Mexico - Program of Essential Social Services (PROSSE) Project

Document of The World Bank Report No. 14392-ME STAFF APPRAISAL REPORT MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES (PROSSE) MAY 22, 1995 Country Department II Human Resources Operations Division Latin America and the Caribbean Regional Office  CURRENCY EQUIVALENTS Currency Unit New Peso (N$) US$1.00 = 5.9 New Pesos (May 1995) FISCAL YEAR January 1 - December 31 (GOM; IDB) July 1 - June 30 (IBRD) ACADEMIC YEAR September 1 - June 30 ACRONYMS CAS Country Assistance Strategy CAPFCE Federal School Construction Committee (Comite Administrativo del Programa Federal de Construcci6n de Escuelas) CDS Social Development Agreement (Convenio de Desarrollo Social) CGOCE Infrastructure Division of the SSA (Coordinaci6n General de Obra, Conservaci6n y Equipamiento) CIMO Productivity Enhancement Program (Programa de Calidad Integral y Modernizaci6n) CONAFE National Council for Educational Development (Consejo Nacional de Fomento Educativo) CONALITEG National Textbook Commission (Comisi6n Nacional de los Libros de Texto Gratuitos) CONAPO National Population Council (Consejo Nacional de Poblaci6n) CONASUPO National Agency for the Distribution of Basic Goods (Comisi6n Nacional de Subsistencias Populares) COTEIP Technical Committee for Budget Integration (Comite Tecnico de Integracion Presupuestal) CPP Country Programming Paper DALY Disability Adjusted Life-Year DGE General Directorate for Employment in STPS (Direcci6n General de Empleo) DGPP General Directorate for Budgetary Policy (Direcci6n General de Politica Presupuestal) DICONSA National Distributing Company (Distribuidora CONASUPO, S.A.) DIF Integrated Family Development (Desarrollo Integral de la Familia) FSM Municpal Solidarity Funds (Fondos de SOLIDARIDAD Municipal) GDP Gross Domestic Product GOM Government of Mexico ICB International Competitive Bidding IMSS Mexican Social Security Institute (Instituto Mexicano de Seguridad Social)  IMSS/SOLEI)AREDAD Special Basic Health Program for the Uninsured INEGI National Institute for Statistics, Geography and Informatics (Instituto Nacional de Estadistica, Geografia y Informatica) ISSSTE Public Sector Employees Social Security Services(Instituto de Servicios de Seguridad Sociales para Trabajadores Estatales) INI National Institute for the Indigenous Population (Instituto Nacional Indigenista) LIB Limited International Bidding MIS Management Information System NAFIN National Financing Company (Nacional Financiera, S.N. C.) NCB National Competitive Bidding NBF Not Bank Financed OECD Organization for Economic Cooperation and Development PARE First Primary Education Project (Programa para Abatir el Rezago Educativo) PAREB Second Primary Education Project (Programa para Abatir el Rezago en Educaci6n Bdsica) PASSPA First Basic Health Project (Programa de Apoyo al Sector Salud para la Poblacion Abierta) PESE Special Employment Program (Programa Especial de Empleo) PEMEX Mexican State Oil Company (Petroleos Mexicanos) PIARE Integrated Primary Education Project (Programa Integral para Abatir el Rezago Educativo) PHC Primary Health Care PROBECAT Labor Retraining Program (Programa de Becas de Capacitacion para Trabajadores) PRONASOL National Solidarity Program (Programa Nacional de SOLIDARIDAD) PROSSE Program of Essential Social Services (Programa de Servicios Sociales Esenciales) SBDs Standard Bidding Documents SEDESOL Secretariat of Social Development (Secretaria de Desarrollo Social) SEE State Employment Service (Servicio Estatal de Empleo) SEP Secretariat of Education (Secretaria de Educaci6n Puiblica) SHCP Secretariat of Finance and Public Credit (Secretaria de Hacienda y Credito Ptiblico) SMEs Small and Medium-sized Enterprises SOEs Statement of Expenses SSA Secretariat of Health (Secretaria de Salud) STPS Secretariat of Labor and Social Welfare (Secretaria del Trabajo y Previsi6n Social) TOR Terms of Reference VAT Value Added Tax   MEXICO: PROGRAM OF ESSENTIAL SOCIAL SERVICES STAFF APPRAISAL REPORT Table of Contents LOAN AND PROGRAM SUMMARY ..............................................................; 1. INTRODUCTION .............................................................1 2. BACKGROUND AND SECTORAL OVERVIEW .............................................................2 A. BACKGROUND .............................................................2 (1) The Financial Crisis ..................................................................2 (2) The Federal Budget of the Social Sectors ..................................................................3 (3) Poverty in Mexico ..................................................................5 B. GOVERNMENT STRATEGY FOR THE SOCIAL SECTORS .............................................................6 C. PROGRAM SELECTION CRITERIA .............................................................9 D. ISSUES IN THE ESSENTIAL SOCIAL SERVICES PROGRAM ............................................................ 10 E. LESSONS LEARNED FROM PAST OPERATIONS ............................................................. 19 F. RATIONALE FOR THE BANKS' INVOLVEMENT ............................................................. 23 3. THE PROGRAM ............................................................. 24 A. PROGRAM OBJECTIVES ............................................................. 24 B. PROGRAM DESCRIPTION .............................................................. 24 (I) Sub-Program 1: Basic Education Services ................................................................. 24 (2) Sub-Program 2: Basic Health Services ................................................................. 25 (3) Sub-program 3: Retraining and Employment Generation ................................................................. 26 (4) Sub-program 4: Nutrition ................................................................. 28 (5) Sub-Program 5: Monitoring and Evaluation ................................................................. 29 4. PROGRAM COSTS, PROCUREMENT, DISBURSEMENTS AND AUDITS ..................... ...................... 29 A. PROGRAM COSTS AND FINANCING ............................................................ 29 B. PROCUREMENT ............................................................. 32 C. DISBURSEMENTS ............................................................. 37 D. ACCOUNTS AND AUDITS ............................................................. 40 5. PROGRAM IMPLEMENTATION ............................................................. 40 A. PROGRAM IMPLEMENTATION ............................................................ 40 B. SUPERVISION ............................................................ 41 C. QUARTERLY REVIEWS ............................................................ 41 6. PROGRAM BENEFITS AND RISKS ............................................................ 42 A. PROGRAM BENEFITS ............................................................ 42 B. ECONOMIC BENEFITS ............................................................ 44 C. PROGRAM RISKS ............................................................. 45 7. AGREEMENTS REACHED AND RECOMMENDATION ............................................................ 46 This report is based on the findings of a joint IBRD/IDB appraisal mission which visited Mexico in March 1995. The joint IBRD/IDB mission was composed of Mmes.! Messrs. John Innes (Senior Economist, Joint Mission Leader), Carlos Miranda, Joint Team Leader (RE2/S02-IDB), Carnen Hamann (Peer Advisor), Rosita Estrada (Operations Analyst), Armin Fidler (Health Specialist), John Newman (Senior Human Resources Economist), Luis Suarez (COF.CME-IDB) Eduardo Velez (Senior Education Specialist), Consuelo Ricart (RE2/S02-IDB) Kevin B. Rost (Operations Analyst), Judy McGuire (Nutrition Specialist), Myrna Alexander (Senior Operations Advisor), and Carlos Trabucco (Senior Procurement Officer). This report was prepared in the field with close cooperation from the Secretaria de Salud, Secretaria de Educacion Pu)blica, Secretaria del Trabajoy Previsi6n Social, Nacional Financiera,and Secretaria de Hacienday Credito Publico. Peer reviewers are David de Ferranti (PHN), Margaret Grosh (PRDPH) and Donald Winkler (IATAD). Messrs. Edilberto L. Segura and Kye Woo Lee an the Department Director and Division Chief respectively, for this operation in the IBRD. Mme./Messr. Miguel M. Martinez and Eleanor Howard are the Manager and Deputy Manager/Division Chief respectively, for this operation in the IDB.  2 Tables TABLE 1: BASIC DATA SHEET ...................................................... ix TABLE 2: MEXICO - FEDERAL PROGRAMMABLE BUDGET ...................................................... 4 TABLE 3: MEXICO - FEDERAL PROGRAMMABLE BUDGET ...................................................... 4 TABLE 4: LESSONS LEARNED ...................................................... 20 TABLE 5: PROGRAM COST SUMMARY ....................................................... 31 TABLE 6: FINANCING PLAN ...................................................... 31 TABLE 7: FINANCING ARRANGEMENTS ...................................................... 32 TABLE 8: PROCUREMENT METHOD - IBRD AND IDB ....................................................... 35 TABLE 9: TOTAL PROCUREMENT BY AGENCY* ...................................................... 36 TABLE 10: WITHDRAWALS OF THE PROCEEDS OF THE IBRD LOAN ...................................................... 38 TABLE 11: ESTIMATED IBRD DISBURSEMENTS TIMETABLE ........................... ........................... 38 TABLE 12: WITHDRAWALS OF THE PROCEEDS OF THE IDB LOAN ...................................................... 39 TABLE 13: ESTIMATED ID B DISBURSEMEN TS TIMETABLE ...................................................... 39 ANNEXES Annex 1: Federal Government Budget Details Annex 2: PROSSE Budget and Physical Targets Annex 3: TOR for CONALITEG Productivity Study Annex 4: PROBECAT - Selection Criteria and Implementation Details Annex 5: Program Costs Annex 6: Economic Analysis of PROSSE Annex 7: List of Documents in the Program File IBRD Map No.: 23547  MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES (PROSSE) IBRD LOAN AND PROGRAM SUMMARY Borrower: NacionalFinanciera, S. N. C. (NAFIN). Guarantor: United Mexican States. Implementing Agencies: Secretariat of Finance and Public Credit (SHCP), Secretariat of Education (SEP), Secretariat of Health (SSA), Secretariat of Labor and Social Welfare (STPS), and Secretariat of Social Development (SEDESOL). Beneficiaries: The same secretariats listed above. Poverty Category: The PROSSE forms a central part of the program of targeted interventions for Mexico by protecting essential social services to the poor and providing a low-cost social safety net, through short- term employment generation to those adversely affected by the economic crisis and food and nutrition programs to the most vulnerable groups of the population. Thus the PROSSE falls under the Poverty Reduction category. Amount: US$500.0 million. Terms: Repayment in 15 years, including a three year grace period, at the IBRD's standard variable interest rate. Financing Plan: See Paragraph 4.3 and Table 6. Net Present Value: Not applicable. Map: IBRD Map No.23547. Project Code: MX-PA-40462.   ii MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES (PROSSE) (ME-0187) IDB EXECUTIVE SUMMARY BORROWER: Nacional Financiera, S.N.C. (NAFIN) GUARANTOR: The Government of the United Mexican States EXECUTING Secretariats of: Finance and Public Credit (SHCP); Education AGENCIES: (SEP); Health (SSA); Labor and Social Welfare (STPS); and Social Development (SEDESOL). AMOUNT AND IDB (OC, Currency pool): US$ 500.0 million SOURCE: IBRD: US$ 500.0 million Borrower: US$1,000.0 million Total: US$2,000.0 million TERMS AND Amortization period: 20 years CONDITIONS: Grace period: 4 years Disbursement period: 2 years Interest rate: variable Inspection: 1% of the loan Commission: 0.75% annually on undisbursed balance BACKGROUND: Since the Peso devaluation in late December 1994, the economic prospects for Mexico in 1995 are bleak, with negative economic growth, high interest rates and the inflation rate for 1995 now estimated to be about 42 percent. Open unemployment is already increasing and likely to increase further, real wages will decline, and poverty rates will increase. The Government of Mexico (GOM) is deeply concerned about the dual impact of increasing poverty and the reduced budgetary resources available for essential social services targeted to the poor, and is trying to strengthen existing safety net structures and protect key social service expenditures. In this context, the GOM is requesting US$500.0 million from the IDB, and  Hii US$500.0 million from the IBRD to protect essential social services and strengthen a low cost social safety net targeted to the poorest and most vulnerable groups. The proposed Program of Essential Social Services (PROSSE) is recommended for financing by the two Banks for the following reasons: (i) it is consistent with the Banks' country assistance strategy and would complement other IDB-financed projects for enhancing sustainable economic growth, poverty alleviation, and human resources development; (ii) it would provide a vehicle for rapidly transferring substantial foreign exchange to Mexico to meet fiscal crisis; (iii) it would protect essential social services and strengthen the social safety net targeted to the poor in urban and rural areas; and (iv) it would lay the foundation for efficiency gains in the high priority social sector programs in the future. OBJECTIVES: The PROSSE has three objectives, to: (i) protect essential social services for the poor, through the provision of textbooks to all students, and, on a targeted basis, teaching materials, maintaining access to pre-school, primary and lower secondary education in isolated rural areas, and provision of a basic health care package, vaccines, pharmaceuticals, medical supplies, and community health outreach campaigns; (ii) strengthen existing social safety net measures, to cushion the poor from the effects of the economic crisis through retraining, the creation of short term employment opportunities for the unemployed and underemployed, and a nutrition program targeted to vulnerable groups in the poorest areas; and (iii) lay the foundation for measuring and implementing efficiency gains in the social sectors over the medium term through technical assistance. DESCRIPTION AND The PROSSE has been designed as a time slice operation to COST: finance ongoing high priority social sector programs within the budget allocation as of February 1995. It consists of five sub- programs: (a) basic education services; (b) basic health services; (c) retraining and employment generation; (d) nutrition program for vulnerable groups; and (e) monitoring and evaluation of social sector programs. In each sub- program, the GOM will seek to improve the efficiency of public expenditure, within the constraints of the budget and the two- year implementation period, using agreed monitoring and evaluation indicators.  iv The total cost of the project is US$2,000.0 million of which both the IDB and the IBRD will participate with US$500.0 million each. The IDB will finance the following: (i) Basic Education Services. US$218.2 million for basic education for the poor and basic education facilities; (ii) Retraining and Employment Generation. US$274.8 million for short-term employment generation in low-income urban and rural areas; and (iii) Nutrition. US$2.0 million to improve the nutrition status of the vulnerable groups in the poorest areas. The proposed PROSSE would be implemented over a period of two years and is expected to be completed by December 31, 1996 and the loan account to be closed by June 30, 1997. ENVIRONMENTAL The Environmental Committee (CMA), classified this operation CLASSIFICATION: in Category III, and the corresponding Environmental Summary was approved on April 18, 1995. The IBRD classified this program as category "B". Although no major environmental issues are foreseen, the eventual inclusion of small civil works projects, as part of the employment generation sub-program, deserves the consideration of certain precautions and measures to address the potential negative impacts. Since the eventual small civil works will be executed through the Secretaria de Desarrollo Social (SEDESOL), and should the need arise, the environmental impact of sub-projects will strictly follow the criteria and procedures already agreed with the GOM in the Municipal Development Program (Loan 837/OC-ME). BENEFTIS: The project would help reduce possible increases in poverty brought about by the economic recession, through preserving essential social services for the poor, providing training and employment enhancement opportunities for 800,000 unemployed and underemployed workers over the two year period through the Programa de Becas de Capacitacion para Trabajadores (PROBECAT), plus approximately 550,000 short-term jobs in 1995 for the unemployed poor through the SEDESOL Programa Especial de Empleo (PESE), providing enhanced food and nutrition supplements to women and children in priority areas. Indigenous populations will benefit in particular from the services provided under the basic education, health and nutrition components as these programs are targeted to the poorest areas where the indigenous populations are concentrated. The primary benefit of the PROSSE for the selected services and programs is that it commits SHCP and the executing agencies to support priority programs targeted to the  v poor. RISKS: The PROSSE may be subject to the following potential risks: (a) Uncertainty regarding budgetary allocations. Mexico continues to face a high degree of uncertainty in terms of macroeconomic variables which determine the budgetary ceilings. To this effect both Banks will monitor budgetary releases carefully during implementation. Should further unexpected cuts be necessary, then the program size and targets would need to be reduced. (b) Program diversity. This risk is being mitigated by concentrating upon a smaller number of agencies which already have experience with the procedures of both Banks. In financing the PROSSE by the two Banks, three principles were observed: (i) simple process, whenever possible an entire sub- program would be financed by one of the Banks in its entirety (such as the basic health services and the retraining for the unemployed with the IBRD and the short-term employment with the IDB); (ii) the experience of the agencies with either one of the financing institutions; and (iii) in the case of nutrition, the two Banks would finance equally given their intention to collaborate in a proposed co-financed nutrition project in the future. In education, both Banks have agreed to finance specific activities in order to avoid overlapping and possible conflicts related to procurement. (c) Poor targeting and failure to make efficiency gains. All of the PROSSE supported programs are all targeted to the poor to varying degrees. Targeting effectiveness will be monitored carefully during supervision and through the physical auditing arrangements. PROSSE itself, through the sub-program Monitoring and Evaluation, will lay the foundation and develop methodologies to measure and incentives to increase efficiency. (d) Poor disbursements. Disbursements could be retarded as a result of inexperience of some implementation agencies with the Banks' procurement procedures. To minimize this risk, training of procurement staff in these agencies will be organized as part of the Banks' supervision programs, and technical assistance will be provided by staff at the Banks' Resident Missions. BANKS' STRATEGY: The proposed loan is consistent with Mexico's Socioeconomic Report (GN- 1778), and the Country Programming Paper  vi (CPP), as well as the IBRD's Country Assistance Strategy (CAS). The strategy focuses on the revival of growth, poverty reduction and human resources development, and environmental sustainability. The proposed loan is critical to the strategies of both Banks over the short and longer term. The loan is one of the six operations proposed by the Banks to respond to Mexico's current financial crisis. It provides a safety net to the most vulnerable groups affected by the crisis and helps maintain the gains achieved in social indicators in recent years. Over the longer term, this project will continue the work of both Banks in poverty reduction, and human resource development, which remain key elements to achieving growth, equity and sustainable development in Mexico. RETROACTIVE The proposed PROSSE will be disbursed over the two year FINANCING: period 1995-96, with the target of disbursing 60 percent of these resources in the critical year of 1995. The Banks have agreed to finance retroactively up to US$100.0 million each, to help cover eligible expenditures for equipment, books, stipends, civil works, and food, made on or after January 1, 1995 (in the case of the IDB) and February 19, 1995 (in the case of the IBRD). PROCUREMENT: The amounts over which public international bidding will be required will be US$350,000 for goods and services and US$5.0 million for works. EIGHTH The proposed PROSSE is targeted to benefit low-income REPLENISHMENT groups throughout the entire country. The Program thus POVERTY complies with the guidelines for IDB's participation in poverty TARGETING: reduction and social equity programs set forth in the Report on the Eighth General Increase in the Resources of the IDB. SPECIAL During negotiations, the Banks and the GOM confirmed that CONTRACTUAL the GOM would: CONDMTIONS: (a) endeavor to execute budgetary policy in the social sectors, including mechanisms to protect budgetary allocations to the social sectors during the financial crisis and measures to increase efficiency of such expenditures, according to the agreed letter of policy intent (para. 2.8); (b) release budgetary amounts in a timely manner to the executing agencies under PROSSE in 1995 in accordance with the agreed 1995 budget allocations and physical targets  vii included in Annex 2 and that the GOM may substitute an alternative budget, if satisfactory to the Banks, for the PROSSE prior to June 30, 1995 (para. 2.8); (c) review the results of the CONALITEG productivity study and present an action plan to the Banks by July 31, 1996 (para. 3.5); (d) execute the PESE through SEDESOL according to the agreed operational modalities (para. 3.17); (e) establish a satisfactory system of social sector expenditure efficiency monitoring indicators no later than June 30, 1996 and that the system would be implemented throughout the remaining life of the PROSSE (para. 3.23); (f) through SHCP, NAFIN, SEP, SSA, SEDESOL and STPS: (i) have the records and accounts for each fiscal year audited by independent and qualified auditors with a separate opinion provided on SOEs, in accordance with generally accepted auditing standards and procedures, and with the specific current understanding with the Mexican authorities; (ii) furnish to the Banks, no later than six months after the end of each year, a certified copy of the agreed audit reports; (iii) furnish to the Banks such other information concerning the records and accounts as well as the audit as the Banks would from time to time reasonably request (para. 4.21); (g) undertake the Quarterly Reviews of the budgetary releases and physical implementation progress of PROSSE with the Banks (para. 5.5); and (h) prepare a preliminary action plan (including physical targets and budget, using Annex 2 as a basis), for the programs to be supported by PROSSE in 1996 as part of the November 1995 review; and confirm a definitive action plan for the programs to be supported by PROSSE in 1996, satisfactory to the Banks, as part of the February 1996 review and that no changes would be made in the allocations for such programs without prior consultation with the Banks (para. 5.6)). EDB Conditions prior to first disbursement Signing of an agreement between Borrower and Executing Agencies to transfer resources from the loan.  viii IDB Conditions during the execution of the PROSSE (i) During the execution of the PROSSE the Banks will monitor compliance with the program through quarterly reviews. This review will be organized by the Coordinating Committee, and will include representatives of all the executing agencies and NAFIN. The purpose of this review meeting would be to evaluate program performance against implementation plans and agreed targets; provide management with feedback on program achievements, and issues and areas needing improvement and further develop programmatic improvements to increase the efficiency of social sector expenditures (para. 5.6). (ii) During the execution of the PROSSE, and for the next two years, the Borrower will submit the program's financial statements. This information will be presented within 6 months after the end of each year, and duly audited by independent and qualified auditors appointed by SECOGEF (para. 4.19). Note: The Loan Contract, relating to this operation, negotiated with the Borrower, is available for consultation by the Executive Directors.  ix Table 1: BASIC DATA SHEET1 A. General Countrv Data Mexico Year GNP Per Capita (US$) 3.960 1992 Area (thousand square kilometers) 1,973 1994 Population Estimate (millions) 84.9 1992 Urban Population (percent of total) 73.7 1992 Population Projection (millions) for the year 2000 99 1992 B. Social Indicators Annual Rate of Population Growth (percent) 2.0 1980-92 Total Fertility Rate 3.2 1992 Infant Mortality Rate (per thousand) 35.0 1992 Crude Death Rate (per thousand) 5 1992 Life Expectancy at Birth (years) 70.3 1992 Adult Illiteracy Rate (percent of persons 15 and over) 13 1992 C. Health Statistics Crude Birth Rate (per thousand) 28 1992 Maternal Mortality Rate (per 100,000 live births) 200 1988 Population Per Physician 652 1992 D. Nutrition Statistics Child Malnutrition (0 to 5 years of age, %/6) 42 1988 Underweight women (child-bearing age) 29 1988 Families enrolled in Food/Nutrition Programs (millions) 16 1995 'Sources: World Development Report, 1994; World Tables, 1994; State of World's Children, UNICEF, 1994.  x E. Education Statistics Net Enrollment Rates Preschool (%/6) 75.9 1994 Primary (Grades 1-6)(%) 98.0 1994 Lower Secondary Net Enrollment(Grades 7-9)(%/) 88.0 1994 Education Expenditure Data Total Public Education Expenditure (% of GDP) 4.3 1991 Education Efficiency Data Primary Completion Rate 61.9 1994 Primary Dropout Rate 3.3 1994 Primary Repetition Rate 8.3 1992 Secondary Completion Rate 76.9 1994 Secondary Dropout Rate 7.3 1994 Secondary Repetition Rate 26.4 1992 F. Labor Force Statistics Total Labor Force (millions) 33.0 1993 Male (millions) 23.2 1993 Female (millions) 10.4 1993 Participation Rates Male (age 12 and older )(%/6) 78.8 1993 Female (age 12 and older )(%/o) 33.0 1993 G. Emoloyment and Wafe Statistics Total Employment (millions) 32.8 1993 Unemployment Rate (%) 5.3 1995 Average Daily Minimum Wage (USS) 3.0 1995   1. INTRODUCTION 1.1 Facing near-depletion of its foreign reserves, the Government of Mexico (GOM) was compelled to float the peso on December 20, 1994. A severe currency crisis ensued and, as a result, the economy is contracting sharply this year. The origins of the crisis, the Government's economic program for dealing with it, and an assessment of medium-term prospects are detailed in the 1995 Country Assistance Strategy (CAS), which is being distributed concurrently with this Memorandum. 1.2 The crisis in Mexico has prompted the Bank Group, in coordination with the International Monetary Fund, the Inter-American Development Bank (IDB), the United States and other G-10 countries, to respond with a major program of support. The proposed Program of Essential Social Services (PROSSE) is an important component of the assistance efforts of the IBRD and the IDB, in response to the crisis. 