Argentina - Public Sector Reform Technical Assistance Loan Project (PSRTAL)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-5542-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (PSRTAL) IN AN AMOUNT EQUIVALENT TO US$23 MILLION TO THE REPUBLIC OF ARGENTINA MAY 31, 1991 Ths document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Austral (AS) Under the Law of Convertibility and Deindexation of the Economy, the austral has been declared fully convertible at AS10,000 = US$1.00. Fiscal Year January 1 - December 31 Principal Abbreviations and Acronyins ALADI Asociacidn Latinoamericana para el Desarrollo Latin America Association for Devpmt. and Ir.tegration ANA Administraci6n Nacional de Aduanas Customs Department BCRA/ Banco Central de to Replblica ArgentinalBanco Central Bank of Argentina Co Central BONEX Bonos Externos External Bonds CECRA Comitd Ejecutivo de Contralor de la Reforma Comptroller Executive Comittee for Administrative Administrative Reform CEMLA Centro de Estudios Monetarios Latinamericanos Latin American Center for Monetary Studies CEMYB Centro de Estudios Monetarios y 8ancarios Center for Monetary and Banking Studies CG Contaduria General Office of the Accountant General CGN Contralor(a General de la Nacian Office of the Comptroller and the Auditor General of the Nation CSN Red de Sistemas de Computacian Computer Systems Network OGI Direcci6n General Impositiva General Tax Office DNPP Direccidn Nacional de Programacidn Presupuestaria Budget Office ECLAC Comisi6n Econ6mica para Amarica Latina y el Caribe Economic Commission for Latin America and the Caribbean FRBNY Federal Reserve Bank of New York Banco de la Reserva Federal de Nueva York ICB Licitacin Internacional International Competitive Bidding LCB Licitacian Local Local Competitive Bidding LS Compras Directas Local or International Shopping ME Ministerio de Econom.a Ministry of Economy PERAL Prdstamo de Ajuste para la Reforms de las Empresas Public Enterprise Reform Adjustment Loan Pdbticas PSR Reforma del Sector Pdblico Public Sector Reform PSRL Prdstamo para la Reforma del Sector Pdblico Public Sector Reform Loan PSRTAL Pr4stamo de Asistencia Tacnica para la Reforma del Public Sector Reform Technical Assistance Sector Pdblico Loan SEF Superintendencia de Entidades Financieras Superintendency of financial Entities SIGENAC Sindicatura General de la Naci6n Office of the Executive Comptroller of the Nation SIGEP Sindicatura General de Empresas Pdblicas Office of the Comptroller of Public Enterprise SIPRECO Sistema Integrado de Presupuesto y Contabilidad Integrated Information System for Public Sector Financial Management, Budget and Accounting TCN Tribunal de Cuentas de la Naci6n The National Court of Accounts YPF Yacimientos Petrolfferos Fiscales State Petroleum Company  FOR OFFICIAL USE ONLY ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN Loan and Proiect Summary Borrower: The Republic of Argentina Beneficiaries: The Ministry of Economy, the other Central Government Ministries and the Presidency and the Central Bank. Amounts US$23 million equivalent Terms: Seventeen years, including a five-year grace period, at the Bank's standard variable interest rate. Financins Plant Government of Argentina US$ 8.5 million IBRD US$23.0 million TOTAL USq31.5 million Economic Rate of Return: N. A. Staff Appraisal Report: N. A. Maps N. A. This report is based on the findings of an appraisal mission that visited Argentina in March 1991, and reflects the agreements reached during negotiations (May 3 through May 8, 1991). The appraisal mission was comprised of Antonio Martin del Campo (Task Manager) LATPS; Lucien Moreau, Paul Beckerman, LA4CO; Eduardo Abbott, LEGLA; Ulrike Murray, LACPT; Angel Gonzalez-Malaxechevarria, Jaime Vazquez-Caro, Caroline Mascarell, LATPS. Barbara Nunberg acted as Peer Reviewer. The responsible managers were Shahid A. Chaudhry, Division Chief, LATPS; and Pieter Bottelier, Director, LA4. This document has a restricted distribution and may be used by recipients only In the perfcrnan"e of their official duties. Its contents may not otheiwise be disclosmd without World Bank auth.riztioj  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (PSRTAL) TO THE REPUBLIC OF ARGENTINA 1. The following memorandum and recommendation on a proposed loan to the Republic of Argentina for US$23.0 million equivalent la submitted for your approval. The loan will be on standard IBRD terms repayable over 17 years, including 5 years of grace, at the Bank's standard variable rate. It would help finance a Public Sector Reform Technical Assistance Project. 2. Background. Argentina's fiscal deficit has been a principal cause of macroeconomic instability and its eliminatLon requires the implementation of fundamental public sector reforms. The economic program of the Government comprises a set of structural reforms of the Federal Government and the Central Bank (the PSR program) which will be supported by the Bank through this Loan, and a proposed Public Sector Reform Loan (PSRL). The PSRL would contribute to the design and financing of measures to improve the efficiency of current and investment expenditures, increase revenues while reducing the distortions in revenue mobilization, and limit recourse to money creation by disengaging the Central Bank from public finances and creating an independent monetary authority with limited powers. Bank technical assistance has already been instrumental in the design of policy improvements and strengthening key agencies, however, additional technical support is needed to strengthen the government's capacity to implement the reform. 