Bolivia - Second Emergency Social Fund Project

Document of The World Bank FOR OFFICIAL USE ONLY CR /rz2 - > Repon No. P-4708-BO MEMORANDUM AND RECOMHENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 19.0 MILLION (UF$ 27 MILLION EQUIVALENT) TO BOLIVIA FOR A SECOND EMERGENCY SOCIAL FUND PROJECT- February 10, 1988 This docuinent 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.  1URRZCY EQUIVALETS (as of December 31, 1987) US$ 1.00 a 2.20 boliviano. (bol.) US$ 0.45 - 1.00 bol. US$ 1.00 - SDR 1.42 USS 0.70 - SDR 1.00 FISCAL YEAR January 1 to December 31 ACRONYMS ESP - Emergency Social Fund (Fondo Social de Emergencia) IDB - Inter-American Development Bank NGO - Non-governmental organization UNDP - United Nations Development Programme US-AID - United States Agency for International Development  (i) BOLIVIA SECOND EMERGENCY SOCIAL FUND PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Bolivia Beneficiary: Emergency Social Fund Amount: SDR 19.0 million (USS 27 million) Terms: Standard, with 40 years maturity Financing Plan: Government US$ 9.5 million IDA US$ 27.0 million Other donors (several) USS 22.1 million TOTAL USS 58.6 million Economic rate of return: Not applicable Staff Appraisal Report: Report No. 7066-BO Map: IBRD 20510 This document has a restricted distribution and may be used by recipients only in the performancs of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENKDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIV'E DIRECTORS ON A PROPOSED CREDIT TO BOLIVIA FOR A SECOND EMERGENCY SOCIAL FUND PROJECT 1. The following memorandum and recommenidation on a proposed development credit to Bolivia for SDR 19.0 million (US$ 27.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and help finance a second project with the Emergency Social Fund (ESF). Several other donors have already committed funds totalling US$22.1 million equivalent to ESF's program for use during the project period, under separate agreements. 2. Background: For over two years the Bolivian Government has sustained an uphill effort to carry out a comprehensive economic stabilization, adjustment and reactivation program. It has achieved considerable success, seen against the economic turbulence and decline of the preceding era. By October 1985 inf'ation had reached 24,000Z, whereas by late 1987 it had slowed to about 1OZ; and GDP, which had declined every year since 1980, in 1987 finally reversed its trend and grew by at least 1.5Z. The Government is now focussing on longer-term measures. In July 1987 it issued an economic reactivatiorn decree designed to address key issues for growth, notably implementation of externally funded public investments and stimuletion of private investments and exports. Social pressures, however, have continuously posed a serious threat to this program. Since 1986 the Government has increasingly turned its attention to the short-term unemployment problems linked to the depression and the stabilization measures, as well as the longer-term need to improve social conditions. An Emergency Social Fund was set up, aimed at providing emergency relief and carrying out an employment-generating program over the three years 1987-89, as a bridge until the recovery gains momentum. 3. Rationale for IDA Involvement: J DA strongly supports this program of far-reaching structural adjustment, both at the macro-economic level and the sector level. It has embarked on a substantial lending program, consisting so far of seven IDA projects and one IFC operation since 1985, aimed at rehabilitating essential parts of the public sector and the financial system, and reactivating the private sector. The centerpieces of this program have been two Reconstruction Import Credits now being implemented, for a total IDA contribution of $102 million, together with Japanese cofinancing of $50 million. IDA has also chaired the Consultative Group for Bolivia, which met in December 1986 and plans a second meeting in May 1988.  -2- 4. IDA's strategy for future assistance envisions continued support for the promotion of non-traditional exports, based primarily on lowland agriculture and backed up by a more efficient, lean civil service and a rebuilt banking system. At the same time it attaches great importance to structural reform in health and education, addressed especially to the needs of the rural and peri-urban poor; this involves decentralization of public-sector responsibilities to local governments and non-governmental organizations, and a shift of funding priorities towards basic health care and primary education. 