Bolivia - Second Emergency Social Fund Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7066-BO STAFF APPRAISAL REPORT BOLIVIA SECOND EMERGENCY SOCIAL FUND PROJECT February 10, 1988 Division LA3C1 Latin America and Caribbean Regional Office This document has a restricted distribution and way be used by recipients only in the peorfonance of their official duties. Its contents may not otherwise he disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of December 31, 1987) US$ 1.00 = 2.20 bolivianos (bol.) US$ 0.45 - 1.00 bol. US$ 1.00 = SDR 1.42 USS 0.70 = SDR 1.00 FISCAL YEAR January 1 to December 31 ACRONYMS BHC - Basic health care ESF - Emergency Social Fund (Fondo Social de Emergencia) ICB - International competitive bidding IDB - Inter-American Development Bank LCB - Local competitive bidding NGO - Non-governmental organization UNDP - United Nations Development Programme US-AID - United States Agency for International Development  FOR OMCIAL USE ONLY (i) BOLIVIA SECOND EMERGENCY SOCIAL FUND PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE BOLIVIAN ECONOMIC CRISIS AND THE SOCIAL EMERGENCY 1 The 1980-85 Economic Crisis and Economic Reforms since 1985 1 The Social Impact of the Crisis and Adjustment Program 2 Institutions Dealing with the Social Ir.?act 3 II. THE EMERGENCY SOCIAL FUND 3 Objectives and Approach 3 Institutional Form 4 Target Population 4 Organization and Staffing 5 Program Targets and Capacity 5 Fund-Raising/Previous IDA Assistance 5 Project Identification and Preparation ("Promocion") 6 Froject Appraisal ("Evaluacion") 7 Contracting 8 Project Implementation and Supervision ("Seguimiento") 8 Monitoring and Evaluation 9 Management Information System 9 III. THE PROJECT 10 Origin of the Project 10 Objectives 10 Description 10 Project Costs and Financing Plan 12 Co-Financing Arrangements 13 Implementation 13 Institutional Support 14 Sub-Project Appraisal 15 This project was appraised by a team consisting of Graham Smith (transport economist and task manager), Steen Jorgensen (economist), Helen Abadzi (education specialist), Jorge Lanas (highway engineer), John Newman (living standards economist), Deborah Caro (anthropologist - consultant) and Alonso Dobernig (municipal engineer - consultant). They visited Bolivia in October and December 1987. This document has a restricted distribution and may be used by recipients only in the perform.ance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  (ii) Page No. Sub-Project Procurement 15 Review by IDA of Sub-Project Appraisal and Procurement 16 Disbursements 17 Accounts and Audits 17 Peporting 17 Cost Recovery/Operation and Mainte.;_-- 18 Honitoring end Feedback 18 Institutional Sustainability 18 Women's Considerations 19 Environmental Impact 19 IV. BENEFITS AND BENEFICIARIES 20 Target Groups and Beneficiaries 20 Benefits 20 Risks 20 V. RECOYENDATIONS 21 Attachment 1 Sources of Financing 2 Sub-Projects Approved in 1987 (a) Summary by Project Type (b) Summary by Location (c) Summary by Implementation Status 3 Key Indicators for IDA's Sub-Project Review 4 Decree-Law Setting up ESF in Present Form 5 ESF's Role in the Development Strategy for the Social Sectors (a) Health and Nutrition (b) Education 6 Documents in Project File 7 Organization Chart  BOLIVIA SECOND EMERGENCY SOCIAL FUND PROJECT STAFF APPRAISAL REPORT I. THE BOLIVIAN ECONOMIC CRISIS AND THE SOCIAL EMERGENCY The 1980-85 Economic Crisis and Economic Reforms since 1985 1.1 The Government of President Paz Estenssoro, which took office in August 1985, faced a country in acute economic crisis. Real GDP was contracting for the fifth consecutive year, shortages were widespread, and the annual rate of inflation reached almost 24,000Z in the twelve months preceding August 1985. The currency was severely overvalued, usable international reserves were virtually depleted, and external payments arrears had accumulated rapidly. The new government initiated a far- ranging stabilization and adjustment program in late August 1985, termed the New Econolic Policy and embodied in Supreme Decree No. 21060. Its primary objectives were to reduce inflatlon sharply, restore external and internal financial balance, and lay the foundations for sustained economic recovery. Centered on a drastic reductinn of the public sector deficit, the program relied on minimal controls, reducing the state's role and encouraging a free-market economy. 