1.3 Economic conditions are expected to remain extremely difficult in Mexico over the next 18 months. Open unemployment has already risen sharply and is expected to increase further, with estimates of up to one million job losses in 1995 (the unemployment rate had reached 5.7 percent by March 1995, its highest level since 1987). Real wages will also decline sharply and poverty, which already affects about 34 percent of the population in varying degrees, is likely to increase. The GOM's economic program calls for a very strong fiscal adjustment, which necessarily requires major real cuts in aggregate public expenditures and defers a number of important investment programs and projects. 1.4 These events may severely erode the hard sought social and economic progress that Mexico has made over the past decade: Mexico overcame the debt crisis of the 1980s and achieved sustainable economic growth after effecting a series of, oftentimes painful, structural adjustments. The previous administration introduced macroeconomic stabilization and an ambitious public sector reform program. The stabilization program lowered inflation to single digits (from 159 percent in 1987 to 7 percent in 1994) and the gross domestic product (GDP) grew at an average annual rate of 2 percent over the period 1989-94. The administration succeeded in re-negotiating the country's foreign debt, reducing public sector debt (from 75 percent of GDP in 1988, to 32 percent in 1993) and reducing the fiscal deficit. In addition to correcting the main economic imbalances, including controlling inflation, improvements were made in addressing social issues such as health, education and poverty reduction. 1.5 The GOM is deeply concerned about the possible dual impact of increasing poverty and the reduced budgetary resources available for essential social services targeted to the poor, which would put at risk any gains in social indicators over the last few years. The GOM is committed to protect key social service expenditures and strengthen existing safety net measures. For that reason, in its revised programmable budget for 1995, the GOM has increased the allocation to social sector expenditures from 52.6 percent of the programmable budget (1994) to 55.4 percent in 1995. In this context, the GOM aims to protect essential social services, strengthen social  2 safety net schemes, and to increase the efficiency and effectiveness of its social sector expenditures through the PROS SE. 1.6 To help finance the PROSSE, the GOM is requesting US$500.0 million from the IBRD, and US$500.0 million from the IDB, to be disbursed over the two year period 1995-96. The PROSSE would: (a) consolidate and complement other projects financed by both Banks for enhancing sustainable economic growth, poverty alleviation, and human resources development (Chapter II); (b) provide a vehicle for rapidly transferring substantial foreign exchange to Mexico to meet the fiscal crisis (Chapters II and IV); (c) protect essential social services and strengthen the social safety net targeted to the poor in urban and rural areas (Chapters II and III); and (d) lay the foundation for efficiency gains in the high priority social sector programs in the future (Chapter III). 2. BACKGROUND AND SECTORAL OVERVIEW A. Background (1) The Financial Crisis 2.1 Facing increasing pressure on the international financial markets, on March 9, 1995 the GOM announced its new Economic Adjustment Program, superseding the previous program of January 3, 1995. The development of the new program is based on assumptions that in 1995 GDP will fall by 2 percent in real terms and that inflation will run at 42 percent. The main targets of the new program are to: (a) achieve a primary budgetary surplus of 4.4 percent of GDP for 1995; (b) limit net domestic credit creation to a maximum of N$10.0 billion for 1995, (c) achieve equilibrium in the current account after running a deficit of 8 percent of GDP in 1994; and (d) restructure N$65.0 billion of outstanding debt of the private sector, representing 13 percent of the total commercial bank loan portfolio. 2.2 The budgetary surplus is to be achieved through a combination of increases in tax rates and utility prices and cuts in expenditure. The program increases: (a) the VAT from 10 to 15  3 percent; (b) liquefied propane gas and electricity tariffs by 20 percent over and above monthly adjustments of 0.8 percent; (c) gasoline and diesel prices by 35 percent; and (d) tariffs for airports and railways by 2.5 percent per month. 2.3 A major feature of the program is that the GOM intends to reduce public sector expenditures by 9.8 percent in real terms for 1995 as compared with 1994. This represents an additional reduction of 4.7 percent in real terms as compared with the January 1995 program. In making the expenditure cuts, the GOM will give priority to maintaining social programs. Expenditures for ongoing productive investments would also be maintained, but new investment projects would be postponed. Low priority programs would be eliminated and existing vacancies would be frozen. The existing system of subsidies would be revised. 2.4 On the monetary side, the GOM will continue to float the peso and let interest rates be determined by market mechanisms. The private sector and unions are to negotiate freely their wage and employment packages, subject only to meeting the minimum wage. The program stipulates a 10 percent increase in the minimum wage starting April 1, 1995, and including a 3 percent fiscal credit (reverse income tax) to those workers earning between 2 and 4 times the minimum wage. The GOM has also developed a series of financial mechanisms to protect the liquidity of the banking system and avert widespread insolvency. These mechanisms are being supported by the [BRD and the IDB through a Financial Sector Restructuring Loan in parallel with PROSSE. (2) The Federal Budget of the Social Sectors 2.5 The GOM has stressed the critical importance of human capital development in economic development in both its policy statements and in its budgetary allocation decisions. Between 1988 and 1994, the GOM redirected its operating and investment budgets away from the industrial and energy sectors and towards the social sectors. In the federal programmnable budget, the shares of the energy and industrial sectors shrank from 27.4 and 12.9 percent of the total budget in 1988 to 20.0 and 0.3 percent of the budget in 1994, while the share of the social sector budget climbed from 33.2 percent in 1988 to 52.6 percent in 1994 (see Annex 1). This reallocation allowed the operating expenditures of the social sectors to grow at an average real rate of 11.5 percent at a time when the share of total public sector operating expenditures in GDP stayed roughly constant (18.9 versus 19.2 percent) and real GDP grew slowly. 2.6 Even before the recent economic crisis, it was apparent that the period of major readjustment of the budget was over and, as a result, the rate of increase in social sector expenditures would depend more strongly on the rate of increase of GDP than it had in the past six years. There were no longer the same possibilities for reallocating among budgetary categories as there was in 1988 when the energy and industrial sectors were considerably larger. The pre-crisis planned budget for 1995 reflected this slowdown. The share of the social sectors in the operating budget was programmed to increase slightly from 52.6 to 55.2 percent. Partly as a result of this modest reallocation, but mainly as a result of an expected 4 percent real rate of increase in GDP, prior to the crisis the GOM planned that, in 1995, social sector expenditures would grow by 10.9 percent in real terms.  4 Table 2: MEXICO - Federal Programmable Budget Billions of Current Nuevos Pesos (N$) 1992 1993 1994 1995 ( 1995(b) .................................................................................................................................................................................................. Total 175.2 203.2 240.1 269.3 270.8 of which Total Social Sectors 88.0 107.0 126.2 148.7 149.9 of which Education 36.2 46.0 54.3 65.5 65.9 Health 26.4 30.6 32.8 37.9 38.4 Social Security 11.9 15.5 19.0 22.5 22.5 Employment 0.3 0.4 0.8 1.0 1.2 PRONASOL 6.1 7.4 9.3 10.7 10.7 Table 3: MEXICO - Federal Programmable Budget (percent) 1992 1993 1994 1995 (a) 1995 (b) Social Sectors 52.2%.2.7 52. 6%... 55..2... 55. 4%.. Percentage of Total of whichl Education 20.6 22.6 24.3 24.3 24.3l Health 15.1 15.1 13.7 14.1 14.2l Social Security 6.8 7.6 7.9 8.4 8.3 Employment 0.2 0.2 0.3 0.4 0.4 PRONASOL 3.5 3.6 3.9 4.0 3.9 (a) 1995 Budget as of December 1994. 1995 Budget as of Februaiy 1995. 2.7 The events since December 1994 have altered drastically these planned expenditures. In January 1995 the government prepared a new 1995 budget that incorporated a real decline of 5.1 percent in total public sector expenditures. The revised budget still maintained a real increase in the social sector budget, but reduced significantly the real rate of increase. The real rate of increase in social sector operating budget fell from 10.9 to 1.5 percent. Because the impact of the cuts fell more heavily on other sectors, the share of the social sectors in the total budget grew from 55.2 to 55.4 of the total operating budget. In current pesos, the total operating budget of the social sectors is N$149.9 billion and the investment budget is N$23.2 billion. The total size of the PROS SE program amounts to 7.7 percent of the total operating and investment budget of the social sectors. Further details of the federal governmnent budget are presented in Annex 1. 2.8 In March 1995, the Government announced further cuts in spending in real terms with the objective of reducing total public sector expenditures by 9.8 percent in real terms as compared with 1994. While social sector expenditures are to receive a high priority, and in particular the programs supported under PROSSE, the GOM is still finalizing the budgetary framework and the  5 allocations to specific ministries and programs and will complete the exercise by June 30, 1995. The task of identifying priority programs for the PROSSE began after the February 1995 budget cuts had been decided. Some of the PROSSE priority programs had already taken severe budget cuts. It is the goal of the PROSSE to ensure that the essential social services it has identified as priorities will be protected from subsequent budget reductions. During negotiations, the GOM confirmed with the Banks that: (a) the GOM would endeavor to execute budgetary policy in the social sectors, including mechanisms to protect budgetary allocations to the PROSSE during the financial crisis and measures to increase efficiency of social sector expenditures, according to the agreed letter of policy intent, which is included in the project file (para. 7.1 (a)); and (b) the GOM would release budgetary amounts in a timely manner to the executing agencies under PROSSE in 1995 in accordance with the agreed 1995 budget allocations and physical targets included in Annex 2 and that the GOM may substitute an alternative budget, if satisfactory to the Banks, for the PROSSE prior to June 30, 1995 (para. 7.1 (b)). (3) Poverty in Mexico 2.9 As key objective of the GOM is the reduction of poverty in Mexico. Expenditures in the social sectors are a central element in the GOM's poverty reduction strategy. In 1992, 25.4 percent of Mexico's 84 million people were living in poverty, of whom 13 million were living in conditions of extreme poverty. Although the majority of Mexico's population (73.7%) live in urban areas, extreme poverty continues to be disproportionately a rural phenomenon, whose impact is greatest on the country's indigenous people. In 1992, 56 percent of the extreme poor lived in rural areas and were engaged in agricultural activities. Poverty increased dramatically in Mexico with the onset of the 1982 macroeconomic crisis, as per capita GDP and public expenditures declined considerably. Between 1982 and 1988, real per capita GDP dropped by 10 percent from US$4,160 to US$3,720. 2.10 Since 1989, the overall economy has begun to recover and per capita GDP has risen slightly to US$3,960 in 1992, although it still remains below its 1982 level. In addition, expenditures on health, education and poverty programs have increased sharply and the rate of extreme poverty in Mexico has declined almost to its 1984 level. Nevertheless, regional differences remain very strong, with the poverty rate in the poorest states being ten times that of richer states. The greatest differences are seen between the states of the center and north which are either industrialized or have large expanses of irrigated agriculture and those of the southeast which have little industrial development and depend on rainfed agriculture. Moreover the IBRD's analysis of the Encuesta Nacional de Ingresos y Gastos de Hogares (ENIGHs) surveys for 1984, 1989, and 1992, shows: * In 1992, the poverty gap (or measure of the average percentage by which the poor's income fell short of the poverty line) was 8.3 percent, up from 7.4 percent in 1984, although an improvement over 9.2 percent in 1989. * Poverty is predominantly, and increasingly over time, a rural problem - 49 percent of the poor and 84 percent of the extreme poor live in rural areas in 1992 compared 47 percent and 75 percent  6 respectively in 1984 - whereas the rural population accounts for only 41 percent of total population. * In 1992, Mexico's Gini coefficient (measure of income inequality) was very high at 0.533, a significant increase over 1984 at 0.473. * Income is slightly more unevenly distributed in urban areas, with a Gini Coefficient of 0.493 in 1992 compared to 0.451 in rural areas - however, with a national Gini Coefficient of 0.533, it is evident that the inequality between urban and rural areas is a major determinant of overall inequality. * The bottom 5 percent of the population earns only 0.5 percent of national income, whereas the top 5 percent earns 29.5 percent of national income; similarly, the bottom quintile earns 3.6 percent and the top quintile 58.3 percent. . 2.11 Moreover the GOM is cognizant of the impact of the financial crisis, and ensuant recession, in reducing income levels and thereby increasing poverty. Therefore the GOM is determined to strengthen its social safety net to protect the poorest within its fiscal constraints. This it intends to do through labor retraining (para. 3.12), short-term employment generation (para. 3.15), a rural nutrition program (para. 3.18) and formulating policies for the more effective use of resources allocated to food subsidies/ and income transfers to the poor in urban areas. B. Government Strategy for the Social Sectors 2.12 The GOM strategy in the social sectors emphasizes the critical importance of human capital development in economic development and the important role of the state in interventions which have: (a) a high public goods element (e.g. preventive care for contagious diseases); (b) economies of scale (e.g. textbook printing); and (c) failures of the market (e.g. lack of service provision for the poor and marginalized). During a period of economic crisis, the key objectives of public policy in the social sectors are the following: * targeting, programs targeted to the poor will receive priority in terms of budget allocations; * efriciency, with scarce resources, the GOM wants to obtain the maximum output per unit input, redirecting resources to the most effective programs in terms of their outcomes per unit invested; * consolidation, a key element in increasing efficiency is to eliminate overlapping programs, such as in nutrition, and concentrate resources on a smaller number of effective programs; * protection, during a time of crisis, the GOM wishes to protect programs of a high socio- economic priority; and  7 redirection, over the medium term the GOM wishes to redirect resources to social sector programs which manifest greater efficiency as an incentive mechanism for improved performance. 2.13 Within education, the GOM recognizes the problems and has developed an education strategy to ensure the provision of the basic inputs required to raise the quality of instruction in the country and to ensure that all children have adequate access to basic education. This strategy is implemented through programs which: (i) deliver instructional materials, especially textbooks to all school children; (ii) provide basic school facilities and equipment; and (iii) encourage community and parental involvement in the school. Over the last six years the Government has implemented a comprehensive reform of the education sector, including the decentralization of the system. 2.14 Since 1991, the Banks have supported this strategy through its financing of the Primary Education I (Programa para Abatir el Rezago Educativo - PARE - Loan 3407-ME) , Pfimary Education II (Programa para Abatir el Rezago en Educacion Bdsica - PAREB - Loan 3722- ME), Initial Education (Loan 3518-ME) projects and PIARE (Programa Integral para Abatir el Rezago Educativo - Loan 846/OC-ME), with aggregate financing of US$1,135.0 million. These projects seek to increase education quality through a variety of targeted interventions in the states with the worst educational indicators, which were partly the result of the sharp decline in educational expenditures during the debt crisis of the 1980s. 2.15 The current financial crisis and ensuing reductions in real Government expenditures puts at risk the implementation of the Government's strategy during 1995 and 1996, including the timely execution of the Banks' financed projects. To minimize this risk and ensure continued delivery of education services, the proposed program would provide support for the most essential programs of the Government's strategy. The Secretariat of Education (SEP) and the Banks have reached agreement that these are essential programs to increase equity in access and quality. The program would support the GOM by financing selected programs of three federal agencies as follows: National Council for Educational Development (Consejo Nacional de Fomento Educativo: CONAFE), Federal School Construction Committee (ComiMt Administrativo del Programa Federal de Construccion de Escuelas: CAPFCE) and National Textbook Commission (Comisi6n Nacional de los Libros de Texto Gratuitos: CONALITEG). 2.16 In the health sector, the GOM strategy focuses upon interventions to reach the most disadvantaged areas in the poorest states. Efforts are being made to fulfill the mandate of the SSA to determine sector priorities, re-allocating resources from curative to preventative health interventions and transferring decision-making power from federal to state health authorities (SHAs) and health jurisdictions, respectively. The ongoing IBRD financed Basic Health Care project (PASSPA I -Loan No.3272-ME, FY90) supports these initiatives in four states' and a Second Basic Health Project, scheduled for FY95, is under way to support an additional five states. I Oaxaca, Chiapas, Gueffero, Hidalgo and the Federal District.  8 2.17 However, these measures, which increased federal health spending from 2.8 percent of GDP in 1988 to 4.1 percent in 1993 (accounting for 17.5 percent of total federal expenditures),2 have been only partially effective. Access to health services and their low quality continue to be problems, particularly in the poorer states. The effectiveness of the public health budget is impaired by institutional fragmentation, managerial weakness and duplication of services, resulting in a loss of efficiency, equity and quality. 2.18 The new administration intends to rationalize resource allocation, to search for alternatives to sole Government provision and financing of health services and to strengthen the role of the private sector. However, it aims to first address the basic health care problems in the poorer states in order to establish a sound basis for later launching a major sectorwide reform program. The new Government intends to deliver a cost-effective basic health care package which includes both primary health care interventions and essential clinical services, while simultaneously supporting institutional, technical and financial reform efforts aimed to improve the health conditions of 33 million uninsured and underserved poor. More specifically, it intends to support: (a) equitable access to a cost-effective package of basic health services for the uninsured and underserved; (b) decentralization of health administration and delivery, as well as improvement of technical, managerial and financing processes in the states, to improve health service effectiveness and increase the efficiency of resource use; and (c) modernization and realignment of the SSA to assume an active leadership role in the health sector. Those objectives would be accomplished by investments at local levels in accordance with criteria, previously agreed with the federal government. Under state guidance, local health jurisdictions would define risk areas and prepare annual investment programs to be financed by the federal Government as part of the compensation program. Competition and incentives would be introduced for states and local health jurisdictions to prepare the investment programs. 2.19 In employment, the GOM recognizes the critical importance of both facilitating the movement of labor from declining sectors to growing sectors as a result of the financial crisis through the Labor Retraining Program for the Unemployed (Programa de Becas de Capacitaci6n para Trabajadores: PROBECAT), and the need to bolster the demand for employment over the short term through the creation of a Special Employment Program (Programa Especial de Empleo: PESE). 2.20 In view of the declining employment prospects (paras. 2.46-2.47) in the urban and manufacturing sectors, the GOM has decided re-orient the PROBECAT for at least 150,000 of the 350,000 target trainees for 1995 (this compares to training of some 50,000 displaced workers annually over the period 1988-93) by linking up basic on-the-job skills training and short-term employment generation through infrastructure rehabilitation programs, training for self- employment and training of new staff within small and medium enterprises (SME's). 2.21 In addition, the GOM has announced a short-term employment program to create approximately 550,000 new jobs (of six months duration) in public works programs in areas of poverty and high unemployment. The GOM announced the PESE, on March 17, 1995, at a cost 2Source: Cuenta Publica y PEF, 1993-1994 (Gasto total consolidado)  9 of N$1.7 billion for 1995. The main objective of the PESE is to offer temporary employment to impoverished heads of families and, therefore, improve the living conditions of those groups that suffer the most extreme conditions of poverty. The compensation level paid to beneficiaries would be set at 80 percent of the minimum wage of the appropriate zone3, thereby self-targeting to the poor. 2.22 The PESE will use the framework of the Municipal Solidarity Funds (Fondos de SOLIDARID Municipal: FSM) within the framework of National Solidarity Program (Programa de SOLIDARIDAD Nacional: PRONASOL). PRONASOL is managed by the Social Development Secretariat (SEDESOL) and funded through a single federal budget line (Ramo 26) which is combined with state funds based on the annual Social Development Agreement signed every year by SEDESOL with each state. The FSM is well-designed for this purpose as it operates under the following principles and guidelines: (a) community participation in project selection and implementation through Solidarity Committees; (b) poverty targeting; (c) decentralization and shared responsibility for Solidarity programs with state and municipal governments; and (d) sharing of program costs among the federal government, states, municipalities, and beneficiary communities. 2.23 In the nutrition sector, the administration of President Ernesto Zedillo announced in February 1995 a new national nutrition program as one of the key elements of the new administration's poverty reduction program. The President committed the Government to implement highly cost-effective nutrition programs targeted to the 127 municipalities which exhibit very high poverty and nutritional risk in nine states (12 regions with the highest poverty index in these states). One of the four nutrition-food-health programs identified in this proposal is the cost-effective integrated nutrition program, based on the pilot program financed by SEDESOL and SSA, with IBRD and IDB support, in the poorest regions of three states in 1991. 2.24 While the economic adjustment effort is laying the basis for more equitable growth, a coherent food entitlement policy and nutrition strategy needs to be defined. The Government is currently analyzing the existing programs with the purpose of rationalizing investments, improving coordination and targeting and alleviating poverty by reaching the most vulnerable groups of the population through targeted food and nutrition interventions, or direct income transfers. C. Program Selection Criteria 2.25 PROSSE is a two year time-slice operation supporting the highest priority social sector programs. The programs were selected from the sectors of education, health, employment and nutrition according to the following criteria in order of importance: (a) poverty targeting, the programs should target either the poor (e.g. health and education) or vulnerable groups of the poor (e.g. nutrition for pregnant women and small children); 3 The minimum wage in Mexico is set for three different geographical zones based differentials in the cost of living.  10 (b) safety net, the programs should provide and element of a safety net to protect the poor from the worst effects of the crisis (e.g. employment programs); (c) human capital formation, the programs should contribute to maintaining or enhancing human capital; and (d) size, the programs should be of sufficient size to make a significant social and economic impact and to be able to absorb significant amounts of external financing. D. Issues in the Essential Social Services Program 2.26 The impact of social sector expenditures on the welfare of the poor was never as positive as suggested by the rising expenditures between 1988 and 1994, nor as bleak as would appear from the likely cut in expenditures in 1995 and beyond. In the past, the increasing expenditures allowed the social sectors to recover from the sharp cuts that resulted from the 1982 crisis and to improve social indicators. However, having budgets rising significantly every year reduced the incentives to pay attention to efficiency and cost-effectiveness. Thus, in education, health and employment substantial inefficiencies remain, some of which are detailed below. 2.27 The PROSSE program attempts to improve efficiency in both the short and medium term. In the short term, PROSSE creates a distinction between pre-existing programs that are included in the program and those that are judged less essential and thus excluded. This can generate a reallocation of expenditures as future budget cuts will fall on programs outside of PROSSE and secondly, even if there are not further budget cuts, SHCP would have an incentive to release funds to the PROSSE programs first because program expenditures would be reimbursed with foreign exchange. Under PROSSE, the two Banks will finance both the investment costs of the programs supported, and also the non-wage operating expenses, which would have been cut in the absence of the Banks' financial support, thereby undermining service delivery of these key programs. 