Announcement of The World Bank's Loan to Finance Municipal Development in Argentina on March 23, 1995

The World Bank 1818 H Street, N.W., Washington, D.C., 20433, USA News Release No. 95/63 Contact: Ciro Gamarra (202) 473-8721 ARGENTINA TO FINANCE MIINICIPAL DEVELOPMENT WITH WORLD BANK LOAN OF $210 MILLION WASHINGTON, March 23, 1995- The World Bank has approved a $210 million loan to Argentina to help finance a municipal development project in 13 provinces. The project will contribute to more effective public sector management at the provincial and municipal levels through improved financing mechanisms for municipal investments. The municipal public sector in Argentina is large and growing rapidly. Municipal expenditures are currently about 3.5 percent of gross domestic product (GDP), and transfers from the provinces to the municipalities have doubled since 1991, incieasing from $1.4 billion to $2.8 billion in 1993. These provincial to municipal transfers were about 1 percent of national GDP and 11 percent of total provincial spending in 1993, ranking second only to salaries. Argentina's current macroeconomic strategy ensures that the importance of municipal public sector will continue to grow. As requested by the Government, the project-the second of its type assisted by the Bank in Argentina-will be carried out in the provinces of Buenos Aires, Catamarca, Cordoba, Corrientes, Formosa, La Rioja, La Pampa, Mendoza, Misiones, Neuquen, Santa Cruz, Santa Fe and Tierra del Fuego. A similar project will be implemented simultaneously in the remaining provinces with financing from the Inter- American Development Bank (IDB). In the four largest provinces (Buenos Aires, Mendoza, Cordoba and Santa Fe), the World Bank and the IDB will have complementary municipal infrastructure financing. The prcject includes the provision of basic municipal infrastructure, primarily small investments designed to achieve an adequate and efcient level of municipal services. It also consists of a program of institutional strengthening in key areas such as municipal finance, management, planning, and administration, as well as quality improvement measures for municipal service delivery and project administration, monitoring and auditing. Archives/Records Center, H B1-001 ( 1) In March 1988, the World Bank approved a $120 million loan to support a pilot municipal development project covering five provinces (Buenos Aires, Cordoba, La Pampa, Neuquen and Santa Fe). The project was designed to help municipalities mobilize resources to meet demands for infrastructure in a sustainable and fiscally sound manner. This first operation has been highly successful, and is expected to be completed on schedule by mid- 1995. The current project will be an extension of the first one, with similar conditions and development objectives. It will also complement the ongoing Provincial Development Project (assisted by a World Bank loan of $200 million in December 1990), which provides assistance to the Government in provincial fiscal matters. Overall coordination of project execution will be the responsibility of the Under-Secretariat of Housing in the Secretariat of Social Development of the Presidency, but actual implementation will be the responsibility of each participating province and the respective municipalities. The project was designed with input from the provinces and municipalities that participated in the first project, and has a high degree of participation. Each municipality will be responsible for creating its own priorities for local infrastructure development within the scope of the project. Approximately 900 municipalities in the 13 provinces will benefit from the project, which will introduce more effective procurement and implementation procedures to the municipalities and will provide substantial benefits to the poor, since the infrastructure to be built will mostly benefit them. The $210 million World Bank loan to the Argentine Republic will be disbursed over seven years. The total cost of the project is estimated at $600 million, with the municipalities providing $180 million and the IDB $210 million. The loan is for 15 years, including five years of grace, with a variable interest rate, currently 7.09 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.25 percent on the undisbursed balance. Note: Money figures are expressed in US dollar equivalent. -0-