1.2 The Government inherited an economy that presents particular development challenges. Bolivia is one of the poorest countries in Latin America and per capita income declined by over A thnird in the period 198C- 86, to reach $540. Bclivia's landlocked positioa and mountainous terrain render transport costs high and access difficult. About one-half of the economically active populatic is engaged in agriculture, but primarily on the highlands of the Altiplano where subsistence farming predominates and potential for growth is limited. The vast, sparsely populated lowlands have good potential for agriculture, but their development is only now beginning and is fraught with difficulties. Tin mining, the n.ainstay of the economy throughout much of Bolivia's history, has poor prospects: the ore content of lodes being worked has declined severely and production costs are far above those of competing sources. The collapse of the international tin cartel in September 1985 finally forced the Government to fire more than 20,000 workers in the state-owned mining company, COMIBOL. The almost simultaneous halving of oil prices deprived Bolivia of income from what in recent years had been its second major source of foreign exchange: natural gas. This forced further reductions in public-sector employment, notably a radical cutback at the Central Bank from 1,200 employees to about 200. 1.3 In the two years since its inception, the economic stabilization program has b'en very successful. Inflation in the twelve months prior to November 1987 was about 102, the huge gap between official and parallel foreign exchange rates has been eliminated, the consolidated public-sector deficit was reduced from 282 of GDP in 1984 to 4Z in 1986 and in 1987 GDP finally reversed its downward trend and grew by at least 1.51. In 1987 the Government turned its attention to longer-term measures: restructuring ailing public enterprises and overhauling the tax system. In July the  - 2 - Government issued an economic reactivation decree designed to stimulate private-sector investments and exports, facilitate the implementation of externally funded public investments, strengthen the shaky financial system, and provide funds and institutional mechanisms for the construction of low-cost housing. The Social Impact of the Crisis and Adjustment Program 1.4 The social cost of the economic collapse up to 1985 and of the austerity measures taken since then has been high. Indicators of social welfare paint a picture that, while alarming enough before the depression, is now even worse. Infant mortality was estimated in the late 70s to range from 135 to 200 deaths under one year per thousand live births; in some rural areas the rate is twice as high. This is one of the highest rates in Latin America, if not the world. The maternal mortality rate, estimated at 48 per 10,000 live births, is also exceptionally high. There are indications that the situation has worsened in the last few years. Severe malnutrition is widespread, particularly in the rural population of the Altiplano. Diarrhea and parasitic diseases are the commonest causes of death. Access to primary health care is very limited in rural areas. It is estimated that only 1OZ of rural households have access to piped water and only 42 to sewerage. 1.5 Estimates of unemployment and under-employment vary wircly, o but one commonly cited rate is 20-25Z of the economically active population, or 400,000-500,000 workers. More specific estimates put the number of miners laid off from public and private mines at about 27,000 and other workers laid off from the public sector at 15-16,000. 1.6 Since there is little effective unemployment compensation system other than severar..e payments made to the miners, many of thcse laid off are now engaged in informal activities, such as selling contraband cigarettes on the streets of La Paz, shoe-shining and other unskilled services. Such work is thought to br4ng in about $30-60 per month in La Paz, less elsewhere. One consequence of the collapse of economic activity in the mining towns is that nearby small farmers have lost their markets. They have had to absorb their loss of cash incomes by cutting back on expenditures on health care, among other things, and taking children out of school so that they can work in ways that will contribute to family income. 1.7 How much of this social cost should be blam?d on the adjustment program and how much on what went before is hard to untangle, and data to elucidate the question are inadequate. Much of the unemployment, though directly caused by actions taken under the stabilization program, appears to have been made inevitable by the poor economic management that led to the hyper-intlation crisis and made the previously high levels of public employment unsustainable. 