2.28 The Banks will provide technical assistance through the loans and through supervision, in the implementation of the safety net programs, the nutrition and employment programs. In the medium term, the Banks would help support an effort to improve monitoring of outputs in the social sectors and to link performance to budgetary allocations. Education 2.29 Mexico has assigned high priority to human capital investment as part of its economic development strategy. Since 1950 adult illiteracy has decreased from 40 percent to about 13 percent; the number of schools has more than tripled; the number of teachers has quintupled; and school enrollments have increased sevenfold as the total population increased only threefold. As a result, by 1994, 76 percent of children aged 4-5 had access to preschool education, net enrollment  I1 rate for primary education reached 98 percent and net enrollment for lower secondary reached 88 percent. In 1993, total preschool enrollment was 1.9 million children attended to by a network of 51,554 schools and about 114,300 teachers; total primary school enrollment (grades 1-6) was 14.8 million children, attended to by a network of 88,918 primary schools and about 510,800 teachers; total lower secondary enrollment (grades 7-9) was 4.2 million children attended to by a network of 20,032 lower secondary schools and about 151,000 teachers. 2.30 The formal education system in Mexico includes a well-designed and mainly non-formal initial education (ages 0 through 3), two-year preschool, nine years of mandatory basic education (six-year primary education and three-year lower secondary education that had recently been integrated), three or four additional years of upper secondary education, and three to six years of undergraduate and graduate university education. The public sector provides educational services for 90 percent of total enrollment. Preschool and primary education are provided in three modalities, general preschool and primary education; bilingual or indigenous preschool and primary education, and the CONAFE (National Council for Educational Development - Consejo Nacional de Fomento Educativo) preschool and primary education models for small communities in remote rural areas. 2.31 In the education sector, failure to protect essential basic education (preschool, primary and lower secondary) expenditures could undermine the very high net enrollment rate of 98 percent, particularly for children in poor and isolated rural areas and indigenous populations, prevent attainment of increased access for these groups, and improvement in the quality and efficiency of basic education. The GOM is seeking to protect investments in essential inputs to the sector, such as textbooks, so that educational quality, cognitive achievement, and thus the efficiency of expenditures across the sector, can be maintained, and so that the basic educational opportunities for the vulnerable poor can be expanded. 2.32 Moreover, despite recent educational achievements, there is still a problem of inadequate access for the children of the rural poor, especially indigenous children in isolated areas. The population without access to preschool, primary, and lower secondary education is characterized by extreme poverty, geographic isolation, and early entry into low-paying positions in the labor market. 2.33 Although management and operation of all initial, preschool, primary, lower secondary education, and teacher training institutions were transferred to the states in 1992, including annual budgetary transfers amounting to over N$30.0 billion, the federal Secretariat of Education (SEP) still has a leadership role on: (a) preparation and enforcement of educational policy norms; (b) curriculum development and textbook production; (c) support of educational research; (d) operation of the evaluation system; and (e) design and financing of compensatory and special programs for an equitable distribution of education services, especially for those states with poorer indicators of educational development. Among the most important federal programs to improve coverage and quality of education are those being carried out by CONAFE, CONALITEG, and CAPFCE of SEP.  12 2.34 CONAFE is a decentralized agency, located within SEP, charged with designing and implementing Federal Government financed compensatory education programs targeted on the poor, indigenous groups, and on children living in poor or remote rural areas. The CONAFE community school system, in which specially trained lower secondary graduates volunteer to teach in schools built and maintained by the communities themselves, has been designed to overcome the problem of constructing and staffing schools in remote areas where it is difficult to attract and retain teachers and where, given the small size of the community, it would be extremely costly to establish regular schools. CONAFE manages all basic education expansion and improvement programs designed by SEP as part of the Compensatory Education Programs of the federal Government for educationally deprived states. The Banks are supporting these programs through the Initial Education Project (Loan 3518-ME), First and Second Primary Education projects (Loans 3407-ME (PARE) and 3722-ME (PAREB), respectively) and by the Programa Integral para Abatir el Rezago Educativo (PIARE) funded by the IDB. Programs currently administered by CONAFE include: 2.35 Programs currently administered by CONAFE include: * The rural community primary school program started in 1973, provides schooling for children living in rural villages of under 100 population with between 5 and 19 school-age students. The program trains lower secondary school graduates to teach in facilities provided by the communities themselves. These teachers receive room and board provided by the community; receive a small teaching stipend; and, upon completion of 1-2 years of teaching, receive a scholarship to permit them to complete upper secondary schooling. The program currently serves 160,000 children in 15,000 community built schools. * The rural community preschool program started in 1980. It is similar in design and operation to the rural community primary school program administered by CONAFE. These currently serve more than 55,200 preschool children in 5,330 community built preschools, each having one volunteer teacher. * The migrant children program, Atenci6n Educativa a Poblaci6n Infantil Agricola Migrante, started in 1989, now operates in about 900 locations in nine states, providing education to 8,700 children of immigrant workers. * The indigenous children program, Proyecto de Atenci6n Educativa a Poblaci6n Indigena, started in 1994, provides preschool education opportunities for indigenous children living in 260 communities and provides primary schooling to indigenous children living in 600 communities. * The Solidarity Schools program provides educational materials and improved school facilities to 680,000 children and 25,000 teachers located in 9,500 traditional schools in urban marginal areas.  13 * The instructor scholarship program, Sistema de Estudios a Docentes, provides financial assistance to community teachers in the rural community preschool and primary education programs to permit them to complete upper secondary schooling. * The student boarding program, Financiamiento Educativo Rural that started in 1984, finances the transportation or the boarding costs of rural students who must go or live away from home because their home communities do not provide schooling opportunities. 2.36 CONAFE would continue implementing the above described programs in 1995. Despite this year's budget cuts, CONAFE will maintain its targets as in 1994. It will cover about 46,500 preschool students, 16,000 primary students from community schools, 215,000 students from the Solidarity schools and up to 38,400 stipends for community instructors about 25,000 fellowships for community school instructors. To guarantee these targets, PROSSE will protect the approved 1995 and 1996 budgets. 2.37 CONALITEG is the largest producer of textbooks in Latin America. In contrast to the serious deficiency in textbooks in most countries of the region, Mexico, through CONALITEG, produces and distributes textbooks in several subjects (mathematics, Spanish, history, science and social science) for every primary school student in the country. Textbooks on history and geography for each state and a geography atlas for Mexico are also produced. In addition, CONALITEG prints and distributes textbooks under contract with other agencies. This includes books in more than 24 indigenous languages financed under the First and Second Primary Education Projects, and books to accompany the TV secondary education program, which benefits children in grades 6-9 in rural areas who have no access to traditional secondary education. Approximately 30 percent of all textbooks and teacher guides are printed using CONALITEG's own facilities, while 70 percent are contracted out with the private sector. After printing, CONALITEG distributes books to about 1,000 warehouses around the country. 2.38 CONALITEG production for 1994 included a total of 134 million textbooks. The program for 1995 was to print 154 million textbooks for all levels of primary education and for preschool as part of the traditional support to basic education. However, with budget reductions for 1995, CONALITEG would be able to produce only about 98.7 million textbooks. PROSSE would ensure that CONALITEG will produce 98.7 million textbooks in 1995, and achieve the 1996 target. 2.39 Despite distribution problems, Mexico has done an admirable job of getting inexpensive textbooks into the hands of almost all primary school students in the country. This experience indicates the importance of the Government's long-range commitment to textbook provision, and is a clear example of a successful experience in overcoming the obstacles associated with a large- scale national free textbook program. However, the aging of CONALITEG's production facilities combined with the current budget crisis raise questions as to how textbook production and distribution could be made more cost-effective in the future in Mexico. To help CONALITEG in finding efficiency gains a Productivity Study will also be financed under PROSSE. Terms of reference for this study are included in Annex 3.  14 2.40 CAPFCE is the federal agency charged with managing the constructing, rehabilitating, and equipping of educational facilities from preschool through university levels using private contractors. School construction needs are determined by the State Secretariat of Public Education in each state and reviewed and consolidated by SEP's General Directorate for Planning, Programming and Budgeting at the central level. Up to 1994 it had built some 640,000 classrooms or about 96,000 schools. In the last six years it constructed the equivalent to 46 classrooms per day. This agency has extensive experience in carrying out construction under IBRD- and IDB-financed projects, including the IBRD's First and Second Primary Education and the IDB's PIARE projects and the Earthquake Reconstruction and Rehabilitation project. While the states and municipalities are responsible for primary and some secondary school facilities, CAPFCE manages construction of federally-financed facilities at all levels of education, mainly in rural, indigenous and marginal urban areas. The four highest priority activities are: . The preschool construction program has four sub-programs serving urban, rural, and indigenous children, including one program of special education for preschool-age students with learning disabilities (Centros de Atenci6n Preventiva para la Educaci6n Preescolar). * The general secondary education program comprises facilities for rural youth enrolled in the lower secondary education television program (telesecundaria), and facilities for youth enrolled in technical training programs. SEP has found that TV secondary education is the best cost-effective alternative to deliver secondary education services in rural isolated areas where given the small size of the students, it would be very costly to establish regular secondary schools. In 1993, the unit cost for TV secondary was about 10 percent lower than general secondary (N$858 versus N$935 in 1988 constant prices). TV secondary schools are one-room schools with instructional material delivered to schools by SEP through television. Despite the low student teacher ratio, the low unit cost is explained by the fact that one teacher covers all subjects. Currently 5,800 telesecundaria schools operate with about 16,000 teachers and 261,000 students. The schools often start in rented or borrowed premises and once established, move to permanent premises with the necessary laboratory and sanitary facilities. * Boarding schools (albergues) for indigenous students in isolated rural areas. * The maintenance program provides preventive maintenance mainly for school buildings in basic education. The technical manual for preventive maintenance is the same one used by the First and Second Primary Education Projects financed by the IBRD and PIARE financed by the IDB. 2.41 CAPFCE had to reduce by 11 percent the 1995 original targets as a result of the budget cuts. The physical programs that would be protected by PROSSE include those which benefit the most educationally deprived students. PROSSE will protect CAPFCE's budget to ensure that these students, generally from poor and rural areas, will benefit from the 1995 and 1996 construction programs; whose intention is to consolidate and house existing telesecundaria schools in permanent premises. In 1995, the revised program includes the construction of 5,990  15 educational spaces for preschool, 1,990 for TV secondary and 40 for indigenous boarding schools. Health 2.42 In the health sector, further cuts in expenditure on essential health services for the poor, who rely upon the SSA, could widen the existing large disparities in health status between geographic regions and income groups. Already life expectancy stands at 55 years in rural areas, versus 71 years in urban areas; and 53 years among the poor, as compared to 73 years among the wealthy. Similarly, infant mortality ranges from 20 per 1,000 in richer states to more than 50 per 1,000 in the poorer southern states. The budget for cost-effective preventive and curative interventions targeted to the poor needs to be protected to prevent an exacerbation of these disparities. 2.43 Moreover, there is an unfinished agenda, as still some 33 million people live in poverty without adequate access to health and social services. Of a total population of 84 million, 25 percent (21 million) are poor and another 16 percent (13 million) are considered extremely poor, not able to meet their basic health needs. Real per capita income in the richer (mainly northern) states is more than twice that in the poorer (mainly southern) states. Urban centers and northern states have health indicators similar to OECD levels, while in urban slums, rural areas and southern states the poor are still subject to a pre-transitional epidemiological pattern, characterized by communicable diseases and malnutrition. The urban elites and the middle class are increasingly subject to a post-transitional epidemiological pattern with a higher burden of chronic diseases. These disparities place very different kinds of demands on the health services and represent a major challenge for the Mexican health care system. 2.44 Sector work undertaken by the GOM and the two Banks in 1994 shows that after 1988 the Government increasingly made health care a priority in its agenda. As a result, total federal health spending increased nearly 15 percent per year in real terms and reached an estimated 4.8 percent of GDP in 1994. Overall, IMSS and ISSSTE account for 75 percent of federal health expenditure, the SSA for 20 percent, and the Armed Forces and other parastatal entities, such as the Mexican State Oil Company (Petroleos Mexicanos: PEMEX), account for the remaining 5 percent. However, spending increases have not been equitably distributed between the main providers, favoring higher and middle income classes who are covered by the public social security system. Fiscal transfers to IMSS account for some 0.5 percent of GDP, which is equivalent to the total SSA expenditures for the uninsured population. In other words, those middle and higher income population receive the same public subsidies as the uninsured low income population. Between 1987 and 1993, the budgets of the Mexican Social Security Institute (Instituto Mexicano de Seguridad Social: IMSS) increased 80 percent, the Public Sector Employees Social Security Institute (Instituto de Servicios de Seguridad Social para Trabajadores Estatales: ISSSTE) 23 percent, and the SSA 44 percent, widening the gap in public services between those already being covered by the social security system of IMSS and those not covered and attended to by SSA services. Moreover, although spending increased in the SSA, a disproportionate share of these resources are allocated to salaries and administrative costs, leaving the efficiency in public health services provided by SSA further deteriorated.  16 Despite the increases in spending by the SSA and the social security institutes, the decline in quality of public services and increases in income levels have led to a rapid increase in private sector spending, which now accounts for 2 percent of GDP, or an estimated US$84 per capita. 2.45 Within the health sector, the PROSSE aims to support the following efficiency gains within the operation of the SSA: (a) Targeting of SSA. The current economic recession will increase the importance of the SSA's health services as service provider of last resort. Many employees, estimated up to 1 million, will lose their formal sector jobs and will, over the course of 1995 and 1996, augment the uninsured population dependent on services from the SSA as health provider of last resort. The budgetary protection will help the SSA to effectively use its installed capacity to provide more services for a greater number of patients, and thereby raise efficiency. (b) Selection of preventive and basic health care programs. The PROSSE intends to protect highly cost-effective preventive programs and priority basic health interventions from budget cuts as identified by the Fundacion Mexicana de Salud as the initial proposal for the basic health care package. Thus cuts in the sector would be concentrated on less cost-effective tertiary curative care and the 10 national health institutes. This segment of SSA operations will have to accommodate to a tighter budget and find additional resources through internal efficiency gains, competition for budgets or by charging patients for sophisticated third level care services. (c) Budget regularization. Certain priority programs, such as the immunization program or the cholera prevention program, are financed through savings under the budgetary allocations for other programs. The proposed program intends to not only protect the operation of those priority programs but also to regularize budget allocations to them and include them into the annual budget process. (d) Competition for resources. The proposed program would introduce an element of competition for budgetary support in 1996. Programs which will not achieve their programmed objectives are at risk of not receiving of the protection program in its second year in favor of other more efficient and effective programs. (e) Inter-state equity. Currently, the poorer states receive a lower budgetary allocation per uninsured population than the richer states. A more rational and equitable allocation system for the SSA budget will be developed and introduced under PROSSE. Employment 2.46 Mexico's financial crisis has already had an impact on unemployment. The formal sector of the economy is beset by three major problems: (a) a generalized reduction in domestic demand  17 caused by the recession, although the tradables sectors will benefit from an increased external demand as a result of the devaluation; (b) high interest rates (analysis of companies quoted on the Mexican stock exchange shows that companies in the transport, construction and non-financial service sectors have particularly high levels of indebtedness); and (c) the impact of the devaluation of the peso for those companies holding debt denominated in foreign exchange (sectors particularly affected are transport, non-financial services and, within manufacturing, cement, machinery, transport equipment, textiles and clothing). 2.47 Under these circumstances, enterprises in the formal sector have started to shed labor to reduce costs and improve their short-term cash flow and there is no evidence that this trend will be reversed in the near future. Evidence of the decrease in demand for labor is as follows: * Between November 1994 and January 1995, according to IMSS statistics, 231,000 workers (2.6 percent of total employment) lost their jobs in the formal sector (according to INEGI, some 753,000 workers lost their jobs in the first two months of 1995). Of these job losses, 36 percent were in manufacturing, 18 percent in commerce, 11 percent in services and 11 percent in construction. It is expected that another 800,000 workers will lose their jobs by the end of the year. 3 Open unemployment rose to 5.3 percent in February 1995 -- its highest level since 1987. * According to the Encuesta Industrial Mensual, there was a contraction in employment in the 3,218 largest manufacturing enterprises of 5 percent in 1994, concentrated in industries producing intermediate goods and consumer durables. - There was a 23 percent drop in the number of vacancies listed through the employment service in Mexico City in February 1995 compared to a year ago. - Several major banks are in the process of laying off up to 30 percent of their staff. * The Federal Government is in the process of establishing downsizing targets for administrative staff, as well as implementing a general austerity program, in line with the latest round of budget cuts. * It is estimated that 2,000 restaurants and eating establishments closed during the first quarter of 1995, with a loss of some 14,000 jobs. 2.48 Set against the context of the need for the labor market to absorb approximately I million new entrants annually, the employment position in Mexico appears bleak. Open unemployment is not a viable option for most workers4 - as most workers in the formal sector are not entitled to severance pay, and there are no continuing forms of income support or unemployment insurance. 4Despite these developments, open unemployment increased only from 3.3 % to 3.7 % between the fourth quarter of 1993 and the same quarter of 1994. However, by February 1995, open unemployment had risen to 5.3 % nationally and as high as 10.7% in Mexico City.  18 Workers becoming unemployed thus either seek alternative employment in the formal sector or, particularly in times of recession, swell the ranks of the informal sector, increasing the number of under-employed and placing further downward pressure on real incomes in the informal sector. 2.49 Whilst it is expected that the devaluation will have a positive impact on demand in the tradables sectors (both for exports in such sectors as automobiles, transport equipment, machinery, extractive industries and metal products) and should boost the flow of tourists, the impact on demand in the labor market will take some months to be realized. In this context, there is a need for two types of shorter term interventions to bolster demand in the labor market: (i) retraining programs for the unemployed to help them take advantage of new employment opportunities in growing sectors and self-employment; and (ii) short term employment programs through the rehabilitation and creation of physical infrastructure targeted to the rural and poor areas. Nutrition 2.50 In 1988 approximately 42 percent of all children under 5 years of age in Mexico were malnourished. This level is not likely to have improved since 1988, mainly because malnutrition in Mexico is a function of poverty, infectious disease and poor feeding practices (including breastfeeding). Malnutrition is concentrated among the poorest households (defined as less than 2 minimum salaries) and in isolated, largely indigenous, rural municipalities. Although general food subsidies have been the most widespread and the most costly food program, the Mexican Government has implemented a series of targeted food and nutrition interventions to provide income transfers and other services to the poor and those who are nutritionally at risk. The targeted interventions can be classified into four categories, namely supply and price regulation programs, price subsidy programs, food distribution programs and nutrition education and consumer information programs. 2.51 While Mexico has historically devoted large budgetary resources for food and nutrition programs, malnutrition has not been eliminated. There are currently over two dozen nutrition programs and food subsidies in operation in Mexico, which in 1995 will cost well over US$500 million. These are designed to help the poor covered by all food and nutrition programs (estimated to be approximately 16 million people or about 2.7 million families). 2.52 The main problems with the existing nutrition programs are that they fail to reach those at highest risk of malnutrition (especially in rural areas) and that there is no coordination or coherence among programs with respect to goals, targeting criteria, monitoring systems, or delivery systems. The budget for such programs is highly concentrated in urban areas, where programs overlap in coverage, and whilst in the highest risk rural areas there is a lack of coverage. Many of the national programs distribute food but the food basket delivered is highly variable with respect to commodities, nutritional value, and cost. An additional concern is that none of the programs in place at present are addressing micronutrient deficiencies: for example, iodine deficiency continues to be a problem in mountainous areas, and iron deficiency is widespread particularly among the poor. The current expenditures on food and nutrition are not cost-efficient or effective in overcoming malnutrition. The GOM recognizes that many of the reforms necessary  19 in the nutrition sector require further study and the GOM is seeking additional program support from the Banks in the field of food and nutrition. 2.53 To improve the effectiveness of nutrition programs in rural areas, in 1991 the GOM implemented a pilot Integrated Nutrition Health Program, financed by SEDESOL and SSA, with IBRD (under loan 3357-ME) and IDB support, in the poorest regions of three states. This intervention included growth monitoring, nutrition education, kitchen gardens, community public works, and a food basket delivered monthly to families with malnourished children. The project was carried out by community volunteers operating under the aegis of SEDESOL and the state Secretariat of Health. An evaluation found that the program was highly cost-effective: the per capita cost of the project was US$20 per beneficiary (including all family members in the targeted household) or US$85 per vulnerable individual (pregnant and lactating women and children under 5). In the more malnourished community the rate of moderate and severe malnutrition fell from 18.5 percent to 5.1 percent; in the other community the rate fell from 8.7 percent to 8.2 percent. The "scaling up" of the pilot nutrition, food and health program, with the modifications suggested by the evaluation, in these nine states will be supported by SEDESOL under PROSSE(para. 3.20). The priority states, high risk regions and municipalities were selected through the following criteria: (a) CONAPO Poverty Index;5 (b) national census of growth monitory (children less than five years of age, 1994); (c) health indicators; (d) national food consumption data; and (e) health/nutrition indicators of specific nutrition deficiency studies done in Oaxaca, Puebla, Hidalgo and parts of Veracruz. E. Lessons Learned from Past Operations 2.54 Many lessons have been leamt from a wide range of social sector projects which have been undertaken in Mexico. The relevant projects are summarized in Table 4. 