Argentina - Provincial Reform Loan

 ICRR 10360 Report Number : ICRR10360 ICR Review Operations Evaluation Department 1. Project Data : OEDID : OEDID: L3836 Project ID : P006035 Project Name : Provincial Reform Loan Country : Argentina Sector : Public Sector Management Adjustment L/C Number : L3836 Partners involved : Prepared by : Michael R. Lav Reviewed by : John Johnson Group Manager : Rene Vandendries, Acting Date Posted : 07/07/1999 2. Project Objectives, Financing, Costs and Components : Objectives : (1) support the Federal Government's effort to promote the reform of provincial finances and deepen fiscal reforms underlying macroeconomic stability; (2) enhance capacity of provincial governments to provide public goods and services; (3) increase provincial accountability in use of federal transfers; (4) eliminate special treatment of provincial banks; (5) accelerate reforms in eight provincial governments to improve the structure and administration of taxation; (6) establish budgetary and administrative controls; (7) reduce redundant public employment; (8) improve efficiency of transfers to the municipalities; (9) privatize services now performed by public enterprises; and (10) privatize provincial banks. Financing : $300 million IBRD. Costs and Components : $300 million in 3 tranches, one each in FY 95, FY96, and FY97. 3. Achievement of Relevant Objectives : (1) The consolidated fiscal deficit was reduced from 0.8 percent of GDP in 1994 to 0.4 percent in 1997 as a result of a number of reforms including tax reforms, reduction in number of redundant civil servants, and privatization of public enterprises and provincial banks . (2) The capacity of provincial governments to provide public goods and services was enhanced by reforming provincial administrations and reducing redundant public employment (more than 55,000, well in excess of 20,000 targeted), thereby freeing up resources to meet real needs (3) Provincial accountability in the use of federal transfers was increased as participating provinces prepared and submitted legislation to their Parliaments to implement at the provincial level financial management and personnel control systems already introduced at the federal level, and 9 out of 10 participating provinces are implementing financial administration projects. (4) Special treatment of provincial banks was eliminated . (5) Provincial taxes were restructured and tax administration improved in participating provinces . (6) Financial management systems introduced to strengthen accountability and transparency . (7) Provincial governments were downsized . (8) The efficiency of transfers to the municipalities was not improved (see section 5). (9) Public enterprises were privatized . (10) 9 provincial banks were privatized or liquidated . 4. Significant Achievements : This was the first Bank adjustment operation targeted on sub -national entities. The example of the 4 pilot provinces has new been replicated by eight more . Provincial financial management is now a far lesser threat to national macroeconomic stability. Beyond achieving almost all of its objectives, the project showed how the Bank can address the financial/economic problems of subnational political units in the context of an overall national reform . The discussion of future operations in insightful and the lessons extracted from this successful operations should be most useful. 5. Significant Shortcomings : One of the project's few shortcomings was the inability to implement new legislation for revenue -sharing arrangements with the municipalities. Although new legislation was submitted to provincial legislatures, the effort was generally pro forma as most provincial governments awaited the outcome of the negotiations concerning the Revenue Pact. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Highly Satisfactory Institutional Dev .: Substantial High While "High" is a choice for OED's rating of institutional development, "Substantial" is the highest choice available to characterize the ICR's rating. Sustainability : Likely Likely Bank Performance : Highly Satisfactory Highly Satisfactory Borrower Perf .: Highly Satisfactory Highly Satisfactory Quality of ICR : Exemplary 7. Lessons of Broad Applicability : 1. SALs targeted to sub-national governments can be elements within the framework of a country's overall reform program. 2. Ownership is essential. 3. Financial support cannot substitute for adequate policy incentives . 4. Events, such as the Tequila crisis generate opportunities as well as risks, and reforms need to be tailored to these circumstances. 5. Leverage can be maximized by focusing on reform -prone states and supporting them, so that less reform-minded states can learn from successes . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR is clearly written, complete in coverage, and consistent .