1.8 Social unrest rooted in the economic crisis has been widespread. Bolivia has been the scene of a continuous series of strikes, protests, and severe criticism from the opposition. since 1986 the Government has increasingly focused on social issues, particularly the short-term unemployment problem but also the longer-term need to improve social conditions generally. The proposed project is part of this response.  - 3 - Institutions Dealing with the Social Impact 1.9 Bolivia is poorly equipped, institutionally, to cope with the social impact of the depression. The three ministries with primary responsibility for social welfare--Social Welfare and Public Health, Education, and Housing and Urban Development--do not have the skilled manpower, budget or management capacity to mount an effective response; integration of local-level activities with national-level activities is particularly difficult. A multitude of non-governmental organizations (NGOs) has attempted to fill the gaps, mostly working on a small scale without coordination, sometimes at cross purposes with each other. It is estimated, for example, that 602 of all non-traditional primary health care is being provided by NGOs. In the peri-urban areas of La Paz, Cochabamba and Santa Cruz, the Ministry of Health reaches about 5-102 of the population while NGOs reach 10-15Z; in rural areas the estimates are 15-20? coverage by the Ministry and 25? by NGOs. 1.10 Most NGOs rightly stress that responsibility for implementing social assistance programs is best entrusted tc community organizations representing the beneficiaries themselves. The NGOs see their role as giving advice to the communities on how to deveiop ideas into workable programs, providing selective financing for materials and supplies, and assisting in implementation to the extent of interceding with government agencies, etc. Some umbrella organizations of NGOs exist, such as the National Association of NGOs Working in Health. Their role so far has been limited to informat .on dissemination and program coordination; they have been teluctant to assume operational responsibilities as substitutes for ineffecti-xe public bureaucracies. In these circumstances the Government decided in late 1986 to set up, as its principal instrument for addressing the social impact of the ec3nomic crisis, the Emergency Social Fund. II. THE EMERGENCY SOCIAL FUND Objectives and Approach 2.1 The purpose of the Emergency Social Fund (ESF) is to finance. by means of grants, small-scale employment-generating and income-generating projects and social assistance p;ograms, to benefit those hardest hit by the economic crisis. The projects and programs are proposed and implemen'ed by local governments, co-operatives, and other community groups, both public and private; they are carried out by contractors wherever feasible, under the technical supervision of qualified agencies. The nature of the projects funded is determined, in the first instance, by the proposals that these sponsors put forward. The ESF gives priority to projects most likely to have substantial multiplier benefits, and those whose sponsors have the capacity to ensure rapid, efficient and honest implementation. As a broad target, ESF aimed initially to allocate three quarters of its funding to employment-generating projects and one quarter to social assistance activities. So far, the most common types of project have been urban street paving, water supply and sewerage, low-cost build-  - 4 - it-yourself housing, repairs to school buildings, and civil works for erosion control. In the social assistance category, ESF is funding, among other things, vocational training, assistance to medical centers, school breakfast programs, vaccination campaigns and nutritional training. Institutional Form 2.2 First formed in 1985, ESF was restrulctured in November, 3986, by a supreme decree (Attachment 4) as an independent institution reporting directly to the President. It is to have a life of only three years (1987- 89), is a financing and supervising agency only, and its staff will not exceed 80 persons. At the end of this period it is to hand over its operations to the appropriate sectoral ministries or agencies. The Fund's principal functions are (a) fund-raising, (b) identifying and encouraging the development of projects addressing the needs of its target groups, (c) screening and appraising projects, and (d) contracting for and providing financial supervision of their implementation. It is thus somewhat like a development bank for small-scale enterprises, except that it makes grants instead of loans and is involred in contracting. All projects have to be approved by a board of directors consisting of the President of the Republic as chairman, the executive director, and three members representing