterised NwicompVtoried One intepector per one inpector per Sne inseptor per Sstiefectory. On. in tor Sst.i-feor. IMee feetorg 1 irspection tee U to.ee. s toes. site. _o_bermonm corpte ri nd. me coepetorised per U0 hr... compe.trisd. imepe tor par 73 per *.te. cltee lere nStpector p.r Ct.."rao . -nt-. csOtOr Cewero". o bows". proj et "rrsy t erinnc wtith Recent - imited Pogsiti. Limited Limited Limited Limited tot Lis;td. P ositi0 Positine Poeitie a"d on-Oornentsl (1046to using ooslt.. with .nic.p1- _1-l (skoot we Orgenisstls wait*) ities. memgti.. of deeme) with COeoertiee. Arsilsbilitg of u;nte. N.A. Aspi. lend with Asple lend with Ample pulie lend Ur hae ot DV ple Ample public NW 1.20 tee of Irv Poblem is S*.A Load contactor, Contractors mepl pblic len np1eo tie len d. Netro ltweon. LS e t led Of PI."e. No del intermediaries Piars end fhb. Sisane. Cot ,elbdo Infra trecture Sopsrstructr 79 N.A. NA. N.A. teret 775 Sprmtoc%wre US $epre 72h Spr-trect 2S mmd lead 21 nf rcre 12 intrestrcture 14J tnt reewvters 125 Inf1eetrcor, 15 Znflnrsetur. 11 Saop rstrctere 751 Led Lnd 33 Len a Lend 5 Lnd ES Totel 100 Total 100 Total 1003 Others a Totl LOS Totl 1001 Co.ii Worbs Eists E.iet.s E st Eniat* E.1sts Eists bet n &is%* Eis;abEt no