Transcript of meeting of the Executive Directors of the IBRD and IDA, held on Tuesday, July 26, 1988 : Argentina - Social Sector Management Technical Assistance Project

nml STRICTLY CONFIDENTIAL l INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Tuesday, July 26, 1988 Washington, D.C. The meeting of the Executive Directors was convened at 10:09 a.m. in the Board Room, 1818 H Street, N.W., Washington, D.C., Mr. Barber B. Conable, Chairman, presiding. LLER REPORTING CO., INC. · C Street. "'I.E.  nm2 STRICTLY CONFIDENTIAL 2 C O N T E N T S ITEM PAGE 7 Proposed Loan - Argentina (Social Sector Management Technical Assistance Project) 66 Mr. von Harpe 68 Mr. Haxthausen 70 Mr. Guimaraes 71 Mr. Alzetta 75 MILLER REPORTING CO., INC. ~07 C Street, ~ .E. ,v,..... i..: .......... ,...r> nr ,nf\n-,  STRICTLY CONFIDENTIAL 66 nmG6 We now come to item seven, which is a recommendation MILLER REPORTING CO., INC. 507 C Sueer, ~.E. Wa.shington, D.C. 20002 nm67 STRICTLY CONFIDENTIAL 67 on a proposed loan in the amount of $28 million U.S. equi- valent to the Republic of Argentina for a Social Sector Management Technical Assistance Project. i Mr. Moreau, who is a Country Officer in the LAC I Region, is going to introduce the proposal for us. :1 1, Mr. Moreau. li MR. MOREAU: Mr. Chairman, Members of the Board: A !I Ii ! I recent Bank report entitled "Argentina - Social Sectors in I I. Crisis" identified resource constraints and inefficiencies I' 11 11 that plague Argentina's social sectors. Federal as well as ii jl ii provincial ministries lack the capacity to plan and budget i programs adequately, and to monitor the performance of sector agencies . ,, .1 II Most of these are handicapped by the scarcity of Ii I, reliable and systematic information, by the absence of I' 11 specialized economic analysis units, and by the weakness of II intermediate and support staff and inappropriate budget 1, !1 !I procedures . !I 'I 11 The minimal level of coordination that exists // I between the public and the private s e ctors further · r e daces I l I s e rviC E:: ! l e vels and · the eva s ion ._:. f social security co·ntribu- · i / tions is at the 50 percent level. 1 / The report, which was well received in Argentina, I MILLER REPORTING CO., INC. 507 C Street , !'I.E. Washington. D.C. 20002  STRICTLY CONFIDENTIAL 68 nm68 concluded that a major overhaul was needed, and recommended a series of reforms to reduce the dependency of the social sectors on increasingly tight fiscal revenues through improvements in efficiency and better cost recovery, coupled with enhanced access by the truly needy. The government is firmly convinced that the social sectors have to go through a major administrative and financial restructuring, and has asked the Bank to assist it in this effort through a series of social sector operations designed to improve e fficiency and targeting. The proposed lo a n would be the first in this series and would help the government in the preparation and initial implementation of policy and institutional reform and would lead to investment projects in the social sectors. Thank you. MR. CONABLE: Thank you, Mr. Moreau. Mr. v o n Har p e . MR. VON HARPE: Thank y o u, Mr. Chairman. Mr . Chai r ma n, we support thi s proj e ct. We s ee tha t the s er iou s shor t cbmings in the a rea of Lhe soc ial s e r v ic e s in Argentina de s e£v e ·our stro ng i nt ere st a~d a t t e n Ei d n . I Th e ma nageme nt paints in para . 3 of t he report a very gloomy picture and, although we see some sho rtc omings in MILLER REPORTING CO., INC. 507 C Sm et. :-.I.E. Washington, D .C. 20002  STRICTLY CONFIDENTIAL 69 nm69 the report, we think that the overall conclusion can well be that the more rigid kind of adjustment efforts is by the government and supported by the Bank, the more you have to give your full attention to the social costs of the program itself by shaping up and by tailoring a special social sector I project, as it is given in this case. Therefore, we can render our full support because II it is clearly geared towards the fact that the social I services play a key role and the efficiency in the delivery 11 of social services should not be decreased when structural !I adjustment efforts are being undertaken, but inc reased, I iii partic ularly in times of budget cuts and restri c ted public I funds. On the other hand, Mr. Chairman, it is not quite clear to us what kind of clear timetable is given in this project report, because the recommendations and the implemen- .1 tation phases which we think are needed urgently are not put 1· in a c lear time schedule. We think a period of two to three years f o r the . 