Argentina - Social Sector Management Technical Assistance Project

Document cf The World Bank FOR OFFICIAL USE ONLY Report No. P-4829-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USo28.O MILLION TO THE REPUBLIC OF ARGENTINA FOR A SOCIAL SECTOR MANAGEMENT TECHNICAL ASSISTANCE PROJECT July 5, 1988 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNITS Argentine Austral (A) - 100 Centavos As of 411411988s US$1.00 a 5.54 Austral (commercial official rate) US$1.00 - 6.70 Austral (free market rate) Austral 1.00 - 0.18 US cents (commercial official rate) Austral 1.00 - 0.15 US cents (free market rate) ARGENTI?.E FISCAL YEAR January 1 - December 31 ABBREVIATIONS CNP National Organization of Social Security 1NDEC National Directorate of Census and Statistics INOS National Institute of Social Insurance Funds MEJ Ministry of Education and Justice ME Ministry of Economy MSAS Ministry of Health and Social Action MTSS Ministry of Labor and Social Security NGO Non-governmental organization OS Social Insurance Fund OPS Office of Project Services PAHO Pan American Health Organization PCU Project Coordinating Unit PPF Project Preparation Facility SAIJ Argentine Legal Information System SCECC Secretariat of Coordination for Education, Science and Culture SDHF MSAS Secretariat of Human Development and Family SE Secretariat of Education UNDP United Nations Development Program UNESCO United Nations Education, Science and Culture Organization  FOR OFCIAL USE ONLY ARGENTINA SOCIAL SECTOR MANAGEMENT TECHNICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMARY Borrower: Republic of Argentina Beneficiaries: Ministries of Economy, Education and Justice, Health and Social Welfare, Labor and Social Security; Secretariat of Planning Amounts US$28.0 million equivalent Terms: Fifteen years, including a five-year grace period, at the Bank's standard variable interest rate. Financing Plan: Government US$13.3 million IBRD US$28.0 million Japanese Government Grant US$ 3.7 million* Total US$45.0 million Economic Rate of Return: Not applicable Staff Appraisal Reports Not applicable map: IBRD 20450 * Japanese grant equivalent to Y 500 million calculated at US$1.00 = 135 Yen. This document has a restricted distribution and may be used by recipients only in the perfl-.."nce of their official duties. Its contents may not otherwise be disclosed without World Bank a nthoriza.;on.  * AORANDJM AIID RUCO_SRDTION OF THE PRESIDfNT OF THE INTEEATIONAL BAN VA RECONSTRUCTION A1D DEVEOPMT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TOE ARGENTINE REPUBLIC FOR A SOCIAL SECTOR MANAGUIENT TECINICAL ASSISTANCE PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of Argentina for the equivalent of US$28 million to help prepare and launch reforms in social sectors is submitted for approval. The loan would have a term of 15 years, including 5 years of grace, at the Bank's standard variable i.nterest rate. The Government of Japan has also agreed to assist the project by a grant equivalent to US$3.7 million. 2. Background. Even before Argentina's recent economic crisis began, a significant part of the population lived with little access to public education, health, water and sewerage, and under grievous housing conditions. Since the mid-1970s, the population in need has increased, while the coverage and quality of services have deteriorated and the public and private resources spent on social services have declined. The 1976-81 government spent 17 percent less than the 1973-1975 average on social services, despite a 17 percent increase in total public expenditure, caused in large part by significant defense and security spending. The deterioration of those services that predominantly benefit lower income groups has been more severe than those that serve the middle and higher income groups. 3. Since the gap between the demand for and the supply of public social services has grown, their organizational shortcomings have become more visible. A recent Bank report (IBRD 6900-AR) showed that programming and budgeting in social sectors are inadequate; cost recovery and resource mobilization efforts are weak; and earmarked funds are targeted poorly. Inefficiencies plague the system: inadequate attention to recurrent cost and maintenance budgets causes expensive equipment to sit idle and buildings to become unusable; manpower distribution is skewed geographically and skill-wise; the coordination between public and private sectors is extremely weak. Much of public social expenditures benefit those who can afford to pay the full cost of these services. However, user charges are unrelated to service costs or absent; evasion of taxes earmarked for secial security reaches 50 percent. The Ministries in charge of social services function at very low levels of productivity, lack reliable and systematic information, cannot analyze and evaluate their own programs or monitor the performance of sector agencies. They also suffer from low salaries, absenteeism, bad morale and deplorable physical conditions. 