Argentina - Provincial Reform Loan Project : Rio Negro

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22472 IMPLEMENTATION COMPLETION REPORT (SCL-42 180) ON A LOAN/CREDIT/GRANT IN THE AMOUNT OF US$ 75 MILLION TO THE ARGENTINA FOR A PROVINCIAL REFORM LOAN - RIO NEGRO 06/28/2001 This document has a restricted distribution and may be used by recipients only in the performnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = Peso ARG$ 1 = US$ 1 US$ 1 = ARG$ 1 FISCAL YEAR January 1 to December 1 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CPSP Ministry of Public Health EGB Educaci6n General Bdsica (General Basic Education) ERR Economic Rate of Return HQ Headquarters IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDB Inter-American Development Bank IPPROS Provincial Health Insurance Fund IDEVI Provincial Housing Authority IPPV Provincial Road Directorate LPR Letters of Provincial Reform OECD Organization for Economic Cooperation and Development PDP I First Provincial Development Project PDP II Second Provincial Development Project PRESSAL Provincial Health Sector Development PRISE Programa de Reformnas en el Sector Educaci6n (Reform Program on Education Sector) PRL Provincial Reform Loan PRL II Second Provincial Reform Loan PRODYMES I Secondary Education Reform I QAG Quality Assurance Group TOR Terms of Reference UNDP United Nations Development Program Vice President: David de Ferranti Country Manager/Director: Myrna Alexander Sector Manager/Director: Ernesto May Task Team Leader/Task Manager: Mark Hagerstrom  FOR OFFICIAL USE ONLY ARGENTINA PROVINCIAL REFORM - RIO NEGRO CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 3 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 13 6. Sustainability 16 7. Bank and Borrower Performance 17 8. Lessons Learned 21 9. Partner Comments 23 10. Additional Informnation 23 Annex 1. Key Performance Indicators/Log Frame Matrix 37 Annex 2. Project Costs and Financing 39 Annex 3. Economric Costs and Benefits 41 Annex 4. Bank Inputs 42 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 43 Annex 6. Ratings of Bank and Borrower Performance 44 Annex 7. List of Supporting Documents 45 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   Project ID: P051695 Project Name: P.RFM(R.NEGRO) Team Leader: Mark V. Hagerstrom TL Unit: LCC7C ICR Type: Core ICR Report Date: June 28, 2001 1. Project Data Name: P.RFM(R.NEGRO) L/C/TF Number: SCL-42180 CountryIDepartment: ARGENTINA Region: Latin America and Caribbean Region Sector/subsector: BB - Public Sector Management Adjustnent KEY DATES Original Revised/Actual PCD: 09/25/96 Effective: 12/31/97 12/22/97 Appraisal: 04/11/97 MTR: Approval: 08/26/97 Closing: 12/31/99 06/30/2000 Borrower/Implementing Agency: GOVERNMENT/MIN OF ECONOMY/PROVINCE Other Partners: STAFF Current At Appraisal Vice President: David De Ferranti Shahid Javed Burki Country Manager: Myrna L. Alexander Gobind Nankani Sector Manager: Ernesto May Paul Meo Team Leader at ICR: Mark V. Hagerstrom Maria Emilia Freire ICR Primary Author: Mark V. Hagerstrom 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: S Borrower Performance: U QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 1. Designed to help the province of Rio Negro to reduce the role of the public sector in the regional economy, promote participation of the private sector, restructure the provincial govemment and ensure an efficient delivery of public services. The objectives for the period 1997-99 are the following: A. Fiscal and public finance:  (i) Improve tax collection and administration to promote higher reliance on own-source revenues; (ii) civil service reform and reduction of personnel expenditure as percentage of net current revenues; iii) rationalization and prioritization of govemment spending, maintaining 1996 level as a floor for social spending. B. Improve efficiency in the education and health sectors, B1. Education reform will ensure the extension of mandatory education and improve access to the poor within budget constraints. Priority actions include: (a) increasing the student/teacher ratio and the ratio of staff actively teaching to total staff; (b) reduce the disproportionate use of temporary and substitute education personnel; (c) improve incentives for quality achievement; (d) increase participation of the private sector; and (e) reduce administrative costs. B2. Health reforms will improve efficiency and equity in the health sector, by: (a) separating the provision and financing of public health services, (b) increasing cost recovery, (c) consolidating hospital facilities, (d) reducing excessive staff and reallocating resources to non-personnel expenditures, (e) improving targeting to the poor and (f) increasing health insurance coverage (within the current health budget constraints). 3.2 Revised Objective: 2. n.a. 3.3 Original Components: 3. Component; Cost; Rating FIRST TRANCHE RELEASE; $25,000,000.00; S SECOND TRANCHE RELEASE; $25,000,000.00; S THIRD TRANCHE RELEASE; $25,000,000.00; U 3.4 Revised Components: 4. n.a. 3.5 Quality at Entry: 5. The project was reviewed by QAG with a Rapid Quality at Entry Assessment and received an Overall Assessment of Satisfactory. Good consistency of project with CAS. Selection of provinces rather eclectic: orginal concept of 3-4 small and poorer provinces in NW Argentina (with competitive access to single loan) abandoned with selection of Rio Negro, an oil rich province in Western Argentina: all four provinces with strong interest and commitments to fiscal reform - leading to four separate loans. Overall interesting approach/deepening of reforms at provincial level. Program put together rather quietly, but recent elections confirmed incumbents in all four provinces, thereby ensuring basis for political commitment to project implementation". The assessement gave marginal ratings for the following aspects: - 2 -  * Social and Stakeholder Aspects: Incomplete quantitative assessment of social impact * Institutional Capacity: TORs and staffing requirement of provincial Executing Units are missing. * Readiness for Implementation: initial delays in functioning of Executing Units may be expected in addition because of uneveness regarding signing/effectiveness. 6. The assessment of quality at entry in the ICR as satisfactory is discussed in the context of Bank performance, Section7. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Background 7. In Argentina, provincial governments have long played an important role in overall fiscal performance and macroeconomic stability. Argentina's public sector is highly decentralized, with provinces and municipalities accounting for about half of total public spending. In particular, they have increasingly become the key public sector level for providing public services in health, education and infrastructure, with responsibility for over 90 percent of public spending in health and basic education. Thus, provincial reform becomes a central element in the efforts of Argentina to reduce its macroeconomic vulnerability through improved fiscal performance and to increase competitiveness and enhance equity through human resource development. 8. During the 1980s, high inflation rates, lack of budgetary discipline, easy access to borrowing and reliance on the Federal Government for transfers and bailouts all contributed to persistent fiscal deficits. The situation improved in 1992, due to the reforms that the Federal Government had initiated under the Convertibility Plan, and a major national tax effort, which resulted in windfall revenues for the provinces. However, the situation began to deteriorate due to excessive spending by the provinces. With the financial crisis of 1995 the fiscal situation became critical again, when the pool of total public revenues fell dramatically. Provincial revenues dropped 5 percent in real terms, provincial expenditures failed to adjust, and the provincial deficit reached a record high of $3.5 billion or 1.4 percent of GDP, about half of the consolidated public sector deficit. In 1995-96, out of 24 provinces, only four had balanced fiscal accounts. Most of the others faced important liquidity shortages, increased borrowing, and accumulated arrears. 9. Recognizing the importance of provincial finances to macro-stability in a federal state, provincial reform has been a priority for the Federal Government since the early 1990s. During 1992 and 1993, it negotiated two agreements with the provinces to promote structural reforms. The provinces agreed to improve own-source mobilization, restructure provincial taxes and eliminate distortionary taxes, privatize public enterprises, including the provincial banks and utilities, deregulate the provincial economy, and transfer the provincial pension funds to the national system. In exchange, the Federal Government guaranteed a shared-revenue floor to each province, sheltering them from downfalls in revenue. It also provided a Transformation Fund, which helped finance those reforms and provide technical assistance and advisory services. While some provinces began implementing reforms during 1993-94, it was not until the financial crisis of 1995 that a large number of provinces began to reform in earnest. -3-  10. The Bank has been a major partner of the Government since the early 1990's in supporting provincial reforms and institutional strengthening. The first generation of IBRD operations developed during the late 1980s that targeted at sub-national governments were the First Provincial Development Project (Ln. 3280-AR) and Municipal Development Project (Ln. 2920-AR) and subsequent follow-up operations-- for the provinces (Ln. 3877-AR) and municipalities (Ln. 3860-AR). These loans were multi-sector operations covering all provinces to provide, at a minimum, support for institutional strengthening. For those satisfying creditworthiness criteria, financing was provided for investments linked to sector reforms and improved fiscal performance. In time, these loans were complemented by a series of sector investment operations aimed at improving the efficiency of delivering secondary education, public health, provincial roads, water supply, and agricultural services and infrastructure. In terms of reform, the multi-sector operations had been successful in strengthening the weak technical capacity of provincial and municipal governments and introducing the concept of rewarding good fiscal performance. However, the operations were not adequate for providing the necessary financial support to those provinces willing and able to implement major structural reforms. The First Provincial Reform Loan (PRL-1 Ln. 3826-AR) was designed to fill in this gap. 11. Targeted at a group of reform-minded provinces, the PRL-1 was aimed at deepening the fiscal reforms underlying macroeconomic stability and enhancing the capacity of the provincial governments to fulfill their increasingly-important role as providers of public goods and services. To accomplish these objectives, the operation was designed as a quick-disbursing adjustment loan with conditionalities both at the federal and at the provincial levels. The loan proceeds were used to capitalize the Transformation Fund, established by the national government in April 1993 to promote structural adjustment in the provinces. The national government established individual agreements with the participating provinces, determining in each case the measures to be taken by the provincial governments, their needs for technical and financial support, and the terms for repayment. The national government, in turn, was responsible for maintaining a supportive incentive framework. The PRL-1 operation in concert with the complementary Provincial Bank Privatization (Ln. 3878-AR) and the Provincial Pension Reform (Ln. 4116-AR) loans were highly successful in deepening public sector reform among participating provinces. Some of their specific accomplishments include the reduction of 55,000 provincial agents, the privatization or concessioning of 48 provincial enterprises, the privatization of thirteen provincial banks, and the transfer of eight provincial pension funds to the national social security system. 12. In 1996, the Federal Government recognized the need for a second phase of provincial reforms. After undertaking some of the basic structural reforms, including privatization, which provided a better balance in the role of the state and its fiscal means and a more stable, immediate fiscal situation, it was clear that the provinces needed to address issues of the quality and equity of core public services, especially in health and education, which had been decentralized. The Second Provincial Reform Loan (PRL-2) came as the next step in the progression towards more direct interaction with selected, reform-minded provinces. Targeted directly to individual provinces that had demonstrated their willingness and ability to implement reforms, the PRL-2 was conceived as a more agile lending tool tailored to fit the reform programs of individual provinces, thus avoiding the administrative bureaucracy of programs administered at the central - 4 -  level and increasing borrower ownership. 13. The PRL-2's specific objective, as stated in the Report and Recommendation of the President (Report No. P-7136-AR, July 30, 1997) was to support the provinces to reform and restructure their governments so as to ensure an efficient and responsive delivery of public services, particularly in health and education, within fiscally sound policies. To accomplish these objectives, the PRL-2 was structured as quick-disbursing adjustment loans to the individual provinces to support fiscal adjustment combined with structural reform in the social sectors. The operation was to finance the adjustment cost of the provincial programs and to provide technical assistance and analytical support to the provinces. The PRL-2 was fully consistent with the 1997 Country Assistance Strategy (CAS), which defined a strategy towards the provinces that focused on reform and sector investment operations aimed at deepening reforms in selected provinces by improving the efficiency of social expenditures. While the nature of the problems varied across provinces and the reform programs are tailor-made to each, the pillars of the reform program were common and include three basic components: public finance, education, and health. 14. Reforms in public finance focused on achieving a sustainable fiscal situation based mainly on strengthening ongoing reforms in the participating provinces, particularly in increasing current savings to lower the debt burden. Local resource mobilization was emphasized not only to increase revenues, but to enhance accountability and to reduce, at least somewhat, the pro-cyclical impact of federal transfers. Civil service reform was promoted to enhance the productivity of public and to increase resources available for investment by reducing the wage bill. Increased local revenues, changes in the structure of expenditures, and lowering debt were required to provide for greater flexibility in the face of economic downturns, such as the Tequila crisis and more recently the external shocks from Asia, Russia and Brazil. Technical assistance and financing for institutional development was to be provided through ongoing Bank operations, in particular the Second Provincial Development Project. The basic elements of the program included: 3 improvement in tax collection and administration to promote higher reliance on own-source revenues and increased accountability; * civil service reforrm including reduction of the wage bill and redundant personnel; improved training and compensation; control to lower absenteeism and overpayments; and, * rationalization of public expenditures and prioritization of government spending, with emphasis on privatization and outsourcing to improve reliability and quality of public services and lower the fiscal burden. 