11 implementation of this project would be t"oo l o ng and we- t hink _I 1 the Ba nk should try t o a chie ve r e sul t s unde r this pro j e ct as ' e a rly as possible. Secondly, Mr. Chairman, para. 8 contains important MILLER REPORTING CO ., INC. 507 C Street, 'I.E. Washington, D .C. 20002  STRICTLY CONFIDENTIAL 70 nm70 agreements with the Argentine Government with regard to the financing and the execution of the studies under this project. The wording of para. 8 seems to indicate that the Argentine Government is not fully supportive of these kind of studies because the wording seems to indicate that the World Bank would try via this agreement to avoid in any case that these valuable reports and studies are not shelved away. Is there an unusual risk in this regard? And is that effort by use of studies being taken seriously and will lead in the future to actions? Thank you very much, Mr. Chairman. MR. CONABLE: Thank you, Mr. von Harpe. Mr. Haxthausen. MR. HAXTHAUSEN: Thank you, Mr. Chairman. I We fully support this loan, and it seems to be a 11 i very much needed reform in the social sector in Argentina. i This loan is called a project, but in my view it is, in fact, more a structural or sectoral adjustment program supported by technical assistance from the Bank. Is there any spec~fic reason why this loan is called a project instead o f a program? Anyway, I am glad that the program is not being sugar-coated by a big loan for general imports as in some MILLER REPORTING CO., INC. 507 C Street, ~ .E. W>.Shington . D .C. 20002  STRICTLY CONFIDENTIAL 71 nm71 similar loans, but with a very small technical assistance component. I think this approach with a big technical assistance component is a very good approach in this case. Thank you. MR. CONABLE: All right. Thank you. Mr. Guimaraes. MR. GUIMARAES: Thank you, Mr. Chairman. We have no problems in going along with this project, Mr. Chairman, though we share some of the concerns It is in connection with the procurement unit. On page 17 it is established that under the project will be hired a procurement agent, and the payment the cost of hiring this procurement agent is stated on page 6, and the procurement agent fee will b e $1.5 million. I don't r e call inde e d seeing this kind of agent fe e s in what c o nce rns procurement on othe r projects. Arge ntina is well, I hav e some problems in understanding why the ne ed f or this hiring I' procure ment agent and f o r suc h a high f e e t hat repre s ents I mo r e than 5 p e r ce nt of o ur l o an, a nd mo t e tha n 3 per c ent o f the total cost of the loan. Thank you, Mr. Cha irma n. MILLER REPORTING CO., INC. 50i C Stree,. ~ .E. Washingrnn . D .C. 20002  STRICTLY CONFIDENTIAL 72 nm72 MR. CONABLE: Thank you, Mr. Guimaraes. How about it, Mr. Moreau, would you like to deal with these concerns? MR. MOREAU: In response to Mr. von Harpe's question concerning the commitment of the Argentine Government to the studies and the implementation of the recommendations of the studies, the government is fully supportive of the need to do something in this area. The conditions which are outlined in paragraph 8 of the memorandum of the President are of a more general nature, and not particularly to Argentina. They do not reflect the lack of trust or belief that Argentina will take these studies seriously, but rather a general attempt on the part of the Bank to ensure that there will be grounds to monitor the fact that in technical assistance loans such as this, studies are taken seriously and one can look at the various points in the supervision and verify that this is so. The procurement issue Mr. Guimaraes raised, the proc urement agent i s a mechanism whicl1 has been used in other cases, s uch as in Argentina the public sector manageme nt project, which