Argentina - Public Investment Strengthening Technical Assistance Project

Report No. PIC1867 Project Name Argentina-Public Investment Strengthening... Technical Assistance Project Region Latin America & the Caribbean Sector Public Sector Management Project ID ARPA37049 Borrower Republic of Argentina Implementing Agency Direccion Nacional de Inversion Publica y Financiamiento de Proyectos (DNIP) Secretariat of Economic Programming Ministry of Economy and Public Works Hipolito Yrigoyen 0 piso 8o, Of. 829 1310 Buenos Aires Contact: Lic. Luis Rotaeche (Director, DNIP) Tel: 541-349.55.64 Date this PID prepared July 16, 1995 Tentative Date of Board Presentation September 22, 1995 1. Background. Argentina has suffered from a prolonged political and economic decline with a concomitant deterioration of its public institutions. The present Administration addressed these problems with a series of profound structural reforms, which included decentralization of large portions of the economy (privatization of nearly all public enterprises at the national level and transference to the Provinces of a large number of functions), a 15% reduction in federal employment numbers (excluding privatizations and transferences), and strengthening of key institutions, in all of which the Bank has played an important supportive role. 2. The deterioration of the state resulted, among others, in the complete breakdown of the budgetary process. In the absence of the planning framework given by a properly formulated budget, control and evaluation of expenditures was very weak.. The present Administration addressed these issues with resolve, and as a result, timely accounting and budgeting information can now be produced daily and the National Budget has been presented to Congress three years in a row. With control of expenditures successfully addressed in this way, the next area which would need to be addressed is the efficiency and efficacy of expenditures. 3. GOA's investment strategy has altered considerably. The change in the role of the State from productive to regulatory resulted in large- scale privatization of state-owned enterprises and a considerable decrease in the quantity, although not the quality, of public investment requirements. Nevertheless, considerable investment remains. GOA's investment program for 1995-1999 (see 1/) proposes investing approximately of US$86.8 billion, including National, Provincial and Municipal Governments as well as privatized and public enterprises. Of this amount, US$6 billion are direct National Government investments,  and US$18 billion are national investments through transferences and loans. 4. The investment programming mechanism has never been strong in Argentina. Information on the status of a sample of investment projects in the present pipeline revealed that no more than 10% of those projects could provide a detailed feasibility study to justify the project and its design. Poor project preparation also resulted in a substantial variation across projects in the speed of implementation, which in some cases is as low as 14% of planned execution. Weak identification mechanisms, poor physical and financial monitoring of execution, and no evaluation of results or impact characterize public investment today. 5. To address the weakness in the use of its investment resources, in 1993 Government created the National Directorate for Public Investment and Project Financing (DNIP) in the Ministry of Economy. In August 1994 the National System for Public Investment (SNIP) law was approved by Congress. This law assigns to DNIP the responsibility for putting together, the tri-annual National Public Investment Plan. These duties include: ensuring the quality of national and nationally-cofinanced real capital investment (both ex-ante and ex-post); setting norms for project analysis and evaluation; maintaining an up-to-date inventory of projects; and identifying projects of national interest, assisting in their preparation and helping find external financing. The responsibility for project identification, preparation and evaluation remains with the sectoral agencies and thus this is an important step away from the old paradigm of the central planning ministry and towards decentralization of responsibility to the investing agencies. 6. For the National Public Investment System to function effectively, three areas need to be addressed: (a) the lack of public and private sector awareness of the importance of evaluation of results and impact as a measure of the effectiveness and efficiency of expenditures; (b) training of selected management and staff in sectoral agencies in project identification, analysis and preparation as well as the use of project and program evaluation; and (c) the relative lack of experience, given its recent creation, of the central unit (DNIP) in guiding a process of this nature. 7. Project Objectives. The project aims to enhance the effectiveness and efficiency of the GOA's public expenditure management by improving in a first phase its investment process, enhancing its project analysis capabilities and building up the evaluation capacity in Argentina. These goals would be achieved by: (i) building the ownership/commitment of senior GOA officials to the application of good practice in the formulation and implementation of strategic investment decision-making; (ii) building a sustainable decentralized capacity to identify, prepare, select and evaluate investment by Central Government agencies; and (iii) supporting DNIP in the implementation of the National Investment Plan System (SNIP). 8. Project Description. The project would be implemented over a five- year period starting in late -1995, and would finance high level workshops, training programs, technical assistance and a certain amount of equipment through four components, as follows. - 2 -  Sectoral Investment Decision Making (US$1.2 million, or 5t of total project cost). A series of high level interventions involving respected international expertise would be organized to provide a forum for the exchange of ideas and experience in the area of investment decision making. Improvement of Agencies' Project Analysis and Evaluation Capacity (US$7.9 million, or 31.7t of total project cost). The objective of the component is to enhance the effectiveness and sustainability of public investment and to create a culture of analysis and evaluation of investments and public expenditures through training and technical assistance to up to 100 national government expenditure agencies. Basic Studies in Support of Sectoral Investment Strategies (US$8.7 million or 34.9w of total project cost). These studies will assist in project identification and the preparation of sectoral strategies in priority sectors. Support to the Preparation of the National Public Investment Plan (US$2.4 million, or 9.5w of total project cost). Although the bulk of the strengthening effort is addressed to the investment agencies, a certain amount of strengthening of DNIP is required for this Directorate to fulfill the duties assigned to it by the SNIP Law. Project Administration (US$2.5 million, or 10t of total project cost) consisting of project administration, office equipment, yearly external audits and an agreement with a procurement agency for procurement and administration services. Price contingencies constitute an unallocated amount of US$2.2 million (8.8w of total project costs). 9. Project Financing. Total project costs are estimated at US$ million. A Bank loan of US$16 million (64w of total project costs), which would cover all foreign exchange costs and 54t of all local currency costs, is proposed. The Government would provide counterpart funding of US$9 million (36w of total project costs), which would cover all taxes and duties, equipment maintenance and office rental, as well as portions of project activities. 10. Project Implementation. The National Directorate for Public Investment and Project Financing (DNIP - see above) will be the executing unit for this project. 11. Sustainability. Commitment of the Government to a transparent and efficient public investment system is shown by the approval of the SNIP Law in August 1994 and its reglamentation in May 1995, defining the public sector's responsibilities in public investment. The accessibility for consultation by both Government and Congress to the project databank and the quarterly presentation to Congress increases the transparency of the process. 12. Environmental Assessment. This project finances training in environmental impact assessment, and a series of studies in this - 3 -  sector. It does not have explicit environmental effects. The project has been classified as category B. 13. Program Objective Categories. The primary category is Public Sector Management (PB). 14. Poverty Category. N.A. 15. Project Benefits. The main project benefit would be a public and private sector aware and in part trained in methodologies for the better use of public resources which will result in an eventual increase in the productivity of public investments and lead to a medium-term expenditure framework. 16. Project Risks. The major risks are (i) unsustained Government commitment to reform; and (ii) improper use of the investment system, due to an excessive politicization of the selection of projects resulting in a decrease in the incentive to prepare projects well. The SNIP Law is an assurance of Government commitment, while the process transparency measures contemplated will minimize excessive politicization. 1/ Argentina en Crecimiento, 1995-1999, Ministerio de Economia y Obras y Servicios Publicos, Argentina. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by The Public Information Center week ending December 20, 1996. - 4 -