15. On the social sector side, the emphasis was to increase the efficiency and quality of the education and health sectors, focusing on demand and poverty reduction aspects, while promoting increased involvement by the private sector. The large majority of provinces devote sufficient resources to public health and education, most at levels higher than OECD countries relative to per capita incomes; however, the efficiency and quality of this spending are poor. The basic strategy was to protect current levels of spending, while at the same time changing the structure - 5 -  of expenditures to increase investment and providing incentives for improvements in efficiency, quality and equity 16. In education, despite attractive returns to higher education, dropout rates from secondary school among the poor are high. In Argentina only 24 percent of students in the lowest quintile complete secondary school, compared to 76 percent for the upper quintile. Proposed education reforms sought to ensure the extension of obligatory education (from six to nine years) as mandated the National Education Law, while improving efficiency and quality. Given the low productivity in most provinces, with student/teacher ratios in some cases double those of comparators, and high levels of teacher absenteeism (sometimes four times as high as comparators), much of this was to be financed within the current budget, with some short-term increases to cover investment in classrooms, materials and teacher training. In addition, most provinces also needed to undergo important reforms to provide incentives to improve quality, including changing seniority-based teacher remuneration systems into merit-based systems, and decentralizing greater control to the school level. Technical assistance and financing for institutional development was to be provided through the ongoing Bank operations, First and Second Secondary Education Projects (Lns. 3794 and 3971) as well as through IDB sector operations. Priority actions included: * Increasing low student/teacher ratios and the participation of staff actively teaching as a share of total staff; * Reducing disproportionate use of temporary and substitute education personnel; 3 Improving the incentives for quality improvement; * Increasing the participation of the private sector; and, * Reducing administrative costs. 17. In health, despite the availability of health care, generally through public hospitals, care is of poorer quality for poorer people. For example, 25 percent of women in the lowest income levels are delivered by non-doctors, while none at the upper level; over 30 percent of women in the lowest quintile have no post delivery follow-up, compared to only 2 percent of those in the upper quintile; 74 percent from lowest have to wait more than 24 hours for a consultation, as compared to only 45 percent of those in the upper quintile. Proposed health reforms sought to increase overall investment largely within the current budget envelope and to induce improvements in efficiency, quality and equity by separating the supply of services from the financing, promoting cost-recovery for care provided by public hospital to insured patients, promoting hospital accreditation and quality assurance systems, and providing the indigent population with health insurance. A fundamental element of this strategy, self-administered public hospitals, was pioneered in Argentina under the ongoing Provincial Health Development Project (PRESSAL, Ln. 3931-AR). On the financing side, the Bank supported reforms in the national health insurance system (Health Insurance Reform Loan Ln. 4002/3AR and Health Insurance Technical Assistance Project Ln 4004-AR) to enhance efficiency and promote competition. The PRL-2 program combined these two reform elements in participating provinces and promotes the incorporation of the uninsured poor into the system to help ensure equity in access to services. The main actions to be undertaken cover reforms in the area of personal health care delivery, public health finance and public health administration and included: - 6 -  * Extending the Provincial Health Insurance to the uninsured poor; * Restructuring the Provincial Health Insurance carrier (Obra Social Provincial); * Reducing staff and reallocating resources to non-personnel expenditures; * Reallocating resources from personal health care to essential public health services, and; * Promoting public hospital autonomy 18. According to the eligibility criteria and the focus of the program agreed between the national government and the Bank, the PRL-2 loans were to be made available to provinces that had: (i) introduced significant structural reforms in terrns of the size of the provincial government and the privatization of major public enterprises; (ii) accepted the transfer of the provincial pension funds to the national system; and (iii) demonstrated ability and political commitment to further reforms. On the basis of these criteria, four provinces were selected for piloting this approach: Rio Negro, Salta, San Juan, and Tucuman. These provinces represented a diverse pool in terms of their main demographic and socio-economic indicators, economic base, and the political affiliation of the provincial administrations. Together, they account for 6 percent of Argentina's GDP and 10 percent of the country's population. 19. The borrower of the four adjustment loans was the Argentine Republic, which in turn was to onlend funds equivalent to the loan amounts to each province. The amount of each loan was determined as a function of the population of each province, its adjustment needs, and the depth of each program. Tranche conditionality was also tailored to match the depth and pace of reforms in each participating province. Disbursements for each loan were conditioned on Board approval (i.e., loan effectiveness) and subsequent positive evaluations on the compliance of the loan conditionality agreed with each province. While the formal tranche-release actions were limited to key measures, the operations supported an ambitious reform program in each of the participating provinces that were detailed in the Letters of Provincial Reform (LPR) drafted by each province. Rio Negro 20. Rio Negro is an Argentine province endowed with economic resources and good development potential. The provincial per capita income was about $7,200 in 1995, somewhat lower than Argentina's average, but in most social indicators it performs better than other provinces, particularly those participating in the PRL-2. The province is strategically positioned to take advantage of important energy, mining, agricultural and tourism potential. However, during the early 1990s, the province failed to initiate the adjustment needed under the Convertibility Plan. Rapid growth of recurrent expenditures in support of inefficient public enterprises and growth in public sector employment led to major deficits and increased debt, undermining its ability to adequately support the restructuring of the economy through public services and infrastructure. Governed by the opposition party, the provincial administration during the early 1990s had politically rejected the liberalization policies of the national administration and had defiantly maintained statist policies until the virtual fiscal collapse of the province during the Tequila crisis. 21. The fiscal crisis in the province had apparently reached its depths in 1995, when the then - 7 -  governor ran for the presidency. In the face of the fiscal pressures associated with the Tequila crisis, the provincial administration was defiant in maintaining deficit spending, supporting bankrupt state enterprises, including the provincial bank, increasing public sector employment and wages, and running up significant debt to cover the current deficit. By 1995, the provincial deficit reached 45% of current revenues, the wage bill absorbed 109% of current revenues, and capital outlays were limited to those financed by earmarked transfers from the national government. The debt stock reached $599 millions at the end of 1995, or 130% of current revenues. More than half of the province's revenue sharing from the federal government, representing 70% of total revenues, was affected to pay the debt. Rio Negro - Achievement of Development Objectives 22. The objective of helping the province of Rio Negro to reform its public sector so as to ensure an efficient and responsive delivery of public services in education and health within fiscally sound policies was not met. Early advances in fiscal, education and health objectives were not adequately pursued. In particular, the province failed to advance as quickly as needed in improving fiscal performance during 1998-99 period. The economic downturn in Argentina had a negative affect on implementation, but timely provincial measures could have reduced the impact. The lack of such measures can be attributed largely to the advent of national and provincial elections, which both limited the political scope for actions at the local level and engendered hope that a change at the national level might bring a transfer of resources that would alleviate the need for the more effective, but potentially politically costly, measures to reach fiscal balance. This change at the Federal level did not occur. Despite the failure to achieve most development objects, there was some modest institutional impact that along with federal government initiatives could support sustainability and the possible deepening of the reforms in the future. The fiscal reform, in particular, is now expected to be achieved by 2003. A detailed assessment of the three main components, fiscal and public finance, education, and health, are provided below: 4.2 Outputs by components: Fiscal and Public Finance 23. Faced with the critical fiscal situation of the mid- 1990s, the newly-elected governor began to take important measures in 1996, such as privatizing public enterprises, including the provincial bank, the electricity utility and provincial casinos; reducing teachers' costs by cutting teaching hours, and transferring the provincial pension fund to the National government. As a result, the fiscal accounts improved somewhat, although the situation remained extremely fragile. The current deficit declined to 21 % of current revenues, personnel costs fell to 94% of net current revenues, and the cash situation improved substantially going from a monthly deficit of $21.5 million (at the end of 1995) to $7.3 million at the beginning of 1997. On the other hand, the debt stock reached $741 million at the end of 1996, or 157% of the current revenues, in part to finance the privatization of the provincial bank, and debt service absorbed 39% of the current revenues at the end of the year. 24. Under the program, the provincial government sought to reach a sustained fiscal balance, -8 -  by attaining a current surplus every year beginning in 1998, reducing personnel expenditures to 65% of current revenues and assuring fiscal surpluses large enough to reduce the debt stock to a sustainable level while keeping investment levels an adequate level. Despite some advances, particularly in reducing the wage bill, these goals where not achieved under the program during the 1997-99 period. Based on current projections, they are unlikely to be achieved before the year 2003. Modest achievements in the areas detailed below were insufficient to produce the outcomes expected, due to rising interest payments on the debt (which grew from $53 million in 1997 to $80 million by 1999), the failure to cut capital spending, and non-personnel spending, including transfers to public enterprises. As a result, the deficit in current spending reached about 13%, the same as 1996. The stock of debt, which had been expected to peak at about $815 million in 1998, increased to $947 million by 1999. (i). The effort to improve tax administration and collection was effectively pursued during the 1997-98 period and the province was able to achieve an increase by 1998 of almost 20% over 1996, and thus to meet a target of 25% of own-resources relative to total revenues. This effort, however, was not sustained in 1999, which saw local revenues decline by 10%. Institutional measure supported by the Provincial Development Projects included updating of the property tax rolls, and decentralization and modernization of provincial tax offices. These could provide an important basis for regaining the previous achievement in the future, provided that there is adequate political support to pursue collections. (ii). Civil service reform and reduction of personnel expenditure as a share of current spending. Initial efforts in restructuring the line ministries were used to identify redundancies and programs of early retirement and voluntary separation were implemented. While there were some achievements in downsizing early in the program, with 3,400 workers leaving the public sector by 1998, this was only slowly reflected by reductions in the wage bill, and the voluntary approach began to stagnate by 1999. Outsourcing was also used based on the creation of micro-enterprises run by ex-employees, but protracted negotiations with public sector unions delayed progress and reduced possible savings. Other reforms to promote attendance, improve the wage scale and introduce merit-based remuneration were initiated, but impact on savings are also not likely to be great in the short-term. Although Rio Negro's efforts, which resulted in a 4% decline in the wage bill during the 1996-99 period, can be seen as heroic in the context of Argentina, where the aggregate wage bill of the provinces increased by 22% during this period, with a failure to contain spending in other areas, to reach the desired current balance would have required a doubling of efforts. During this period, the province was unable to accelerate its program of voluntary separation, nor was it willing to introduce other measures, such a wage cuts, an approach used successfully by other provinces and recently by the federal government. Overall, public sector employment still remains high relative to other provinces. Although public employment in the province is the lowest among patagonian provinces at 47.1 per 1,000 inhabitants, these levels are correlated with the level of oil royalties received by the provinces and not staffing requirements. In contrast, Rio Negro's per capita public employment is about 25% higher than that of the provinces of Tucuman and Salta, which successfully implemented fiscal reforms under the PRL-2. (iii) Rationalizing and prioritizing spending, including maintaining levels of spending in health and education. Performance was mixed in this area. While the province achieved its -9-  commitment to protect spending in health and education, the failure to adequately cut back on capital spending and to control non-personnel expenditures to accommodate the slower than expected cuts in current spending helped to undermined the fiscal program. The province also failed to move quickly enough to deepen the privatization effort and continued to transfer funds to maintain these enterprises. Agreements reached with the Bank to step up this process in 1999 were not implemented in a timely manner. This effort, however, is expected to continue under encouragement by the Federal Government. Education 25. At preparation it was noted that education performance in the province of Rio Negro compared well in many aspects to those of other provinces, particularly to those participating in the PRL-2. The coverage was almost universal at the primary level (96%) and reached 56% at the secondary level, and the province ranked third among provinces in terms of quality. On the other hand, Rio Negro faced significant problems in education similar to those of most other provinces. Personnel expenditures dominated the education budget, leaving little room to finance non-personnel inputs and investment. The average costs per student was high due to low student/teacher ratios the and disproportionate use of temporary and substitute teachers. Teachers often abused the leave system and their pay was unrelated to teaching quality or effective classroom hours. These problems were exacerbated because of expectations for a significant increase in educational demand due to demographic growth and extension in compulsory education from six to nine years, as mandated by the Federal Education Law. Given the fiscal situation there was little room for increased budget to meet these needs. Indeed, in 1996, the education budget was cut $23 million, or 12%, by reducing the central administration and paring down activities outside of primary and secondary education. 