5 The CONAPO poverty index ranks states, jurisdictions and municipalities based on results of "principal components analysis", using the 1990 INEGI census, which takes the following variables into account: (a) population density; (b) illiteracy in population >15 years; (c) population >15 years without primary schooling; (d) sanitation; (e) percentage of households without electricity; (f) drinking water; (g) percentage of overcrowded households; (h) percentage of households with dirt floor; (i) percentage of population in localities of fewer than 5000 inhabitants; (j) per capita income of less than two minimum salaries; and (k) presence of indigenous population. The national average would receive the index "0". A composite index between 0 and I would be considered as "high", between I and 2 as "very high". A negative index (below 0) would indicate a better than national average poverty situation ("low") and would not be considered for the project.  20 Table 4: Lessons Learned Sector Project Loan No. FY Loan Special Features Relevant Amount to PROSSE US$ M. Health Basic Health I 3272-ME 91 180.0 Poverty targeted basic health services. . ... , ,. , , ................................ ............ , , , , , ....... . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... ....... . . . . . . . . . . . . . Education Primary Education I 3407-ME 92 250.0 Poverty targeted basic education services. Primary Education I1 3722-ME 94 412.0 Community Involvement in basic education. Primary Education 846/ME- 94 393.0 Poverty targeted basic (PIARE) OC education services Employ- Manpower Training 2876-ME 89 80.0 Retraining for the ment unemployed. Labor Market & 3542-ME 93 174.0 Capacity building of State Productivity Employment Services. Enhancement Technical Education & 3805-ME 95 265.0 Involvement of private Training Modernization sector in training. Decentralization & 3790-ME 95 500.0 Community involvement in Regional Development civil works program. ..... ......... . ..... Municipal Development 837/OC- 94 500.0 Community involvement in Program ME municipal programs. Nutrition Agricultural Structural 3357-ME 91 400.0 Effiective pilot rural Adjustment Loan II nutrition program. 2.55 The relevant lessons which have been incorporated into PROSSE are as follows: Education 2.56 Education Quality and Non-personnel Expenditures. The channeling of resources to non-personnel costs has been instrumental in improving the quality of primary education in targeted areas. Access to textbooks has been one of the most cost effective education inputs to increase students' academic performance. There is vast empirical evidence, including studies financed by the First Primary Education (IBRD) and PIARE (IDB) Projects, indicating that  21 textbooks improve student knowledge of science, mathematics and language. PROSSE builds upon this experience by financing textbooks, infrastructure and other educational materials in rural areas. PROSSE would expand the coverage of CONAFE programs by financing teacher stipends, for volunteers in single teacher school who could not otherwise be appointed, leaving small communities without teachers, and thus without schools. CAPFCE would finance the consolidation of existing schools, improve the quality of schooling and widen the range of subjects so that existing teachers provide effective education. 2.57 Access to Basic Education in Rural Areas. Low access in rural areas is due in part by the poor living standards of the family, and by the lack of adequate schooling system and infrastructure. SEP regular services are not provided in many small rural communities, but a low cost alternative education modality, with strong community participation, have been successfully developed by CONAFE. 2.58 Targeting. The most effective way to reach the economically and educationally disadvantaged is by specifically targeting the poor. Both CONAFE and CAPFCE focus most. project activities to the poorest areas of the country thereby serving small communities selected for their low socio-economic status (utilizing the CONAPO index). Health 2.59 The ongoing IBRD financed First Basic Health Project was the first IBRD experience with. a health related project in Mexico and provided the most valuable source for lessons learned to consider for the proposed program. Accordingly, the critical evaluation of the implementation experience of this project helped to transfer positive lessons into the design of the proposed program. Positive features that are critical for the SSA to accomplish its mandate to provide health benefits for the uninsured population are: 2.60 Targeting. While the First Basic Health Project targeted poor states, resources often did not reach populations most in need within the state. Therefore, it is necessary to target delivery of' a cost-effective basic health care package to the most disadvantaged municipalities within a poor state. This is the approach being followed under PROSSE. 2.61 Improve Access to Basic Health Care. The First Basic Health Project supported infrastructure rehabilitation of first level health centers and second level hospitals in order to provide an environment suitable for basic services of high quality for the uninsured. It has been demonstrated that the use factor of rehabilitated facilities increased significantly. PROSSE will continue to finance the rehabilitation of the first and second level care network to provide quality services to the uninsured. 2.62 Rural Staffing. Basic Health I supported the training and recruitment of community health care workers which are selected by the community where they will serve. They were utilized in the project for staffing health posts in communities where no medical doctor was. available. The PROSSE will build on this experience and finance training for community health. workers to serve remote communities.  22 2.63 Build Ownership in the States. Basic Health I featured institution building activities by supporting local decision-making and problem solving, decentralizing procurement of essential supplies and improving the management capacity and the management information systems at the local level. PROSSE will continue to support project states in procurement and implementation matters through the health sub-program. Employment 2.64 Positive Impact of Training Programs and the Need for Targeting. The IBRD's experience with both pre-service and in-service training has demonstrated their positive impact both in increasing the earnings profile of trainees and meeting the needs of private and public sector skilled employees. Careful use of the selection criteria agreed under the Labor Market and Productivity Enhancement Project (Loan 3542-ME, FY93) will be continued under PROSSE for the regular PROBECAT programs will be continued but modified as necessary in relation to para. 2.68. However, these trainees with lesser educational attainments and work experience would be able to participate in the on-the-job training modality (Annex 4). 2.65 Public and Private Sector Linkages. Experience has shown that close collaboration is required between publicly funded training institutions and the private sector to ensure that course content and graduate output match employers' needs and hence employment opportunities available. PROSSE will promote a stronger linkage between public and private sector for the regular PROBECAT program. 2.66 Flexibility and Adaptability. The economic crisis in Mexico has focused attention on the need to shift training and education programs away from rigid courses with a low probability of directly related employment in the formal sector thereafter. PROSSE responds to this by supporting combined basic skills and direct employment in rehabilitation programs. 2.67 Unemployment versus Underemployment. Experience in Mexico has shown that open unemployment is the tip of the iceberg. A more serious problem is underemployment, with the need being to increase the productivity of employees. Under PROSSE, PROBECAT will be opened up to the underemployed in both the formal and informal sector to acquire skills, enhance their productivity an obtain more secure employment. Nutrition 2.68 Overall Program Design: The evaluation of the pilot nutrition-project conducted under the IBRD's Second Agricultural Structural Adjustment Loan (Ln. 3357-ME, AGSAL II, FY91), co-financed by the IDB, found that: (a) measurable results should not be expected before two years of program implementation; (b) the program should be targeted to the places with the highest rates of malnutrition; (c) the food basket should contain no more than a few commodities and yet address micronutrient deficiencies; (d) implementing agencies at the state level and community levels should be clearly defined; (e) the nutrition education, including growth monitoring, needs careful design and integration with the rest of the intervention package; and (f)  23 the community volunteers need close supervision and monitoring. These lessons have been incorporated into the integrated nutrition sub-program to be supported under PROSSE, which will be closely monitored and objectively evaluated. 2.69 Targeting. The evaluation of the pilot nutrition project under the AGSAL II confirms that a well-targeted and executed nutrition program can have a substantially positive effect on the nutrition and health status of vulnerable population groups. PROSSE will expand this positive experience in rural areas of the poorest states of Mexico. 2.70 Distribution of Micro-nutrients. Experience in El Salvador, Guatemala, and the Dominican Republic suggests that fortified baked products can be highly cost-effective in addressing micronutrient deficiencies in school children in whom such deficiencies cause learning problems. Therefore, in addition to the basic food and nutrition package, PROSSE will finance pilot testing of a vitamin and mineral-enriched cookie in the school breakfast so as to better address micronutrient deficiencies in school-aged children (whilst this does not represent a safety net measure it addresses an important long-term nutritional goal). 2.71 Distribution System. The distribution of food to the targeted population groups requires a well established distribution system and executing agency capable of organizing the beneficiaries to participate in the logistics of food distribution. PROSSE will utilize existing public or private networks to provide these services and, in addition, will expand it through the health services network. PROSSE will also use the network of facilities of the National Indigenous Institute in the most remote rural areas amongst indigenous populations. 2.72 Nutrition Education: The literature on food supplementation programs suggests that any food transfer should be accompanied by nutrition education and growth monitoring to effect behavioral change in the family and to communicate to the family about the increased nutritional needs of pregnant and lactating women and preschool children. The costs of this program are modest compared to food supplementation programs in other countries. F. Rationale for the Banks' Involvement 2.73 The proposed loan is consistent with the IBRD's CAS which will be discussed by the Board on June 15, 1995 and the IDB's Country Programming Paper (CPP), to be discussed with the GOM later this year. The strategy focuses on the revival of growth, poverty reduction and human resources development, and environmental sustainability. The proposed loan is critical to the IBRD's CAS and the IDB's CPP over both the short and longer term. The loan is one of the six operations proposed by both Banks to respond to Mexico's current financial crisis. It provides a safety net to the most vulnerable groups affected by the crisis and helps maintain the gains achieved in social indicators in recent years. Over the longer term, this program will continue the work of both Banks in poverty reduction and human resource development, which remain key to achieving growth, equity and sustainable development in Mexico.  24 2.74 The IBRD and the IDB are the major institutions that have financed social sector investment in recent years and are the only institutions which can provide the magnitude of the external financial resources to support essential social service programs in Mexico during its current fiscal difficulties. The Banks have built up an in-depth knowledge of the social sectors in Mexico through their extensive operations and sector work. The Banks' experience in supporting project activities in the social sectors provides the foundation for program improvements which, although limited due to the short duration of this program, are supported under PROSSE. Moreover, the experience gained in project implementation by the executing agencies with the Banks' policies and procedures will facilitate the rapid disbursement of the loan funds, which is essential for purposes of the overall macroeconomic stabilization program. 3. THE PROGRAM A. Program Objectives 3.1 The PROSSE has three objectives, to: (a) protect essential social services for the poor, through the provision of textbooks to all students, and on a targeted basis, teaching materials, maintaining access to pre-school, primary and lower secondary education in isolated rural areas, a basic health care package, vaccines, pharmaceuticals and medical supplies, and community health outreach campaigns; (b) strengthen existing social safety net measures, to cushion the poor from the effects of the economic crisis through retraining, the creation of short term employment opportunities for the unemployed and underemployed, and a nutrition program targeted to vulnerable groups in the poorest areas; and (c) lay the foundation for measuring and implementing efficiency gains in the social sectors over the medium term through technical assistance and program monitoring. B. Program Description 3.2 The PROSSE has been designed as a time slice operation to finance ongoing high priority social sector programs within the existing budgetary allocations. It consists of five sub-programs: (a) basic education services; (b) basic health services; (c) retraining and employment generation; (d) food and nutrition programs for vulnerable groups; and (e) monitoring and evaluation of social sector programs. In each sub-program, the GOM will seek to improve the efficiency of public expenditure, within the constraints of the two-year implementation period, using agreed monitoring and evaluation indicators. Each of these sub-programs is summarized below: (1) Sub-Program 1: Basic Education Services 3.3 The basic education services sub-program (total cost US$593.5 million), to be implemented by SEP through dependent agencies, would support the Government's strategy to improve equity in access and to raise quality of basic education. The program would obtain this  25 by increasing access to preschool, primary, and lower secondary education for the poor and the rural and indigenous children living in the most deprived and remote areas in the country; and by supporting two of the most important factors related to low quality of education, adequate physical facilities and access to textbook in the classroom. The program would do this by providing budget support for the three federal programs described below. 3.4 Basic Education for the Rural Poor (US$132.4 million or 6.6 percent of total costs), to provide schooling to rural isolated preschool- and primary education-aged children by supporting CONAFE's programs. The program would benefit 46,500 rural community preschool students; 161,000 rural community primary school students; and provide up to 21,000 stipends for former community instructors; up to 38,400 stipends for community instructors; up to 14,600 stipends for transportation or boarding, mainly for lower secondary education students; and about 215,000 Solidarity School students. These expenditures financed by the IDB loan will enable single teacher schools to remain open continuously. 3.5 Textbooks for Basic Education (US$161.5 million or 8.1 percent of total costs), to provide 91.5 million textbooks for primary education students in the country and 7 million teacher guides (32 different topics) through financing of CONALITEG in 1995, and at least the same quantities in 1996; and to support a productivity study of the cost-effectiveness of CONALITEG's existing production and distribution system. The agreed terms of reference are included in Annex 3. During negotiations, the GOM confirmed that it would review the results of the CONALITEG productivity study and present an action plan to the Banks by July 31, 1 996 (para. 7.1 (c)). 3.6 Improvement and Expansion of Educational Facilities (US$299.6 million or 15.0 percent of total costs), to support CAPFCE's 1995 program regarding: (a) construction of 5,990 educational spaces, including classrooms and support facilities, for preschool serving rural and indigenous children and children in urban marginal areas; (b) construction and equipping an estimated 3,720 educational spaces, including classrooms, workshops, store rooms, sanitary facilities, and support facilities, for TV secondary schools; and (c) construction of 40 educational spaces for Indigenous Boarding Schools. The construction referred to in (a), (b) and (c) above is entirely for the replacement or extension of inadequate schools or the replacement of rented premises with purpose built structures. No new schools will be established under this sub- program. CAPFCE program administration, infrastructure for training, building maintenance, and constructing and equipping technical secondary facilities will be financed by the IDB loan. (2) Sub-Program 2: Basic Health Services 3.7 The Basic Health Services Sub-program (total cost US$746.5 million) to be implemented by the SSA, would benefit the 33 million uninsured population through the following activities. 3.8 Priority Preventive Programs, (US$307.9 million or 15.4 percent of total costs) which are cost effective public health interventions, by: (i) immunizing 20 million children annually  26 against the most common preventable diseases; (ii) control and treatment of endemic and communicable diseases; (iii) screening for early detection of diabetes, and other chronic diseases, involving over 4 million patients annually; (iv) family planning and reproductive health for about 2.5 million new users per year; (v) maternal and child health, pre-and postnatal care, benefiting about 9 million individual patients annually; and (vi) health and nutrition education and social marketing of public health programs. 3.9 Basic Curative Health Care, (US$335.7 million or 16.8 percent of total costs) for the 33 million uninsured population, would be delivered through the basic health care and mobile outreach units. 3.10 Basic Health Infrastructure, (US$102.9 million or 5.1 percent of total costs) civil works, equipment and maintenance for first and second level health facilities and public health laboratories scheduled to be initiated in 1995 and concluded by the end of 1996 would be undertaken by Infrastructure Division of the SSA (Coordinaci6n General de Obra, Conservacion yEquipamiento;CGOCE). 3.11 To implement the above actions, PROSSE would finance: the civil works program; the acquisition, storage and distribution of vaccines, essential drugs, medical supplies and basic equipment to the first and second level care network (i.e. health posts, health centers, jurisdictional centers and second level hospitals); community outreach and per diem and travel for supervision personnel and on a declining basis. (3) Sub-program 3: Retraining and Employment Generation 3.12 The employment sub-program (total cost US$644.2 million) includes two elements: (i) retraining and stipends for 350,000 unemployed and underemployed workers in 1995 and 450,000 in 1996 through PROBECAT, managed by STPS, to enhance worker productivity and employment prospects (see para. 2.20); and (ii) short-term employment generation through infrastructure development in low income urban and rural areas through the PESE (see para. 2.22). 3.13 Retraining for the Unemployed - PROBECAT - (US$225.9 million or 11.3 percent of total costs). At least 150,000 of the trainees each year would benefit from a new training modality under PROBECAT, receiving basic skills on-the-job training in areas such as plumbing, electricity, brick-laying plus a stipend to work in rehabilitation and public works programs in low income areas or whilst training to establish their own small businesses. The remaining trainees would follow the more traditional PROBECAT modality of training center and in-plant training. The average stipend would be for three months set at the level of 1 minimum wage (currently ranging N$15 to 18 per day) plus a small transport allowance. About 30 percent of the stipends would go to rural beneficiaries. These stipends represent an investment in the human capital of the individuals concerned, financing the opportunity cost of the training time, acting as an incentive for enhancing skills and, as a by-product, providing social support to the families of these low- income targeted trainees. They would be financed by the loans on a declining basis. The  27 effectiveness of both the ongoing and new PROBECAT modalities will be evaluated through the ongoing evaluation program under the Labor Market and Productivity Enhancement Project (Loan 3542-ME). The selection criteria for the different modalities under PROBECAT, distribution of beneficiaries by state (as of April 28, 1995) and detailed responsibilities for the on- the-job training modality are attached in Annex 4. 3.14 PROSSE would finance the cost of training, stipends and up to 10,000 tool-kits required for the on-the-job training modality. The cost of materials for the rehabilitation would be financed by the beneficiaries. Though the staff assigned for this task will be located within the offices of the State Employment Services (SEEs) and use their physical infrastructure, the program of stipends will be financed completely by the federal budget and the loans. In addition to the 99 SEE offices, the SEEs will use the 51 mobile units purchased under the Labor Market and Productivity Enhancement Project (Ln. 3542-ME, FY93) for expanding the coverage to the unemployed and underemployed in small urban and rural areas. 3.15 Short-term Employment Program - PESE - (US$418.3 million or 20.9 percent of total costs). The GOM will carefully ensure that the paid labor approach under the PESE will not undermine the longer-term community participation approaches under PRONASOL. This will be achieved in two ways: (a) through making it clear that the paid employment activities are time- bound; and (b) by funding only certain categories of sub-projects which have a high public goods element. 3.16 The budgetary allocation for the PESE will come from the states' Social Development Agreements (i.e. federal funds allocated to each of the nation's 31 states for social development programs under PRONASOL). The PESE will be coordinated through SEDESOL utilizing the existing administrative and financial mechanisms established under the FSM (para. 2.22). In 1995, N$1.2 billion (approximately US$200.0 million) has been allocated to rural areas with a high poverty rate and indigenous population together with N$500.0 million (US$83.0 million) for urban areas with serious unemployment and poverty problems. It is anticipated that the rural component would extend beyond 1995, whilst a decision on the urban component would be taken in the light of developments in the urban labor market during 1995. PROSSE will fund the costs of the PESE in all these states not already covered under the IBRD supported Second Decentralization & Regional Development project (Loan 3357-ME).6 However, in these 8 states, PROSSE will finance PESE in the large urban municipios not covered under Loan 3357-ME and may finance categories of sub-projects not eligible for financing under this Loan. 3.17 Eligible labor intensive activities under the PESE include construction and maintenance of rural roads, spot road improvements, cleaning of drainage canals, garbage removal, reforestation, and conservation programs for soil and water. The state and municipal governments will discuss and approve specific programs in which to invest the funds. In rural areas, each community, through the respective Municipal Council, will be directly responsible for selecting an investment program. Selection of beneficiaries will be self-targeting through the low compensation (only 80 percent of the minimum wage) for the heavy manual work involved. PROBECAT would be able 6 / The States included under the Second Decentralization &Regional Development Project are Chiapas, Guerrero, Hidalgo, Michoacan, Oaxaca, Puebla, Veracruz and Zacatecas.  28 to train skilled laborers necessary to complement unskilled laborers for the public works undertaken (para. 3.13). During negotiations agreements were confirmed that the GOM would execute the PESE through SEDESOL according to the agreed operational modalities (para 7.1(d)). (4) Sub-program 4: Nutrition 3.18 With respect to key social safety net schemes, the GOM expects a markedly increased demand due to the economic crisis. Therefore, it is seeking external support for only those priority nutrition programs which are cost-effective and well targeted to the vulnerable population groups, such as young children, pregnant and lactating women, in the poorest states. 3.19 The integrated nutrition sub-program (total cost US$8.7 million) would be based on nutrition and health interventions to improve the nutrition status of the vulnerable groups. The program would provide a package of interventions for poor rural families with vulnerable groups (children under age 5, pregnant and lactating women) consisting of: (a) the distribution of a basic food supplement basket (containing maize flour, beans, salt, sugar and vegetable oil); (b) micronutrient supplementation; (c) growth monitoring; and (d) health and nutrition education. Micronutrient supplements would include: (i) iodized salt because of widespread iodine deficiency in the highest risk areas; and (ii) iron tablets along with supportive counseling to pregnant women, and operations research to find better means of encouraging pregnant women to take iron pills. The community would participate in the program by assisting in the food distribution process and developing complementary activities, such as construction of latrines, improvement in water supply and housing, and establishment of vegetable gardens. A simplified set of indicators has been selected to monitor both the delivery of inputs and impact on the beneficiaries. The beneficiaries will be strictly monitored to ensure compliance with the targeting objectives of the food supplements. This will be reviewed by the Banks quarterly (para. 5.5). 