5. Among the IDA operations mentioned, of particular significance is the credit approved in June 1987 for the Emergency Social Fund (ESF), since it was the Bank group's first operation specifically designed to address the social costs of economic adjustment. It provided SDR 7.8 million to support ESF's first year of operation, with the intention of following this up with a larger main phase, subject to good progress. The credit is financing small-scale employment- and income-generating sub-projects and social assistance activities, as well as institutional support (technical assistance and selected fixed-term personnel). IDA's participation has already encouraged contributions from other sources, including Switzerland (providing Sw.Fr. 15 million as co-financing administered by IDA), the Federal Republic of Germany, the United Kingdom. the US Agency for International Development, the Inter-American Develomnent Bank and the United Nations Development Programme. 6. Implementation has been rapid and effective. By the end of December (after ten months of operation) ESF had approved subprojects costing US$37 million, creating 13,600 man-years ef employment and providing direct health, nutrition and educational assistance to some 155,000 beneficiaries. It had disbursed US$10 million. As for the IDA credit, by February 8, 88Z had been committed and 32Z disbursed. It .s expaected that the credit will be fully committed by the end of February and 80Z disbursed by May 1988. 7. This creditable performance therefore warrants further IDA support to ESF. It is hoped that such support will also act as a catalyst for ot1p: donor financing of ESF's program. The tim' g of :his project is dictated by ESF's need for funds in the second quarter of 1988. 8. Proiect Objectives: The aim of the project is to help strengthen the Government's ability to address the social costs of its adjustment program, which continue to threaten the attainment of economic recovery and longer-term development. In the process, ESF also offers a means to implement certain short-term requirements of the restructuring of the health and education sytie-s. Specifically, the project would support ESF's second and third years of operation (1988-89), by (i) financing social assistance activities and small-scale employment-generating projects in infrastructure, construction and production; and (b) helping ESF consolidate its management and implementation capacity.  - 3 - 9. Project Description: The credit will finance, on a grant basis, a range of small-scale sub-projects sponsored by municipalities, community organizations and NGOs, in four broad categories: (i) social assistance (food and nutrition, basic health serv.ces, vocational training and support to education); (ii) social infrastructure (drinking water and sewerage, construction and repair of schools and health posts, low-cost housing, and cultural projects); (iii) economic infrastructure (rural roads maintenance and drainage, street paving and other urban improvement, irrigation, erosion control and fort-tation, and other construction); and (iv) support to production (working capital credit and other forms of support to co- operatives and small manufacturers). Wherever feasible, the sub-projects will be carried out by small private contractors using labor-intensive methods. The oredit will also finance institutional support, consisting of technical assistance and selected fixed-term personnel for various parts of ESF's project cycle. 10. The project, to be carried out over two years, is defined as that portion of ESF's 1988-89 program for which financing is dssured, which amounts to about US$59 million. It is hoped that the entire program will reach US$90-140 million, the eventual amount depending on donations forthcoming from other sources. If in due course other donors propose fotmal cofinancing arrangements, IDA stands ready to consider any Government request to amend the credit agreement as necessary. The foreign exchange compon(ent of the project is estimated at US$6 million (10Z). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank group operations in Bolivia are given in Schedules C and D, respectively. A map is attached. The Staff Appraisal Report, No. 7066-BO, dated February 10, 1988, is also attached. 11. Agreed Actions: As conditions of effectiveness, ESF will (a) revise and up-date its appraisal manual, to cover separately social assistance, production, and infrastructure/construction sub-projects; and (b) hire a consultant costing expert. Further, ESF has agreed to send IDA by March 31, 1988, the outline of a report on (a) arrangements to be made with ministries and other agencies for them to assume responsibility for ESF-funded activities after 1989, when ESF is to terminate, and (b) options and a recommended course of action for retaining functions and personnel of ESF in other public agencies thereafter; the report itself is to be submitted by July 31, 1988. Finally, IDA will conduct reviews of procurement performance in May 1988, November 1988 and May 1989 and a comprehensive mid-project review in November 1988. 