26. Measures were expected to support the extension of compulsory education and to improve access to the poor. Along with raising more investment resources by improving the administration and efficiency of the education sector, additional activities were planned to pilot decentralization to the school level, enhance the incentives and transparency of private sector subsidies, and improve the role of public sector teacher training institutes. By 1998, at the time of the second tranche, the share of personnel expenditures had been reduced to 88%, and further reductions in the wage bill were subsequently achieved. Nevertheless, the province was less successful in translating these savings into greater investment. Recurrent spending in other areas rose (reflecting less than expected net savings from the outsourcing efforts) and the investment programs themselves were negatively affected by delays, including a lack of counterpart funding. In addition, the federal reforms, which were already resisted by many local teachers and elements of sector leadership, also suffered from the elections of 1999, as many felt that a new Federal administration would rescind the Law. As such, the expected impact of accelerating implementation of the Federal Education Law was undermined and the province remained one of the slowest provinces in terms of implementation, despite the combined support of the PRL and the Secondary Education Project. Further, there is no evidence that access by the poor has improved, or how the project expected to achieve this, as there were no monitorable indicators in this regard. The modest achievements of the measures undertaken are discussed below: i) Increasing student/teacher ratio and more teachers in front of the classroom. The -10-  objective of the component was to achieve savings in personnel costs in order to provide for spending needed in investment. The reduction in personnel costs was also sought through early retirement to allow the reduction in the average number of years in service, the reduction of central administration staff, outsourcing of general services and increasing class size. Early achievements in this area, which saw an improvement in the student/teacher ratio from 15: 1 to 17: 1 by 1998. Third tranche targets sought a further improvement to 19: 1. (ii) Reduce the disproportionate use of substitute teachers. The implementation of a new system for controlling abuses of sick leave was successful. Sick leave declined from about 12% of the workforce in 1997 to less than 6% by late 1998. This was an important achievement in contributing to greater discipline among public sector workers, enhancing the morale of the majority of teachers, and reducing the disruptions to teaching associated with the use of substitutes. As such, the ratio of expenditures on substitute/ regular teachers has fallen from a high of 26.5 in 1993 to 10.0 in 1999. (iii) Improve incentives for quality. Perhaps the most significant measure was to improve working rules for teachers and to base part of their salary on merit. The legal provisions for such a change have yet to be submitted to the legislature. Another effort to promote quality and efficiency was to develop a model for decentralized schools. This effort led to 30 pilot schools, but the program was largely unsuccessful because of the lack of institutional capacity at the local level. The province is continuing its efforts in this area, but providing greater budgetary autonomy to the school level remains difficult given the fiscal situation of the provinces and the desire to maintain central control over spending. Another activity was to enhance the role of teacher training institutes by restructuring them to reduce excess capacity (they graduated about five times more teachers than needed) and by reorienting them to training for the new curriculum needed under the Federal Education Law. This consolidation is still underway and is not expected to be met until 2001. Overall, there is some evidence of improvement in quality, with a decline in repetition rates from 18.1% in the mid-1990s to 15.5% in 1998, but the role of the PRL-2 and Secondary Education Project is not clear. (iv) Increase participation of the private sector. The measures included in the program sought to improve the improve the efficiency and quality of privately managed schools by enhancing the allocation of public subsidies, which constituted less than 8% of total sector spending. Although spending per student was somewhat higher in these schools, the greater concern was the transparency and incentives being provided. A new formula-based system incorporating cost per student was proposed. As of late 1999, the province had instituted regulations requiring improved student/teacher ratios for these schools, and had drafted a law to allocate subsidies based upon objective criteria including efficiency and equity, implementation of which was a third tranche condition. The law has yet to be implemented. (v) Reduce administrative costs. Measures undertaken included the reduction of the central administration and the reassigning of teachers from non-teaching administrative positions was largely successful. Efforts to outsource janitorial services are ongoing. - 1 1 -  Health 27. At preparation poor health statistics were judged to be largely the result of structural deficiencies in the province's health delivery capacity. The health system was predominantly hospital-based, with hospitals being managed primarily by the provincial government. Public hospitals were inefficient, with low occupancy rates averaging only 57 percent, low personnel productivity and low quality of care. Personnel costs absorbed 82 percent of the health budget in 1996, leaving little room for essential complementary inputs. Many hospitals were obsolete and lacked basic maintenance, both in terms of equipment and physical facilities. As decision-making was highly centralized at the level of the Provincial Ministry of Health, hospitals had limited authority and incentives to achieve improvements in efficiency 28. To promote a more efficient production of health services the program sought to support the transformation of public hospitals into decentralized hospitals, defined by the local administration of human resources and financing associated with the volume and quality of services offered. Essentially public hospitals were to be financed by the sale of services to private and public insurance providers rather than by direct budget lines from the Ministry of Health, with poor, non-covered, clients benefiting from a new health insurance program. All of this was to contribute to improving the quality of the services and to make the subsidy extended to those services or activities considered public goods more transparent. 29. Despite some early accomplishments in setting up the legal framework and initiating changes in a few hospitals, achievement of this objective is rated as negligible. Changes in impact indicators for targeting the poor, quality and efficiency were developed during implementation (and are therefore not included in the original indicators that focus on processes and outcomes), but changes, either positive or negative are unlikely to be attributable to a program itself, given the low level of implementation. Assessment of the individual components of the program are as follows: (i) Separating the provision from the financing of public health services. This was the fundamental transformation expected under the program. Even under the most favorable environments, this objective appears to have been overly ambitious for a two-year program. As of 1999, only about 9% of the overall budget was funded through the hospitals own resources. This is only about a third of what might have been expected to be recovered from insured patients. This deficit and the financing of non-insured patients is still allocated by the Ministry of Health based upon historical budgets, although efforts to establish a capita system are underway. (ii) Increasing cost recovery. In several hospitals, outsourced systems for recovering for services provided to those with private or social health insurance were implemented early on in the program. With some of the recovered funds allocated to provide salary bonuses, staff were enthusiastic. However, apparently fears of creating disincentives for attending poorer patients without health insurance (see v-vi) have inhibited greater use of cost recovery (see i). (iii) Consolidating hospital facilities. No specific activities were included in the program to - 12 -  achieve this objective, beyond that which might have been realized under a system effectively separating financing from services. (iv) Reducing excess staff and reallocating resources to investment. Under the program, through reductions in staff and outsourcing, the province was able to lower the share of the wage bill to 65% by 1999. Still, increased spending in goods and services meant that only about 2% of the budget was devoted to capital expenditures. (v) Improve targeting to the poor. Beyond the health insurance scheme (see v), there were no explicit activities designed to support this objective. Indeed, it is likely that the access of the poor may have suffered to extent that hospital staff had less incentive to attend to them in some public hospitals (see ii). (iv) Increasing health insurance coverage (within the current health budget constraint). Despite some important advances in creating a roster of those with health insurance (and thereby as a first approximation identify opportunistically those without) and the putting forward of legislation to create a publicly-funded health insurance scheme for the poor, the system envisaged at appraisal is far from being implemented. The major limitation has been fears of the budget impact. The province has indicated its desire, however, to seek technical assistance on the issue from the recently approved Health Insurance for the Uninsured being financed by the Bank. 4.3 Net Present Value/Economic rate of return: 30. n.a. 4.4 Financial rate of return: 31. n.a. 4.5 Institutional development impact: 32. Despite the unsatisfactory assessment in achieving development objectives under the loan, some areas are likely to benefit in the future from initiatives undertaken during the program and in conjunction with ongoing support from the Federal Government. Improvements were achieved in civil service reform at the central level and in human resource management in the education sector, although the pilot for decentralization was not successful in developing a sustainable model of school-based management. Improvements were also seen in financial management, although control over decentralized spending remains a major weakness. Finally, tax administration benefited from modernization efforts, although collection efforts may have been adversely affected by the econonic downturn. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: 33. Macroeconomic performance: It would be difficult to imagine a more favorable economic environment to support implementation during the initial years of the program. Economic growth was on the upswing, with real GDP growth of 5.5 percent in 1996, 8.1 percent in 1997, and 6.6 percent in the first half of 1998. However, as a result of the combined effects of the downturn in East Asia, the devaluation of the Russian ruble and the Brazilian real, and deterioration of commodity prices, the economy began to decelerate falling to -0.6 percent in the - 13 -  fourth quarter of 1998, and 3.9 percent for the year as a whole. For 1999, GDP is estimated to have declined by 3.1 percent in 1999, a larger drop in output than experienced during the Tequila crisis of 1995. Unemployment, after falling to about 12 percent from the high of 18 percent reached in 1996, increased to 14 percent in late 1999. At the end of 1999, the economy began to gradually recover from the recession; however, the recovery has been slow. In the first quarter of 2000, GDP grew by a mere 0.9 percent (year-on-year). Industrial production grew by 2.7 percent and 1.7 percent (year-on-year) in the first and second quarters of the year; however, this is due to a bump up at the end of 1999, and further growth has stagnated since then. Unemployment rose somewhat from 13.7 percent in October 1999 to 15.4 percent in May, 2000. In general, access to international financial markets was limited, with a high degree of volatility in spreads. Fiscal performance deteriorated during 1999 and the fiscal program went off track in the latter part, ending the year with a deficit of about $7.4 billion, considerably higher than the target of $5 billion agreed with the IMF. The higher deficit was the result of higher interest costs, the duration of the recession, and a general weakening of fiscal discipline during the election year. Provincial governments encountered similar conditions and they ended the year with a deficit of about $4.5 billion, almost twice the deficit in 1998. In total the consolidated public sector fiscal deficit amounted to about 4.2 percent of GDP, excluding privatization receipts. As a result, the new administration took swift action in December 1999 to restore order in the fiscal accounts, including those of the Provinces. 34. Beyond the obvious impact in Rio Negro on provincial finances due to a 2.5% (or about $10 million) decline in federal transfers and the increased cost of debt servicing, it is difficult to measure changes in local economic activity and employment from the macroeconomic events of 1998-99, due to a lack of consistent provincial level indicators. In broader terms, analysis of households incomes throughout the country during the 1 990s, indicates that incomes in the regional economies are much less volatile than that of the country in general, which is heavily weighed to events in Greater Buenos Aires. On the other hand, anecdotal information suggests that the agricultural sector in Rio Negro suffered with lower exports to Brazil in 1999, with important decreases in prices and demand for fresh fruit following the devaluation of the Real. In any event, provincial policy decisions were greatly affected by real and perceived changes in the economic environment. 35. National and Provincial Elections. The electoral campaign in 1999, at both the national and provincial level, and the subsequent change in the national administration later that year had an important negative affect on the program. Again, this was magnified because the province had achieved by 1998 only about half of the required adjustment. As such, major affect of the elections was to make it extremely difficult for Rio Negro to regain the reform initiative it had demonstrated during the 1996-97 period. 36. The Governor was the key political actor as regards the reform program. Most measures contemplated under the operation had upfront legislative support, which, in any event was dominated by the governing party. The key political opposition was from the labor unions for public sector workers, but most of the downsizing program was based on voluntary separations and consensus approach to outsourcing. During the early years of his administration, the Governor was able to implement important fiscal measures and privatization, overcoming a local - 14 -  plebiscite against privatization promoted by his predecessor. From this high water mark, with the advent of the electoral campaign, the reform effort of the province began to wane. In late 1998, when the province put forward measures designed to reform the civil service, with little real impact on wages, there were violent street demonstrations. Henceforth, the province essentially shut down the reform effort in 1999, despite the ever-deepening fiscal hole. The province was comforted in this decision by the real possibility that their party would win the national elections. It was felt that this would put the province in a position to received preferential treatment from the Federal Government, or at the very least to settle favorable some disputed debts. Although the Governor's party did win the national elections, and he was reelected, the province did not receive any preferential treatment in this regard. 