4. Rationale for Bank Involvement. The Bank's strategy is to support better utilization of the nearly 30Z of public expenditures devoted to social services, particularly greater cost effectiveness, quality and accessibility by lower income groups. The present Government has given priority to alleviating the hardships experienced by an increasing part of the population and providing equal access to social services. Achievement of these objectives would require substantial resource mobilization and major budgetary and institutional reforms to improve allocative and  - 2 - administrative efficiency and targeting. Their accomplishment would help create a better basis for the long-term fulfullment of the country's social and economic development goals. 5. The aforementioned Bank report recommended comprehensive policy and institutional reforms to improve resource mobilization, programming, efficiency and targeting of services, and demonstrated that better programming and budgeting, introduction of user charges and accurate targeting would provide far better quality, much more service, and more effective help, with only minor increases in budgetary resources. Having fully couicurred with the Bank's advice, the Government has requested further guidance and critical support in the preparation and execution of high priority action programs for policy and institutional reform in the areas covered by this operation. Under a PPF advance by the Bank, it has formed teams directly attached to the offices of the Ministers and Secretaries to prepare the project which is intended to lay the policy and institutional groundwork for a series of planned social sector projects. The design and implementation arrangements for carrying out the project take into account the lessons learned from the Bank's experience under the Public Sector Management Technical Assistance Loan. 6. ProJect Objectives. The proposed loan would assist in the preparation and execution of reforms to improve the institutional and physical capacity to deliver social services to those who need them. It would provide technical assistance and equipment to the Ministries of Education and Justice (MEJ), Health and Social Action (MSAS), Labor and Social Security (MTSS), Economy (ME); and the National Directorate of Statistics and Census (INDEC) tot (i) improve the quality and cost effectiveness of social services; (ii) improve the access of the needy to social services; and (iii) prepare programs and plans of action for the mid-term development of the social sectors. 7. Project Description. The project would provide technical assistance to (i) prepare and implement programs for improvements in resource allocation and utilization, cost recovery and targeting; (ii) introduce administrative reforms and streamline processes in order to improve programming and budgeting of sector expenditures, including the establishment of policy analysis units in social sector ministries; (iii) train federal and provincial sector managers; (iv) build or strengthen information systems to support policy-making and post-evaluation capacity; and (v) put in place a better targetting system for the needy. Since the project is multisectoral, a coordinating unit (PCU) would ensure that overall goals and objectives are reflected in the activities of each component and that the key activities (statistical services, information systems, training, evaluation, procurement) are coordinated. The PCU would also support the participating units' implementation of their components, review in substance the selection and contracting of consultants and purchasing equipment and evaluate the impact of technical assistance on the performance of the agencies. To fulfill these duties, it will retain experts, acceptable to the Bank. The project, to be carried out over 3 years, would provide funds for consultant fees; training; vehicles, furniture and equipment and civil works. Total project cost is estimated at US$45.0 million equivalent, including US$10.6 million (24Z) in foreign exchange. Schedule A contains a breakdown of costs, the financing plan and the disbursement schedule and Schedule B the amounts and methods of procurement and of disbursements. A timetable of key project processing  events and the status of Bank Group operations in Argentina are given in Schedules C and D, respectively. A map is also attached. Technical Annex A provides an overview of sector agencies, the description of project activities by sectoral components and the arr7agements regarding procurement, disbursement, accounts and audit. Annex B presents time- specific policy actions which were discussed with the social sector ministries. Annex C is the Government's letter of intention concerning the project. 