12. Benefits: Benefits will be of four kinds: (i) sub-projects under the US$59 million project are expected to create direct employment of about 21,000 man-years (35-50,000 for the entire program); (ii) about 400,000 social assistance beneficiaries will receive food, improved health care and other services under the project (600,000-950,000 under the entire program); (iii) the users of the new infrastructure and housing will enjoy better sanitation, lower transport costs, and less erosion damage; and (iv) the GovFrnment will gain experience with an effective mechanism for  delivering development assistance to municipalities and small businesses and mobilizing grass-roots efforts, which could subsequently be put to use by other agencies. 13. Risks: ESP's procedures and criteria aim to strike a balance between a speedy response in an emergency situation and the efficient use of scarce funds. Experience with 1SF I has demonstrated that the risk of poor use of funds is small, considering ESP's excellent management, capable and motivated staff and its direct accountability to the President of the Republic and the public. Furthermore, agreement has been reached on strengthened appraisal and implementation procedures, and on technical assistance targeted at key phases of ESF's project cycle. The procurement reviews and comprehensive mid-project review are intended particularly to protect againet any detrimental changes in ESF management. 14. Recommendation: I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber Conable President Attachments Washington, D.C. February 10, 1988  Schedule A BOLIVIA SECOND EMERGENCY SOCIAL FUND PROJECT ESTIMATED COST AND FINANCING PLAN Estimated Costs Local Foreign Total -C---(USS million)---- Sub-Droiects Social Assistance 5.2 0.5 5.7 Social Infrastructure 18.5 2.1 20.6 Economic Infrastructure 23.1 2.6 25.7 Support to Production 4.7 0.5 5.2 Institutional Support 1.1 0.3 1.4 Total 52.6 6.0 58.6 The project is a portion of ESF's larger program, which will finance as many sub-projects as funds permit; quantity or price contingencies are therefore not applicable. Taxes, included in the above, are estimated at not more than 52 of the total project cost. Financing Plan: Local Foreign Total ---(US$ million)----- Government 8.5 1.0 9.5 IDA 24.3 2.7 27.G Other donors (several) 19.9 2.2 22.1 Total 52.7 5.9 58.6  -6- Schedule B BOLIVI mosUCO ICCIL n PIJcs PROCURBHESM METBOD AND DIS3URSIENTS Project Element Procurement Method Total ICB LCB Other Cost --------(USS million)- Sub-projects 8.6 48.6 57.2 (3.9) (21.9) (25.8) Institutional Support 1.4 1.4 (1.2) (1.2) TOTAL 8.6 50.0 58.6 (3.9) '23.1) (27.0) Note: Figures in parenthesis are the respective amounts financed by the Association. Disbursements Category Amount Z (US$ million) Sub-projer:ts 25.8 80? of expenditures Institutional Support 1.2 100I of expenditures Estimatet IDA Disbursements IDA Fiscal Year 88 89 90 (US$ million) Annual 5.0 21.0 1.0 Cumulative 5.0 26.0 27.0  7- Schedule C BOLIVIA $scopD =gOmCY sOwiLm FMD POJECT Timetable of toy Proiect Proceusing Events (a) Time taken to prepare: Six months (b) Prepared by: Government with IDA assistance (c) First IDA mission: October 1987 (d) Appraisal missicn departure: December 1987 (e) Negotiations% January 25-27, 1988 (f) Planned Date of Effectiveness: May 1, 1988 (g) List of relevant PCRs and PPARs: None  8- Fchezeule r, BDIYVLA - Stattus cf Wo'ri Bank Group Operat.crs 1. 3tatent of World Bak *oans avid IDA crits (as of Decinter 31, 1_) Ian cr Amwiut'i (;ess Mn,iat-anS) Credit FFs2al Bwx IDlA Undsburs Number Year Bcrrcwr Purrse (In mulllo'ns Mr U.S. dolars) 13 loans and 14 .-redats tul'ly disbursed 250.0 1'X).9 940 1979 Bolivia National Mineral ESploration Fxud - 7.5 4.7 1587 1978 Boliv-.a HinwayMrnternane 25.0 - 0.1 1703 19B6 Bcl.v:a Reconstruct:ion Import Cret - 55.0 34.1 1719 1986 Boivc.a Vue.ta Grwnde - 15.J 11.0 19)9 I5 ge B,:V -a PubD'-V ?F>narin-.; :gmt. - 11.5 12.7 1313 1 7 Briiv-.a Pcwer Se^tor Renabi!- tat:_n - 6.8 7.5 188 1987 Boihvla RIC II - 47.1 51 .2 139 1F B'iv'a Energen:ny Sc^ a' Fai - 1Iv.0a/ 9.0 1842 1938 3Briva La Paz imn:.:pai.-y - 15.0 16.6 Tc -a -75.0 263.3 146.? Of wr ti nWs been rpad 93.6 6.4 Tcta now outstard:rE 181.4 262.4b/ Amcunt scid 0 Of whim has been rvpa.d 0 Total now neld t BarXk ard IDA 181.4 262.4b,' a/ Because cf varsiat ons -.n SDR exanarge rate, present aounQt s equivalent -x apprcrmately US$11 miliorn. b/ Because of SDR ex3hange rate, the amount 1s daffezent frno Stattmenz of Cred.t (1298.Q3). 2. Statenent of Ifr nvestment (as of December 31, 1987) Lcan Equlty Totl (In =1imns cf ', Tc-a~ gross cawra.ents 19.6 0.9 22v.5 Less ncance,lavrv, tenn.na:tons, reliyments, and sales 3.2 0.3 8.5 Tota, zCtments now fleld by IK 11.4 0.6 12.0 Total Und:sburs 9. -9.6  .,> | | RC)ADS: Farry Line.