5.2 Factors generally subject to government control: 37. Along with specific sector-level reforms promoted by the federal government, the provincial efforts benefited from a consistent system of fiscal incentives at the national level that combined a hard budget constraint and federal resistance to providing bailouts, with proactive programs to support state reform. In Argentina, a set of critical actions was implemented during the 1992-1996 period, including the signing of the Fiscal Pacts, the elimination of quasi-deficit financing through Central Bank rediscounts and provincial banks, and support for transferring provincial pension funds to the national government, and privatizing provincial banks and public enterprises, and institutional strengthening for financial and tax administration. 38. While this framework was firmly in place during the implementation of the program in Rio Negro, as noted above, beginning in late 1998 the prospects of a change in the national administration to a government of the same party as the Governor raised expectations in the province that there might be a general loosening of these fiscal constraint in general, or at the least a more favorable treatment of the province in particular. This had a negative affect on implementation of the needed fiscal measures. Although the new federal administration did provide a program to support provinces to service their short-term debt, other measures taken actually hardened the budget constraint by requiring federal authorization for external borrowing and linking more explicitly for two years the level of co-participation transfers to overall growth of the economy. 5.3 Factors generally subject to implementing agency control: 39. While the external economic environment undermined the province's fiscal program, the provincial government could have taken the measures necessary to adjust to the situation. While the economic boom that lasted till late 1998 provided a most favorable environment for the reforms contemplated under the program, the province failed to take adequate advantage of the situation and felt comforted in its decision to take a more gradual approach than the one agreed with the Bank. The onset of the recession found the province in a much more fragile situation than it otherwise might have been in. While the deficit in current spending was reduced by 40 percent in 1997, and further cut by about 25 percent in 1998, the failure to achieve the target of producing surpluses to begin paying off the debt stock, left the province with a need to finance current spending of more than $50 million in that year, and with greater deficits in subsequent years. In turn, the province pointed toward increased debt servicing requirements due to the hike in interest rates as the reason why it could not close its accounts. However, debt restructuring - 15 -  efforts in 1997 had greatly improved the debt profile inherited from the previous administration. By 1998, Rio Negro, one of the best among provinces with 9% annual cost and a weighted-average maturity of over six years, while reducing debt with financial entities from 59% to 50% of the total. To be sure, the variable rate increases on the cost of previous debt had a negative impact, but this was probably less than half of the cost associated with the additional debt taken on during 1997-99. 40. On the revenue side, the recession clearly had an impact, but again it is difficult to substantiate that the affects could not have been mitigated by a government committed to the reform effort. While the Bank had advised the provincial government and it was general knowledge in government circles that the federal estimates of transfers for 1999 were based on overly-optimistic growth projections, the province choose to base it expenditure program on unrealistic expectations of transfers. At the local level, about 70% of the tax yield is pro-cyclical and should have been expected to decline. Indeed, in the aggregate, local revenues declined by about 6 percent for all provinces. However, the drop in local tax collection in Rio Negro was almost twice this rate, including a substantial drop in non-cyclical property tax, suggesting inadequate collection efforts. 5.4 Costs and financing: 41. n.a. 6. Sustainability 6.1 Rationale for sustainability rating: 42. In the context of an overall rating of unsatisfactory in achieving the major development objectives, sustainability would have to be rated as unlikely. At the same time, those few measures that were successfully initiated could be deepened under the transitional arrangements outlined below. Most notably, as regards the fiscal objectives and an agreement with the Federal Government, which offers the possibility of their achievement by the year 2003. 6.2 Transition arrangement to regular operations: 43. Despite the closing of the loan and a difficult implementation environment, a framework for supporting the reforms of a committed provincial government remain in place. In late 1999, the federal government launched a program to help highly indebted provinces to service their short-term debt based on ten-year federal loans in return for fiscal measures. Rio Negro entered into the program, along with eight other provinces, and agreed for the year 2000 to reduce its current deficit to $23 million (compared to the third tranche target of a surplus of $7.5 million) and maintain its debt stock at around $1 billion (as compared to the Bank target of $815 million). Prior to canceling the third tranche, the Bank discussed the possibility with the provincial government of using the new federal program more fully, but was unsuccessful with getting agreement on additional measures that could have allowed the province to meet the fiscal targets of the loan. Still, the federal program, which is renewable each year, includes strict quarterly monitoring and is targeted to achieving an overall fiscal balance by the year 2003. Among the specific actions required by the province, is the passage of a Law of Fiscal Discipline embodying the fiscal targets of the program. - 16-  44. The ongoing attempt to improve public administration would continue to be supported through the Second Provincial Development Project. In education, the new federal administration has reaffirmed the Federal Education Law and the province remains an active participant in the Secondary Education Project. However, while the province would continue to receive support from Provincial Health Development Project, and has requested to participate in the recently approved Health Insurance for the Uninsured Project, Federal support for reforms such as hospital autonomy are likely to be less energetic than during the previous administration. 7. Bank and Borrower Performance Bank 7.1 Lending: 45. Identification was on target and innovative, setting the basis for a shift in Government and Bank strategy toward the provinces, which was later embodies in the Country Assistance Strategy. First, through important upfront nationwide analysis, the Bank correctly identified correctly the need to promote reforms in the social sectors in a framework of fiscal soundness centering on the provincial government. With spending in the social sectors representing about half of the budget in most provinces, increased efficiency is fundamental for attaining a sustainable fiscal situation. At the same time, with provincial government responsible for more than 80% of overall public spending in education and health, improvements in access and quality there are central to the medium and long-term effort in Argentina to support human capital development and alleviate poverty. Secondly, the program design to deal with individual provinces with integrated fiscal programs and second generation reforms was an important next step, following successful Bank operations to promote first generation reforms among groups of provinces. 46. As regards preparation, Rio Negro was a late entrant into the PRL-2 program and while it did not benefit from the in-depth public expenditure analysis that was undertaken in the other three provinces, the team was able to draw on previous sector analysis undertaken for the First Secondary Education Project and to use technical assistance provided through the Bank-financed Provincial Health Development Project. Nevertheless, a collaborative data-gathering and analysis exercise working with local staff might have helped to deepen support for the reform effort. This may have been particularly important in the case of Rio Negro, where long-standing statist approaches prevailed and where many of the reform policies promoted by the national government were rejected out of hand for political reasons. Moreover, as noted in the QAG Assessment a social assessment and impact analysis, including beneficiary participation could have helped to identify local support for proposed reforms and anticipated needed mitagory measure, giving more confidence to the Governor when faced with having to take difficult measures. 47. At appraisal Rio Negro was not considered by the team to be an ideal candidate for the PRL-2, given its fiscal situation. However, not to have included it in the program probably would have been a bigger mistake. The Governor was eager to join the program and had demonstrated his willingness and capacity to begin the adjustment process. In addition, there was a strategic importance of including a province from the opposition in the pilot program. The risks involved were recognized. - 17-  48. It should be noted that a Rapid Quality of Supervision Assessment for FY99 performed by QAG did not agree with the QAG assessment of Quality at Entry. In particular, it noted that project design was not sound in attempting to combine fiscal adjustment with social sector reforms and was critical of the lack of second tranche fiscal targets. 7.2 Supervision: 49. In addition to the field-based TM and a local staff member dealing with fiscal and public administration issues, Rio Negro received particular attention on its public finances. The apparent slippage in the fiscal program was identified in early 1998 and followed up by several special missions of both HQ and local consultants, with support from the Federal Ministry of Economy. Additional missions, focused on tax administration, and procedures for issuing bonds. The Bank also facilitated exchanges with the Uruguayan Government, which was effectively implementing an outsourcing strategy including the development of micro-enterprises by former public servants. Special assistance was also provided in reviewing the province's program for promoting fiscal discipline in municipal governments, which was later financed by the IDB. In addition, a review of gender policies and impacts undertaken by the Bank in Rio Negro was later used as the basis for including a gender perspective in subsequent PRL operations with other provinces. 50. Supervision of the social sectors, included a field based health specialist, as well as a local professional in education providing day-to-day contact between HQ-based missions. Project implementation also benefited from supervision and financing of activities by the Second Provincial Development Project (financial administration, tax cadaster modernization, civil service reform, debt restructuring, and hospital rehabilitation), the Secondary Education Project (teacher work rules, school decentralization, and human resource administration), and the Provincial Health Development Project (hospital decentralization, payment system and reform of the obra social). 51. By mid-1998, the province requested disbursement of the second tranche of $25 million based on compliance. Although, there were no explicit second tranche conditions for fiscal performance, the Bank indicated that it could not release the second tranche without assurances that third tranche fiscal conditions were feasible and that the government was committed to achieving them. Over the course of several months, the Bank worked together with the province on a revised program to meet the third tranche by the end of 1999, with major fiscal measures to be taken beginning in March 1999, following local elections. Initial measures taken in October, seemed to confirm the continuing commitment of the province, but the measures were met with strong street protests and also underlined the potential political costs and implementation risks of a stronger effort prior to local elections. The second tranche was released in December 1998. However, by mid-1999, it became clear that the province was no longer prepared to implement the required fiscal measures. Most importantly, gubernatorial elections had been shifted by the national party to September and all reform efforts on the fiscal side grounded to a halt for the remainder of 1999, in anticipation of local and national elections and the prospects for a possible bailout. 52. The Rapid Quality of Supervision Assessment for FY99 by QAG found that project design was not sound and that the province was not committed to the project and rated the supervision - 18 -  effort as marginal, particularly as regards identification of problems and actions taken. The assessment cited the release of the second tranche, and indicated that the Bank should have known that the third tranche fiscal targets were not feasible and should have discussed further options at that point. 53. Loan closing, scheduled for December 31, 1999 was extended with two three-month extension. During this period, the Bank sought to restart the province in the fiscal reform effort to little avail, in part, because of the availability of a new federal debt relief program under which the province expected to receive about $180 million in federal loans to cover short-term financing needs for the year 2000. The Bank argued that this support should be used to its fullest and that the Bank was willing to discuss extending the loan, if the third tranche targets could be reached within a reasonable amount of time. However, the province was not willing to commit to the additional measures needed. 7.3 Overall Bank performance: 54. On balance, Bank performance was satisfactory, although implementation might have benefited from the social consultant and institutional capacity analysis, which QAG noted as weaknesses at entry. Borrower 7.4 Preparation: 55. The Bank's work had the full collaboration of both the province and the federal government. Staff from the Ministries of Interior, Economy, Education, and Health participated in the preparatory work, ensuring not only that the proposed policies were consistent with the national policies but also that the provinces could count on the support of the federal government during the implementation of the reforms. On the other hand, as noted provincial staff had less direct involvement in preparation in Rio Negro, than in the other PRL-2 provinces. 7.5 Government implementation performance: 56. The performance of the Federal Government was largely positive in promoting the achievement of the development objective. As noted above, implementation by Rio Negro benefited from a consistent system of fiscal incentives that combined a hard budget constraint and federal resistance to providing bailouts, with proactive programs to support state reform. This framework remained in place throughout the implementation of the program. Although a request by the provincial government for support in debt restructuring to support its reform program was denied, subsequently the province was able to achieve this on its own in 1997. The new federal administration did subsequently provide a program to support provinces to service their short-term debt, but this support was only provided in return for meeting fiscal targets under a strict program of monitoring. In addition, the new administration took other measures to actually hardened the budget constraint by requiring federal authorization for external borrowing and linking more explicitly for two years the level of co-participation transfers to overall growth of the economy. 