3.20 At the central level, the SSA, SEDESOL and DIF (Desarrollo Integral de la Familia - Integrated Family Development) would be the apex organizations which would devolve to the state and municipal governments the implementation of the program. At the state level, in the case of Hidalgo, the operational responsibility would rest with state government under the coordination of the SSA. Beginning in 1995, Hidalgo state will begin to implement the consolidated nutrition program in the highest risk municipalities. The state of Hidalgo was selected as a model for this sub-program of the PROSSE, because it is in a more advanced planning stage, and the state has already established the necessary agreements with the federal agencies to coordinate the nutrition interventions, thereby improving efficiency. Similar programs would be extended to the other of priority states (such as Puebla, Oaxaca and Guerrero) in 1996 under the coordination of SEDESOL and DIF. The nutrition program supported by PROSSE amounts to an investment of US$20 per beneficiary per year. 3.21 Initially, the food would be procured by the executing agencies through the National Distributing Company (DICONSA) and then to be transferred to SEDESOL in 1995. However,  29 to expand the programs in 1996, SEDESOL would review the mechanisms of provision, transportation and storage of food baskets to reach the remote targeted areas. (5) Sub-Program 5: Monitoring and Evaluation 3.22 The Monitoring and Evaluation Sub-Program (US$2.1 million or 0.1 percent of total costs) will strengthen the capacity of SHCP to measure and monitor and evaluate the outputs of social sector expenditures, thereby providing the foundation for a system to increase efficiency in expenditures throughout the social sectors over the medium term. The IBRD loan will finance technical assistance to establish such a system, and the costs of a program of physical audits and beneficiary assessments within the social sectors. 3.23 The initial stage in this process is to establish a reliable set of monitoring indicators which relate outputs (services delivered) and outcomes (improvements in welfare by beneficiaries) to a common input (actual expenditures). Unfortunately, many implementing agencies treat output indicators inadequately. Thus PROSSE will finance consultants services to establish a set of appropriate monitoring indicators for the social sectors, measure baseline data and establish a system of incentives for executing agencies to increase efficiency by linking budgetary allocations to improvements in performance. Such a system will also enable explicit decisions to be made on the poverty targeting and inter-state equity of public expenditures in such sectors as health. In order to overcome the moral hazard problem, SHCP will instigate physical audits (to measure physical outputs and relate these to financial inputs), utilizing suitably qualified independent consultants, and qualitative assessments of beneficiaries (real outcomes). Priority will be given to developing the system for these social programs likely to provide most scope for future efficiency gains, namely (i) hospital care; (ii) secondary technical education and (iii) food and nutrition programs. Annex I of the IBRD Memorandum of the President and the IDB project file provide an outline of the process and an initial set of efficiency monitoring indicators to be adopted. During negotiations agreements were confirmed that the GOM would establish a satisfactory system of social sector expenditure efficiency monitoring indicators no later than June 30, 1996 and that the system would be implemented throughout the remaining life of the PROSSE (para. 7.1 (e)). 4. PROGRAM COSTS, PROCUREMENT, DISBURSEMENTS AND AUDITS A. Program Costs and Financing 4.1 The total program cost is estimated at about US$2,000.0 million, of which an estimated US$364.3 million would be foreign exchange (18.2 percent of program costs); taxes amount to about US$159.1 million (8.0 percent of program costs). The table below summarizes the estimated costs by sub-program. Investment costs amount to 63.6 percent of total costs; recurrent costs account for 36.4 percent of total costs. Program costs were estimated at March 1995 price levels. Cost estimates for the PROSSE in 1996 were estimated by taking the real 1995 levels of the budgetary allocations under PROSSE and augmenting these by a factor of 1.8  30 percent to offset population growth and an additional 4 percent to provide for a modest increase in real terms. Foreign and domestic inflation rates were estimated at 2.6 percent and 42 percent per annum respectively over the period 1995-96. The exchange rate has been adjusted so as to compensate for the difference between international inflation on a US dollar base and local inflation rates. Annex 5 provides a detailed breakdown of program costs and financing. All program cost estimates are based on current expenditures within the public sector. 4.2 Incremental Recurrent Costs and Sustainability. There will be no incremental recurrent costs after 1996 as a result of PROSSE, as the programs financed are ongoing. Over the implementation period, the efficiency gains anticipated under the monitoring and evaluation sub-program would help to increase the cost-effectiveness of the GOM's recurrent expenditures. However, the non-wage operating costs of programs supported by PROSSE would be financed by the Banks on a declining basis (from 85 percent in 1995, to 50 percent by 1996) as these key expenditures would have been cut in the absence of support by PROSSE, thereby undermining the delivery of these services. There is in the case of CAPFCE no expansion of the physical number of schools, simply the improvement and consolidation of existing schools to enable existing teachers to teach the full range of subjects in more adequate premises. As the PROSSE programs are amongst the very highest priority social sector programs in Mexico, their sustainability is ensured due to the high level commitment to maintain budget allocations for this purpose. 4.3 Program Financing. The program would be financed by the IBRD, the 1DB and the Federal Government. The Government would finance all taxes and duties, estimated at US$159.1 million, and would finance US$840.9 million of local expenditures, representing 42.0 percent of program costs net of taxes and duties. The proposed IBRD and IDB loans of US$500.0 million each would finance 50.0 percent of total program costs, or 54.3 percent of program costs net of taxes and duties. The two loans would finance 100 percent of foreign exchange expenditures and 38.9 percent of local expenditures, net of taxes. The loans would be made to Nacional Financiera, S.N.C. (NAFIN), which would make the funds available to executing agencies for the implementation of the program.  31 Table 5: PROGRAM COST SUMMARY PROGRAM OF ESSENTIAL SOCIAL SERVICES (Total Costs) (US$ million) Local Foreign Total A. Basic Education Services 1. Basic Education for the Poor (CONAFE) 107.6 24.8 132.4 2. Textbooks for Basic Education (CONALITEG) 95.2 66.3 161.5 3. Basic Education Facilities (CAPFCE) 241.3 58.3 299.6 Subtotal 444.1 149.4 593.5 B. Basic Health Services 1. Priority Preventive Programs 255.5 52.4 307.9 2. Basic Curative Services 317.7 18.0 335.7 3. Basic Health Infrastructure 75.3 27.6 102.9 Subtotal 648.5 98.0 746.5 C. Retraining and Employment Generation 1. Retraining for the Unemployed (PROBECAT) 200.9 25.0 225.9 2. Targeted Employment Generation (PESE) 334.7 83.6 418.3 Subtotal 535.6 108.6 644.2 D. Nutrition 1. Protecting Vulnerable Groups 6.0 2.7 8.7 E. Monitoring and Evaluation 1.5 0.6 2.1 F. FIV* 0.0 5.0 5.0 TOTAL PROGRAM COSTS7 1,635.7 364.3 2,000.0 *-FIV is the inspection fee charged by the IDB on its loans and represents one percent of the loan amount. Table 6: FINANCING PLAN Local Foreign Total ------------------- US$ million ------------------- Government of Mexico 1,000.0 0.0 1,000.0 IBRD 308.5 191.5 500.0 IDB 327.2 172.8 500.0 TOTAL 1,635.7 364.3 2,000.0 4.4 In financing the PROSSE by the two Banks, three principles were observed: (i) simple process, wherever possible an entire sub-program would be financed by one of the Banks in its entirety; (ii) the experience of the agencies with either one of the financing institutions; and (iii) in the case of nutrition, the two Banks would finance equally given their intention to collaborate in a 7 Includes duties and taxes estimated at about US$159.1 million.  32 proposed co-financed nutrition project in the future. The financing arrangements for the externally funded elements of PROSSE are summarized as follows: Table 7: FINANCING ARRANGEMENTS ....... .. ..... ......R A. Basic Education Services 1. Basic Education for the Poor (CONAFE) 100% 2. Textbooks for Basic Education (CONALITEG) 100% -- 3. Basic Education Facilities (CAPFCE) -- 100% B. Basic Hlealth Services I . Priority Preventive Programs 100% -- 2. Basic Curative Health care 100% -- 3. Basic Health Infrastructure 100% -- C. Retraining & Employment Generation 1. Retraining for the Unemployed (PROBECAT) 100% -- 2. Targeted Employment Generation (PESE) -- 100% D. Nutrition 1. Protecting Vulnerable Groups 50% 50% E. Monitoring and Evaluation 100% -- B. Procurement 4.5 The program would finance the procurement of a diverse set of goods, works and services in selected programs in SEP, SSA, STPS, and SEDESOL. Designated executing agencies, for purposes of procurement, in these Secretariats will be: (a) CONAFE, CONALITEG and CAPFCE for SEP; (b) CGOCE as executing agency for works in SSA; (c) the Directorate General for Employment (DGE) for STPS; (d) State delegations of SEDESOL and municipios for the PESE under SEDESOL; and (e) the Distinbuidora e Impulsora Comercial CONASUPO (DICONSA), a subsidiary of the National Agency for the Distribution of Basic Goods (CONASIJ1PO), will procure and distribute food supplements for SEDESOL. The IBRD and IDB would follow the same procurement procedures unless otherwise noted. 4.6 Due to the need to ensure rapid and timely disbursements, the Banks will, wherever possible, seek to finance large goods and works contracts at the central level, which would be awarded through international competitive bidding (ICB), limited international bidding (LIB) (for medical equipment and pharmaceuticals, including micronutrients), and national competitive bidding (NCB), following the IBRD procurement guidelines (January 1995) and IDB's standard procurement procedures. For small purchases done by SSA for health programs in the states, by STPS for tool kits, and by SEDESOL for food purchases, national shopping procedures would be used for contracts financed by the Banks.. National shopping procedures would also be acceptable for goods contracts financed by IBRD entered into by executing agencies between February 19 and March 31, 1995, eligible for retroactive financing. Such contracts signed after  33 April 1, 1995 would follow the SBDs for goods and civil works agreed to between the IBRD and GOM, with such modifications as agreed by the IBRD to be necessary for the purpose of the program. For the PESE, SEDESOL would utilize direct contracting arrangements acceptable to the IDB. 4.7 Civil Works. The IBRD would finance civil works in the SSA's health sub-programs through CGOCE. Contracts awards would be mainly through NCB, for values not less than US$350,000 equivalent, without restriction to foreign participation. For health sub-programs financed by the IBRD, contract packages awarded by CGOCE at the central level would not exceed US$10.0 million equivalent per package; for education programs financed by IDB, contracts awarded by CAPFCE would not exceed US$5.0 million equivalent per package. CGOCE would use the prototypes developed under the First Basic Health Project (Loan 3272- ME) for the construction of three public health state laboratories, with the necessary technical adjustments needed for each location. It would also contract out the supervision of health civil works contracts to suitably qualified consultants to ensure consistency with feasibility studies and adherence to standards during construction and share these reports with the IBRD upon request. 4.8 Goods and Equipment. The Banks' financing of contracts for paper for CONALITEG's 1996 program of in-house printing of primary school textbooks would be done under ICB procedures. To cover its 1996 paper needs, CONALITEG would also provide flexibility in its bidding procedures to allow split contract awards based on best price combination. LIB procedures may be used by SSA for medical equipment. For purposes of bid evaluation under 1CB, domestic manufacturers may be allowed a margin of preference in accordance with Appendix 2 of the IBRD guidelines. Eligible goods and services include: in SEP (a) paper; (b) printing services in CONAFE's and CONALITEG's sub-programs; in SSA: (a) medical equipment and instruments; (b) miscellaneous office equipment and furniture; (c) laboratory equipment for three public health laboratories; (d) assorted inputs for the local production of vaccines by the Gerencia General de Biol6gicos y Reactivos (GBR); (e) vaccines not produced by the GBR; (f) medical supplies; and (g) printing and reproduction informational materials (printed and audiovisual). NCB procedures may be used for contracting the following eligible services: (a) printing of primary school textbooks for contracts costing the equivalent of less than US$10.0 million per contract; (b) storage, packaging and distribution services for medical supplies, pharmaceuticals and vaccines in SSA and educational materials for SEP, when these services are not included in the goods contract in question and are contracted by the states. National shopping procedures would be used by STPS to procure up to 10,000 tool-kits for trainees in the on-the-job training modality under PROBECAT. 4.9 Food Supplements. In the nutrition sub-programs financed by the Banks, given the limited quantities required (US$8.5 million equivalent), food supplements in the basic food basket (consisting of beans, maize flour, salt, sugar and vegetable oil) would be carried out under the food procurement agreement between SEDESOL and DICONSA. Purchasing methods used by DICONSA would follow national shopping procedures, ensuring that such procurement does not restrict foreign participation. During appraisal, the Banks verified that the prices paid by DICONSA for these commodities were below international c.i.f. price equivalents in Mexico.  34 4.10 Technical Assistance. Individual consultants and consultants firms carrying out technical assistance for the program, including monitoring and auditing services, feasibility and other studies, and supervision of works under the SSA, would be hired following IBRD Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (August 1981) and IDB's Standard Procedures for Consulting Services. During appraisal, technical assistance required to support the programs financed by the program were reviewed and agreed with each executing agency. For contracting studies and technical assistance services financed by the IBRD, all executing agencies would use a standard invitation package and contracts as agreed with the EBRD, amended as required for the purpose of the PROSSE. 4.11 Other Costs Not Involving Procurement. Approximately 15.8 percent of program costs or approximately US$315.2 million equivalent, would not involve procurement. These costs include operational expenses, and stipends and training (which would be contracted to public and private sector training institutions in the same manner as the Labor Market and Productivity Enhancement project, Loan 3542-ME), as well as travel and per diem expenses in programs financed by both Banks. 4.12 Review by the EBRD. Prior review by the IBRD would be required for: (a) all annual procurement plans done by each executing agencies; and (b) procurement procedures and documentation for all tender packages and contracts for ICB and LIB, tender packages and related contracts for miscellaneous goods under NCB above US$2.0 million equivalent, all NCB contracts done by CONALITEG for printing services in 1996, and all civil works contracts above US$2.0 million. In addition, the IBRD would review all supporting documentation for contracts for goods valued at above US$350,000 equivalent, entered into during the period allowed for retroactive financing (para. 4.16). It is expected that these prior review arrangement would result in about 65 percent of IBRD-financed contracts by value. All terms of reference for technical assistance and studies would be subject to prior review by the IBRD. Documentation for contracts with consultants' firms, valued above US$100,000 equivalent and for individual consultants, valued above US$50,000 equivalent, would be also be subject to prior review by the Banks. Other contracts under these thresholds would be reviewed by NAFIN under the fimite autonomo procedures agreed with the Bank. During appraisal it was agreed that procedures for prior and ex-ante review would be followed by all executing agencies. Ex-post review would be applicable for all contract documentation retained by all executing agencies, to be done by subsequent examnination by IBRD supervision missions. 4.13 Prior Review by IDB. IDB reserves the right to review all supporting documentation for contracts for goods valued at above US$350,000 equivalent, and contracts for works valued at or above US$5.0 million, entered during the period allowed for retroactive financing.  35 Table 8: PROCUREMENT METHOD - IBRD AND IDB (Millions of US$) Category ICB NCB Other N.B.F. Total IBRD IDB IBRD EDB IBRD IDB IBRD IDB IBRD IDB Works 68.9 130.4 418.3 67.6 68.9 616.3 (34.8) (84.0) (277.8) (34.8) (361.8) Goods & Equipment 7.4 14.1 0.9 1.6 13.5717 0.1 0.8 24.3 22.6 40.1 (55) (11.9) (0.7 (1.3) (9.7) (0.1) (15.9) (13.3) Educational 10.2(2) 1.5 6 0.3 72AW 145.2 1.8 Materials (7.5) (1.3) (4592) (0.2) J (52.5) 1 (105.9) (1.5) Pharmaceut., Med. 9.2(-) 108.8(6) 2.2 118.0 2.2 Supplies & Food (5.3) (59.6) (1.3) (64.9) (1.3) Supplements T.A. and Studies 12.5 5.9 12.5 5.9 (10.7) (5.9) (10.7) (5.9) Temporary Fixed 39.5 0.3 39.5 0.3 Term Staff (29.3) (0.3) (29.3) (0.3) Training and 217.3(7) 97.5 217.3 97.5 Stipends (166.2) (84.8) (166.2) (84.8) Operational Expenses 76.9() 29.6 49.9(9) 9.8 389.9 50.8 516.7 90.2 _____ _____ _____ __ __ _____ ___ _ _____ ____ (49.3) (19.7) (23.0) (6_ __ _ __ __4_ __ _ _ (72.3) (26.1) F.I.V._ 5.0 5.0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (5.0)~~~~~(5 .0 Total 17.6 15.6 220.3 161.9 513.9 539.1 390.7 142.7 1,140.7 859.3 (13.0) (13.2) (136.0) (105.2) (351.0) (381.5) (500.0) (500.0) Figures in parentheses are the respective amounts financed by the (6) Includes US$106.0 million equivalent for LIB for respective Banks. pharmaceuticals, and US$0.5 million equivalent for LIB for micronutrients and national shopping for US$4.5 million equivalent for acquisition and Includes US$1 1.5 million equivalent under LIB for medical distribution of food stuffs by DICONSA. equipment. (7) Does not involve procurement. (2) Includes USS10.2 million equivalent for paper for production of (s) Includes contracts for office supplies, surgical gloves, operating elementary school textbooks by CONALITEG in 1996. gowns and related protective gear. (3) For contracts of printing services for SSA for both 1995 and 1996 9) Includes national shopping for equipment and building and CONALITEG for 1996. maintenance services and US$5.8 million for storage and distribution of (4) Includes USS63.1 million equivalent for contracts for paper and pharmaceuticals and medical supplies. printing services awarded by CONALITEG under retroactive financing by national shopping, and US$9.3 million equivalent, for transportation, *-FTV is the inspection fee charged by the IDB on its loans and represents warehousing and distribution of textbooks. one percent of the loan amount. s5) Includes financing of contracts for transportation, warehousing and distribution of US$9.2 million equivalent for pharmaceuticals and N.B.F. Amounts not financed by either of the Banks. medical supplies.  36 Table 9: TOTAL PROCUREMENT BY AGENCY* (US$ million Category SEP lSPS SSA. SEDESL| SHCPi Totia Civil Works 198.0 68.9 418.3 685.2 Goods OtherGoods 41.0 2.0 6.2 49.2 Educational 142.2 - 4.8 147.0 Materials Medical - 13.4 0. 1() 13.5 Equipment Pharma- 114.6 114.6 ceuticals and Medical Supplies Food 5.6 5.6 Supplements Training and 97.2 217.1 0.5 314.8 Stipends Technical 7.1 5.9 3.0 0.3 2. 1(2) 18.4 Assistance & Studies Remunera- 0.4 0.0 39.4 0.0 0.0 39.8 tion for Temp. Fixed- term Staff Operating 107.5 0.9 496.3 2.2 606.9 Expenses F.I.V. 5.0 5.0 Total: 539.4 225.9 746. 6 427.0. :7.T1 2,000.0 * This represents all procurement, regardless of financier. (1 ) Small quantities of newborn/infant scales along with special equipment for monitoring nutrition status of pregnant women will be purchased under the nutrition sub-program. (2) This would be used for the monitoring and evaluation sub-program. 4.14 Procurement Supervision. Detailed procurement and disbursement procedures are already included in the operating manuals for SEP, SSA, STPS, and SEDESOL, where other programs financed by both Banks are under execution. NAFIN would support these agencies  37 with experienced staff in procurement procedures of both Banks. All executing agencies have experienced staff who can be called upon to supervise the preparation of bidding programs and packages, and ensure compliance with agreed procurement procedures during implementation. Each executing agency would be responsible for the maintenance of the appropriate records for the review by both Banks (prior and ex-post). 4.15 Country Procurement Assessment. No recent Country Procurement Assessment on Mexico is available. However, Mexico's procurement regulations (Ley de Adquisiciones y Contrataciones, December 1993) clearly authorize the application of procurement procedures of international financial institutions for the procurement of civil works, goods, equipment and services, where the financing for such procurement comes from international financial institutions. 4.16 Retroactive financing of up to US$200.0 million equivalent (US100.0 million from both the IBRD and IDB, amounting to 20 percent of each total loan amount) would be provided to help cover eligible expenditures for civil works, equipment, goods, pharmaceuticals, medical supplies, technical assistance and studies, training and stipends made on or after February 19, 1995 (in the case of the IBRD) and January 1, 1995 (in the case of the IDB). C. Disbursements 4.17 The proposed program would be partially financed by a IBRD loan of about US$500.0 million and an IDB loan of US$500.0 million to be disbursed over the two year period 1995-96, with the target of disbursing 60 percent of these resources in the critical year of 1995 (see Annex 5 and tables 11 and 13). By financing and strengthening existing programs both implementation and disbursements will be accelerated. The PROSSE is expected to be completed by December 31, 1996 and the IBRD and IDB loan accounts are expected to be closed by June 30, 1997. 4.18 Proceeds of the proposed loan would be disbursed against expenditures to be presented to the IBRD and fully documented for: civil works contracts of US$2.0 million and above, US$1.0 million, foods, materials and equipment contracts of US$350,000 or more and for consultant contracts with individuals of US$50,000 or more and with firms of US$100,000 or more, subject to prior review as per para. 4.12. Claims for expenditures under contracts below those amounts and other expenditures not covered by a contract, such as stipends, training costs, operational expenses, travel allowances, etc. would be disbursed against presentation of Statements of Expenditure (SOEs), for which the supporting documentation would be retained by the executing agencies for periodic inspection by the IBRD and by external auditors.  38 Table 10: WITHDRAWALS OF THE PROCEEDS OF THE IBRD LOAN Amount of the Category Loan Allocated % of Expenditures to be Financed (in US$ million l___________________________ equivalent) 1. Civil Works. 26.0 85% for 1995, 50% for 1996 2. Goods & Equipment a. Educational Materials 98.0 85% b. Pharmaceuticals and 60.0 85% for 1995, 50% for 1996 Medical Supplies c. Other Goods and 14.0 85% Equipment d. Food Supplements 3.0 85% for 1995, 50% for 1996 3. T.A and Studies 10.0 100% 4. Remuneration for 25.0 100% for 1995, 75% for 1996 temporary Fixed Term Staff 5. Training & Stipends 166.0 100% for 1995, 75% for 1996 6. Operational Expenses 63.0 85% for 1995, 50% for 1996 7. Unallocated 35.0 __________________ Total 500.0 Table 11: ESTIMATED IBRD DISBURSEMENTS TIMETABLE IBRD Fiscal Year 1995 1996 1997 |Annual 100.0" 300.0 100.0 |Cumulative 100.0 400.0 500.0 lIncludes an initial Special Account deposit of US$100.0 million. Retroactive financing of up to US$100.0 million would be permitted for eligible expenditures incurred since February 19, 1995.  39 Table 12: WITHDRAWALS OF THE PROCEEDS OF THE IDB LOAN Component/Subcomponent II)B 1 Basic Education 1.1 Basic Education for the Poor 105.9 1.2 Textbooks for Basic Education 0.0 1.3 Basic Education Facilities 112.3 SUBTOTAL 218.2 ....... . ...... .. ........ ... . ..... ..... ....... , .. ...... ........ ..,,.,...... . .. .... . .. .... 2 Basic Health 2.1 Preventive Care 0.0 2.2 Basic Curative Services 0.0 2.3 Health Infrastructure 0.0 SUBTOTAL 0.0 3 Retraining and Targeted Employment Generation 3.1 Retraining for the Unemployed 0.0 3.2 Targeted Employment Generation 274.8 SUBTOTAL . 274. 8 4 Nutrition 4.1 Protecting Vulnerable Groups 2 0 5 Financial Costsl 5.1 FlI.V. 5.0 e Monitoring and Evaluations 0 0 TOTAL L 2 500.0 Table 13: ESTIMATED 1DB DISBURSEMENTS TIMETABLE It I~~~~~~~~~~~~DB Fiscal Year l r ~~~~~1995 T1996 T1 Annual 300.0"' 200.0| |Cumulative 300.0 500.0 "Inacludes an Advance of US$ 100.0 mnillion. Retroactive financing of up to USS$100.0 mnillion would be permnitted for eligible expenditures incurred since January 1, 1995. 4.19 In the case of the IBRD, a Special Account in U.S. dollars, with an authorized allocation of US$100.0 million, would be established at the Banco de Mexico. Normal documentation requirements apply, except that in addition, a copy of the bank statement from the institution  40 holding the account detailing the transactions made and reconciled by the borrower would accompany each replenishment request. The account would be replenished on a monthly basis, at the recommended level of US$25.0 milliion. In the case of the IDB, an Advance of US$100.0 million would be made to NAFIN. 4.20 Disbursement Procedures. Each executing agency, with the technical support from NAFIN, would prepare the necessary documentation for prompt disbursement from the Special Account. SOEs will be prepared on the basis of Cuentas por Liquidar Certificadas stamped by an appropriate financial institution (i.e. canceled GOM payment cheques) as evidence of actual expenditures made. NAFIN would be in charge of overall coordination, logistical support and field supervision of the program. D. Accounts and Audits 4.21 All executing agencies and NAFIN would maintain records and accounts adequate to reflect, in accordance with sound accounting practices, the resources and expenditures in connection with the execution of the program. These records would reflect the resources and expenditures in connection with the execution of the entire program. During negotiations, agreement was confirmed that SHCP, NAFIN, SEP, SSA, SEDESOL and STPS would: (i) have the records and accounts for each fiscal year audited by independent and qualified auditors with a separate opinion provided on SOEs, in accordance with generally accepted auditing standards and procedures, and with the specific current understanding with the Mexican authorities; (ii) furnish to the Banks, no later than six months after the end of each year, a certified copy of the agreed audit reports; and (iii) furnish to the Banks such other information concerning the records and accounts as well as the audit as the Banks would from time to time reasonably request (para 7.1(f)). For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of SOEs, and for all expenditures with respect to which withdrawals were made from the Special Account, the executing agencies would upon request provide to NAFIN all records and accounts necessary to allow the timely performance of its obligations, and to the independent auditors, both the records and the supporting documentation. 