3. Rationale for Bank Involvement. Supporting public sector reform is a fundamental Bank objective in Argentina. The recently approved Public Enterprise Reform Adjustment and Execution Loans (PERAL/PEREL) would provide vital financial assistance and technical support to the Government reform program in this area. The proposed PSRTAL would strengthen the administrative and technical capabillities of the National Administration (Central Government, Special Accounts, and Decentralized Organizations) to carry out the reforms being supported by the PSRL. The project would extend on activities carried out under the Bank's 1986 Public Sector Management Technical Assistance Loan (Ln. 2712-AR), one of whose aims was to develop an analytical basis for the reform of the public sector. Specifically, the proposed project would generate required institutional strengthening of the key agencies responsible for implementing those reforms. Without the support proposed under PSRTAL, vital reforms--such as the implementation of comprehensive financial management improvements of the public sector, a modern institutional framework for control, an effective internal administration of the Central Government, an efficient administration of customs, and the reorganization and modernization of the Central Bank and the Superintendency of Financial Entities (SEF)--would be much less likely to proceed as planned by the Government given the austere fiscal environment. As part of the collaborative effort with the Argentine Government in preparing the PSRL, the Bank has been significantly involved in the design of the reform measures now under implementation in these areas.  - 2 - 4. Proiect Obiectives. The proposed PSRTAL will support: (a) modernization and computerization of the Customs Department (Administraci6n Nacional de AMuanas-ANA); (b) administrative reform and modernization of internal administration of the Central Government; (c) establishment of a new framework and development of systems for comprehensive public sector financial management, integrated budgetary processes and effective control for improved allocation of public resources; (d) the reorganization and modernization of the Central Bank; and (e) implementation of a program fer a complete restructuring of the SEF. S. Proiect DescriPtLon. The proposed project would strengthen the capacity ofs (a) the Ministry of Economy by providing consultant services, computer equipment and software, and loglatical support to (i) manage economic reforms; (ii) allocate and control public resources by the design and implementation of an integrated budget and accounting information system for financial management, budget programming, execution and control--including institutional strengthening of the entities that constitute the internal and external control network; and (iii) administer customs by the establishment of new administrative procedures and related computerized information systems; (b) the Central Government Ministries and the Presidencr by providing consultant services, computer equipment and software to modernize its internal administration by developing now uniform procedures and information systems for personnel, financial resources, and facilities management; (c) the Central Bank through the provision of consultant services, computer equipment and software to improve its organizational structure and administrative procedures, develop key information systems and enhance staff capabilities, with special emphasis on the SEF. 6. The matrix of key project activities (Attachment r) includes information on objectives, activities, outputs, impact, and timing targets. Evaluation criteria and performance indicators are presented in Attachment It. The table of activities, inputs, and estimated costs (Attachment 1I1) further disaggregates the main activities and relates them to project inputs and costs, and sources of financing. Attachments IV to VIII contain the basic computerization model that is planned for each project component. The total project cost is estimated at US$31.5 million equivalent of which US$23.0 million equivalent would be financed by the Bank. The project will be completed by December 31, 1994, with the closing date of the loan June 30, 1995. Retroactive financing of expenditures made after May 1, 1991 would be provided up to a maximum of US$1.5 millior equivalent. Selection of consultanto and procurement of equipment would follow Bank guidelines. The aggregated cost estimates by component are shown in Schedule A. The procurement methods and estimated IBRD disbursements appear in Schedule B. lne timetable of key processing events and the status of Bank Group operations are shown in Schedules C and 0, respectively. A detalled project description  is given in the Technical Annex. An Executive Summary of the proposed PSRL is also included as Attachment IX. 7. Lessons Learned and Proiect Design. The preparation of the project has benefitted from previous regional experiences that faced the following constraints: (a) emphasis on inputs and lack of capacity to complete