57. At the federal level, the coordinating unit for the PRL-2 program provided important support in monitoring fiscal performance and the federal ministries of Health and Education - 19-  supported implementation through a variety of national programs, including those with external financing from the Bank and the IDB. 7.6 Implementing Agency: 58. As noted above, the implementation performance of the provincial government was largely unsatisfactory in the critical area of public finance. Education reforms also suffered from a lack of continuity in leadership and weak support among staff. Health, on the other hand received energetic leadership which helped to overcome the lack of adequate preparation. Finally, the provincial coordinating unit was exemplary in maintaining close contact with the Bank and provided information in a timely manner. Dialogue with the province was further enhanced by the direct access to the Governor enjoyed by the coordinator, his status within the cabinet, and his general role of coordinating all externally-financed projects. On the other hand, beginning with the electoral campaign in 1999, the coordinating unit sought to limit access of the team to lower level staff in the field, and to orient contact with the Bank to meetings with higher level authorities outside the province. 7.7 Overall Borrower performance: 59. While the performance of the federal government was satisfactory, that of the provincial government in implementing the reforms was unsatisfactory. Given the importance of the latter the overall rating of the borrower would be unsatisfactory. 8. Lessons Learned 60. As one of four provinces participating in a pilot program for supporting reforms, the lessons learned draws upon the experiences of the provinces as a group, while highlighting those of Rio Negro. Drawing on the ongoing ICR effort, including the intensive learning ICRs carried out for Salta (Report No: 20698) and Tucuman (Report No: 20699), which included local workshops and institutional assessments, important lessons from this experience include: 61. A national framework for fiscal reform is criticaL Along with specific sector-level reforms promoted by the federal government, the provincial efforts benefited from a consistent system of fiscal incentives at the national level that combined a hard budget constraint and federal resistance to providing bailouts, with proactive programs to support state reform. In Argentina, a set of critical actions was implemented during the 1992-1996 period, including the signing of the Fiscal Pacts, the elimination of quasi-deficit financing through Central Bank rediscounts and proyincial banks, and support for transferring provincial pension funds to the national government, and privatizing provincial banks and public enterprises, and institutional strengthening for financial and tax administration. While these constraints were firmly in place during the implementation of the program in Rio Negro, the prospects of a change in the national administration raised expectations that there might be a general loosing of these fiscal constraint in general, or at the least a more favorable treatment of the province in particular. This had a negative affect on implementation of the needed fiscal measures. Although the new federal administration did provide a program to support provinces to service their short-term debt, other measures taken actually hardened the budget constraint by requiring federal authorization for external borrowing and linking more explicitly for two years the level of co-participation transfers to overall growth of the economy. - 20 -  62. Sequencing is important, and the PRL-2 approach is more successful and sustainable for provinces that have already achieved a level of control in theirfiscal and debt situations. There can be important tensions between fiscal and sector reform objectives that are exacerbated when fiscal adjustments are not taken upfront and need to be undertaken in the middle of the reform process. Although the programs provided for protecting overall spending in health and education, politically, sector reforms often become associated with fiscal adjustment resulting in unwarranted resistance. Moreover, urgent needs to downsize staffing may result in losing better qualified staff before adequate human resource management systems for the social sectors can be put into place to provide incentives for better performance. Finally, under fiscal duress, cost-cutting or income generating activities receive priority over other reforms. For example, in health cost recovery was actively pursued, whereas the creation of health insurance for the poor was delayed. Fears of losing control over spending also undermined the efforts to promote school decentralization. 63. Length of Engagement and Political Cycle:The loans were designed to fully disburse within 12-18 months of effectiveness; however, the social sector reforms in particular took longer than anticipated to put into place and even longer to begin showing results. Conditionality went beyond merely the enacting of legislation and decrees, and required that new systems be effectively up and running. Depending upon the institutional capacity and commitment of a province, the time frame for implementation could easily be double the length originally contemplated. Given the negative impact of elections and changes in provincial administration, the preferred approach would be to have programs that cover the entire four-year period of a provincial administration. With such a time frame, given that the programs combined policy actions with longer institutional development activities a more flexible instrument, other than a traditional adjustment operation, might be more appropriate. 64. Projectpreparation should be informed by social and institutional assessment. Social impact analysis and assessments can provide provincial leadership with greater confidence in the measures to be undertaken and provide a tool for program design and garnering public support for the reforms, and would have been useful in the Rio Negro context. The reforms also introduced institutional arrangements that affect incentives governing policymaking and service delivery. Institutional assessments in support of expenditure reviews undertaken jointly with the province could help to identify complementary accountability and transparency mechanisms to support improved implementation and greater sustainability. In the more successful instance they combined mechanisms of voice, competition and hierarchy into service delivery reforms. In other cases, however, there were no clear signals within the public administration to ensure allegiance to these reforms. Perhaps the most clear example is on the fiscal side, where both Salta and Tucuman passed legislation binding the province to parameters of fiscal behavior. In the latter, despite a change in administration, the objective of fiscal discipline remains as a standard for performance. 65. Participatory approaches can facilitate implementation and support sustainability. The legitimacy of the reforms were enhanced in those cases were a participatory process was followed involving stakeholders such as teachers, medical staff, and parents and where an effort was made - 21 -  to inform the general public on the nature of the reforms. This was the case, for example, with the implementation of the new subsidy formula to private schools in Salta. The participatory approach facilitated the resolution of the constraints that appeared during its implementation and provided options to resolve the potential conflicts. Also, this approach guaranteed the legitimacy of the new formula. Tucuman demonstrates that participatory approaches in the health sector supported sustainability even with a change in local administration. On the other hand, such approaches are not a panacea. For example, in Rio Negro the outsourcing effort were largely unsuccessful, in part because the government failed to give priority to the fiscal situation and the urgent need to bring these negotiations to a conclusion. In general, the was clearly a better performance among the provinces where reform measures were openly debated and implemented. 66. The Experience of the PRL2 Pilot. Emerging lessons from the ongoing experience suggests that the loan design for a direct relation between the Bank and the participating province is important in enabling the Bank to bring to bear its international experience and facilitating relations between federal and provincial stakeholders. Project design also puts local governors at the forefront of implementation and dialogue has helped to improve performance under other investment operations in which the provinces participate. In addition, the provincial approach to promoting needed sector reforms in health and education appears to be a fundamental complement to the Bank's efforts in these areas at the national level. 67. In the case of Argentina, the link between fiscal balance and macroeconomic stability is a particularly important one due to the strict restrictions on currency emission established by the Convertibility Law. By putting pressure on the balance of payment, persistent fiscal deficits at the provincial level can be a source of strain on the money supply and the financial system, thus reducing the credibility of the government's long-run ability to maintain the Convertibility Plan. Clearly, as a pilot involving only four provinces representing 10 percent of Argentina's population, PRL- 2 in and of itself was not expected to have a major direct impact on the country's fiscal situation, but it did demonstrate that the provinces can make an important contribution to the further consolidation of Argentina's macroeconomic stability. Despite the delays experienced in Rio Negro, at the late reversal in San Juan, in the four participating provinces large deficits in current spending, which totaled -$310 million on average annually during the 1995-96 period were reduced to only -$17 million for the 1998-99 period. This performance compares well to the overall consolidated accounts of the provinces, where the current balance declined for $75 million in 1995-96 to -$690 million in 1998-99. The PRL-2-provinces as a group, as compared to non-PRL-2 provinces during the 1996-99 period improved their own-source revenues by 18 percent between 1996 and 1999, compared to 9 percent for non-PRL-2 provinces. Similarly, PRL-2 provinces showed an average increase in personnel expenditures of only 8 percent between 1996 and 1999, compared to 17 percent for the remaining provinces. Finally, the performance of PRL-2 provinces was also superior with respect to the provincial debt, with PRL-2 provinces increasing their stock of provincial debt by an average of only 3.6 percent during the 1996 to mid-99 period, compared to 30 percent for the remaining provinces. Since completion of the loan PRL2 loans in 1999, the performance of the PRL2 provinces continues to compare favorable with that of other provinces. For 2000, as a group, on-source revenues increased by 2.3% in PRL2 provinces, compared to a decline of almost 1 % in other provinces; and, as a group PRL2 provinces were able to freeze expenditures on personnel, while other provinces increased - 22 -  spending in this area by almost 4%. 68. Assessing the impact on social service delivery of the PRL2 provinces with those not participating is far more difficult at this point, due to the longer gestation period needed to realize benefits and to the lack of readily available comparative data. However, preliminary results are encouraging in Salta and Tucuman, which completed the reform program. Indicators suggest improvements in both health service efficiency and quality in the self-administered hospitals. In education and the implementation of the federal reforn, Salta in particular has been able to increase enrollments in secondary schools, reduce costs per student and realize improvements in student achievement over the 1993-1999 period. 9. Partner Comments (a) Borrower/implementing agency: Comments regarding the Provincial Reforrn Program in general were received form the Undersecretary for Provincial Relations of the Federal Ministry Of Economy on behalf of the Borrower. In summarizing the overall experience of the PRLII, they note: Although it proved impossible to complete the third tranches of the operations for San Juan and Rio Negro, the design of the PRL program, as direct operations with the provinces with untied funding and not requiring the creation of large bureaucracies to disburse, along with advantages financing terms, are extremely attractive for the provinces in Argentina. To the extent that the provinces are able to comply adequately with the conditions established by the Loan Agreement, the PRL constitutes an appropriate instrument to introduce and implement reforms of a fiscal nature, as well as in reforming public health and education. As untied financing they were able to both help finance the needed social sector reforms, as well as help in restructuring burdensome provincial debt. The creation of a Coordinating Unit at the National level concerned with monitoring compliance with agreements and in ensuring the transfer of disbursements to the provinces facilitated implementation and did not require an expensive bureaucracy. As regards difficulties encountered during implementation, some might have been easier to resolve with better coordination between the Bank, the Coordinating Unit and the participating Provinces. While coordination was generally satisfactory, it could have been improved in the sequencing of negotiations regarding fiscal targets. Each party should have a better idea of their roles upfront, as well as in respect to the presentation and content of the provincial reports so that they might be timely and with adequate information. In addition, other problems might have been avoided if the provinces during negotiations had a better appreciation of the importance that the Bank attaches to full compliance with the conditionalities, as well as in the importance of the Letter of Provincial Reform and the program of expenditures, which the Bank use as an exhaustive monitoring tool during supervision. Another area that the provinces need to pay attention to is in ensuring uniform reporting across all sectors, fiscal, health and education to facilitate meeting conditionalities In sum, it is important that the provinces keep their promises and show a willingness to fully implement the actions to which they agree. The Provincial PRL Coordinator provide comments on behalf of the Provinces, as follows: - 23 -  As the Bank report indicates the development objectives of the program were not fully met, although they might have been too ambitious to begin with, given the relatively short time available to implement the reforms. Without doubt the difference between the targets and what was actually achieved has much to do with the initial design. The weaknesses in preparation noted in the report were beyond the control of the Province and are of the sort that typically plagued such pilot programs. The design of the program should have been less ambitious and more limited in scope. The provincial administration appreciates the help of the Federal government in obtaining Bank support. This allowed the Govemor to take political decisions to go ahead to implement reforms, with the support of the cabinet, to improve the weak administrative and management of the social sectors. The push to improve resource management was facilitated by Bank financing of a new financial management and control system, the benefits of which the Province continues to enjoy. The results of the fiscal measures taken in terms of staff reductions on cost efficiency are difficult to measure over such a short period and were not include as conditions in the loan agreement, but it is clear that the measure taken were insufficient to date to meet the development objectives. At the same time, it should be recognized that the performance was influenced by events beyond the power of the Provincial government to control, but that lie within the responsibility of the National government. Extemal crisis negatively affected the Province, with an economic recision of more than 24 months, which reduced tax revenues at both the national and provincial levels. Notwithstanding the failure to fully met the development objectives, the Province's relation with the Bank has been fruitful. A political consensus to support reforms was developed, along with a technical capacity to implement them. Although the loan has now expired, these new resources have been effectively put to