5. PROGRAM IMPLEMENTATION A. Program Implementation 5.1 The program would be overseen by SHCP through the existing Technical Committee for Budget Integration (Comite Tecnico de Integracion Presupuestal: COTEIP). The COTEIP is chaired by SHCP (Direccion General de Politica Presupuestal) and includes NAFIN, other elements of SHCP, and would include high-level representatives of the other PROSSE implementing agencies for the purpose of implementing PROSSE. COTEIP would monitor overall implementation and oversee the process of physical and financial auditing of PROSSE  41 activities as a means of laying the foundation for future efficiency gains in social sector expenditures. SHCP (Politica Presupuestal) would ensure that the budgetary resources for the programs supported by the PROSSE would be released in a timely manner. NAFIN would be responsible for ensuring that the executing agencies adhere to the Banks' procurement guidelines and that the requisite documentation is prepared promptly for disbursement by the Banks. SEP, together with its subsidiary organizations - CAPFCE, CONALITEG and CONAFE - would implement the basic education sub-program; SSA would implement the basic health services sub- program. STPS would implement the labor retraining sub-program and SEDESOL would implement the short-term employment generation sub-program. SEDESOL, SSA and the DIF would implement the priority food and nutrition program through the state and municipal governments. SHCP would implement the monitoring and evaluation sub-program. 5.2 Program Readiness for Implementation. In the case of health, education and PROBECAT, PROSSE essentially finances ongoing programs and activities, and is thus by definition ready for immediate implementation. In the case of the PESE, the GOM has defined the operational parameters (paras.3. 17 and 7.1 (d)). In the case of nutrition, one state (Hidalgo) is ready to proceed. Additional states will enter into the program in 1996. The Banks have already started to provide informal technical assistance to the SHCP to initiate the Monitoring & Evaluation Sub-program 5.3 Monitoring Indicators. During appraisal, monitoring indicators for program implementation and initial program impact were discussed and agreed (Annex 2) including preliminary physical targets for 1996. These will form the basis for the program implementation Quarterly Reviews (para. 5.5). B. Supervision 5.4 Supervision would focus on the quarterly review of physical attainment of the sub- programs against the monitoring indicators and the budget release for the PROSSE supported activities. Special attention will be paid to monitoring the effectiveness of targeting to the poor of the PROSSE supported programs and providing training and technical assistance to procurement staff in agencies with limited experience with the Banks' procurement procedures (paras. 6.8 and 6.12). The supervision team would be carefully planned and would be a combination of IBRD and IDB staff and consultants who would be recruited according to the critical needs of program implementation. It is estimated that 60 staffweeks will be required for supervision in FY96 and 35 in FY97. This estimate takes into account the multi-sectoral nature of PROSSE, the institutional development aspects, the prior review and procurement arrangements as agreed under PROSSE (see paras. 4.5 to 4.10 and 4.12 to 4.14). C. Quarterly Reviews 5.5 The Banks will monitor compliance with the program through a program of Quarterly Reviews. Each Quarterly Review will be organized by the SHCP, and will include representatives of all the executing agencies and NAFIN. The purpose of the quarterly review meeting would be  42 to evaluate program performance against implementation plans and agreed targets; provide management with feedback on program achievements and areas needing improvement; and further develop programmatic improvements to increase the efficiency of social sector expenditures. A useful tool in this regard will be the physical audits and qualitative assessments undertaken through Sub-Program 5 (paras. 3.22-3.23). The reviews and planning process will provide a tool for on-going refinements in program strategies and plans, consistent with the overall objectives of the program. During negotiations, agreements were confirmed that the GOM would undertake Quarterly Reviews of the budgetary releases and physical implementation progress of PROSSE with the Banks (para 7.I (g)). 5.6 In addition to the general objectives of review outlined above, each review will have additional specific objectives. The first Quarterly Review, to be held in August 1995, will focus on program effectiveness and accelerating initial disbursements. The November 1995 review will focus on the budget allocations for programs supported by PROSSE in 1996. During negotiations, agreements were confirmed that the GOM would: prepare a preliminary action plan (including physical targets and budget, using Annex 2 as a basis), for the programs to be supported by PROSSE in 1996 as part of the November 1995 review; and confirm a definitive action plan for the programs to be supported by PROSSE in 1996, satisfactory to the Banks, as part of the February 1996 review and that no changes would be made in the allocations for such programs without prior consultation with the Banks (para. 7.1 (h)). The February 1996 review will focus on the achievement against indicators for 1995 and confirm actual budget allocations for 1996. The May 1996 review will focus on reviewing progress in establishing the new social sector monitoring and budget impact system in the SHCP Politica Presupuestal (para. 3.23) and how this system could be utilized in the 1997 budget allocations. The August 1996 review will focus on the 1997 budget allocations and possible follow up time-slice operations such as the PROSSE. The November 1996 review will focus on an assessment of accomplishments under PROSSE, the 1997 budget, and include the appraisal of any follow-on program support. The February 1997 review will focus on the Implementation Completion Report and the finalization of disbursements. 6. PROGRAM BENEFITS AND RISKS A. Program Benefits 6.1 The program would help reduce possible increases in poverty brought about by the economic recession, through preserving essential social services for the poor, providing training and employment enhancement opportunities for 800,000 unemployed and underemployed workers over the two year period through PROBECAT (350,000 in 1995 and 450,000 in 1996), plus 550,000 short-term jobs for the unemployed poor in 1995 through the SEDESOL program, providing enhanced food and nutrition supplements to women and children in priority areas. Indigenous populations will benefit in particular from the services provided under the basic education, health and nutrition sub-programs as these programs are targeted to the poorest areas where the indigenous populations are concentrated. The primary benefit of the PROSSE for the  43 selected services and programs is that it commits SHCP and the executing agencies to support priority programs targeted to the poor. 6.2 Program Objective and Poverty Category: The PROSSE forms a central part of the program of targeted interventions for Mexico by protecting essential social services to the poor and strengthening a low-cost social safety net, through short-term employment generation to those adversely affected by the economic crisis and food and nutrition programs to the most vulnerable groups of the population. It thus falls under the Poverty Reduction category. The essential social services included are focused on the poor in the following manner: CONAFE works only among the poor mainly in isolated rural areas, civil works covered under PROSSE are exclusively in poor rural and peri-urban areas, whilst the SSA services are self-targeting to the poor, as they cover only the population without access to the social security system or without the financial means to go to the private sector. The labor retraining and employment promotion program is exclusively to the unemployed and underemployed as they are registered by the state employment services in the case of STPS, or self-targeted to the poorest by the compensation equivalent to only 80 percent of the minimum wage in the case of the short term employment program under SEDESOL. The nutrition program uses nutritional indicators, which have an extremely high correlation with poverty, and the CONAPO poverty index (based upon 10 census indicators of poverty) to identify the beneficiary municipios. 6.3 Environmental Aspects. No major environmental issues are foreseen. However, due to the inclusion of the scattered small civil works physical sub-programs under the employment generation sub-program (para. 3.17), PROSSE is rated category "B" for environmental purposes. The environmental impact of sub-programs is expected to be handled according to the criteria and procedures agreed in the IDB financed Municipal Development Program (Loan ME- 0051, FY 95). 6.4 Under the small civil works sub-programs, no significant direct or indirect negative environmental impact is expected from the spot construction and maintenance actions. Final engineering designs are prepared on the basis of agreed technical guidelines for the spot improvement program, which include actions to alleviate, reverse, of offset direct environmental impacts, in particular those related to erosion and siltation. By their very nature, spot improvements and routine maintenance focus on identification, diagnosis and elimination of erosion problems. Since the selected roads are existing ones and among the oldest in the rural road network, additional indirect negative impacts linked with human activities are almost nonexistent. 6.5 Participatory Approach: A number of elements of PROSSE involve strong community participation, namely: (a) under the education sub-program, the community provides food and accommodation for the CONAFE community teachers in rural areas, whilst indigenous populations participate in the development and design of textbooks for indigenous education; (b) under the health sub-program, community participation is mobilized during the health campaigns; (c) under the employment sub-program, communities form committees and make proposals to the municipio for small infrastructure projects to be managed by themselves (with technical support from the states and municipios) thus following the approach already well tested under  44 PRONASOL; and (d) the priority nutrition sub-program involves close community participation in: health and school activities; food distribution logistics; and development of priority projects selected by the community (i.e. sanitation, housing, improvements to community health posts and schools). B. Economic Benefits 6.6 Whilst it is not possible to undertake an economic evaluation of the PROSSE as a whole, the PROSSE supports the most essential and some of the most cost-effective social sector programs in Mexico. The relevant economic analysis behind some of the programs supported by PROSSE is presented in detail in Annex 6. 6.7 This analysis may be summarized as follows: (a) Education: Recent analysis (based upon data for 1992) shows that the average economic social rate of return per additional year of schooling is 11.8 percent for primary education and 14.7 percent for lower secondary (the highest rate of return for all levels of education studied) - it is lowest for tertiary education. The fact that lower secondary education shows a higher rate of return at the margin reflects the near universality of primary education in Mexico (and hence diminishing rates of return to primary education). Whilst this establishes a clear case for expanding lower secondary education although telesecundaria in rural areas, it is self-evident that in order to obtain such returns, children must first complete primary education satisfactorily. Thus for population groups without adequate access to primary education, the highest priority investments are those to ensure satisfactory completion of primary education as the foundation for secondary education. Unfortunately this analysis did not include analysis of rates of return for pre-school education, although recent analysis, based upon the US experience shows high rates of return to pre-school education. (b) Health: Analysis undertaken by the SSA, with IBRD assistance, in 1994 measured cost per disability-adjusted life-year (DALY) saved as a result of over 100 health interventions. The most cost-effective interventions (with cost per DALY saved of less than N$3,000) are all included in the basic package of services provided by the SSA under PROSSE. They range from N$58 per DALY saved for attention to sick children for treatment of acute diarrhea in children, N$182 for treatment of leprosy, through to diagnosis of cervical-uterine cancer N$1,287, health education N$2,000, treatment of asthma at N$2,772 and treatment of burns at N$2,984. At the opposite extreme, curative and preventive services not in the package supported under PROSSE include: osteoporosis prevention N$7,500, by-pass surgery N$10,985, and multiple sclerosis treatment at N$37,157 per DALY saved.  45 (c) Labor Retraining: Based upon a cost benefit analysis completed April 19, 1995, PROBECAT had a positive impact for 10 out of 12 categories of trainees evaluated, representing 95.5 percent of all trainees. Particularly, encouraging was the positive impact upon women (this is in contract to the earlier analysis as reported in the SAR for the Labor Market & Productivity Enhancement project (Loan 3542-ME). Once again, the analysis clearly demonstrates the enhanced effectiveness of in-plant training (one modality of on-the-job training) over class- room based training for those without prior work experience. This also provides a basis for shifting a significant proportion of trainees to the on-the-job training modality. C. Program Risks 6.8 The PROSSE is subject to four potential risks: (a) the uncertainty regarding budgetary allocations; (b) program diversity; (c) that PROSSE programs fail in their targeting arrangements and efficiency; and (d) failure to disburse adequately as a result of inexperience of some implementation agencies with the two Banks' procurement procedures. 6.9 Dealing with the first risk, uncertainty regarding budgetary allocations, is an essential element of PROSSE. Mexico continues to face a high degree of uncertainty in terms of the macroeconomic variables which determine the budgetary ceilings. The GOM has undertaken to protect high priority social service programs from further cuts under the PROSSE. The Banks will monitor budgetary releases carefully during implementation on a quarterly basis. 6.10 The second risk, program diversity, is being mitigated by concentrating upon a smaller number of agencies, most of which already have experience with IBRD or IDB procedures. Co- financing has also greatly facilitated simplification: for example the IBRD will exclusively finance the SSA, building upon the IBRD's long operational experience with the SSA; whilst the IDB will finance the entire PESE under SEDESOL, where the IDB procedures are well adapted to the realities of a highly decentralized program. 6.11 The third risk, is that the PROSSE programs failing either their targeting arrangements or efficiency gains. All of the PROSSE supported programs are targeted to the poor to varying degrees (see para. 6.2), however there are leakages with even the best targeted programs. Targeting effectiveness will be monitored carefully during supervision (para. 5.4) and through the physical auditing arrangements (para. 5.5). Increasing the efficiency of the programs supported by PROSSE, along with other social sector programs, will need to be worked out over the medium-term. PROSSE itself, through sub-program 5 "Monitoring and Evaluation" will lay the foundation and develop methodologies to measure and incentives to increase efficiency. 6.12 Within the fourth risk, a potential problem that could impede disbursements is the inexperience of agencies such as CONALITEG, DIF, some health directorates and state health secretariats in Banks' procurement procedures. To minimize this risk, training of procurement staff in these agencies will be organized as part of the Banks' supervision programs, and technical assistance will be provided by staff at the Banks' Resident Missions.  46 7. AGREEMENTS REACHED AND RECOMMENDATION 7.1 During negotiations, the Banks and the GOM confirmed that the GOM would: (a) endeavor to execute budgetary policy in the social sectors, including mechanisms to protect budgetary allocations to the PROSSE during the financial crisis and measures to increase efficiency of social sector expenditures, according to the agreed letter of policy intent (para. 2.8); (b) release budgetary amounts in a timely manner to the executing agencies under PROSSE in 1995 in accordance with the agreed 1995 budget allocations and physical targets included in Annex 2 and that the GOM may substitute an alternative budget, if satisfactory to the Banks, for the PROSSE prior to June 30, 1995 (para. 2.8); (c) review the results of the CONALITEG productivity study and present an action plan to the Banks by July 31, 1996 (para. 3.5); (d) execute the PESE through SEDESOL according to the agreed operational modalities (para. 3.17); (e) establish a satisfactory system of social sector expenditure efficiency monitoring indicators no later than June 30, 1996 and that the system would be implemented throughout the remaining life of the PROSSE (para. 3.23); (f) through SHCP, NAFIN, SEP, SSA, SEDESOL and STPS: (i) have the records and accounts for each fiscal year audited by independent and qualified auditors with a separate opinion provided on SOEs, in accordance with generally accepted auditing standards and procedures, and with the specific current understanding with the Mexican authorities; (ii) furnish to the Banks, no later than six months after the end of each year, a certified copy of the agreed audit reports; and (iii) furnish to the Banks such other information concerning the records and accounts as well as the audit as the Banks would from time to time reasonably request (para. 4.21); (g) undertake the Quarterly Reviews of the budgetary releases and physical implementation progress of PROSSE with the Banks (para. 5.5); and (h) prepare a preliminary action plan (including physical targets and budget, using Annex 2 as a basis), for the programs to be supported by PROSSE in 1996 as part of the November 1995 review; and confirm a definitive action plan for the programs to be supported by PROSSE in 1996, satisfactory to the Banks, as part  47 of the February 1996 review and that no changes would be made in the allocations for such programs without prior consultation with the Banks (para. 5.6)). 7.2 Recommendation. Subject to compliance to the above conditions, the proposed program is suitable for: (a) an IBRD loan of US$500.0 million equivalent to NAFIN, with the guarantee of the United Mexican States, for 15 years, including a 3-year grace period at the IBRD's standard variable interest rate; and (b) an IDB loan of US$500.0 million equivalent to NAFIN with the guarantee of the United Mexican States, for 20 years, including a 4 year grace period at the IDB's standard variable interest rate, including an inspection fee of 1 percent of the loan amount.  PROGRAMMABLE BUDGETARY EXPENDITURE (1988-1995) |~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 E Ex FOTAL ~~~~~~~73,889.8 87,394.0 116,469.4 146,709.9 175,192.6 203,164.4 240,062.1 269,343.5 270,809.0 Rural Developmnent 4,003.2 6,485.3 7,212.0 7,907.8 9,449.7 10,358.2 15,738.6 17,573.8 19,594.1l lFisheries 533.3 153.9 195.9 311.9 332.8 323.7 394.4 437.8 452.7 Social Development 24,525.4 33,337.4 46,542.6 66,722.1 88,010.2 106,986.7 126,721.7 148,733.7 149,930.9 Education 10,287.1 13,389.5 18,369.8 27,056.2 36,158.0 45,964.0 54,311.5 65,499.8 65,929.7 Health and Labor 10,955.7 15,269.1 21,687.2 31,299.9 38,624.6 48,474.7 52,495.5 61,365.1 62,077.3 Health 7,891.5 10,185.6 14,581.7 21,773.0 26,400.4 30,827.1 32,769.2 37,866.1 38,374.5 Social Security 2,933.4 4,921.4 6,890.3 9,235.5 11,895.7 15,463.0 18,966.5 22,529.8 22,508.5 Labor 130.8 162.1 215.2 291.4 328.5 384.6 759.8 969.2 1,194.3 SOLIDARIDAD 944.9 1,306.4 2,809.8 4,349.2 6,055.3 7,354.0 9,348.5 10,676.3 10,676.3 Urban Developmnent, Water,andEcology 1,539.3 1,702.3 1,549.4 2,687.0 4,615.6 4,891.7 7,126.1 7,699.7 7,770.7 Social Provisioning Prograrn 798.4 1,670.1 2,126.4 1,329.8 2,556.7 2,302.3 2,940.1 3,492.8 3,476.9 onnnunicationandTransport 5,182.2 5,143.5 439.2 9,240.5 10,156.0 11,929.7 15,584.7 15,907.9 14,632.2 Conuerce 4,424.8 4,518.6 6,837.4 5,230.1 6,388.7 9,422.0 8,949.5 8,458.4 8,426.8 Tourisr 132.4 104.0 229.9 307.0 448.9 513.8 516.3 575.5 513.3 Energy 20,226.3 23,767.9 31,161.6 39,871.7 44,187.3 45,631.1 48,120.5 53,529.0 52,342.9 Industry 9,537.7 7,977.9 9,370.2 5,329.6 3,372.0 1,928.3 702.0 707.0 689.4 usticeand Security 2,490.8 3,256.3 4,778.9 6,247.7 7,895.3 9,850.4 11,183.4 12,651.0 12,764.4 2,833.7 3,648.6 3,701.1 5,541.5 4,971.7 6,222.5 12,651.1 10,769.4 11,462.3 (1) PEF - December 1994 version of 1995 Budget (2) Adjusted - February 1995 version of 1995 Budget S.  INVESTMENT BUDGET (1988-1995) ITOTAUL 14,230.6 16,184.6 24,657.8 32,702.7 36,423.0 39,278.8 48,318.2 57,047.3 54,192.2S pRural Developrnent 1,132.6 1,626.4 2,136.5 2,972.0 3,012.4 2,624.4 2,685.0 3,021.0 2,903.31 Fisheries 15.1 16.8 58.3 143.4 85.1 104.1 153.3 173.4 173.4 Social DevelopmerA 2,505.1 3,499.8 6,871.9 9,169.2 12,316.0 14,065.8 19,693.8 23,496.0 23,226.4 Education 545.8 652.2 1,256.2 1,799.9 2,243.3 3,220.0 3,161.3 4,597.0 3,981.7 Heahh and Labor 1,056.7 1,140.8 2,206.2 2,257.6 2,229.4 2,413.4 2,770.8 3,244.3 3,443.3 Health 1,031.9 1,109.9 2,139.6 2,179.6 2,151.4 2,299.2 2,358.1 2,586.8 2,556.2 Social Security 7.6 17.1 35.6 41.0 41.0 61.3 41.1 100.2 99.8 Labor 17.2 13.8 31.0 37.0 37.0 52.9 371.6 557.3 787.3 SOLIDARIDAD 523.1 1,530.8 2,662.4 4,047.4 6,445.4 6,480.5 8,338.6 9,396.3 9,396.3 Urban Development, Water,and Ecology 379.3 133.8 635.1 959.5 2,332.6 1,940.4 5,359.8 6,142.8 290.0 SocialProvisioningProgamm 0.2 42.2 112.0 104.8 65.3 11.5 63.3 115.0 109.1 ConunicationandTransport 1,970.2 1,766.2 2,355.2 3,832.2 3,508.5 5,072.3 6,877.2 8,595.4 7,519.0 CoInnmerce 32.8 12.0 218.5 88.5 50.3 205.3 128.1 128.0 124.2 |Tourismn 28.8 0.5 32.6 15.9 107.4 133.6 105.4 159.1 57.7 PEnergy 6,994.7 7,720.5 11,245.1 14,848.6 15,230.3 14,868.1 16,406.9 19,166.0 18,010.4 1,186.6 801.5 837.1 339.7 184.3 42.5 37.7 48.4 46.4 JusticeandSecurity 264.6 502.6 755.6 1,103.7 1,453.7 1,642.4 1,718.7 1,902.2 1,814.9 Admnistmion 94.1 238.3 147.0 189.5 475.0 520.3 512.1 357.8 316.5 (1) PEF - December 1994 version of 1995 Budget (2) Adjusted - February 1995 version of 1995 Budget C  PROGRAMMABLE BUDGETARY EXPENDITURE (1988-1995) TOTAL -6.0 2.9 3.6 4.2 5.4 9.8 5.6 -3.6 21.0 27.8 16.6 Rural Development 8.9 1.6 19.9 4.3 -0.3 41.2 5.1 6.4 46.4 53.9 55.8 isheries -77.1 -1.7 30.9 16.9 -11.6 13.2 4.5 -1.9 -72.5 -71.2 173.0 Social Development 8.1 7.8 17.9 15.1 10.5 9.7 10.9 1.5 91.6 112.6 94.5 Education 3.5 6.0 21.1 16.6 15.6 9.8 13.5 3.8 96.6 123.2 103.9 Heahh and Labor 10.8 9.7 18.7 7.7 9.4 5.0 10.1 1.1 78.4 96.3 80.3 Health 2.6 10.6 22.8 5.8 5.5 -0.6 8.S 0.1 64.6 68.2 54.7 Social Security 33.4 8.1 10.2 12.4 18.2 14.0 11.8 1.4 140.7 169.2 144.2 Labor 11.5 2.5 11.3 -1.6 6.5 83.6 20.1 34.3 116.3 159.7 190.5 SOLIDARIDAD 9.9 66.1 27.3 21.5 10.4 18.1 7.5 12.4 268.3 296.1 259.5 Urban Development, Water, and Ecology 112.1 -29.7 42.6 49.9 -3.6 35.4 1.7 16.8 72.4 75.3 60.6 SocialProvisioningProgram 66.3 -1.7 -48.6 67.8 -18.1 18.7 11.9 1.1 37.1 53.4 38.6 O CommunicationandTransport -21.1 -3.3 18.0 -4.1 6.8 21.4 -3.9 -19.8 12.0 7.6 110.2 Conerce -18.8 16.9 -37.1 6.3 34.5 -11.7 -11.0 -19.5 -24.7 -33.0 139.4 Tourism -37.2 69.8 9.8 27.6 4.1 -6.6 4.9 -15.0 45.2 52.4 23.4 Energy -6.6 1.3 5.2 -3.3 -6.1 -2.0 4.7 -7.0 -11.4 -7.2 -17.7 Industry -33.5 19.3 -53.2 -44.8 -48.1 -66.1 -5.2 -16.1 -97.3 197.4 197.7 usticeandSecurity 3.9 13.4 7.5 10.3 13.4 5.5 6.5 -2.4 87.2 78.0 63.1 on 2.4 -21.6 23.1 -21.7 13.8 89.0 -19.9 -22.6 66.2 33.2 28.7 (1) PEF - December 1994 version of 1995 Budget (2) Adjusted - February 1995 version of 1995 Budget tlE B~.X  PROGRAMMABLE BUDGETARY EXPENDITURE (1988-195) Fisheries ~~~~~0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Social Developmnent 15.7 19.4 22.1 29.3 34.0 37.6 38.8 42.2 40.7 Education 6.6 7.8 8.7 11.9 14.0 16.2 16.7 18.6 17.9 Health and L.abor 7.0 8.9 10.3 13.7 14.9 16.3 16.1 17.4 16.9 Health 5.0 5.9 6.9 9.6 10.2 10.8 10.1 10.7 10.4 Social Security 1.9 2.9 3.3 4.1 4.6 5.4 5.8 6.4 6.1 Labsor 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.3 0.3 SoLiDaRIDADeveopen 150.6 0.8 1.3 1.9 2.3 2.6 2.9 3.0 2.9 Wealter and Ecology 1.0 1.0 0.7 1.2 1.8 1.7 2.2 2.2 2.1 Socialth Provisioning Progm0.5 1.0 1.0 0.6 1.0 0.8 0.9 1.0 0.9 Social Trmspot 13.3 3.0 3.1 4.1 3.9 4.2 4.8 4.5 4.0 conunerce ~~~~~2.8 2.6 3.2 2.3 2.5 3.3 2.7 2.4 2.3 lbourim 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.1 Water,andEcoloy 12.9 13.9 14.8 17.5 17.1 16.0 14.8 15.2 14.2 Industry ProisonngPrgrm 6.1 4.7 4.4 2.3 1.3 0.7 0.2 0.2 0.2 JusticeandSecurity 1.6 1.9 2.3 2.7 3.1 3.5 3.4 3.6 3.5 1.8 2.1 1.8 2.4 1.9 2.2 3.9 3.1 3.1 (1) PEF - December 1994 version of 1995 Budget (2) Adjusted - Februay 1995 version of 1995 Budget to 1 -  Indicadores Monitoreo 1995 OCNAFE SUBPROGRAMA META CANTIDAD^ PRESUPUESTO (miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1 2. 3. 