Peru - Education Project

,'2.3- ,so DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1300a-PE REPORT AND RECOMMENDATION OF THE PRESIDENT TO T-HE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR AN EDUCATION PROJECT October 30, 1973 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  RATE OF EXCHANGE Currency Unit Sol (S/.) U$1 = S/. 38.70 s/. 1 US$ 0.0258 S/. 1,000 US$ 25.8o S/. 1,000,000 US$ 25,8oo Peru Fiscal Period - January 1 to Decenber 31 of the following year (the figures presented in this report correspond to records on a calendar year basis.)  INTERNATIONAL BA-NK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC' OF PERU FOR AN EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$24 million to help flinance an education project. The loan would have a term of 25 years, including 10 years of grace, with interest at 7-1/4 percent per annum. PART I - TE ECONOMY 2. A report entitled "Current Economic Position and Prospects of Peru" (No. 136-PE) was distributed to the Executive Directors uon May 25, 1973 (R73-115). A description of economic developments in recent years in Peru and a statement of the case for Bank lending were contained in para-. graphs 2 - 14 of rm report on a proposed loan to the Banco de Fomento Agro- pecuario del Peru for an agricultural credit project, dated July 9, 1973 (R73-185). These paragraphs are attached as Annex I, which also includes a Country Data Sheet. In summary, the analysis of the economic prospects of Peru pointed to some difficult years initially, with heavy debt service obligations and limited prospects for export growth, but with medium term prospects much more favorable, with important new mineral resources being developed and promising indications of petroleum in the Amazon area. 3. Developments during this year support the earlier evaluation. The fishmeal prospects,which accounted for nearly a third of merchandise exports in 1970-72, are still surrounded by uncertainty, but it now appears that the current very high world market prices for most Peruvian export commodities (such as copper, zinc, and others) will increase export earnings sufficiently to com- pensate for this year's shortfall on account of fish products. Meanwhile, further progress has been made in securing the needed mining investments. Financing appears now assured for Southern Peru's large Cuajone copper project, according to all interested parties - the company, the banks involved, and the Government - although the final details of supplier financing remain to be settled. In addition, the company has announced that it also plans a significant expansion of its existing operations in Toquepala. Including the state mining agency's Cerro Verde project, mining developments now taking place are expected to about double Peru's copper export capacity in three to four years' time. The news from the petroleum explorations is also encouraging. Eight new exploration contracts have been signed with companies from the USA, Japan, Germany, France, Spain and Norway, and the two companies that are actually drilling already have reported several new strikes with commercial quantities. It thus now appears only a matter of time until there will be sufficient evidence of large-scale deposits to warrant the construction of a pipeline to the coast, for shipment abroad.  -2- Peruts recent success in securing external loans is summarized in paragraph 13 of Annex T. Since then, Peru ha,s contracted some addi- tional $160 million in loans from suppliers and cormmercial banks, of which some $90 milion were for prepayment of existing obligations. Also, recently the Board of Directors of the Inter-American Development Bank has approved two loans for a total amo-unt of $12.3 million: one in support of a public health prograrm, and the other for a project to control livestock disease. Several loans are likely to be signed shortly with the Government of the Federal Republic of Germany. PART 1I - BAN(K GROUP OPERUTIONS IN PERU 5. The proposed l-,ar, would be the Bank's 26th operation in Peru. With the $O5 rLillion loan for the agricultural credit project, signed on September 12, 1973, total Bank lending, net of cancellations, to Peru has reached $268 million. Cf this amount, 43 percent has been for transporta- tion (mainly highways and ports), 32 percent for agricultuire, 25 percent for electric power. In addition, a sma-ll loan was made for industry. For a review of Bank lending to Peru, reference is made to paragraphs 15 - 7, of my report on uhe agricullitural credit project. These paragraohs are included in Annex I. Annex II contains a sumLary statement of Bank loaxns and IFC invest,ments as of August 31, 1973, and notes on the execution of ongoing project,s and outstanding issues on executed projects. 6. Tn my report o-the agricultural credit project, I indicated that the resur.ption of Barnk lending to Peru cr a moderate scale was warranted in view of the progress being made in settling inves-ment disputes and that we would revie.w the status of investment disputes before presenting further projects to the Board. Since my report, the Peruvian and U. S. governments announced a decision to hoold high level discussions on the disputes, and these are noa uLnder way. After the exPropriatiOn of the fishmeal and fishoil industry of last May, the Govern-ment issued a Decree establishing detailed gaidelines for valuation of properties of the expropriated coYRmanies; auditing of their boooks has largelvy been completed, tLere1by making it possible to complete shortly the valuattion prucess for the purpose of compensation. No new disputes have arisen since myr last report, although the Government has now stated its inuent to nationalize through a negotiation process the Cerro Corporation's wMolly owned subsiciary. Taking into account the progress made towards settlerment of investerit disputes, I conclude that the Bank should respond by proceeing with the proposed loan, and that further lend- ing await a review- of progress on tnhe investment disputes issue. PAPRT TII - EDUCATIONT IN PERU 7. The present eC6ucatCion and training systeei in Peru is similar in many respects to that of other Latin American countries. It consists of six years of prirwr and f7ivJe years of general secondary education, followed by higher education and training, whiich is offered in courses of  varying duration in universities, teacher training colleges and technical institutes. Sub-professional technical and commercial training is provided, for those who fail to qualify for general secondary education and for adults, in non-formal training programs mainly by semi-autonomous Government agencies through on-the-job courses. Higher level education is concentrated irk 33 universities, mainly in the Lima area. They are autonomous institutions with broad powers to determine their own curricula and procedures. 