use in continuing the reform effort through the Federal government debt-relief program. The Province also benefited from the program as it provided confidence to the markets and allowed for the restructuring of the debt in 1997. In education, the PRL component was fundamental in helping to improve execution of the PRODYMES sub-project to implement the Federal Education Reform. Prior to the PRL in 1997, execution of PRODYMES was practically nil, but in subsequent years the Province was able to use all of the resources assigned to it. On the other hand, the health sector did not benefit from investment and technical assistance from a Bank project to help carry out the deep structural reform effort, other than financing received from the Provincial Development Loan to rehabilitate one hospital. Still, the experience gamered by the province under the PRL has allowed it to put together a program in health with the support of the UTNDP using own resources to implement a program with infrastructure, training and re-engineering of management. This is expected to be completed 2003. (b) Cofinanciers: n.a. (c) Other partners (NGOs/private sector): n.a. 10. Additional Information LETTER OF PROVINCIAL REFORM Translation - 24 -  Viedma, June 26, 1997 Dear Mr. Wolfensohn 1 . This letter of Provincial Reform describes the main objectives of the reform program of the Province of Rio Negro as well as the actions to be taken in the areas of public finance, education and public health. To implement this reform, the Provincial government requests the financial and technical assistance of the World Bank. Below are the details of the envisaged actions, Background 2. Rio Negro is an Argentina province endowed with economic resources and good development potential. The provincial per capita income was about $7,200 in 1995, somewhat lower than Argentina's average. The province is strategically positioned to take advantage of the substantial gas deposits and agricultural potential but it needs an efficient provincial economy in order to compete under an open trade framework 3. In the last few years, the lack of adequate policies and a rapid growth of recurrent expenditures led to a very critical situation in the provincial financial situation. In 1995, the provincial deficit reached 45% of current revenues, the wage bill absorbed 109%; capital outlays were limited to those financed by earmarked transfers from the national government. The debt stock reached $599 millions at the end of 1995, or 130% of current revenues. More than half of the shared revenues was affected to pay the debt. Recent Development and Initial Adjustment 4. To face the financial situation and improve the role of the public sector in the regional economy, the provincial government took some important measures in 1996, such as * Privatization of public enterprises, including the provincial bank, the electricity utility (ERSA) and provincial casinos. * Reduction of teachers' costs by cutting teaching hours and the Reconversion Law of the State (Ley 2989) * Enactment of the Civil Service Law (Funcion Publica) * Transference of the Provincial Pension Fund to the National government * Refinancing of 75% of the financial debt whose average maturity was extended to seven years. 5. As a result, the fiscal situation has improved. While the provincial accounts are very poor, the cash situation improved substantially, going from a monthly deficit of $21.5 million (at the end of 1995) to $7.3 million at the beginning of 1997. The current deficit declined to 2 1 % of current revenues and the personnel costs fell to 109% of net current revenues. The - 25-  debt stock reached $741 million at the end of 1996, or 157% of the current revenues; the debt service absorbed, 39% of the current revenues at the end of the year. The Reform Program of the Province of Rio Negro 6. The strategy of the Provincial Government is to reduce the role of the public sector in the regional economy, promote participation of the private sector, restructure the provincial government and ensure an efficient and responsive delivery of public services. For the period 1997-99, the reform program includes the following components. 7. On the fiscal and public finance front, the program calls for: * Improvement in tax collection and administration to promote higher reliance on own-source revenues; * Civil service reform and reduction in personnel expenditure; * Rationalization of public expenditures and prioritization of government spending, maintaining current spending levels as a floor for the social sectors. 8. In the social sectors, the objective is to improve efficiency in the education and health sectors, focusing on demand and poverty reduction aspects, while promoting major involvement of the private sector. * Education reform will ensure the extension of mandatory education and implementation of the "polimodal" as well as guarantee access to the poor within current budget constraints. Priority actions include: (a) increasing the student-teacher ratio and the ratio of staff actively teaching to total staff, (b) reduce the disproportionate use of temporary and substitute education personnel; (c) improve incentives for quality achievement; (d) increase participation of the private sector, and (e) reduce administrative costs. * Health reforms will improve efficiency and equity in the health sector, notably by separating the provision and financing of public health services, increasing cost recovery, consolidating hospital facilities, reducing excessive staff and reallocating resources to non-personnel expenditures, improving targeting to the poor and increasing health insurance coverage (within the current health budget constraints). Public Finance 9. The provincial government is committed to obtain a sustained fiscal balance by the end of 1998 and to abide by strict creditworthiness rules. In particular, it intends to (a) obtain a current surplus every year beginning in 1998; (b) reduce the personnel expenditures to 65% of net current revenues, beginning in 1999; (c) assure fiscal surpluses large enough to reduce the - 26 -  debt stock to a sustainable level while keeping investment levels an adequate level; and (d) maintain the debt service at an adequate level even if this will be possible only after the debt stock is completely refinanced and restructured. 10. Table B (in Annex to this Letter) shows the results obtained with the planned improvement in tax collection and further discipline in spending. Rio Negro will be able to improve its fiscal situation but the debt burden will continue to be high, with debt service absorbing a large proportion of the current revenues. The tax collection is estimated to grow 40% from 1995 to 1999. The capital expenditures will continue limited, and financed by national resources. However, the government expects to be able to maintain a stable policy of improvement in tax collection and decline in expenditures. (a) Improved Tax collection and Administration 11. The provincial tax revenues increased steadily during 1990-94, but in 1995 there was a sudden decline as a result of the economic recession, and the changes introduced in the provincial tax rates in line with the agreed Pacto Fiscal. In particular, the elimination of the turnover tax (Impuestos sobre Ingresos Brutos) on the primary sector and a series of other activities, including tourism, constitutes an important fiscal sacrifice, given the orientation of the province towards exports and it is not easy to compensate these losses by an increase in the tax burden on the conmnercial or other services sectors. 12. The provincial government is committed to a sustained effort to improve tax collection and administration. A series of measures are beginning to be implemented to improve the processes of collection, billing and auditing: e Development of the tax-payer current account for the vehicle tax. e Updating of the census of tax payers of the Ingresos Brutos e An auditing plan (with 26 auditors) and massive controls over the tax payers of the Ingresos Brutos * Outsourcing the auditing of the tax payers under the Convenio Multilateral de Ingresos Brutos * Updating of the cadastral valuation with effect after January 1997 * Massive collection of data on property lots and computation of the basic unit values for the urban and rural property, allowing the revaluation integral of the property values and enabling a substantial increase in the collection of the property tax after 1998. * Bidding to adjudicate: the collection of data by aero photography and of improvements which completes the project of cadastre reform and establish the basis for an efficient management of the cadastre and the property tax connected with it. * To eliminate tax evasion, preferential treatment will be eliminated * Inclusion of information technology and network between the central collection and the territorial agencies * Incentives for tax collectors as a function of collection targets, recovery of the debt and - 27 -  productivity in the implementation of certain measures. 13. These measures will enable tax revenues to increase to $126 million in 1997, $148 million in 1998 and $153 million in 1999. b) Personnel Expenditures and Civil Service Reform. 14. Personnel expenditures in Rio Negro represented 109% of net revenues in 1995. To help the province's fiscal recovery, the government has implemented several measures which have led to a reduction of 10% of the wage bill in 1996 and about 1500 positions. 15. Despite these efforts, the fiscal situation of the province and the need to improve the quality of public service justifies that the government will double the efforts in this area. During 1997-1998, the government program includes a deep restructuring of the provincial public sector based on the analysis of the mission and function of the public sector in Rio Negro, the application of the Civil Service Law (ley de Funcion Publica) and the transference of public employees to the private sector through programs of privatization, outsourcing of peripheral services, early retirement, direct separation, and attrition. This strategy aims at minimizing the social cost of the restructuring process while abiding by the government objectives. The strategy of promoting the creation of cooperatives with ex-public employees who will offer services to the public sectors is one of the examples in which all the interested ones, including the labor unions, have participated with interesting solutions. 16. The provincial government intends to begin a Program of Outsourcing of Services whereby services will be carried out by public employees who decide to quit the public sector and to this new function. Potential areas include (i) maintenance and cleaning; public works, official gazette, professional services and some areas of the IPPV (roads) and IDEVI (housing). In addition, a permanent program of outsourcing will be initiated to the private initiated of public employees. 17. In addition, the government will strengthen the Early Retirement Program so that the public employees who wish to retire could use it. 18. A program of Direct and Voluntary Separation is also planned to allow public employees who so which to quit the public sector and have access to compensation which will provide the capacity to begin their own private activity or help while looking for another job. 19. In addition, the application of the Public Service Law, enacted at the end of 1996, will allow the downsizing of the structure of the public sector to conform with the functions which were defined and selected as the ones to be the responsibility of the government. The Program of Civil Service Reform (Reconversion Laboral) will be an instrument which will offer training to public employees while guaranteeing re-entry during two years. 20. Training will be made available to workers who stay as well as those entering the - 28 -  private sector. 21. This program of restructuring of personnel will lead to a new system of personnel administration and a new wage scale and regimen of public employment for which it is crucial to provide technical assistance. (c) Rationing Public Expenditure 22. In parallel with reduction of personnel expenditures and improvement of tax collection, the government will continue the policy of not subsidizing public enterprises (now mostly privatized) and will ensure that public spending will be oriented to priority sectors having in line strict criteria of economic and financial justification. 23. Capital expenditures will increase from $81 million (9% of total expenditures) in 1996 to $90 million in 1999, but they will be financed almost exclusively by earmarked transfers from the center. The planned level of investment expenditures would be reduced to the extent that the anticipated financing sources do not materialize. 24. The stock of debt will not go above $815 million. Since the effect of the reforms will have a budgetary impact only after 1998 and the interest service is very large, the debt stock will begin declining only after 1999. Beginning in 1998, any new debt will be contracted exclusively to refinance the old debt, to pay amortization, and finance projects of well justified profitability. 25. The Three year Public Expenditure Plan that the government will prepare during the present year reflects the priorities of the government, e.g. social sectors, poverty alleviation, including education, health, potable water and environment. All investrnent projects will have adequate justification, with an ERR of at least 10%. 26. To ensure the continuity of the process of transparency and budgetary accountability, the government will propose and pass in the Legislature a law of financial discipline based on four principles of financing management: (i) balanced annual budgets with current surplus -- no borrowing will be permitted to finance current, expenditures; (ii) annual external auditing by independent auditors; (iii) limits in the personal costs below 65% of net current revenues; (v) public works will be procured in line with the new law of procurement of the province, as it will encourage increased participation of the private sector. Education 27. Education in the province of Rio Negro has a relatively good performance level. The coverage is almost universal at the primary level (96%) and reached 56% at the secondary level. The province is ranked third place in terms of quality. In terms of educational efficiency, - 29 -  the teacher-student ratio is 15:1. 28. The province faces several challenges. First, the fiscal situation has obliged the sector to suffer from important and unplanned. budgetary cuts. The government is committed to preserve the share of education m the budget of the 1997-99 period to 22% of the total (excluding debt service). Second, educational demand is expected to growth significantly due to demographic growth (2% per year) and extension in compulsory( education from 6 to IO years. Third, there is a need to improve the education quality in the context of the change of curriculum. 29. Investment in education in the Province in 1997 is financed almost totally with national and international funds (Plan Social Educativo, $2.5 million, Pacto Federal $6 million; PRISE and PRODYMES, $7 million). 30. In 1996, the education sector suffered a new adjustment. The budget was cut $23 million or 12% through (i) cut of positions in the central administration (51 workers), (ii) elimination of 1,000 hours of teaching at the level of higher education; (iii) consolidation in agro-livestock school; (iv) elimination of the service of labor training; (v) re-ordering of the schools in the secondary level; (vi) reallocation of 217 teacher-secretaries to teaching. 31. The government intends to deepen the process of transformation in the education sector which with generate savings to finance a better wage level, maintaining the budget at the level established in the Budget law of 1997, and generate the capacity for the province to finance some investment in the order of $8.4 million within 2 years, equivalent to 5% of the budget (15% including goods and services). 