i s a l so a technical assistance project. In that case -- and it is expected the same would be in this case -- the UNDP's OPS, Office of Pro ject Services, is MILLER REPORTING CO., INC. 507 C Smet. ~ .E. W2..Shington. D. C. 20002  STRICTLY CONFIDENTIAL 73 nm73 contracted to assist the government and the coordinating unit of the project in the procurement of goods and short listing, ensuring that the Bank's rules are followed, and also the procurement of the services of consultants. For this, the charge of fee, which at this point is an estimate but it will be determined on the basis of the actual work performed by the OPS. MR. HUSAIN: And essentially the cost of overheads which would have been incurred by the Argentine Government if they had done it themselves. MR. CONABLE: All right. Mr. von Harpe. MR. VON HARPE: Thank you very much, Mr. Chairman. Coming back to the agreed action mentioned under para. 8, we find here quite a strong wording, which is somewhat unusual in terms of the conditions for fin a ncing and executing studies. There is a tranching that clearly is dependent on progress achieved under the financing of studies, and at l e ast we are talking abo ut quite some mo ney . And you h ~ve specific impl e me ntatio n conditions that are · linked to annual action plans for the execution of diff e rent steps. "Eff e ctive- n ess o f l oa n agree me nt would be subjec t t o sat i sfactory MILLER REPORTING CO., INC. 507 C Sum, "I.E. Washin~rnn. D .C. 20002  STRICTLY CONFIDENTIAL 74 nm74 fulfillment of the following conditions", and they are then mentioned. And everything is being linked in some way to these studies. So at least it is a little bit unusual when I compare that to other studies being financed. Thank you very much, Mr. Chairman. MR. CONABLE: Mr. Husain is going to take that up. MR. HUSAIN: Mr. Chairman, this is a large loan for a technical assistance loan. It supports a fairly large program of studies, whose rationale is that they should feed into specific planning of reforms and changes. We and the Argentineans are keen that the money is not simply used for studies that would be put on shelf, but as these studies are carried on, we should review, of course, the quality of these studies, but also review with the government their specific action plans. And if at any time, there is doubt on that, then clearly there would be no basis for the continuance of disbursements under this loan. I would also like to remind you that the next year and two will be a time of substantial political change in Argentina and; ther~fore, in designing this loan we have tried to make sure that these understandings are coritinuect through the change of government and, therefore, the purposes of the loan are mitered. MILLER REPORTING CO., INC. ~Oi C Street, ~ .E. Washington, D .C. 20002  STRICTLY CONFIDENTIAL 75 nm75 MR. CONABLE: All right. Mr. Alzetta. MR. ALZETTA: Thank you, Mr. Chairman. If I may go back to the point that was raised by Mr. Guimaraes about the hiring of a procurement agent, is that a Bank condition or is that the desire of the Argentinean Government? Thank you. MR. HUSAIN: It is normal, Mr. Chairman, in such large technical assistance loans for the country to engage the services of organizations which have competence, specific competence in locating experts internationally, in managing of course the largest stakes of them. And, yes, in these cases, particularly in Africa but in Latin America, it is quite conunon that the country and the Bank agree to engage the services, among others, of the UNDP or UN or some of the specialized agencies of the UN, in some cases private organizations for this purpose. In s ome other cases, it could be just hiring a firm, which of course would need substantially higher costs. MR. CONABLE: Mr. Alzettct, you wanted to follow u~. MR. ALZETTA: Thank you, Mr. Chairman. Can we assume that this is going to be a sort of MILLER REPORTING CO., INC. 507 C Smet, ~.E. Washington. D .C. 20002  nm76 STRICTLY CONFIDENTIAL 76 policy, implicit policy for coming programs and structural adjustment loans? Thank you. MR. HUSAIN: Mr. Chairman, first of all, this is not a structural adjustment loan. This is a technical I assistance, which