respectively the techni al community, the political community and non-governmental social institutions. The Fund is further accountable to public opinion through its obligation to report to Congress and the press every three months on its sources and uses of funds. TarRet Population 2.3 ESF defines its target population pragmatically, to embrace (a) those who lost their jobs in the economic crisis and austerity measures -- dismissed miners and public-sector employees-- (b) the families of the above and those, like small farmers near mining towns, whose livelihood depended indirectly on mining; and (c) those whose nutrition and health levels have reached critical levels --the rural poor, who constitute a long-term, structural problem, and especially pregnant women, lactating mothers and pre-school children. Thus, ESF explicitly requires that certain employment-generating projects hire ex-miners, while the social assistance projects give preference to mothers and children, and priority as to geograpbical location is given to the poorest areas of the country and those wi^h the highest levels of unemployment. 2.4 In selecting projects, ESF matches their location with available information on local unemployment rates and social indicators. Targeting is also achieved throughi the setting of commitment goals by project type, as each affects particular portions of the target population. For example, erosion control projects usually employ ex-miners, and food supplenment schemes are targeted to mothers and infants. The beneficiaries are explicitly considered in two groups: those who receive employment during the investment period, and the beneficiaries of the completed project. For example, an erosion control project in a poverty-stricken area will be preferred to a similar project in a wealthier are:3.  5- Organization and Staffing 2.5 ESF is headed by a widely respected and capable businessman, who was closely involved in formulating the New Economic Policy. He has recruited a staff of able, young and highly motivated professionals. As of December 1987 its entire otaff numbered about 72. It is organized and equipped appropriately (see organization chart, Attachment 7 and the sections below on each major function). During 1987 it showed considereble flexibility in evolving to meet new requirements as they have become apparent. Its administrative costs in 1987 and its budget for 1988 and 1989 are between 2.5 and 32 of its total program amount, which is reasonable. By the terms of the Supreme Decree, not more than 1Z of funds received from the National Treasury may be spent on administration; *'le remainder must be funded by external donors. Program Targets and Capacity 2.6 ESP plans to provide financing of US$130-180 million over the three years, the exact level depending on the international support forthcoming. Each year of the program is expected to create, on average, about 20,00 man-years of employment. By the end of December 1987, it had 44 projects already completed, another 418 in operation or finally approved, and some 150-200 under evaluation (Attachment 2). The average project was expected to take eight months to carry out (with a maximum of 24 months) and to cost about US$80,000. Although starting only in March, by the znd of December ESF had committed US$37 million, creating 13,600 man-years of employment and providing direct health, nutrition and educational assistance to some 155,000 beneficiar.ies. It had disbursed US$10 million, a considerable accomplishment in Bolivia's present circumstances. In November and December ESF was receiving 25-30 requests and approving 15-20 per week, for a weekly commitment of US$l.2-1.8 million; weekly disbursements were US$0.6-0.8 million. This implies a commitment rate of US$5-6 million per month, an appropriate 'cruising speed' in relation to the financing available. Fund-Raising/Previous IDA Assistance 2.7 During the December 1986 meeting of the Consultative Group on Bolivia, the Association accepted a lead role in helping to structure the newly created ESF, to provide IDA resources, and to coordinate fund-raising efforts directed at other multilateral and bilateral sources. So far, funding of about US$59 million is assured (Attachment 1). This includes US$8 million from the National Treasury. two loans totalling US$9 million from the Inter-American Development Bank, an IDA credit of approximately US$10 million (SDR 7.8 million) under the Emergency Social Fund Project approved by the Board in June 1987, and the following grants: Switzerland Sw.Fr.15 million (about US$11 million), the Federal Republic of Germany DM15 million (about US$9 million), the United Kingdom