4. TOTAL Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester PrimariaparaNifiosde Comunidad 11,713 11,713 12,385 12,385 12,385 32,548.0 32,548.0 32,548.0 32,548.9 130,192.9 Comunidades Rural Primaria para Niffos Migrantes Comunidad 224 224 224 224 224 678.0 678.0 678.0 679.5 2,715.5 Primaria para Niffos Indigenas Comunidad 750 750 750 750 750 1,695.0 1695.0 1695.0 1696.7 6,781.7 Desarrollo de Museos Comunitarios Comnunidad 38 38 38 38 38 78.0 78.0 78.0 79.1 313.1 Investigaci6n Educativa _ = _ 150.0 150.0 150.0 150.0 600.0 Subtotal Cursos Comunitario Comunidad 12,725 12,725 13,398 13,398 13,398 35,149.0 35,149.0 35,149.0 35,154.2 140,603.2 Preescolar Rural Comunidad 6,750 6,750 6,750 6,750 6,750 13,492.0 13,492.0 13,492.0 13,492.0 53,968.0 Preescolar Migrante Comunidad 142 142 142 142 142 289.0 289.0 289.0 290.7 1,157.7 Preescolar Indigena Comunidad 267 267 267 267 267 539.8 539.8 539.8 539.8 2,159.2 Centros de lnfantiles Comunitarios Comunidad 55 55 55 55 55 108.8 108.8 108.8 109.1 435.5 Investigaci6n Educativa 150.0 150.0 150.0 150.0 600.0 Subtotal Preescolar Comunitario Comunidad 7,214 7,214 7,214 7,214 7,214 14,579.6 14,579.6 14,579.6 14,581.6 58,320.4 Sistema Educativa a Docentes Alumno 24,402 24,402 38,396 38,396 38,396 31,232.4 31,232.4 31,232.5 31,232.5 124,929.8 U Financianiento Educativo Rural Alumno 14,693 14,693 14,693 14,693 14,693 3,673.4 3,673.3 3,673.3 3,673.4 14,693.0 Escuelas en SOLIDARIDAD Alumno 214,603 214,603 214,603 214,603 214,603 6,071.6 6,071.5 6,071.5 6,071.5 24,286.2 Administraci6n Persona 1,280 1,280 1,280 1,280 1,280 15,875.1 15,875.0 15,875.0 15,875.1 63,500.2 *- The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. > z x  Indicadores Monitoreo 1995 CONALITEG SUBPROGRAMA META CANTIDAD' PRESUPUESTO (en miles) (miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester EspafiolLectura 1. grado libro 1,590 1,590 0 0 3,180 642.1 713.4 1,141.4 1070.1 3,567 Espafiol Lectura 2. grado libro 1,550 1,550 0 0 3,100 1,211.8 1,346.4 2,154.2 2,019.6 6,732 Espaiol Lectum 3. grado libro 1,408 1,407 0 0 2,815 2,111.9 2,346.6 3,754.6 3,519.9 11,733 Espafol Leda 44. grado libro 1,408 1,407 0 0 2,815 895.0 994.4 1,591.0 1,491.6 4,972 Espmflo Lectia 5. grado libro 1,333 1,332 0 0 2,665 846.5 940.6 1,505.0 1,410.9 4,703 Matematica 5. grado libro 1,250 1,250 0 0 2,500 1,798.9 1,998.8 3,198.1 2,998.2 9,994 Espafiol 5. grado libro 1,250 1,250 0 0 2,500 1,944.5 2,160.6 3,457.0 3,240.9 10,803 Espailol Lectura 5. grado libro 1,250 1,250 0 0 2,500 884.7 983.0 1,572.8 1,474.5 4,915 Espafol Lectura 6. grado libro 1,125 1,125 0 0 2,250 715.3 794.8 1,271.7 1,188.6 3,974 Subtotal 12,164 12,161 0 0 24,325 11,050.7 12,278.6 19,645.8 18,414.3 61,393 Monografias esttales libro 32 32 0 0 64 60.1 66.8 106.9 100.2 334 Libros para grados 1-6 poducido libro 25,105 25,105 0 0 50,210 38,357.8 42,619.8 68,191.7 63,929.7 213,099 pOr contacto I _ Libros paa el Maestro libro 3,627 3,626 0 0 7,253 6,787.2 7,541.8 12,066.9 11,313.1 37,709 tn Monogra_as-Estatales prducido libro 1,594 1,593 0 0 3,187 1,664.5 1,849.4 2,959.0 2,774.1 9,247 por coutactto Libros de Historia y eoglaa 3. libro 1,632 1,632 0 0 3,264 2,480.0 2,755.6 4,409.0 4,133.4 13,778 grado _ Atlas de Geografla de Mexico 4., 6. libro 5,207 5,207 0 0 10,414 11,953.3 13,281.4 21,250.2 1 9,92.1 66,407 grado y Cuademo Preescolar producdo pOr conacto .. S_bti _ | 37,197 37,195 0 0 74,392 61,302.9 68,114.8 108,983.7 102,172.6 340,574 Tol | 49,361 | 49,356 | - | 98,717 | 72,353.6 80,393.4 128,529.5 | 120,586.9 401,967 The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. si t  Indicadores Monitoreo 1995 CAPFCE SUBPROGRAMA META CANTEDAD* PRESUPUESTO (miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL' Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester Jardines de Niflos Urbano aula 0 0 519 519 1,038 0 36,428.5 36,428.5 36,428.6 109,285.6 Jardines de Nifios Urbano anexo 0 0 431 430 861 CAPEP aula 0 0 30 29 59 0 5,202.0 5,202.0 5,202.0 15,606.0 CAPEP anexo 0 0 169 169 338 _ Jardines de Nifios Indigenas aula 0 0 399 399 798 0 19,362.0 19,362.1 19,362.1 58,086.2 Jardines de Nihos Indigenas anexo 0 0 241 240 481 Jardines de Niflos Rurales aula 0 0 630 629 1,259 0 32,073.0 32,073.5 32,073.5 96,220.0 Jardines de Nilos Rurales anexo 0 0 578 577 1,155 Telesecundaria aula 0 0 266 265 531 0 38,912.9 38,913.0 38,913.0 116,738.9 Telesecundaria taler 0 0 145 144 289 _ Telesecundaria anexo 0 0 583 582 1,165 1 Sec. Tec. aula 0 0 161 160 321 0 47,293.8 47,293.9 47,293.9 141,881.6 Sec. Tec. laboritono 0 0 26 25 51 Sec. Tec. taler 0 0 62 62 124 _n Sec. Tec. anexo 0 0 623 622 1,245 Albergue anexo 0 0 20 20 40 0 1,511.5 1,511.5 1,511.6 4,534.6 Capacitaci6n aula 0 0 19 18 37 0 37,300 37,300 37,300 111,900.0 Capacitaci6n laboritorio 0 0 2 1 3 , , Capacitaci6n taller 0 0 77 77 154 Capacitaci6n anexo 0 0 285 284 569 Edif. Administrativo anexo 0 0 22 22 44 O 2,666.6 2,666.6 2,666.8 8,000.0 '- Los totales (N$) son para todo tipo de obra (aula, anexo, laboratorio, etc.) de un subprograma. *- The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. z x cL  Indicadores Monitoreo 1995 SSA SUBPROGRAMA META CANTIDAD, PRESUPUESTO (en miles) (miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester ATENCION PREVENTIVA . Contol de Enf. Prev. por vacuna 5,000 5,000 5,000 5,000 20,000 20,432.5 23,906.7 28.947.6 23,452.2 96,739.0 YacunacionI Control de Enf. Transmisibles 47,016.5 73,760.9 135,905.9 69,952.8 326,636.1 Detectar y controlar enf. trans. consulta 937.4 937.4 937.5 937.4 3,749.7 Detect. vcont. enf. trans. porvector consulta 573.7 573.8 573.8 573.8 2,295.1 Detect. y cont. enf. respitorios consulta 526.0 526.1 526.1 526.1 2,104.3 agudasI Detect. y cont. enf. diarreicas consulta 342.7 342.8 342.8 342.8 1,371.1 agudas Detect. y cont. enf. de transmisi6n consulta 44.6 44.6 44.7 44.6 178.5 Un sexual . _ Detect Oportuna de 2,863.6 6,731.9 10,344.6 6,111.9 26,052.0 Enfermedades Detect pade. cr6nico-degenrativos persona 1,007.4 1,007.4 1,007.4 1,007.4 4,029.6 Prevenir padecimientos consulta 677.0 677.0 677.1 677.0 2,708.1 bucodentales Detect. y tratar ciucer cervico- consulta 422.8 422.9 422.9 422.9 1,691.5 uterino y maariano Atender a pob. en planificacion persona 723.4 723.5 723.5 723.4 2,893.8 12,958.2 24,856.1 28,793.0 20,826.8 87,434.1 c familiar (nuevas aceptantes y usarios activos _ _r_ Materno Infantil _ 4,142.7 4,135.7 7,166.2 5,872.7 21,317.3 Cont. crecimiento y desarrollo del consulta 1,796.6 1,796.7 1,796.7 1,796.6 7,186.6 menor de 5 afios Cont. salud de embarazadas y su consulta 645 645 645 645 2,580.0 producto _ n Atenci6n Curativa _ 213,495.5 246,619.1 269,766.2 247,821.0 977,701.8 < > Consulta Extema General consulta 5,232.4 5,232.5 5,232.5 5,232.5 20,929.9 211,380.1 242,942.3 264,660.7 243,942.0 962,925.1 Consulta Extema Especializada consulta 247.2 247.2 247.2 247.2 988.8 2,115.4 3,676.8 5,105.5 3,879.0 14,776.7 n x - - - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~rt Inu 1  SUBPROGRAMA META CANTIDAD* PRESUPUESTO (en miles) (_miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL ____________ __ Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester (en unidades) Edificios pars Servicios de Salud 14,813.6 39,855.0 156,686.3 83,975.1 295,330 Conservaci6ndeunidadesde ler. unidad 25 25 50 50 150 3,179.0 4,692.3 50,573.3 33,510.9 92,255.5 nivel (ISO) Conservacion y Mantimiento de unidad 23 50 100 100 273 Equipo de Unidades de I er Nivel Conservacion y Mantimiento de unidad O 7 1 0 .10 27 quipo de Unidades de 2O NivelI Hospitales Psiquiatricos- hospital 0 4 4 4 12 0.0 1,195.0 1,697.5 937.5 3,854 Conservaci6n y Mantemiento de Equipo y Infraestructura Hospitales - Amplificcaci6n (6) hospital I I 2 2 6 11,634.6 33,967.7 83,415.5 49,526.7 178,556.5 *- The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. n C-, s- CaR "f  Indicadores Monitoreo 1995 STPS SUBPROGRAMA META CANTIDAD* PRESUPUESTO (miles de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester Programa Tracional Zonas Urbanas Becas Mixtas (1.5 months) beca 3,000 3,000 3,000 3,000 12,000 2,076.8 2,076.9 2,076.9 2,076.9 8,307.5 Becas Escolar (3 months) beca 25,500 25,500 25,500 25,500 102,000 52,719.8 52,719.8 52,719.8 52,719.8 210,879.2 Becas Escolar (2 months) beca 3,250 3,250 3,250 3,250 13,000 4,522.6 4,522.6 4,522.7 4,522.6 18,090.5 Subtotal 31,750 31,750 31,750 31,750 127,000 59,319.2 59,319.3 59,319.4 59,319.3 237,277.2 Zonas Rurales Becas Mixta (1.5 months) beca 250 250 250 250 1,000 173.0 173.1 173.1 173.1 692.3 Becas Escolarizadas (3 months) beca 5,500 5,500 5,500 5,500 22,000 11,370.9 11,370.9 11,370.9 11,371.0 45,483.7 Becas Escolarizadas (2 months) beca 12,500 12,500 12,500 12,500 50,000 17,228.7 17,228.7 17,228.7 17,228.7 68,914.8 Subtotal 18,250 18,250 18,250 18,250 73,000 28,772.6 28,772.7 28,772.7 28,772.8 115,090.8 Programa de Iniciativas Locales de Empleo y Ocupaci6n Temporal Zonas Urbanas Escuela - Taller (3 months) beca 8,750 8,750 8,750 8,750 35 000 12,737.3 12,737.4 12,737.4 12,737.4 50,949.5 Manto. de U. Habitac. (3 months) beca 3,750 3,750 3,750 3,750 15,000 5,458.8 5,458.9 5,458.9 5,458.9 21,835.5 Servicios de Salud (3 months) beca 2,500 2,500 2,500 2,500 10,000 3,461.5 3,461.6 3,461.6 3,461.6 13,846.3 Autoempleo (2 months) beca 13,250 13,250 13,250 13,250 53,000 18,262.4 18,262.4 18,262.4 18,262.4 73,049.6 Subtotal 28,250 28,250 28,250 28,250 113,000 39,920.0 39,920.3 39,920.3 39,920.3 159,680.9 Zonas Rurales Proyectos Productivos (2 months) beca 4,250 4,250 4,250 4,250 17,000 5,857.7 5,857.8 5,857.8 5,857.7 23,431.0 Rehabilitacion de Obra (3 months) beca 3,250 3,250 3,250 3,250 13,000 4,500.0 4,500.0 4,500.0 4,500.0 18,000.0 Parteras (3 months) beca 750 750 750 750 3,000 1,038.4 1,038.5 1,038.5 1,038.5 4,153.9 Asistentes Rurales (3 months) beca 1,000 1,000 1,000 1,000 4 1,384.6 1,384.6 1,384.7 1,384.6 5,538.5 Subtotal 9,250 9,250 9,250 9,250 37,000 12,7807 12,780.9 12,781.0 12,780.8 51,123.4 Total beca 87,500 87,500 87,500 87,500 350,000 140,792 5 140,793.2 140,793.4 140,793.2 563,172.3 * The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. UQ  Indicadores Monitoreo 1995 SSA y SEDESOL SUBPROGRAMA META CANTIDAD' PRESUPUESTO (mil de Nuevos Pesos) U. de 1. 2. 3. 4. TOTAL 1. 2. 3. 4. TOTAL Medida Trimester Trimester Trimester Trimester Trimester Trimester Trimester Trimester NUTRICION _ Ayuda Alimentaria Directs Desayunos a Escolares alumnos 0 0 32,043 32,043 32,043 0 0 19.2 19.2 96,167.4 Sulfato Ferroso personas 0 0 3,248 3,248 3,248 0 0 9.2 9.2 18.4 Ayuda Alimentaria a Familias familia 0 0 18,042 18,042 18,042 0 0 1,519.9 1,519.9 57,165.8 Paquete de Semillas famiha 0 0 18,042 18,042 18,042 0 0 40.4 40.4 80.8 Capacitaci6n y Informaci6n personas 0 0 33 33 66 0 85.5 85.6 171.1 PROGRAMA DE EMPLEO (en miles) ESPECIAL Empleo t -Rural personas - 0 | _ _ 550,000 0 = 1,700,000 p emporal pe l l ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~co * The trimestral quantities specified for these indicators shall likewise serve as periodically adjustable targets for Project implementation during 1996. 2 > uNB  59 ANNEX 3 TOR for CONALITEG Productivity Study TERMINOS DE REFERENCIA PARA DEFINIR UN PROGRAMA DE MEJORA EN LA PRODUCTIVIDAD DE LAS ACTIVIDADES DE LA COMISION NACIONAL DE LOS LIBROS DE TEXTO GRATUITOS Antecedentes 1. La Comisi6n Nacional de los Libros de Texto Gratuitos (CONALITEG) es un organismo publico descentralizado que fue creada el 13 de febrero de 1959, con personalidad juridica y patrimonio propios, que tiene por objeto la edici6n, impresi6n y distribuci6n de los libros de texto gratuitos, materiales didacticos y similares. 2. Para el cumplimiento de su objetivo, la Comisi6n tiene las siguientes funciones: (a) Editar e imprimir los libros de texto gratuitos y toda clase de materiales didicticos similares, mediante sus propias instalaciones, por concurso o de otro modo si estos resultasen insuficientes; (b) Coadyuvar con la Secretaria de Educaci6n Puiblica (SEP) en el disenio de los libros gratuitos otros materiales didicticos; (c) Participar con un representante en el Consejo de Contenidos y Metodos todos Educativos de la SEP; (d) Distribuir los libros y toda clase de materiales didicticos similares que produzca; y (e) Los demis necesarios para el cumplimiento de su objetivo. 3. En 1994 CONALITEG distribuy6 134.4 millones de libros de texto, con 157 titulos, de los cuales 75 por ciento fueron subcontratados a diversos impresores y el resto elaborados en los talleres de la empresa. La distribuci6n se realiza mediante contratistas que llevan los libros, con una carga de 60,000 toneladas, a 208 almacenes en el interior del pais, y 783 almacenes en el area metropolitana, donde la entrega se hace a nivel de zona escolar. La comisi6n tiene 1,315 plazas de planta. 4. Ademis del libro de texto gratuito, la CONALITEG produce otros materiales educativos como pueden ser ediciones en lenguas indigenas y materiales para no videntes en "Braille". 5. La productividad de la CONALITEG se ha deteriorado en los ultimos tiempos; problemas de equipo, organizaci6n, metodos, capacitaci6n, y de otra indole, lo que hace necesario mejorar sus operaciones. La estructura administrativa es pesada y por ende, parte importante en la ineficiencia de la Comisi6n. 6. Las operaciones que actualmente lleva a cabo la CONALITEG se sefialan en el siguiente cuadro:  60 ANNEX 3 TOR for CONALITEG Productivity Study OPERACION CONTENIDO DE LA OPERACION .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . .. . . . . . . . . ., ,,. Pre Prensa A partir de contenidos aprobados por la SEP genera originales para elaborar las placas de impresi6n Impresi6n Imprime y encuaderna los libros en sus propias instalaciones o mediante subcontrataci6n Distribuci6n Concursa con empresas de transporte las actividades de entrega de los libros; administra y supervise la correcta y oportuna distribuci6n de los mismos. Asimismo, se hace cargo del almacenaje de estos materiales en las instalaciones de la Comisi6n. 7. A estas actividades substantivas se agregan las tareas normales de administraci6n requeridas para su funcionamiento. Merece especial menci6n la tarea de control de calidad, que asegura que el producto lHene las especificaciones requeridas, al mismo tiempo que seniala que requiere de mejoras. Objetivo 8. Definir mediante un estudio de mejora de productividad en las actividades de la CONALITEG, cuil seria la altemativa que permita producir y distribuir los libros de texto gratuitos y materiales educativos adicionales a un menor costo para el pais, sea a traves una mejora de su operaci6n, de un canbio tecnol6gico, o mediante la subcontrataci6n de todas o algunas de sus actividades. Aspectos Metodol6gicos 9. La firma consultora debera desarrollar la informaci6n necesaria para que la CONALITEG tome la decisi6n respecto al modo de mejorar la productividad de la Comisi6n. Para este fin se preven tres escenarios basicos: (a) Permanecer en la ubicaci6n actual y con el equipo actual, preparando un plan de mejora de productividad que incluya la aplicaci6n de ingenieria industrial, cambios en el disefio de la planta, capacitaci6n del personal, reestructuraci6n administrativa, mejor mantenimiento de los equipos existentes, de manera que se obtenga la maxima eficiencia posible en las instalaciones actuales y trabajando a la maxima capacidad que pueda alcanzar la planta. (b) Hacer una renovaci6n de la planta y equipo, considerando la posibilidad de cambiar su ubicaci6n, e incorporando medidas de entrenamiento, reestructuraci6n administrativa y cualquier otra necesaria p ara llegar a la maxima productividad de la planta  61 ANNEX 3 TOR for CONALITEG Productivity Study (c) Subcontratar total o parcialmente las operaciones actuales con empresas del sector publico o privado, segun resulte mas conveniente, reduciendo el personal y reestructurando las actividades administrativas y de calidad para alcanzar la maxima productividad en estas condiciones. 10. Los tres escenarios deberan ser comparados entre si para evaluar el costo beneficio de cada opci6n. Se sugiere que en cada caso la evaluaci6n considere el valor del dinero en el tiempo, mediante una tasa interna de retorno, valor presente neto u otro metodo sugerido por el consultor. Para este efecto, el consultor sugerira y sustentara el periodo mas apropiado para la evaluaci6n de cada opci6n. No deberia ser menor a 5 anios. 11. En los tres casos, el calculo de costo/beneficio debera considerar el costo de indemnizaci6n del personal desplazado y el valor de rescate del equipo; el valor de las instalaci6n es y bienes raices que se sustituyan, si es el caso, los planes de mejora de la productividad incluirin todas las actividades de la Comisi6n. 12. Dado el papel que juega la Comisi6n, debera conservar el control de las actividades de aseguramiento de calidad, estas requieren ser desarrolladas de una manera mis amplia de lo que lo son actualmente, por lo que se debera incluir en el programa de mejora un aparato de reestructuraci6n y desarrollo de estas actividades. 13. El resultado de los tres escenarios debera ser entregado con un anglisis de sensibilidad de cada opci6n, incluyendo la sensibilidad de los costos financieros y la paridad de la moneda, asi como, un modelo financiero computarizado que permita ampliar este analisis de sensibilidad y manejar escenarios nixtos entre el escenario 2 y 3. 14. Dado que no existe un sistema de costos formal en la CONALITEG, se sugiere al consultor hacer una revisi6n de la informaci6n contable disponible antes de elaborar su propuesta y cotizaci6n, ya que tendria que definir los costos actuales de operaci6n mediante un muestreo de las operaciones y de la contabilidad existente. El metodo que piensa emplear para definir estos costos debera ser establecido como un anexo de su propuesta. 15. Para comprar los tres escenarios, el proyecto debera ubicar las posibles fuentes de ahorro y valorarias. Se espera que cada escenario contenga, ademas de la informaci6n de costos, el plan de mejora de productividad en cada caso con informaci6n suficiente para que la CONALITEG pueda emprender el plan que resulte mas apropiado. Esto incluye las areas de mejora ubicadas, las actividades a realizar una estimaci6n de tiempo y costo de las mismas. En el caso de la renovaci6n de equipos se deberi entregar cotizaciones del costo de los mismos, comparando varias opciones. El nivel de detaDle de los costos debera ser el usual en un estudio de factibilidad.  62 ANNEX 3 TOR for CONALITEG Productivity Study rwmnpo para desarroflar el proyecto 16. La Comisi6n requiere que este proyecto se desarrolle en cuatro (4) months a partir de su contrataci6n. Resultados del Proyecto 17. La emnpresa consultora debera entregar como resultados del proyecto los siguientes productos: (a) Plan de mejora de las actividades de la Comision en las instalaciones y con los equipos actuales, valorando el monto de los ahorros a lograr en esas condiciones, estableciendo con precisi6n las actividades a llevar a cabo; (b) Plan de mejora cambiando el equipo y las instalaciones actuales, incorporando tecnologia avanzada, donde sea apropiado. Valorando los ahorros a lograr en esas condiciones, y estableciendo igualmente las actividades a desarrollar; (c) Plan para subcontratar las actividades de la Comisi6n, conservando las actividad es de control de la distribuci6n y aseguramiento de calidad; estableciendo asimismo, las actividades involucradas; (d) Evaluaci6n comparativa de los tres escenarios, mediante modelos financieros a un minimo de cinco anios, y con la posibilidad de hacer anilisis de sensibilidad y combinar los escenarios; (e) La recomendaci6n del consultor sobre el escenario que debe seguirse; y (f) El plan de trabajo para desarrollar un sistema de aseguramiento de calidad, incluido su costo. Contenido de la propuesta: 18. La propuesta deberi contener como minimo la siguiente informaci6n, con el objeto de poder valorar las diferentes cotizaciones: (a) Un pre-diagn6stico de la situaci6n de la CONALITEG, mediante el cual se demostrari la capacidad para desarrollar el trabajo; (b) La metodologia a ser aplicada, incluyendo los cronogramas y diagramas de actividades apropiadas; (c) Indice detallado del reporte final;  63 ANNEX 3 TOR for CONALITEG Productivity Study (d) Curriculum vitae de los consultores principales que participaran, incluyendo el tiempo que dedicari cada uno al proyecto, lo cual se entenderi como un compromiso contractual, asi como el diagrama de organizacion propuesto para el proyecto; (e) Reporte de experiencias similares al proyecto a emprender que demuestren la capacidad de llevar a cabo el proyecto; (f) Referencias de cientes con los que se hayan desarrollado actividades similares; y (g) La propuesta seri calificada considerando la metodologia propuesta, el entendimiento demostrado de la situaci6n de la Comisi6n, la calidad del personal participante, el tiempo y costo de las actividades propuestas, y las referencias que el consultor pueda ofrecer.  64 ANNEX 4 PROBECAT - Selection Criteria and Implementation Details SELECTION CRITERIA FOR TRAINEES UNDER PROBECAT PROBECAT will operate under three modalities during 1995 and 1996, namely: (a) retraining for unemployed workers full time within training institutions (Escolarizada); (b) retraining for unemployed and underemployed workers in plant (Mixta); and (iii) on the job training. The eligibility criteria for each modality are given below - in all cases preference will be given to those with one or more economic dependents. (a) Retraining for Unemployed Workers - Escolarizada Eligible trainees under this modality would satisfy the following criteria:' (c) registered as a job applicant at the local state employment office; (d) have prior work experience if entering classroom training (minimum 3 months); (e) be between the ages of 16 and 55 years; and (f) have either complete primary or some secondary education. (b) Retraining for Unemployed and Underemployed Workers - Mixia Eligible trainees under this modality would satisfy the following criteria: (g) registered as a job applicant at the local state employment office; (h) be between the ages of 16 and 55 years; (i) have basic reading, writing and numeric skills (to be tested); and (j) not necessarily have prior work experience. (c) Retraining for Unemployed and Underemployed Workers - On the Job Eligible trainees under this modality would satisfy the following criteria: (k) registered as a job applicant at the local state employment office; (1) be between the ages of 16 and 55 years; and (m) have basic reading, writing and numeric skills (to be tested). This modality would incorporate a minimum of 150,000 trainees. It is projected that at least 61,000 trainees would fully comply with these criteria, whilst a certain degree of flexibility would be admitted in terms of prior work experience and education attainment for the the remaining trainees under this modality in view of the substantially increased demand due to the economic recession.  65 ANNEX 4 PROBECAT - Selection Criteria and Implementation Details PROBECAT - ON-TIIE-JOB MODALITY PARTICIPANT INSTITUTIONS AND AGENCIES Modality Number of Programming Training Auessment Supervision Stipends coordinatio- Urban Areas: School/Workshop 35,000 STPS/SEE WORKSHOP/ INSTRUCTOR STPS/SEE/ RESTAURANT INSTRUCTOR Building 15,000 STS/SEE/MUNICIPO TRAINING INSTRUCTOR STPS/SEE/ Rehabilitation INSTITUTION. INSTRUCTOR Health Services 10,000 STPS/SEE/SSA IMS/SSA HOSPITAL STPS/SEE Self-Employment 53,000 STPS/SEE TRAINING INSTRUCTOR STPS/SEE/ INSTITUTION. INSTRUCTOR Rural Areas: Productive Projects 17,000 STPS/SEE/MUNICIPO TRAINING INSTRUCTOR STPS/SEE/ INSTITUTION. INSTRUCTOR Rehabilitation of 13,000 STPS/SEE/MUNICIPO STATE & STATE & STPS/SEE Works MUNICIPAL MUNICIPAL GOVERNMENTS GOVERNMENTS Midwife Training 3,000 STPS/SEE/IMSS IMSS/SSA IMSS/SSA STPS/SEE/ IMSS/SSA Rural Health 4,000 STPS/SEEIIMSS/ IMSS/SSA IMSS/SSA STPS/SEE, Assistants SSA IMSS/SSA TOTAL 150,000  66 ANNEX 4 PROBECAT - Selection Criteria and Implementation Details PROBECAT - STIPEND AWARD PROGRESS REPORT BY STATE (April 28) STATES PROGRAMMED STIPENDS ACHIEVEMEN GOALS AWARDED T PERCENT ANNUAL" JAN - APR(R' JAN - APR(b) (b)/(a) x 100% Aguascalientes 4,809 996 8,976 901 Baja California 2,736 567 1,416 250 Baja California 2,681 555 143 26 Sur Campeche 4,637 961 35 4 Coahuila 9,346 1,936 3,837 198 Colima 1,249 259 437 169 Chiapas 5,732 1,187 1,435 121 Chihuahua 3,560 737 2,089 283 Distrito Federal 20,440 4,234 6,650 157 Durango 5,670 1,174 323 28 Guanajuato 5,650 1,172 994 85 Guerrero 5,669 1,174 0 0 Hidalgo 9,678 2,005 4,764 238 Jalisco 12,127 2,512 2,009 80 Mexico 24,998 5,178 12,010 232 Michoacan 5,423 1,123 0 0 Morelos 1,873 388 0 0 Nayarit 1,129 234 314 134 Nuevo Loen 15,124 3,133 8,367 392 Oaxaca 8,153 1,689 333 20 Puebla 3,886 805 38 5 Queretaro 3,150 652 1,815 278 Quintana Roo 470 97 0 0 San Luis Potosi 5,909 1,224 2,062 168 Sinaloa 3,252 674 0 0 Sonora 5,556 1,151 105 9 Tabasco 11,936 2,472 1,990 81 Tamaulipas 17,378 3,600 3,833 106 Tlaxcala 8,997 1,863 3,560 191 Veracruz 11,136 2,307 4,154 180 Yucatan 7,635 1,581 0 0 Zacatecas 4,168 863 2,187 253 TOTAL 234,157 48,503 73,876 152 1/ The balance of 115,843 stipends are to be allocated across the states by June 30, 1995.  MEXICO Program of Essential Social Services (PROSSE) Comnponent Project Cost Surnrnary % % Total (N$ (US$ Million) Foreign Base Million) CornponenVSubcomponent Local Foreign Total Local Foreign Total Exchang Costs e A. Basic Education Services 1. Basic Education forthe Poor (CONAFE) 617.7 142.1 759.8 103.0 23.7 126.6 19 7 2. Textbooks for Basic Education (CONALITEG) 546.0 380.3 926.3 91.0 63.4 154.4 41 8 3. Basic Education Facilities (CAPFCE) 1,3840 3345 1,718.5 230.7 55.7 286.4 19 15 Subtotal Basic Education Services 2,547.8 856.9 3,404.6 424.6 142.8 567.4 25 30 .1 -1 , . , 1-1. 4 P. - &R-.. . ...... -.41 *1..... .+wA*:+ . B. Basic Health Services 1. Preventive Care 1,465.9 300.6 1,766.5 2443 501 294.4 17 15 2. Basic Curative Services 1,822.8 103.0 1,925.9 303.8 172 321.0 5 17 3. Health Infrastructure 4321 158.6 590.7 720 264 98.4 27 5 Subtotal Basic Health Services 3,720.8 562.2 4,283.0 620.1 93.7 713.8 13 37 C Retraining and Employment Generation 1. Retrminlngforthe Unemployed(PROBECAT) 1,191.0 147.9 1,338.9 198.5 24.6 223.1 11 12 2. Targeted Employment Generation (PESE) 1,920.0 480.0 2,400.0 320.0 80.0 400.0 20 21 a' Subtotl Retraining and Ernploymeit Generation 3,111.0 627.9 3,738.9 5185 1046 6231 17 32 _ _ _ _ _ g M . __ . %o. . D. Nutnflon335 152 487 56 25 81 31 E. Monitoring and Evaluations 8.4 3.6 12.0 1.4 0.6 2.0 30 F. Fly - 300 30.0 5.0 5.0 100 Total BASEUNE COSTS 9,421.4 2,095.8 11,517.2 1,570.2 349.3 1,919.5 18 100 w _ _ _ _ W I . ;. W4f Ilff 9 0 4yg Real Adjustments 281.1 65.8 346.9 46.8 11.0 57.8 19 3 Inflation 2,134.0 468.1 2,602.1 18.6 4.1 22.7 18 1 Total PROJECT COSTS 11,836.5 2,629.6 14,466.1 1,635.7 364.3 2,000.0 18 10 t-A  MEXICO Program of Essential Social Services (PROSSE) Components by Financiers (US$ Million) Gov't of Inter-Anerican Local Mexico World Bank Development Bank Total For. (Excl. Duties & Amount % Amount % Amount % Arnount % Exch. Taxes) Taxes A Basic Education Services 1. Basic Education for the Poor (CONAFE) 26.6 20.1 - - 105.9 79.9 132.4 6.6 24.8 104.6 3.0 2. Textbooks for Basic Education (CONALITEG) 50.9 31.5 110.6 68.5 - - 161.5 8.1 66.3 75.1 20.1 3. Basic Education Facilities (CAPFCE) 187.2 62.5 - - 112.3 37.5 299.6 15.0 58.3 207.3 34.0 Subtotal Basic Education Services 264.7 44.6 110.6 18.6 218.2 36.8 593.5 29.7 149.4 387.0 57.1 ~~ *4fl ~~~~~~~~ ~~~* M~~~~~f&~~~~4kYk ~ ~ ~ .; IMV B. Basic Health Services 1. Preventive Care 185.9 60.4 122.0 39.6 307.9 15.4 52.4 231.4 24.1 2. Basic Curative Services 301.4 89.8 34.3 10.2 335.7 16.8 18.0 308.8 8.9 3. Heaih Infrastructure 41.1 39.9 61.8 60.1 102.9 5.1 27.6 62.0 13.3 Subtotal Basic Health Services 528.4 70.8 218.1 29.2 746.5 37.3 98.0 602.2 46.3 C. Retraining and Enpioyrnent Generation 1.Retraining brtheUnenployed(PROBECAT) 59.4 26.3 166.5 73.7 - - 225.9 11.3 25.0 200.6 0.4 C' 2. Targeted Employment Generation (PESE) 143.5 34.3 - 274.8 65.7 418.3 20.9 83.7 280.3 54.4 co Subtotal Retraining and Ernphyrient Generation 202.9 31.5 166.5 25.8 274.8 42.7 644.2 32.2 108.6 480.8 54.8 ..& ..... W . 4~)4...N . oo4"4, O -~4 4.1 46.9 2.6 29.9 2.0 23.2 8.7 0.4 2.7 5.1 0.9 E.MonitorngandEvaluations 2.1 100.0 2.1 0.1 0.6 1.5 F. FV ~ ~ ~ ~4 .o&~ ~ >5.0 100.0 5.0 0.2 5.0 . ........ .. ~ ~ ~ ~ ~ ~ 4t, A!,.4...4: ..~.4..... .4..~. .. TotalDisbursement 1,000.0 50.0 500.0 25.0 500.0 25.0 2,000.0 100.0 364.3 1,476.6 159.1  Program of Essential Social Services (PROSSE) Expenditure Accounts by Financiers (UJS Million) Govemnment of Inter-American Local Mexico World Bank Development Bank Total For. (KEcL Duties & Amount % Amount % Amount % Amount % Exch. Taers) Taxes L Inveanent Coats A. Civil Works 288.6 42.1 34.8 5.1 361.8 52.8 685.2 34.3 137.0 459.1 89.1 B. Good aend Equipment _ _ _ __ Medical Equpment 3.7 27.3 9.8 72.4 0.0 0.3 13.5 0.7 8.1 3.6 1.8 Training Equipment 0.9 20.2 1.4 31.4 2.2 48.5 4.5 0.2 2.5 1.5 0.6 Furniture 25.7 70.2 0.6 1.6 10.3 28.2 36.6 1.8 18.3 13.5 4.8 Office Equipment 3.2 39.6 4.1 50.7 0.8 9.7 8.1 0.3 3.3 2.4 0.8 SubtotalGoods ndEquipment 33.5 53.4 15.9 25.4 13.3 21.2 62.7 3.1 32.1 21.1 8.0 C. Educational Materials Printing 38.2 26.9 102.4 72.0 1.5 1.1 142.1 7.1 65.4 58.2 18.5 Oter Educational Materials 1.4 28.6 3.5 71.4 - - 4.9 0.2 1.9 2.2 0.6 Subtotal Educational MaterIals 39.6 26.9 105.9 72.0 1.5 1.0 147.0 7.3 67.3 60.5 19.1 D. Tecbhcal Asaiatance and Studies 0 .MUNE. .. . .. Studies 0.2 10.5 1.4 73.7 0.3 15.8 1.9 0.1 0.6 1.3 Technical Assistnce 1.6 9.6 9.3 56.0 5.7 34.3 16.6 0.8 5.0 11.6 Fixed-Trnn Staff 10.3 25.9 29.3 73.6 0.2 0.5 39.8 2.0 11.9 27.9 Subtotal Technkal Asalstance and Studies 12.1 20.8 40.0 68.6 6.2 10.6 58.3 2.9 17.5 40.8 K. Training and Stipends a _ w Am = Trining 0.1 23.3 0.2 3S.4 0.2 38.4 0.5 - 0.5 Stipenda 63.8 20.3 166.0 52.8 84.5 26.9 314.3 15.7 41.1 273.2 Subtotal Training and Stipends 63.9 20.3 166.2 52.8 84.7 26.9 314.8 15.7 41.1 273.7 F FIV - . - 5.0 100.0 5.0 0.2 5.0 - - 110 -.01 INE~~~~~.~..'. Total Investment Con 437.7 34.4 362.8 28.5 472.6 37.1 1,273.1 63.6 300.1 856.5 116.3 n. Reeurret Cosb A. Phannaceuticals and Medical Supplies Plhnmaceuticals&Medical/LabSupplies 49.8 44.6 61.9 55.4 - - 111.7 5.4 48.5 43.1 16.2 Food Supplemcnb 4.3 50.6 3.0 35.3 1.2 14.1 8.5 0.6 5.6 5.0 1.9 Subtotal Pharmaceuticals and Medical Supplies 54.1 45.0 64.9 54.0 1.2 1.0 120.2 6.0 54.1 48.1 18.0 B. Operating Costs 01 i, g f - 1. Personnel Costs Salaries and Benefits 440.5 100.0 - - - - 440.5 22.0 - 440.7 Travel and Per Diem 0.4 40.6 0.3 29.7 0.3 29.7 1.0 - 0.9 SubtotalPersonnelCosts 440.9 99.9 0.3 0.1 0.3 0.1 441.5 22.1 - 441.6 2. Maintenance K _ . _ ? infructurceMaintenance 6.0 43.0 7.9 56.7 0.0 0.3 13.9 0.7 2.8 9.0 2.1 Vehicle andEquipmentMaintenance 14.3 40.4 14.9 42.1 6.2 17.5 35.4 1.8 7.1 23.0 5.3 Subtotal Maintenance 20.3 41.2 22.8 46.2 6.2 12.7 49.3 2.5 9.9 32.0 7.4 3. Supplies .... . 