8. Agreed Actions. The Government has agreed on the following actions: (i) the studies financed under the project would include specific implementation programs to meet the objectives of th. project; (ii) where appropriate, and taking into account the Bank's comments thereupon, the Government would prepare time-specific programs or plans of action to carry out the recommendations of such studies; (iii) annual action plans for the execution of activities under each component will be furaished to the Bank by September 1 of each year for the following year. The effectiveness of the loan agreement would be subject to the satisfactory fulfillment of the following conditions: (i) establishment of a project coordinating unit and project execution units with adequate staffing and definition of functions; and (ii) contracting a procurement agent. Starting in 1989, the Bank would receive annual progress reports and consult with the Government on the results of stu: yes. Also, the loan would be tranched. A mid-term review of project implementation would be made and no more than half of the loan proceeds (i.e. beyond US$14.0 million) would be disbursed unless the Bank is satisfied with the progress achieved in carrying out the project and in attaining its objectives. Hiring of consultants will be according to procedures satisfactory to the Bank. 9. Benefits. The project is expected to bring about major improvements in the efficiency of social service delivery, mobilize additional resources and contribute to the alleviation of the negative impact of the deteriorating economic situation of the last decade and cost of recession and adjustment on the poor. It would also help to prepare follow up projects that would be presented to the Bank for financing. 10. Risks. Next year's national elections could affect the commitment required for this project, especially because of its strong policy emphasis and the existence of enclave units to be financed by outside funds. To minimize this risk, an effort has been made to build a wide consensus through bipartisan project preparation groups. Also, a larger amount of supervision, annual joint reviews and the aforementioned comprehensive mid-term review, are planned to ensure satisfactory progress towards the achievement of the objectives of the project. 11. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve the proposed loan. Barber B. Conable Attachments President Washington, 0. C. July 1988  4 - Schedule A Page 1 of 2 ARGENT INA SOCIAL SECTORS TECHNICAL ASSISTANCE LOAN SUMMARY OF PROJECT COs rs b/ Protect Comoonents Local Foreign Total ---------(US$ million)-------- Ministrv of Health and Social Action - Mqmt. Secretariat of Health 11.07 1.30 12.37 - gmt. Sec. of Human Dev. & Family 3.34 0.61 3.96 - Momt. Ministers Of4ice 0.49 0.01 0.50 Subtotal 14.90 1.93 16.63 Ministrv of Social Socurity and Labor - Mgmt. Social Security Secretariat 3.22 0.39 3.61 - Mgmt. Labor Secretariat 0.33 0.03 0.36 Subtotal 3.55 0.42 3.97 Ministry of Education & Justice - Mgmt. Education Socretkriat 5.45 1.27 6.72 - Mgmt. Justice Secretariat 4.51 3.09 7.60 Subtotal 9.96 4.36 14.32 Crose-Sectoral Activities Secretariat o' Plannings INDEC 0.53 0.22 0.75 Ministry of Economvs Public Social Exp. 0.25 0.00 0.25 Subtotal 0.78 0.22 1.00 Coordtnating Unit - Project 0.69 0.02 0.70 Procurement Agent Fee 1.50 1.50 Repayment of PPF 0.75 0.75 Evaluation 0.50 0.50 TOTAL BASE COSTS 29.88 9.70 39.57 Physical/Price Contingency 4.49 0.94 5.43 TOTAL PROJECT COSTS 34.36 10.64 45.00 -------------------------------------------------------------- a/ Totals may not add up due to rounding. b/ Excludes taxes which are borne by the Government.  Schedule A _________.. Page 2 of 2 ARGENT I NA SOCIAL SECTORS TECHNICAL ASSISTANCE LOAN FINANCING PLAN Project Comoonent Local Foreign Total -----~~~--------- --------- (USS million)-------- Government 13.3 13.3 Japanese Grant Fund 3.0 0.7 3.7 World Bank 15.1 9.9 28.0 TOTAL '34.4 10.6 45.0 mmmm- uUmwinwm winnw*ww % of Total 767. 24X 100l a/ DISBURSEMENTS (In USS Million) ----------------------------------------------------------------___-- Fiscal Year 89 90 91 92 Annual 8.5 9.4 7.6 2.5 Cunulative 8.5 17.9 25.5 28.0 % of Total 30.4. 63.9. 91.1Y. 100.0. a/ Totals may not add up due to rounding.  -6- schedule 5 page I of 2 AROUTDI SOCIAL SECTOR TLCNZCAL ASSISTAMC PRMJ_CT PROCUEUUUT l1TEOD Project Liement Procurement Method otal IC) LC2 0theE Cost , - - - - (US$ mallion) - - - - - - Consultants/StudLes 15.7* 15.7 (14.0) (14.0) TrainingllellowehLps 4.0* 4.0 (3.0) (3.0) Squlp.ent/Vehicles/Furniture 1.1 5.5* 6.6 (1.1' (3.9) (5.0) Civil Works 0.9 0.9 (0.0) (0.0) Repayment of PPP 0.75 0.75 (0.75) (0.75) OperatLag Cost 9.6* 9.6 (0.0) (0.0) Evaluation 0.5 0.5 (0.5) (0.5) Procurement Agent Fee 1.5 1.5 (1.5) (1.5) Contingencies 5.45 5.45 (3.25) (3.25) TOTAL 1.1 0.9 43.0 45.0 Total Loan (1.1) (0.0) (26.9 (28.0) Notest (1) Figures in parentheses are the respectlve amounts to be financed by IBRD. (2) *Otherm methods include international shopping and direct purchases. (*) Includes amounts for items financed by Japan Grant Facllity to be administered by World Bank.  II Mav -813 SCHEDULE P ARGENTINA Page 2 SOCIAL SECTORS TECHNICAL ASSISIANCE LOAN FINANCING OF PROJECT COSTS (US* '000) IBRD JAPAN Grant Government Component Amount X Amount . Amount % Total Consultants/Special Studies 14,053.3 89%. 1,674.1 11/. 0.0 0% 15,727.4 Training/Fellowships 3,037.3 757. 263.0 7-. 713.6 16O. 4,033.8 Equipment/Vehicles/Furniture 4,884.2 74-. 636.3 107 1,087.0 167 6,607.5 Civil Works 0.0 0X 0.0 0- 850.0 1007 850.0 Repayment of PPF 750.0 1007. 0.0 0Z 0.0 0. 750.0 Oporating Costs 0.0 0% 563.0 67. 9,043.1 94% 9,606.1 Evaluation 500.0 1007 0.0 0o 0.0 0% 500.0 Procurement Agent Fee 1,500.0 100/. 0.0 0. 0.0 eC. 1,500.0 Contingencies 3,275.3 607. 543.7 107. 1,606.3 307. 5,425.3 TOTAL PROJECT COSTS 26,000.0 627. 3,700.0 9% 13,300.0 30Z. 45,000.0