8. Salient among the weaknesses of Peru's current education system are the geographical imbalances of educational opportunities and the system's low efficiency. Most of the student places are concentrated in Lima, which although accounting for about 25 percent of the country's population, has some 45 percent of total enrollment in general secondary and vocational education. This problem is compounded by a centralized administrative control in Lima, which makes inadequate use of local contrib- utions through regional participation in education planning, which would make education more respcnsive and relevant to the needs of the outlying areas. As to the efficiency of the system, less than 40 percent of children starting school complete primary education and, of those who continue secondary education, less than 60 percent successfully complete the secondary program. Retention rates for universities are also low, reaching only 35 - 40 percent. The problem is particularly acute outside the Lima area, where the completion rates are as low as 15 percent for primary education, and 20 percent for secondary education - largely the result of the high proportibn of schools with only two or three grades, the low econ- omic standards of the rural population, and the easy access of rural children to agricultural employmrent. The high dropout wastes scarce resources, raises the costs incurred for each graduate and reduces the output of the system. 9. Aware of the problem, the Government appointed in 1969 an educa- tion reform commission to examine the needs of the system and suggest appro- priate changes. After a thorough study, the commission concluded that the system was also beset by acade-mic-oriented curricula not tailored to the manpower requirements of the economy; lack of teaching and learning equipment throughout the country and scarcity of instructors of practical subjects, which makes instruction excessively theoretical and at the same time of low quality; and by a fragmented and rigid structure that does not allow a proper flow of students between levels and programs. To overcome these difficulties the commission recommended an overhaul of the educational system to give more emphasis to non-formal education and training outside the schools, improve the quality of teacher training programs, provide more teaching and learning aids, and integrate practical and academic courses in an upper secondary school system. In order to encourage com- munity participation and relate education to regional needs, the commission also recomrmended the decentralization of education administration and leader- ship through the establishment of educational regions and the creation of a "national service corps of graduates",by which graduating seniors at the upper secondary level will be required to engage in practical assignments in their communities as a prerequisite for graduation.  10. In terms of structure, the principal changes suggested included a reduction in the number of levels of education in the formal system, the establishment of a work oriented program in the informal system, and a streamlining and coordination of existing dispersed types of adult educa- tion. The pre-primary education level would have the objective of counter- balancing the negative influence of adverse econonic, social, cultural and nutritional conditions in the early stages of the childrens' development and of assisting families in bringing up their children. These objectives would be reached through educational activities closely coordinated with housing, labor, health and other social programs, and carried out through the partic- ipation of local communities, who would have almost exclusive responsibility for these activities. A basic general education level would include the former primary and the lower secondary schools. Several practical subjects would be taught, in order to develop rudimentary work skills. In order to correct imbalances of education opportunities, both between Lima and the provinces,as well as between the different age groups, the basic general education level would be organized in two programs, "tbasica regu- lar" (formal) for day pupils under 15 years of age, and "basica laboral" (informal) for adult students of 15 to 39 years of age, which will emphasize practical and pre-vocational subjects. This level will cover particularly the rural and Indian population, which has been largely neglected in the past. The upper secondary schools for professional training, called ESEP, will be open to all basic education graduates and will replace the former upper secondary schools and the preparatory year of the university. The ESEP curriculum will integrate practical and academic courses in a compre- hensive program, and will concentrate on major occupational fields such as service occupations. Flexibility will be built into the system to permit the ESEP curriculum to be structured in accordance with local needs. In agriculture, for example, the courses offered (animal husbandry, forestry, industrial, fishing) will be related to the regional needs. In addition, this flexibility would allowq university-oriented students to concentrate on a more academic oriented program (with elective courses in mathematics, science, social sciences, and foreign languages), while the students planning to enter the labor market will follow the more practical-oriented courses. The higher level education will remain largely the same as under the present system, excepic that universities will have to adjust their curriculum to the different levels of preparat'ion of ESEP and other secondary graduates. 