the expected outputs and reach the desired technical assistance impact; (b) soft budget constraints and weak management that allowed the use of resources for purposes beyond the objectives of the project; (c) widespread proliferation of individual consultancies that became difficult to control and costly to administer; and (d) weak counterpart participation and support of the beneficiary institutions. The design of this project addresses these constraints, as follows: (a) draws on specific but adaptable action plans and annual work programs for each component that focus on outputs, define evaluation criteria and performance indicators to judge project progress, and identify preconditions for successful implementationt (b) establishes criteria to improve administration of the project, especially with respect to procurement; (c) considers that consultant services in most cases will be pro.,ided by consulting firms or institutions; and (d) emphasizes the counterpart responsibilities of the beneficiary agencies and, in particular, staffing of key positions. S. Actions Acreed. During negotiations, agreements were reached on the action clans for each of the five project components: (a) Customs Modernization Program; (b) Administrative Reform and Modernization of the Central Government; (c) Public Sector Comprehensive Financial Management and Performance Control; (d) Reorganization and Modernization of the Central Bank; and (e) Reorganization and Modernization of the SEF. Further, the Borrower and the Bank would agree on specific annual work programs. A condition of disbursement for any new activities to be financed under the Loan will be their inclusion in such annual programs. In addition, it was agreed that the annual work programs would incorporate the following aspects: (a) specific measures for staffing key positions in the beneficiary institutions; (b) selection procedures to ensure adequate staff participation in the training programs; and (c) the actions that will be taken to guarantee sustainability of the outputs and impact of the Project as its execution ceases. Given the strong linkage of this project with the PSRL, the following conditions, originally introduced in the proposed PSRL, were also established for the PSRTAL: (a) progress on the administrative reform program as delineated in PSRL, including employment reduction, ministerial reorganization, and an increase in the salary compression ratio; (b) formulation of the program for improvement in Customs Administration; (c) presentation to Congress of the draft Law on Financial Management and Performance Control, the preparation of which has been assisted by the Bank; (d) a Central Bank reorganization program as agreed with the Bank; and (e) completion of the restructuring process of the SEP. During negotiations the Government and the Bank reviewed progress on implementation of these policy conditions and confirmed that the conditions have been met. With respect to organization and administration of the project, the Government will sign a Management Service Agreement Contract with UNDP-OPS, or another acceptable procurement agency, before Loan effectiveness. The Government has also stated that it will transfer the existing office faci.ities and equipment of the Coordinating Unit of the Public Sector Management Technical Assistance Project (Ln. 2712-AR), upon completion, to the  proposed PSRTAL. Procurement and the contracting of consultants will be carried out according to Bank guidelines as set forth in Schedule B. 9. Benefits. The PSR program is expected to make a significant contribution in terms of overall economic efficiency gains derived from increased productivity and effectiveness of the public sector. The PSRTAL would contribute by strengthening key functions of the institutions in charge of the economic reform program. 10. Risks. The loan faces two risks. Firgt, progress in achieving the targets of the PSR program may not be fully satisfactory or proceed more slowly than desired. In particular, the Government's Administrative Reform Program might be delayed. This would call into question our technical assistance activities, since without the reform the project objectives of this and future operations would be compromised. To lower the impact of this risk, the proposed loan establishes up-front conditionality in this area. 8econd, the Government's priorities with respect to the specific TA activities to be implemented in the various components might change. To minimize this risk, the disbursement conditions require agreement on action plans, including specific work programs and terms of reference for each of the project'e five components. 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 President Attachments Washington, D.C. May 31, 1991  5- Schedule A Page 1 of 1 "GENTN PUBLIC SECOR REFORM TECHNICAL ASSISTANCE LOWN SIMATED COSTS (US$ '000) Financing Govt. of Bank Argentina Total Consultant Services & Trainin I. Customs Modernization Program 3,800 800 4,600 II. Administrative Reform & Modernization of the Central Government 3,600 580 4,180 III. Public Sector Comprehensive Financial Management & Performance Control 3,700 1,200 4,900 IV. Reorganization & Modernization of the Central Bank (CB) 1,580 840 2,420 V. Reorganization & Modernization of SEF 920 850 1,770 VI. Project Implementation Unit _ 600 400 _