3w -zx4tst. Office Supplies, Unifonms and Misc. Consumables 47.0 40.6 49.2 42.5 19.7 17.0 115.9 5.8 0.3 98.3 17.4 SubtotaldOperating Costs 508.2 83.8 72.3 11.9 26.2 4.3 606.7 30.3 10.1 572.0 24.8 SubtotalOperatigCosts 562.3 77.4 137.2 18.9 27.4 3.8 726.9 36.4 64.2 620.1 42.8 1,000.0 50.0 500.0 25.0 500.0 25.0 2,000.0 100.0 364.3 1,476.6 159.1 > n  70 ANNEX 5 Program Costs MEXICO Program of Essential Social Services (PROSSE) Project Comnponents by Year (USS Million) Component/Subcomponent Total Expenditure 1991 1996 Total A. Basic Education Services 1. Basic Education for the Poor (CONAFE) 63.3 69.1 132.4 2. Textbooks for Basic Education (CONALITEG) 76.5 85.0 161.5 3. Basic Education Facilities (CAPFCE) 142.8 156.8 299.6 Subtotal Basic Education Services 282.6 310.9 593.5 B. Basic Health Services 1. Preventive Care 147.2 160.7 307.9 2. Basic Curative Services 160.5 175.2 335.7 3. Health Infrastructure 49.2 53.7 102.9 Subtotal Basic Health Services 356.9 389.6 746.5 C. Retraining and Employment Generation 1. Retraining for the Unemployed (PROBECAT) 98.2 127.8 225.9 2. Targeted Employment Generation (PESE) 200.0 218.3 418.3 Subtotal Retraining and Employment Generation 298.2 346.1 644.2 D. Nutrition 1.4 7.4 8.7 E. Monitoring and Evaluations 0.7 ToaFIV 5.0 COSTS Toa PROJECT COSTS 944.8 1,5. 000  71 ANNEX 5 Program Costs MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES ESTIMATED IBRD DISBURSEMENTS TIMETABLE IBRD Fiscal Year 1995 1996 1997 Annual 100.01/ 300.0 100.0 Cumulative 100.0 400.0 500.0 1/Includes initial Special Account deposit USS100.0 million. Retroactive financing of up to US$100.0 million would be permitted for eligible expenditures incurred since February 19, 1995. MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES ESTIMATED EDB DISBURSEMENTS TIMETABLE IDB Fiscal Year 1995 1996 7 1997 Annual 100.01/ 300.0 100.0 Cumulative 100.0 400.0 500.0 '/Includes initial Special Account deposit US$100.0 million. Retroactive financing of up to US$100.0 million would be permitted for eligible expenditures incurred since January 1, 1995.  72 ANNEX 5 Program Costs MEXICO PROGRAM OF ESSENTIAL SOCIAL SERVICES ESTIMATED SCHEDULE OF DISBURSEMENTS BY QUARTER (in US$ million) Bank Fiscal Quarter Ending Disbursed Cumulative Disb. as % Balance of Year During Amount of Total Loan Quarter 95 June 30, 1995 100.0 100.0 20 400.0 96 Sept 30, 1995 100.0 200.0 300.0 Dec. 31, 1995 100.0 300.0 200.0 March31, 1995 60.0 360.0 140.0 June 30, 1995 50.0 410.0 82 90.0 97 Sept. 20, 1996 50.0 460.0 40 Dec. 31, 1996 20.0 480.0 20 _________ g March 31, 1997 20.0 500.0 100 0.0 a/ Includes Special Account deposit of US$100.0 million and a portion of retroactive financing of up to US$100.0 million for eligible expenditures incurred after February 19, 1995.  73 ANNEX 6 PROSSE Economic Analysis ECONOMIC ANALYSIS OF PROSSE A variety of existing evaluations of programs supported by PROSSE, and other evaluations of social sector programs more generally, provide strong evidence of the economic effectiveness and benefits of the programs included under PROSSE. The results of these evaluations and their relationship to PROSSE are presented below are: 1. The Returns to Education in Mexico - based upon a paper prepared by George Psacharopoulos, Eduardo Velez, Hongyu Yang and Alex Panagides (1994); 2. Economic Efficiency of Selected Health Programs - based on work undertaken by FUNSALUD in Mexico (1994); and 3. PROBECAT Program Evaluation Study - based upon the evaluation study completed by STPS (1995); and (A) The Returns to Education in Mexico 1. Economic analysis based upon the Encuesta Nacional de Ingresos y Gastos de los Hogares - ENIGH - (a nationwide household survey which utilizes a stratified random sample conducted by INEGI) indicates that: (a) the returns to an investment in education are depressed during periods of economic recession and rise again as economic growth resumes; (b) the returns to education remain high, even after a significant expansion of the educational system; and (c) in terms of investment priorities at the margin, secondary education exhibits the highest rate of return in Mexico. However, by definition, such marginal rates of return are only possible for those children who complete primary education satisfactorily; where this is not the case, as in many isolated rural areas, priority still rests in ensuring that children have access to and complete primary education of adequate quality. 2. Overall Private Returns. Using the Mincerian human capital eanlings function specification applied to the ENIGH sample of each survey years (1984,1989 and 1992), estimates of the overtime private rate of return to investment in education were calculated as shown in Table 1 below:  74 ANNEX 6 PROSSE Economic Analysis Table 1: Overtime Trend in Private Rates of Return Characteristic 1984 1989 1992 Mean Years of Schooling 6.5 7.5 7.6 Overall Rate of Retum (%) 15.4 13.4 14.9 - Males 15.0 13.4 14.7 - Females 16.7 13.4 15.8 3. Private and Social Returns by Level of Education. Application of the "full discounting method" to the age-earnings profiles, and the unit costs for different levels of education, gave the private and social returns to education appearing in Table 2. Table 2: The Returns to Education (percent) Educational Level 1984 1989 1992 Private Primary 44.3 23.7 18.9 Secondary, Lower 35.6 17.2 21.5 Secondary, Upper 9.6 22.9 20.1 University 16.0 13.7 15.7 Social Primary 19.9 14.7 11.8 Secondary, Lower 20.2 13.5 14.7 Secondary, Upper 6.3 13.4 14.6 University 9.5 9.6 11.1 4. Regarding the private retums, those for primary education have steadily fallen over the years due to the near universal coverage of primary education. The private returns to the two levels of secondary education show no clear pattem. But the private retums to university education have fallen and risen with the growth of the economy. The social rates of return for education are consistently lower than the private rates of return - consistent with the experience of other countries. 5. Conclusion. The retums to education largely follow the macro-economic cycle. Economic recession lowers the returns to human capital, whereas economic growth boosts them. Second, when a country reaches a stage where primary education coverage is near universal, secondary education is the next priority for educational investment at the margin. However, for  75 ANNEX 6 PROSSE Economic Analysis those not receiving primary education at all, provision of such education has a higher rate of return than those noted above. (B) Economic Efficiency of Selected Health Programs 6. Utilizing the methodology developed by the IBRD in the context of the 1993 World Development Report "Investing in Health", the GOM (through FIJNSALUD) has made estimates of the disability-adjusted life-years (DALY) saved for over 100 health interventions and related these to the unit costs of such interventions. These were then ranked from the most cost-effective (lowest unit cost per DALY saved) to the least cost-effective. The first 70 such interventions are listed in the attached table. 7. The services selected for protection under the PROSSE's Basic Health sub-program follow the priorities established in this GOM study (which was supported by the IBRD and IDB in 1994) of the economics of health care provision in Mexico. The starting point of the analysis was the identification of the principal sources of illness in Mexico, as measured by their contribution to the estimated 12.8 million DALYs lost prematurely in 1991. The study examined over one hundred health interventions to establish their potential effectiveness and their cost. These analyses were combined to develop an optimal package of 24 services. Each of the activities protected by the PROSSE has thus been evaluated as dealing with a significant source of ill health (responsible for 1 percent or more of premature DALY's lost in Mexico) and whose cost per DALY saved is less than N$3,000. 8. As an illustration of the results obtained, the provision of integrated care for sick children, which will be supported under the Basic Health Care sub-program, was shown to be the single most cost effective intervention available in Mexico, with a cost per DALY gained of N$58 (1991). Similarly, pre- and post- natal care, both financed under the Preventive care sub-program had an estimated cost per DALY gained of less than N$300. The study also identified these two programs as having the largest potential impact on reducing premature DALY's lost in Mexico. The attached table lists the 70 most cost-effective interventions which are the types of interventions included in the basic service package supported under PROSSE.  76 ANNEX 6 PROSSE Economic Analysis Cost-effectiveness of the Essential Health Services Package Total Effectiveness Cost Effective Cost (DALY N$ per DALY Ranking Intervention (N$) Saved) Saved I Atencion integral de nifios enfermo 66.00 1.134 58 2 Tratamiento de infeccion respiratoria aguda en ninios 72.00 0.857 84 3 Tratamiento de diarrea aguda en ninios 51.00 0.598 85 4 Tratarnientodelepra 201.00 1.107 182 5 Detecci6n y tratamiento de fenilcentonuria 396.00 2.042 194 6 Tratarniento de diarrea cr6nica y dienteria en nifios 1,668.00 5.576 299 7 Tratamiento de neumot6rax 1,404.00 4,390 320 8 Tratamiento de complicaciones de neumonia en nino 1,608.00 4.441 362 9 Oncocerosis 324.00 0.852 380 10 Programa contra el aboso de alcohol 1.07 0.0024 450 11 Aplicaci6n de DIU 105.00 0.233 451 12 Extracci6n de catarata 1,104.00 2.261 488 13 Detecti6n y tratamniento e enferme- dades de transmisi6n sexual en grupos de alto riesgo 123.00 0.250 492 14 Tratamiento de parasitosis intestinal 54.00 0.093 581 15 Agrudeza visual en escolares 180.00 0.299 602 16 Tratamiento de tuberculosis 1,188.00 1,930 616 17 Distribuci6n comunitaria de anticonceptivos 120.00 0.190 632 18 Trataniento masivo contra helmintos 42.00 0.065 646 19 Tratamiento ambulatorio de neumonias en adultos 267.00 0.379 704 20 Apendocectomia 2,673.00 3.514 761 21 Tratamiento de plelonefritis 1,710.00 2.220 770 22 Atenci6n del parto de riesgo intermedio 1,758.00 2.203 798 23 Tratamiento de complicaciones de neumonia en adultos 2,406.00 2.902 829 24 Tratamiento del paciente post-infartado 684.00 0.819 835 25 Tratamiento de abceso hepatico anibiano 4,182.00 4.966 842 26 Tratarniento de epilepsia 1,572.00 1.861 845 27 Inmunizaci6n contra tosferina 15.00 0.017 882 28 Prevenci6n de fiebre reumatica 444.00 0.495 897 29 Hernioplastia por hernia estrangulada 2,787.00 2.981 935 30 Cirugia de prolapso uterovaginal 3,171.00 3.243 978 31 Tratamiento de hapatitis 972.00 0.986 986 32 Terapia de rehidrataci6n oral en casa 48.00 0.042 1,134 33 Tratamiento de bronquitis cr6nica y enfisema pulmonar 1,545.00 1.309 1,180 34 Prevenci6n de malaria 18.00 0.015 1,200 35 Conizaci6n y diagn6stico de cancer cervico-uterino 1,629.00 1.287 1,266 (Continia)  77 ANNEX 6 PROSSE Economic Analysis Total Efectiveness Cost Effective Cost (DALY N$ per DALY Ranking Intervention (N$) Saved) Saved 36 Tratamiento de meningitis en niflos 6,435.00 4.879 1,319 37 Tratamiento de fratura severas 7,491.00 5.601 1,319 38 Seguridad peatonal 2.43 0.0017 1,403 39 Tratamiento de asma severo 5,055.00 3.461 1,461 40 Control de la hipertensi6n arterial 906.00 0.618 1,466 41 Subsidiofocalizadode condones 375.00 0.247 1,518 42 Control de la diabetes mellitus tipo II 1,071.00 0.69 1,601 43 Suplemento alimenticio foclizado para niflos 17.76 0.0109 1,637 44 Tratamiento de leishmaniasis 177.00 0.105 1,686 45 Tratamiento de leishmaniasis 2,949.00 1.727 1,708 46 Tratamiento de la enfermedad de chagas 495.00 0.289 1,713 47 Atenci6n perinatal y del parto de bajo riesgo 843.00 0.467 1,805 48 Inmunizaci6n contra saramopi6n 15.00 0.008 1,875 49 Inmunizaci6n contra polio 15.00 0.008 1,875 50 Fortificaci6n de alimentos con hierro 0.89 0.0005 51 Programa contra el abuso de tabaco 0.76 0.0004 1,992 52 Educacion para la salud 42.00 0.021 2,000 53 Tratamiento de complicaciones de diabetes 5,940.00 2.812 2,112 54 Rehabilitaci6n de la lesi6n de miembro 8,697.00 4,080 2,132 55 Inmunizaci6n contra tdtanos 15.00 0.007 2,143 56 Subsidio no focalizado de condones 60.00 0.027 2,222 57 Vasectomia 678.00 0.302 2,245 58 Tesecci6n de n6dulo mamario 2,028.00 0.882 2,299 59 Cirugiaprorupturadebazo 4,662.00 2.011 2.318 60 Tratamiento de traumatismo con hematoma subdural 9,582.00 3.987 2,403 61 Cirugia plastico (labio y paladar hendidos) 7,827.00 3.060 2.558 62 Fomento de la alimentaci6n al seno materno 72.00 0.028 2,571 63 Diagn6stico, alivio del dolor, consejo y tratamiento paliativo 240.00 0.090 2,680 64 Detecci6n temparana de cancer cdrvico-uterino 147.00 0.055 2,673 65 Cirugia pro persistencia de conducto arterioso 17,526.00 6.540 2,680 66 Fomento, promoci6n y gesti6n para agua potable y saneamiento 20.10 0.0075 2,680 67 Tratamiento de asma simple 1,239.00 0.447 2,772 68 Salpingoclasia 840.00 0.302 2,984 69 Tratamiento de quemadoras (injertos) 15,039.00 5,040 2,984 70 Tratamiento de enfermedad articular degenerativa 336.00 0.112 3.000  78 ANNEX 6 PROSSE Economic Analysis (C) PROBECAT Program Evaluation Study 9. PROBECAT (Programa de Becas de Capacitacion para Trabajadores) was established in 1984 by the Mexican government to retrain unemployed and displaced workers. The acceleration of the structural adjustment in Mexico greatly expanded the need to retrain those workers, and the program was later supported by the Bank through the Manpower Training Project (Loan 2876- ME) in 1987 with expanded scope and coverage. Since then, the program has provided short- term vocational training to over 250,000 unemployed workers, approximately 50,000 trainees per year. The PROBECAT program, administered through the network of state employment offices, offers training allowances equivalent to one minimum wage to unemployed workers who enter a retraining program. The allowances are paid for the duration of the course which varies from one to six months, with the majority lasting three months. The program was originally designed for displaced workers, but in practice, some 40% of the participants were unemployed workers who sought job for the first time without prior work experience. 10. To provide information on the effectiveness of the PROBECAT program as a basis for policy decision making whether to continue with the program for a longer period than originally intended, a rigorous evaluation of the impact of PROBECAT on the employment and earnings of the program participants was conducted as a part of the project. The study evaluated the post- training labor market experiences of the 1990 cohort of PROBECAT trainees, using new longitudinal data developed for this purpose. A matched sample of unemployed workers from the 1990-91 quarterly urban labor force surveys (ENEU) was also developed as a control group. Unlike previous evaluation studies of retraining programs, this study corrects for potential biases in the estimates of effectiveness by using an appropriate control group and an estimation method which takes into account the nonrandomness of workers accepted for the program. 11. Prior (1992) Evaluation: The first evaluation study of the PROBECAT program was conducted in 1992 to obtain information on the effectiveness of the program as a basis for the policy decision whether to continue the program. The results of the study showed that PROBECAT program was effective in improving employability and earnings of certain groups of trainees. More specifically, for male trainees of 25 years and older with prior work experience, benefits of the program participation outweighed the costs within 2 months of completing the program. For all other male trainees with prior work experience, the benefits paid for itself within one year. However, for male with no prior work experience, the costs of training were offset only after 17 months. For women, the costs of training were offset by benefits only for those who were older than 25 years with prior work experience. The costs exceeded the benefits for other women. 12. According to the findings of the 1992 evaluation study, the selection criteria of the program were modified. The second follow-up evaluation of the PROBECAT program was conducted in 1994 for the cohort of 1993 trainees. The findings of the second evaluation study are summarized below and in Tables 1 to 3.  79 ANNEX 6 PROSSE Economic Analysis 13. Time to Find a Job. The probability of finding a job during the follow-up period is significantly higher for PROBECAT participants than for the control group, which is a matched sample of unemployed workers from National Urban Employment Survey. The mean duration of job search is shorter for PROBECAT participants than for the control group (Tables 1 and 2, first column). Participation in the program reduces time to find a job by about 55%. Although work experience prior to becoming unemployed does not significantly affect the time to find employment, the length of unemployment has a significant effect. Those unemployed for a short period need significantly shorter time to find a job than those unemployed for a long period. Among the two course modalities offered through the PROBECAT program, "School-based" courses have weaker impact on time to find a job than "mixed" courses where trainees receive hands-on training at work places mixed with class room training. For men, the difference between the "mixed" courses participants and the control group was 2.5 months, whereas the difference between the "school-based" courses participants and the control was only 0.5 months. For women, the corresponding differences are 3.7 months and 1.6 months respectively. Years of general education completed do not have any significant effect on the time to find job, whereas the age of the unemployed was significant in the case of men. 14. When we exclude the duration of training courses in the job-search period, the only group which required longer time to find a job than the control group was male participants of "school- based" courses aged 25 years and younger and without prior work experience. It should be noted that those who received "school-based" training without prior work experience were selected incorrectly according to the selection criteria of the PROBECAT program. For men, the result above confirms that this group should only be directed to the "mixed" courses. However, for women, participants of "school-based" courses without prior work experience also gained from the program, as they experienced shorter time to find a job than the control group by 3.4 months for those older than 25 years and by 2.1 months for 25 years or younger trainees. 15. Monthly earnings. The PROBECAT program participation has positive impact for ten out of the twelve categories of trainees considered, which represent 95.5% of the total program participants (Tables 1 and 2, last column). The highest impact on the monthly earnings was achieved for the participants of "mixed" courses, due to their high "employability" (i.e. shorter time to find a job). The two groups of program participants whose monthly earnings were less then those of the control group were: (i) men older than 25 years, who participated in "mixed" courses without prior work experience; and (ii) men 25 years and younger who participated in the "school-based" courses without prior work experience. Therefore, for the last group, the program impact on both time to find a job and monthly earnings turned out to be negative compared to the control group. 16. Hourly Earnings. PROBECAT program participants, and particularly those who received "mixed" training, worked longer weekly hours than the control group. The difference of weekly hours of work between the "mixed" training participants and the "school-based" training participants is substantially smaller than the difference between these two groups combined and the control group. As a result of the longer hours of work for PROBECAT participants, the order of hourly earnings among groups of men who obtained employment get reversed from the ordering of the job-search duration: the control group invariably earn higher hourly earnings (1.8  80 ANNEX 6 PROSSE Economic Analysis to 5.3 pesos per hour depending on age and prior work experience) than the PROBECAT participants of "mixed" courses (1.7 to 4.9 pesos per hour). For women, hourly earnings are higher for participants of "school-based" (1.3 to 6.2 pesos per hour) courses than either "mixed" courses participants (1.2 to 6.0 pesos per hour) or the control group. 17. Cost and Benefit of the PROBECAT program. When we do not include the length of training courses in the job search duration, the cost of the PROBECAT program can be recuperated immediately upon completion of the program for all participants of "mixed" courses, with the exception of men older than 25 years without prior work experience. For "school-based" course participants, recuperation of the cost occurs either immediately or within 5 months for most of the groups, except for women 25 years old or younger with long unemployment duration. If we include the length of training courses in the time to find employment, the results continue to favor the PROBECAT program participants, particularly those who participate in'the "mixed" courses. For this group, the cost of the program is recuperated within the first five months, except for men younger then 25 years old with long unemployment duration. For the participants of "school-based" courses, the recuperation of the cost takes mostly between one and two years. 18. While the PROBECAT program as a whole was found to have high returns, the "mixed" training has been shown to have higher returns than the "school-based" training. This finding supports a recommendation to direct the PROBECAT program more toward courses which are directly linked to productive activities, either through hands-on training in enterprises or through community projects such as public works programs designed under the PROBECAT sub-program of the proposed program.  81 ANNEX 6 PROSSE Economic Analysis Table l: COST BENEFIT OF TRAINING Classification, Average Search Time for Average Search Difference of Job- Difference of Job- Average Wage Job (months) Time for Jobs Search Time Search Time (NS per month) plus Course Excluding Including Duration Training Time Training Time (months) (PROBECAT (PROBECAT participants participants minus control) minus control) Control In-Plant Training In- Training In-Plant Traindng In-Plant Training Control In- Training Center Plant Center Center Center Plant Center MALE _ > 25 years__ _ _ _ _ _ _ ___ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ W recentexp. 4.5 2.3 4.0 4.1 7.1 (2.2) (0.5) (0.4) 2.6 707.5 876.4 814.7 .t.u. 9.5 3.8 6.7 5.6 9.8 (5.7) (2.8) (3.9) 0.3 307.7 709.6 555.8 wl/o exp. ND 8.6 7.4 10.4 10.5 ND ND ND ND 213.8 175.2 270.4 < 25 vears wI recent exp. 5.1 3.1 4.7 4.9 7.8 (0.2) (0.4) (0.2) 2.7 625.3 729.7 680.5 1.t.u. 7.2 6.5 7.1 8.3 10.2 (0.7) (0.1) 1.1 3.0 389.0 463.6 508.2 w/o exp. 7.4 5.6 8.5 7.4 11.6 (1.8) 1.1 0.0 4.2 209.6 271.3 195.5 FEMALE > 25 years *v/ recent exp. 8.7 5.1 7.4 6.9 10.5 (3.6) (1.3) (1.8) 1.8 387.7 538.7 457.2 l.t.u. 10.2 6.4 9.1 8.2 12.2 (3.8) 1.1 (2.0) 2.0 142.2 265.0 188.8 w/o exp. 12.3 7.3 8.9 9.1 12.0 (5.0) (3.4) (3.2) (0.3) 161.9 739.4 687.2 <- 25 years =_I I_I I I I I w/recentexp. 8.3 4.7 7.6 6.5 10.7 (3.6) (07) (1.8) 2.4 247.5 374.7 287.6 1.U. 8.8 5.9 8.1 7.7 11.2 (2.9) 2.4 149.0 188.9 152.7 w/o exp. 9.8 6.5 7.7 8.3 10.8 (3.3) 2.1 (1.5) 1.0 341.4 535.9 549.4 Table 2: TIME FRAME FOR COST RECOVERY Classification* Excluding Course Duration from Job Including Course Duration in Job I_______________ lSearch Duration Search Duration In-Plant Training Center In-Plant Training Center MALE________ > 25 years _ ___X_T___ w/ recent exp. Immediate Immediate Immediate 20.7 months l.t.u. Inmediate Immediate Immediate 1.9 months w/o exp. Negative Not defined Negative Not defined <= 25 years w/ recent exp. Immediate 2.0 months 1.2 months 37.5 months L.t.u. Immediate 2.8 months 9.4 months 13.0 months w/o exp. Immediate Negative 4.4 months Negative FEMALE > 25 years w/ recent exp. Immediate Immediate Immediate 15.S months l.t.u. Immediate 3.7 months Immediate 14.3 months w/o exp. Inimediate Immediate Immediate 0.3 months <= 25 years I w/ recent exp. Immediate 4.5 months Immediate 24.3 months l.t.u. Immediate 73.9 months 1.7 months 199.5 months w/o exp. Immediate Immediate Immediate 3.5 months * w/recent exp.- short-term unemployed, with recent work experience (i.e. worked during the year before the study period). 1.t. u.- long-term unemployed (i.e. last job ended at least one year prior to the study period). w/o exp.- No prior work experience.  82 ANNEX 7 Documents in the Program File LIST OF DOCUMENTS IN THE PROGRAM FILE A. Studies and Reports on the Project 1. SEP, no date. Background Legal Documents. 2. SEP, no date. Resumen Ejecutivo - Programas del CONAFE. 3. SEP, March 1995. Programa de Servicios Sociales Esenciales. 4. SEP, March 1995. Programa de Servicios Sociales Esenciales (In formaci6n Complementariaj. 5. SEP, February 1995. Programa PresuVuestal 1995 - CONALITEG. 6. SEP, November 1993. CONALITEG - Clasificador por Obieto del Costo. 7. CAPFCE, March 1995. Informaci6n sobre Presupuesto. Metas v Costos. 8. CAPFCE, March 1995. Red Nacional de Voz v Datos (Propuesta). 9. SEDESOL, no date. Reglamento de la Ley. 10. SSA, no date. Panorama. 11. STPS, March 1995. Programa de Servicios Sociales. 12. Gobierno del Estado de Hidalgo, February 1995. Programa Estatal de Alimentacion v Nutrici6n Familiar 13. SHCP, January 1995. Budget Letter. 14. SHCP, May 1995. Letter of Policy Intent on Social Sector Budget. 15. IDB, May 1995. Contrato de Prestamo - Programa de Servicios Sociales Esenciales.  83 ANNEX 7 Documents in the Program File B. General Studies and Reports 1. Fundaci6n Mexicana para la Salud, 1994. El Paquete Universal de Servicios Esenciales de Salud. 2. Fundaci6n Mexicana para la Salud, 1994. Propuestas para el Avance del Sistema de Salud en Mexico. 3. STPS, 1995. Estudio de Evaluaci6n del Programa de Becas de Capacitaci6n para Desempleados 4. Comision Nacional de los Salarios Minimos, 1995. Salarios Minimos Vigentes a partir del lo. de abril de 1995 5. Centro de Investigaci6n y Docencia Econ6micas, Enrique Davila; Santiago Levy; Luis Felipe L6pez Calva, 1994. Empleo Rural v Combate a la Pobreza: Una Propuesta de Politica 6. IDB, 1994. Municipal Development Program 7. Comisi6n Interinstitucional, 1995. Programa de Alimentaci6n v Nutrici6n Familiar 8. Secretaria de Desarrollo Social, 1994. Programa de Nutrici6n. Alimentaci6n v Salud 9. Grupo Consultor ITAM, 1993. Evaluaci6n del Provecto Piloto de Nutrici6n. Alimentaci6n v Salud   IBRD 23547 '8A-cs 0 M E X I C O 2 A,. > \ NOCQbS _ _ J 4 Jur l \,. ;. N.,.'~ . ) ( j O aH XI H U ~~~~~H U A -~~~~~~~_ gN E-- S_I - pm.fo_-- .I\ //k \ Guoyrol ) n u o S / ) / \ , g Notonol copltol~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Naanl apto BAJA I C Nii'O HUal.ln- Prncipal citi s or lIwnd CAllfOtNlA > ' s\>_ > S bI. d -d,nrovSa -4hrk =o htf gf7, Prcpa I _-C.C - I Stat. ba__.daEIZ, rAlLES~ ~ ~~~~ ~~~~~~~~ U IC3 A0 ND _ P.. ZACA CA5~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ V \J4ra Th / s,o hee 1 S_o hz Tbe orlo Bont w foff wlur T-p U C0 * L.f rU C A t C - - -/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ERAI IW' Cal,n,a'* ~~~~~~~~ MorellO CITY ca ~ ~ ~ ~ A AC' Casaca - N ~~~~~~~~~~~BELIZE KILOMETERS a 0 0 2 00 aa SNa MILES 0 100 200 20P0GAEML Pnci .aa II.a n aca n naa.ata camnaa HONDURAS FEBRUARY 1922    IMAGING Report No: 143922 ME Type: SAR