11. On the administrative side,and in order to offer greater education opportunities and to ensure community involvement in the process, the Govern- ment has decentralized the system through the establishment of nine educa- tional region,, 33 school zones and about 950 "school nuclei", each with a central school with complete basic grade programs and facilities, and several satellite elemqenctary schools. In order -co enable the Ministry of Education to carry out ;he reform, the Government has issued legislation to define acbninistrative and operatiornal procedures, particularly those concerning the  role and responsibilities of the educational regions established by the new system. In addition, the Minister of Education has been given special powers to reorganize and strengthen the Ministry of Education, mainly in those Departments (Planning, Supervision and Teacher Training) which are critical for the implementation of the reform. Vested with these powers, the Minister of Education has accordingly reorganized his Ministry by: (i) establishing a higher council on education, with functions covering supervision and overall coordination of all major Departments of the Ministry; (ii) reorganizing the national inspectorate, which is in charge of coordinating regional inspectors; and (iii) establishing an education planning office, to be strengthened by the setting up of a new office of systems analysis. 12. With these steps, the stage has been set in Peru to carry out a far reaching education reform. A number of elements of it need, however, further examination, in particular the implications of the ref-orm in the admission procedures of the universities, the detailed curricula and syllabi for the ESEP system, and the rate of transformation of th, tradi- tional secondary schools into the ESEP system and the detailed financial implications of the reform. Although the Government has prepared broad outlines for these matters, technical assistance, as proposed in paragraph 16 below,will be critical for their solution and in the final analysis for the success of the reform. 13. The reform is proposed to be carried out in three phases. The first phase, now in its initial stages of implementation, is concentrating upon insuitutional changes, reforms in educational administration and primary educa- tion. The second phase will cover the transformation of the seconday education into the ESEP system in certain key areas of the country,and the third will ex- tend the reformed system countrywide by 1985-1990. The reform would concentrate in its initial stages on preparing readily trainable graduates, rather than specialists in specific skills and, in view of the very low retention rates of the present system, on improving the flow of students at the lower levels. Thus, in the first stages, the reform will be particularly respon- sive to the needs of students unable to proceed to higher levels of academic education and to workers who want to continue their education by providing a labor market-oriented program, sufficientjly flexible to give students an opportunity to develop their skills as their capabilities allow. PART IV - THE PROJECT lit. This would be the first project in Peru's education sector fi- nanced by the Bank. It is based on the recommendations of a UNESCO project iden- tification mission that visited Peru in March, 1972. A Bank reconnaissance mis- sion reached agreement in principle with the Government on the items to be considered for Bank financing in May 1972 and the project was subsequently prepared in June 1972, with assistance from UNESCO. The project was ap- praised in September - October 1972. Negotiations were held in Washington the week of September 10, 1973, and the Borrowerts delegation was headed by Col. Daniel Morales Bermudez, Vice-Minister of Education.  -6- 15. An Appra1iasal Retort or thLe project (No. 177a-,E is being distributed se-parately to) the Executive Directors. A summary statement on the proposal is given in Annex IIIe Bank financing of the project will provide an opportuunity to support a well -oriented education reform, aimed at shifting emphasis from traditional to modern curricula, which are geared to the needs of the labor mar-ket. Soecifically, the project will consist of: (i) corstructioon Ct, and furniture and equipment, for,33 new lower sec- onoary schools within the basic general education level, to be located an miedium sized cities, one in each of the 33 schoql zones created by the aduinistra-zive reform. Ten of the secondary schools a,ould also provide facilities for prirary grades. These schools would be models in implementing the new primary school curricul-urm, now in experimental use, which provides for new approaches in science, mathematics, social sciences and languages. The 33 schools will in all -provide 21,000 additional student places; (ii) construction of, and equipment Jfor,1 6 new ESE? schools, which will provide trai-ning in rmajor occupational fields - agriculturne, industry training, services and teacher training. These sCnools will have a total capacity of 11,500 new student places, including 1 ,L00 bcarting places; and i ii) technical assistance to support project institutions in in troducing t,he new-vT program, in particular to develop tLe teacher trainirng programs and curricula for the first t-wo phases of the reform. 16. Ti7he proposed loan h.as a two-fold objective. F;rst, itf airs at supporting the edncational reformrr by flinancing the construction of those schools that -ilt sErve as foreruanners of the reform ir. each education region, and bcy providing lhie technical assistance for education planning, curricu~lum development, suarvey7ing of ESE? graduaates. and fellowships for over.-:-a- training of locau eoucators a-ndc administrators. To carry out the educational refo-m, the trojeon envisages assistance to the Ministry of Edlucation, in-. particular ;iith regatd to costing o.f the reform and education admnistration. Assistance is also envisaged for developing and inu- oducing the new curric-.laa, whch are to be defined within six months ofSi tasure of the proposed loan agreement. In order not to delay this crit .cl elemrfen-t- oif the projece.t, retroactive financing of $100,000 is includied so:r tecr.lniO_i assistance expenditures incurred af-ter September 1, 1973. In or.d