supports specific studies. In a structural adjustment loan, the variety of issues and specific agreement I i on what the government would do is much deeper. This is what I I normally is considered a technical assistance loan. 11 I' Hopefully, it may lead to specific sector adjustment i I I I loans in the sectors where the work would be done, but the i 1, policy essentially, the procurement procedure here is in ii I' ,\ j! accordance with the normal policy of the Bank, where there ,1 are large complex technical assistance projects, hiring of IDA firms to do the job or of agents to help the government in hiring specialists, and it is reasonably normal. I MR. CONABLE: Mr. Guimaraes wants to follow up also. i: •I 11 ,., I MR. GUIMARAES: Thank you, Mr. Chairman, and excuse I me for coming back to this problem, but it is really a rather l large amount of money. And the selection of thes·e procurement / 1 agents will be · dn the basis of the rules ·of cunsuitants or as ! -- I don't recall in the rules of procurement of the Bank of I tinding out the referenc e to the recruitment or hiring of MILLER REPORTING CO., INC. )07 C Smee, '.'J.E. Washington , D .C. 20002  STRICTLY CONFIDENTIAL 77 nrn77 procurement agents. And at the same time, is it available, the terms of reference for this procurement work? Thank you, Mr. Chairman. MR. CONABLE: Who would like to take that? MR. HUSAIN: Well, Mr. Chairman, again as I said, in this case the procurement agents would be international organizations. But, for example, in the procurement of goods, in a number of African countries, hiring of procurement agents, such as the Crown agents or such as some of the firms which specialize in procurement is a part of the normal Bank I practice. Ii Again, this is in view of the fact that hopefully I some of this recruitment should be on an international basis I and the capacity may be inadequate in the government. I Ii MR. CONABLE: Mr. von Harpe. 11 /, MR. VON HARPE: Can I conclude from what y ou are I saying that there is a kind of divi s ion of labo r amo ng the I, international institutions, and I think UNICEF is specialized i I in procuring ve hicl es through the Co tton Hardin (Phonetic) Ce nter. Is there still a kind of inf ormal understanding b e twe e n the inte rnational organizations? MR. HUSAIN: No . The choice will have to be that of the Argentineans on the basi s of the compe t e nce of the MILLER REPORTING CO., INC. )07 C Street , ~ .E. Wa.shington, D .C. 20002 nm78 STRICTLY CONFIDENTIAL 78 agencies, but in this case this UN agency has a particular specialization in managing studies, in managing international expertise. MR. CONABLE: In technical assistance; UNDP is a technical assistance agency. MR. HUSAIN: That is right. MR. CONABLE: Mr. Bottelier. MR. BOTTELIER: I might add that we have been doing business on this basis for technical assistance work in Argentina for years. This is with the OPS, the Office of .. •Project- Services of ·the UNDP, who basically serve as an· ·agent ~ ., ,_. f or the execution of parts of these projects, and that has worked well and at a very moderate cost. MR. CONABLE: Mr. Rao Sahib has a question on this. MR. RAO SAHIB: Mr. Chairman, not really a question . I only wanted to say that if the Government of Argentina ·p refers to ·hire· ·consultant services through the· UIIJDP·, · · c ertainly they should be free to do so. I only thought we should make it clear that a ssistance component. The Bank does make sure that ap- p ropriate arrangements are in place for hiring of consultant MILLER REPORTING CO., INC. )07 C Street, ~ .E. Washington, D .C. 20002 run79 STRICTLY CONFIDENTIAL 79 services, while sanctioning a loan and while the loan is being implemented. But many goverrunents choose to do this themselves without hiring a special procurement agent. And one should not elevate this into a matter of general policy. Thank you, Mr. Chairman. I MR. CONABLE: Thank you, Mr. Rao Sahib. '!1 Are there further comments or questi o ns? 11 (No response.) II 11 MR. CONABLE: I see none . The minutes will show i 11 the Executive Directors approve the loan on the terms !I proposed. II I I I I MILLER REPORTING CO ., INC . j07 C Street, ~ .E. Washington , D .C. 20002