32. The government program unfolds into five components which will generate to the province a potential capacity of investment while lowering the share of personnel costs to 85% of the educational budget. The objectives of the five programs are the following (i) improving the administration of the education sector; (ii) improving the efficiency of the sector; (iii) promote decentralization of the sector, (iv) extend incentives to the private sector and (v) restructure the teacher training institutes. a) Improving the sector administration. The reduction in -the personnel costs will take place through: (i) early retirement to allow the reduction in the average number of years in service, and the reduction of 100 positions (28% of the central administration staff) through voluntary early retirees which will generate savings about $6.2 million) (ii) implementation of a system to control absenteeism and reform the leave system ($2.3 million savings); (iii) implement a program to control sick leave ($3 million savings); (iv) outsourcing of general services -- transference of 2,162 porters to cooperatives (savings of $4 million); and (v) the necessary procedures to implement a new teacher regimen (Estatuto Docente) with a system of incentives to promote quality and to replace the system of automatic increases which was frozen in January 1997. - 30 -  b) Improving educational efficiency. The provincial government will promote a better utilization of primary schools and part of the secondary schools. The CPE (Provincial Educational Council) established in February 1997 that the minimal number of students per section is 25. In primary education the student-teacher ratio will increase from 15.6 to 17, leading to savings of about $1.2 million, and to 19:1 by the end of the program. In secondary education, there is a large dispersion of costs per student (from I to 5) - it varies from $416 per student to $1,924 with an average of $907) which shows the inefficiency in some schools. The re-ordering of the planta will allow savings of about 5,600 hours representing 10% of the personnel cost, or $2 million. c) Decentralization of school management. The government will prepare before the end of the year a management model for the decentralized schools. Some pilot cases will be implemented. d) To improve the allocation of resources to the public schools with private management. In general the 49 public schools with private management have cost per student 10% higher than the public schools managed directly by the CTIE. Moreover, the allocation is not fair and is inefficient. The cost per student in primary education varies from I to 5 ($312 to $1,313) and from I to 2 ($858 to $1560) in secondary schools. The current subsidies ($11.2 million) will be replaced by a new formula-based system integrating the cost per student. e) The 13 teacher training institutes have an excessive capacity in comparison with the needs of the sector. The growth of enrollments (2% per year) generates about 120 teachers a year while the training institutes graded five times ignore teachers (at the current efficiency level). In addition, the average cost per student is $1,589 and the cost of a graduate is $10,000, which is too high. The government has frozen new enrollments in five institutions and changed the planta funcional. These institutes will close in June 1998. The government will study a plan to reconvert the remaining 8 institutes into 2 or 3 of higher training and to produce around 20% of the output currently produced 33. Monitoring system. To be able to follow the evolution of the quality of the services rendered to the community, the government of Rio Negro will use a system of indicators discussed with the Bank (Table B4 in Annex). These include the way how the reform unfolds and the long-run impact in the education quality and school coverage. Health 34. The provincial government is committed to improving public health services while maintaining the objectives of adjustment, associating the increase in spending with the, improvement in coverage and quality of services and targeting subsidies to the poor population without health insurance. This program requires the maintenance of a health budget at an adequate level which would not be less than 10% of the total provincial budget. The policy instruments to be used in this process include (a) adjustment in staff size, following any downsizing with a new system of incentives to reward performance; (b) structural reforms - 31 -  and management in the sector. All of this would contribute to improve the quality of the services, improve the position of the public sector as a supplier of services, on the basis of payment models associated with greater production; and make the subsidy extended to those services or activities considered public goods more transparent. 35. This policy will include changes in the following areas a) Public Sector Providers: to promote a more efficient production of health services the government will deepen the transformation of public hospitals into decentralized hospitals which, per Law 2,570, is defined by the local administration of human resources and financing associated with the volume and quality of services offered. b) Financing: the restructuring and strengthening of IPROSS and the creation of a Provincial Health Insurance will ensure the financing and targeting of services to the poor, consolidation of hospital sales which will allow more efficiency and equity while consolidating the capacity of adaptation of the Provincial Obras Social in the face of larger competition which will have in the Seguridad Social with the deregulation of the affiliation; c) in the Consejo Provincial de Salud the role of regulator will be reinforced through formulating policies and the exercising responsibility in the control and auditing of measures that reduce As functions of direct management of provision and financing. 36. As a tool of budgetary policy, the provincial government will produce a budget for public health which will contain all expenditures in the sector, especially those investments in the sector which are included in the budget of public works. 37. The outcomes of the reform will be the following ones: a) Establishment of at least five Autonomous Hospitals, financed by new payment systems and by the sale of services to the Obras Sociales or private insurance b) Strengthening and elimination of IPROSS' debts with third parties c) Design of the Provincial, Health Insurance financed by public resources which will cover the population, with formal insurance, especially the poor d) restructuring of the CPSP 38. As a result of the above measures, the following results will be reached at the end of the program a) Downsizing of the health public sector by outsourcing services or other means, b) Substantial advance in the administration and financial transformation of the Decentralized Hospitals c) Increased capacity of cost recovery through better billing systems and management of the payment of the Obras Sociales Nacionales, Provinciales and Private Insurance d) Reduction of up to 25% of the personnel of IPROSS to reduce administrative costs at most - 32 -  12% of total costs e) Use savings to pay incentives to people in the decentralized hospitals, goods and services and investment performance; (b) structural reforns and management in the sector. All of this would contribute to improve the quality of the services, improve the position of the public sector as a supplier of services, on the basis of payment models associated with greater production; and make the subsidy extended to those services or activities considered public goods more transparent. 39. This policy will include changes in the following areas a) Public Sector Providers: to promote a more efficient production of health services the government will deepen the transformation of public hospitals into decentralized hospitals which, per Law 2,570, is defined by the local administration of human resources and financing associated with the volume and quality of services offered. b) Financing: the restructuring and strengthening of IPROSS and the creation of a Provincial Health Insurance will ensure the financing and targeting of services to the poor, consolidation of hospital sales which will allow more efficiency and equity while consolidating the capacity of adaptation of the Provincial Obras Social in the face of larger competition which will have in the Seguridad Social with the deregulation of the affiliation; c) in the Consejo Provincial de Salud the role of regulator will be reinforced through formulating policies and the exercising responsibility in the control and auditing of measures that reduce As functions of direct management of provision and financing. 40. As a tool of budgetary policy, the provincial government will produce a budget for public health which will contain all expenditures in the sector, especially those investments in the sector which are included in the budget of public works. 41. The outcomes of the reform will be the following ones: a) Establishment of at least five Autonomous Hospitals, financed by new payment systems and by the sale of services to the Obras Sociales or private insurance b) Strengthening and elimination of IPROSS debts with third parties c) Design of the Provincial, Health Insurance financed by public resources which will cover the population, "with formal insurance, especially the poor" d) restructuring of the CPSP 42. As a result of the above measures, the following results will be reached at the end of the program a) Downsizing of the health public sector by outsourcing services or other means, b) Substantial advance in the administration and financial transformation of the Decentralized Hospitals - 33 -  c) Increased capacity of cost recovery through better billing systems and management of the payment of the Obras Sociales Nacionales, Provinciales and Private Insurance d) Reduction of up to 25% of the personnel of IPROSS to reduce administrative costs at most 12% of total costs e) Use savings to pay incentives to people in the decentralized hospitals, goods and services and investment f) Change in the health payment system with new payments to the providers, which will increase efficiency and transparency g) Strategy for strengthening the Public Health Network h) A Strategic Plan to strengthen the Network of Public and Private Health Services Providers 43. Monitoring system. To be able to follow the evolution of the: quality of the services rendered to the community, the government of Rio Negro will use a system of indicators discussed with the Bank (Table B5 in Annex). 4. Impact of the Reform Program in Environment 44. Given the nature of the reform program, its implementation should have no negative impact on the environment. To this end, the province will undertake environmental audits for the hospitals included in para. 37, financed by the technical assistance of PRESSAI, and before the transformation of the Autonomous Public Hospitals. The terms of reference, the proposed consultant, and his/her report will need to be satisfactory to the Bank. The recommendations will be included in the contracts of transference and the constitution of the Autonomous Public Hospitals. The government is fully committed with environment protection and is obliged to review and revise the legal and institutional framework -- which includes the government agency in charge of the environmental control - of the management of the hospital and pathological waste. The government is committed to implement the imnprovements in the legal and institutional framework which will be needed, in agreement with the normal rules and standards, accepted in the Argentine Republic, to ensure t-he adequate collection, transport, treatment and final deposit of pathological wastes. 5. Justification for the request of World Bank Assistance 45. Three reasons justify the importance our provincial government gives to the support of the World Bank. First, I would like to mention the importance of the financial support which will allow the financing of the adjustment costs and priority outlays. Second, I would mention the technical and professional support receive form your staff. Third, the fact that the bank is supporting our reform program gives us confidence in the quality of our own program, and will help us attract private investors from Argentina and other countries. 6. Letter of Provincial Reform of Rio Negro - 34 -  46. In line with the above, the Provincial Government agrees that the National Govenmment should include, in the Loan Agreement to be signed with the World Bank, one Annex with the details on the objectives considered in the Provincial Development Letter and referred to in the Policy Matrix attached. Sincerely, Dr. Pablo Verani - 35-  Policy Matrix Activity Accomplished Second Tranche Third Tranche General Condition Legal opinion confirming the constitutionality of the reforms included in the program and conditions of tranche disbursement PUBLIC FINANCE Fiscal Balance Agreement on targets for the Current account six month surplus program of at least $7.5 million equivalent Cut in personnel Agreement on the personnel and Commence implementation of Law Personnel Cost equal to no more Cost and Conversion of Public Civil Service Reform 3052 (new personnel and than 65% of net current revenues Employment administration regime) Law of Civil Service (Law 3052) Implementation of new wage scales approved; in line with article 21 of Law 3052 Conversion of public employment Agreement on program of Compliance with public sector staff Compliance with public sector staff privatization, early retirement, rationalization program rationalization program separation voluntary severance Reduction of 400 positions in the provincial public sector, plus additional reductions as the result of the restructuring of the Department of Water - 36 -  EDUCATION POLICY CHANGE Improve Administration of Human New leave system; completed Outsource of peripheral services Resources project to change "Estatuto (such as maintenance and security) Docente" to the private sector. Education Budget Agreement on the budget floor to Education Expenditures at least Education expenditures at least be kept for the sector US$170 million (whichever is US$170 million or 22% of the lower) consolidated provincial budget (whichever is lower) Savings in personnel costs were Savings in personnel cost can be retained in the sector and used to retained in the sector and used to finance investment finance investment Safeguards in place to maintain Safeguards in place to maintain education budget education budget Re-conversion of Teacher Training Interrupted enrollments in the Restructure or downsize public Maintain no more than three (out of Institutes teacher training institutes. Froze teacher training institutes managed eight) institutions for training new enrollments in five institutes and by the province teachers. change in plantafuncional .. Activity Accomplished Second Tranche Third Tranche Sector Management Restructuring oftheplanta Personnel cost of more 91% of Personnel cost at most 91% of funcional education budget education budget Private Sector Incentives Implemented new formula for awarding provincial public subsidies to private schools in the province - 37 -  HEALTH SECTOR REFORM Sector Budget Preparation of an expenditures plan, Actual spending maintained at least Actual spending maintaned at least 1997-99 at $70 million or 10% of the at $70 million of 10% of the budget, whichever is lower consolidated provincial budget (whichver is lower) Authorization to use savings in personnel to pay performance Authorization to use savings in premiums or non-personnel personnel to pay performance expenditures premiums or non-personnel expenditures Safeguards in place to maintain health budget Safeguards in place to maintain health budget Personnel Agreement on the quantified targets Implementation of incentive system Payroll expenditures is not more and the mechanics to reduce for autonomous hospitals than 70% of the total spending in personnel the sector Present to Legislature draft law Staff in CPSP limited to 956; allowing the outsourcing of given IPOSS staff limited to 292 services Autonomous Hospitals Definition of hospitals that will be At least two hospitals are made At least three additional hospitals transformed into Autonomous autonomous (from among five are made autonomous Hospitals identified candidates) New payment system is New payment and remuneration Consulting contract to help define implemented system is implemented the legal framework of the Autonomous Hospitals Provincial Health Agreement to create a provincial Define the basic health package Presentation to the Province's Insurance/lnstituto Provincial de insurance to cover the poor which identified the types and level legislative of bill of law to create the Seguridad Social of medical services to be provided Provincial Health Insurance System. Roster with potential beneficiaries prepared. Restructuring of the functions of Agreement to change CPSP into a New structure, functions and CPSP regulatory agent personnel of CPSP as a health service regulatory entity - 38 -  Change in Own-Source Revenues by Province 1996-2000 __ __ _ __ _ ____ __ f(US$ '000 PRL-2 Provinces 1996 1997 1998 1999 2000 Growth 96-2000 Rio Negro 124,120.0 129,720.8 147,502.6 135,428.2 141,852.1 14.3% Salta 115,031.6 130,543.0 133,560.1 146,925.9 142,424.7 23.8% San Juan 79,313.6 91,389.0 100,168.2 90,432.4 92,161.0 16.2% Tucuman 150,007.7 166,957.0 179,318.3 179,107.9 188,125.7 25.4% Sub-Total 468,472.9 518,609.8 560,549.2 551,894.4 564,563.5 20.5% NON PRL-2 Provinces Sub-Total 9,333,461.2 10,378,610.2 11,089,894.0 10,410,055.0 10,295,941.3 10.3% TOTAL PROVINCES Total 9,801,934.1 10,897,220.0 11,650,443.2 10,961,949.4 10,860,504.8 10.8% Change in Personnel Expenditure by Province 1996-2000 (US$ ' 000) PRL-2 Provinces 1996 1997 1998 1999 2000 Growth ________________________ _____________ _______________ ______________ _____________ 96-2 000 Rio Negro 391,865.3 383,556.0 386,949.7 377,392.7 374,218.7 -4.5% Salta 467,365.9 458,324.3 462,830.6 474,718.7 459,137.6 -1.8% San Juan 317,479.8 347,125.7 386,195.0 400,344.7 417,793.7 31.6% Tucuman 507,825.0 538,765.0 522,370.0 557,937.0 548,431.3 8.0% Sub-Total 1,684,536.0 1,727,771.0 1,758,345.3 1,810,393.1 1,799,581.3 6.8% NON PRL-2 Provinces Sub-Total 13,067,621.3 13,919,037.1 15,077,395.5 16,207,831.3 16,896,438.0 29.3% TOTAL PROVINCES Total 14,752,157.3 15,646,808.10 16,835,740.8 18,018,224.4 18,696,019.3 26.7% - 39 -  Letter to Governor Verani: Summary of ICR 14 de junio de 2001 Dr. Pablo Verani Gobemador de Rio Negro Laprida 212 (8500) Rio Negro Ref: Segundo Programa de Reforma Provincial (4218-AR) Estimado Sr. Gobernador: Me dirijo a usted para presentarle la sintesis del informe final sobre el Segundo Prestamo Reforma Provincial (PRL II), con el fin de analizar el desarrollo del mismo, y compartir con usted algunas reflexiones acerca del programa. En primer lugar, queremos agradecerle los comentarios realizados por el Coordinador de Programa, Sr. Oscar G6mez, en el informe preliminar y sus observaciones sobre la experiencia de Rio Negro en el programa piloto de relaciones directas entre el Banco y la provincia. Esto nos ha ayudado innensamente en el desarrollo y disenlo de subsecuentes operaciones con otras provincias. El objetivo del prestamo, de ayudar a reformar el sector puiblico de la provincia de Rio Negro y asegurar una prestaci6n efectiva y responsable de servicios puiblicos en educaci6n y salud junto a politicas fiscales, no fue completamente alcanzado como se concibi6 en un principio. Por una variedad de razones, los logros iniciales en los componentes fiscales, de salud y de educaci6n no fueron adecuadamnente mantenidos y superados, pero consideramos que se han iniciado importantes mejoras que pueden servir como base para futuras esfuerzos de reforma en la provincia. En materia fiscal, el programa busc6 alcanzar un balance fiscal sostenido, logrando superivit corrientes cada aho, comenzando en 1998, reduciendo el gasto en personal al 65% de los ingresos corrientes, manteniendo las inversiones a niveles adecuados, y asegurandose excedentes fiscales suficientes para reducir el stock de deuda a niveles sostenibles. Estos objetivos no fueron logrados durante el periodo 1997-1999. Con respecto al gasto, aunque Rio Negro era una de las pocas provincias que redujo el gasto en salarios durante este periodo, el esfuerzo puesto en este asunto se redujo en relaci6n al mostrado durante el periodo de evaluaci6n inicial, y el nivel de personal en el sector publico permaneci6 bien por sobre el de las demas provincias participantes del programa. Lamentablemente las medidas incluidas en el rediseiio del programa fiscal que se acord6 con el Banco a fines de 1998 para ajustarlo al deterioro de la situaci6n macroecon6mica y a la necesidad de profundizar los ajustes no fueron implementadas. -40 -  En cuanto a los ingresos, si bien aument6 la recaudaci6n de impuestos, todavia se requieren mas esfuerzos para sostener este incremento. Para el futuro, estamos motivados por la decisi6n de la provincia de participar en el programa federal de asistencia a las deudas provinciales bajo el fondo fiduciario, y le deseamos el mejor de los exitos en el logro del objetivo de alcanzar el balance fiscal en el afio 2004. En relaci6n al sector Salud, el programa busc6 apoyar la transformaci6n de hospitales puiblicos en hospitales descentralizados para promover una prestaci6n de servicios mas eficiente. Tempranamente se lograron avances importantes con un fuerte liderazgo del sector. A pesar de algunos logros tempranos en el asentamiento de un marco legal y en la implementaci6n de reformas en algunos hospitales, estos cambios no pueden ser considerados significativos. Por otro lado, se espera que continuen los esfuerzos para separar la provisi6n de los servicios de salud puiblica de su financiaci6n. Al mismo tiempo, restaria tomar las medidas necesarias tendientes a aumentar la recuperaci6n de costos hospitalarios, Ilegar a los pobres, e implementar un sistema de seguro de salud para aquellos que no lo poseen. Respecto de este iiltimo punto, la provincia ha indicado su deseo de buscar asistencia tecnica para el recientemente aprobado programa del Banco Seguro para los No-Asegurados. Entendemos que estan lanzando un nuevo programa para el sector Salud con el apoyo del PNUD y los alentamos para que continuien con los esfuerzos destinados a mejorar la eficiencia, calidad y equidad del servicio de salud en la provincia. En el sector Educaci6n, el desempefio de Rio Negro estaba bien posicionado respecto de otras provincias al inicio del programa, pero existian problemas relacionados con el gasto en personal, el costo promedio por estudiante, el uso desproporcionado de maestros sustitutos y temporarios, y la calidad de la educaci6n. Bajo el programa, se logr6 aumentar la proporci6n entre alumno y maestros, y la cantidad de maestros a cargo de una clase, lo que ayud6 a reducir los gastos en personal. Tambien fue exitosa la implementaci6n de un nuevo sistema de control del abuso de licencias por enfermedad, y se disminuy6 la proporci6n de gastos entre maestros sustitutos y regulares, lo cual ayud6 a aumentar la disciplina entre los trabajadores del sector puiblico. Auin asi, habria que continuar con estas reformas y mejorar el traslado de los ahorros en mayores inversiones. Por otra parte, las medidas emprendidas para reducir los costos administrativos, que incluyeron la reducci6n de la administraci6n central y la reasignaci6n de maestros, fueron en gran medida exitosas. Se espera que pronto se sancione una ley correspondiente al proyecto presentado para implementar un nuevo sistema de asignaci6n de subsidios a escuelas privadas, y otra para basar parte de los salarios docentes en meritos obtenidos. En materia de descentralizaci6n escolar y mejora de la calidad y eficiencia educativa, se busc6 reformar el rol de los institutos de capacitaci6n docentes, y se crearon 30 escuelas pilotos. Si bien se continuda trabajando en este uiltimo proyecto, es necesario mejorar la capacidad institucional a nivel local y descentralizar el control del gasto y de las decisiones. Ademas de continuar con las reformas ya emprendidas, se recomienda trabajar para mejorar el acceso de los pobres a la educaci6n y continuar con la tercerizaci6n de algunos servicios puiblicos. Si bien no se lograron los objetivos del tercer tramo del prestamo, creemos que el impacto institucional alcanzado favorece la sustentabilidad de los programas en curso, y que las iniciativas del gobierno pueden ayudar a que se acuerde la manera de implementar las reformas pendientes. -41 -  Sin otro particular, lo saluda muy atentamente, Myrna Alexander Directora Direcci6n Subregional Argentina, Chile, Paraguay y Uruguay -42 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: IndicatorlMatnx Projected in last PSR Actual/Latest Estimate PUBLIC FINANCE Current deficit of about $50 million in both Estimated at $40 million for 2000 (a) Fiscal balance: current surplus every year 1998 and 1999. beginning in 1998;. (b) Personnel cost: reduce the personnel Estimated at 67% for the first semester of Estimated at about 65% for 2000. expenditures to 65% of net current revenues, 2000, and projected to reach about 62%. beginning in 1999 during the second semester of 2000 (c) Reduction and conversion of public Staff ratonalization of 3400 agents achieved employment: reduction of 5,500 positions (in at second tranche three phases), new wage scale, implementation of Law 3025. (d) Stock of debt: reduce the debt stock to a Debt stock at $1.07 billion for first semester Overall deficit of $65 million increased debt sustainable level ($815 million), of 2000, not projected to dedine during stock during 2000. second semester (e) Public expenditure program ensuring Social sector targets met for first and second The province has not provided updated sound investment projects and adequate tranches. figures for 2000. allocation for social sectors EDUCATION POLICY CHANGE New system of leave and sick leave. System continues to be implemented, no (a) Improve administration of human Reduction in absenteeism and "sick leave' of updated results reported by province. resources with (i) early retirement 25% during 1997-99; outsourcing being opportunities; (ii) control of absenteeism and initiated. reform the leave system, including sick leave; (iii) outsourcing of peripheral services (e.g. porters); (a) (iv) system of incentives to promote Not yet implemented. Freeze on automatic increases continues in quality and to replace the system of effects. automatic increases which was frozen in January 1997. (b) Education budget: at least $170 million or $190 million in 1998 and 1999. No new estimates provided by the province. 22% of the provincial budget. (c) Reconversion of Teacher Training Five institutes still operating, Target expected to be achieved by 2001 Institutes: limited to three. (d) Sector Management: personnel costs at Student-teacher rato 17:1. Personnel costs: No updated informaton provided by the most 91 % of the education budget; increase 84% of the education budget in 1999 province. in teacher/student to 19/1 for primary education. (e) Private Sector Initiative: current subsidy Student/teacher ratios increased for private New law for transfers to private schools still system to be replaced by a formula-based schools. pending. system integrating the cost per student. HEALTH SECTOR REFORM Health budget: $72 million for 1999 More recent data not provided by the (a) Sector budget: spending will be province. maintained at least at $70 million (10% of budget); savings with are kept within the sector. (b) Personnel: payroll will not be more than Payroll represented 76.4% of the sector More recent data not provided by the 70% of the sector budget; staff in CPSP budget in 1998. province limited to 956 and IPROSS to 292. - 43 -  (c) Autonomous hospitals: establishment of 5 hospitals identified for decentralization; New program with UNDP providing support at least five Autonomous Hospitals, financed program under way in 2 hospitals. for hospital improvements. by new payment systems and by the sale of services to the Obras Sociales or private insurance. (d) Provincial Health Insurance: define basic Roster underway. Province has requested support for health package with levels of services; roster completing measures. with potential beneficaries; (e) Design of the Provincial Health Insurance financed by public resources will cover the population without formal insurance, especially the poor; (f) Presentation to the provincial Assembly of Law pending Law passed, by regulabon pending support Law to create the Institute for measures under (d). (g) Restructuring of the functions of CPSP The Health Councl formally transformed Into Strengthening being supported under UNDP (Consejo Provincial de Salud) so as to a regulatory agency in 1998. program. reinforce its role as regulator, policy formulator and control and auditing of measures that reduce its functons of direct management of provision and financing. (h) Quarterly preparation of indicators of Complied Not provided since cancellation. progress Output Indicators: lndicaterlMatrlx Pr*ftsd In IIIC ' PM1 MtulL*W Estimate -A End of project -44 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percente of Estimate Estimate Apprisal Projet Cost By Component uS$ million US$ million Total Baseline Cost 10.1 0.00 Total Project Costs 0.00 Total Financing Required 0.00 0.00 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICs Metho2 N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 ________________________ (0.00) (0.00 (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 ________________________ (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 I_____________________ (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 I (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 I______________________- (0.00) (0.00) (0.00) (0.00) (0.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivaIent) Procurement Method Expenditure Category ICB NCr Other N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) - 45 -  5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 f0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 I____________________(0.00) (0.00) (0.00) (0.00) (0.00) iFigures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2'Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Aprasa :stsimate: : Actual/Latest Est e : :t: __Cost_____________ Bank Go|t coF. Bank Govt. CoF. Bank Govt. CoF. - 46 -  Annex 3. Economic Costs and Benefits - 47 -  Annex 4. Bank Inputs (a Missions: Stage of Project Cycle No. of Persons and Specialty PerformanceRating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 12/96 7 TM, FM, EcF, PS, SS, ED, PS Appraisal/Negotiation 4/97 7 TM, EcF, SS, ED, PS, C, C Supervision 12/97 8 TM, EcF, SS, ED, SS, PS, C, S S C 2/98 2 TM, PSM S S 4/98 1 EcF S S 5/98 6 TM, Hlt, EcF, ED, PS,SS S S 6/98 4 TM, Ecf, PS, C S S 8/98 1 Hlth S S 11/98 4 TM, Hlth, ED, PSM S S 3/99 1 PSM S S 9/99 4 TM, Hlth, ED, PSM U U 12/99 2 TM, PSM U U 3/00 3 TM, Hlth, ED U U ICR 9/00 3 TM, Hlth, ED U U 11/00 3 TM, Hlth, ED U U (b) Staff: Stage of Project Cycle Actual/Latest Estimate _____________________ _ i : No. Staff weeks US$ ('000) Identification/Preparation 20 $73,531 Appraisal/Negotiation 8 $29,482 Supervision 25 $32,900 $32,710 (WPA) ICR 7 $43,000(WPA) Total 60 $135,913 (direct) $75,710 (WPA) - 48 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies O H *SUOM O N O NA 0 Sector Policies O H OSU*M O N O NA O Physical O H OSUOM O N * NA D Financial OH OSUOM ON *NA O Institutional Development O H O SUO M O N 0 NA L Environmental O H OSUOM O N * NA Social ] Poverty Reduction O H OSUOM * N O NA O Gender OH OSUOM ON *NA O Other (Please speci) OH OSUOM O N O NA O Private sector development 0 H O SU O M 0 N 0 NA * Public sector management 0 H O SU 0 M 0 N 0 NA El Other (Please specify) O H OSUOM O N O NA -49-  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bankperformance Rating O Lending OHS*S OU OHU O Supervision OHS OS OU OHU C Overall OHS OS O U C HU 6.2 Borrowerperformance Rating E Preparation OHS OS Q U Q HU O Government implementation performance O HS O S C U C HU O Implementation agency performance O HS O S 0 U O HU O Overall OHS OS * U C HU - 50 -  Annex 7. List of Supporting Documents Report and Recommendation of the President (Report No. P-7136-AR) Intensive Learning ICR for Salta (Report No. 20698) Intensive Learning ICR for Tucuman (Report No. 20699) . Release of the Second Tranche (SecM98-1016) Project File containing Bank documents and provincial progress reports) - 51 -   MAP SECTION   IBRD 29348 70 ' 6