Bolivia - Social Investment Fund Project

Document of The World Bank FOR OFFICIAL USE ONLY C_ASZ Z/2 2w _- Report No. 8248-BO STAFF APPRAISAL REPORT BOLIVIA SOCIAL INVESTMENT FUND PROJECT MARCH 26, 1990 Human Resources Division Country Department III Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by rcipients only in the performance of their officiil duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURF.RENCY EQUIVALENCY UNITS Currency Unit = Boliviano (Bs) Bs 1.0 = US$0.35 US$1.0 = Bs 2.86 FISCAL YEAR January 1 - December 31 ABBREVIATIONS ASONG Asociaci6n de Organizaciones No Gubernamentales (Regional Association of Non-Governmental Organizations) CA Consejo Administrativo (Administrative Council) CONAPSO Consejo Nacional de Politica Social (National Council for Social Policy) CONES Consejo Nacional de Edificaci6n Escolar (National School Construction Council) EMSO Economic Management Strengthening Operation ESF Emergency Social Fund FENASONG Federaci6n Nacional de Asociaciones de Organizaciones No Gubernamentales (National Federation of Non-governmental Organizations) IDA International Development Association IHDP Integrated Health Development Project INE Instituto Nacional de Estadisticas (National Statistical Institute) MEC Ministerio de Educaci6n y Cultura (Ministry of Education and Culture) MPC Ministerio de Planeamiento y Coordinaci6n (Ministry of Planning and Coordination) MPSSP Ministerio de Previsi6n Social y Salud Publica (Ministry of Social Welfare and Public Health) NGO Non-Governmental Organization OPEC Fund of the Organization of Petroleum Exporting Countries PAS Programa de Asistencia de Salud (Health Assistance Program) RA Requesting Agency RDC Regional Development Corporation SIF Social Investment Fund SOBOMETRA Sociedad Boliviana de Medicina Tradicional (Bolivian Society of Traditional Medicine) SOE Statement of Expenditure SPS Subsecretaria de Previsi6n Social (Subsecretariat for Social Security) SSP Subsecretaria de Salud Publica (Subsecretariat for Public Health) TCU Technical Control Unit (SIF) TGN Tesoro del Gobierno Nacional (National Treasury) UNDP United Nations Development Programme UNICEF United Nations International Children's Emergency Fund I  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT BOLIVIA SOCIAL INVESTMENT FUND PROJECT Page No. BASIC DATA SHEET .................................................. iii CREDIT AND PROJECT SUMARY.. v I. INTRODUCTION. 1 II. MACROECONOMIC SETTING .1 III. THE SOCIAL SECTORS ....................................... 3 Social Indicators. 3 Health Sector: Organization and Institutions 4 Education Sector: Organization and Institutions 5 The Emergency Social Fund (ESF). 7 Lessons Learned through the ESF Experience. 9 Transition from Emergency to Longer-Term Development 10 The Social Investment Fund (SIF) .11 IDA Assistance Strategy in the Social Sectors. 12 IV. THE PROJECT .13 Objectives .13 Summary Project Description .14 Detailed Project Description .15 V. PROJECT IMPLEMENTATION .18 Institutional Arrangements .18 Subproject Identification and Appraisal .18 Sector Coordination .21 Information Management, Monitoring, and Evaluation 22 Supervision .23 Beneficiary Contributions .23 Accounts, Auditing, and Reporting .23 This report is based on the findings of an appraisal mission consisting of Constance Sepeda (mission leader), Luisa Gomez-Castellanos (Consultant), and Julie VanDomelen (Consultant), which visited Bolivia in November 1989. It also incorporates the findings of an earlier preparation mission led by Maryvonne Plessis-Fraissard and benefits from contributions made by Margaret Grosh (Economist), and Mary Barton (Consultant). 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.|  - ii - Table of Contents (Continued) Page No. VI. PROJECT COSTS. FINANCING. DISBURSEMENTS AND PROCUREKENT .. 24 Project Costs ..................... .................... 24 Financing Plan ........................................ 25 Cofinancing Arrangements ............ .................. 26 Disbursements ........... 27 Procurement ........ .............. ..................... 27 VII. BENEFITS AND RISKS ....... ................................ 29 Benefits .............................................. 29 Risks ................................................. 30 VIII. AGREEMENTS AND RECOMMENDATION ............................. 31 Agreements Reached at Negotiations . . 31 Recommendation ......................................... 34 LIST OF ANNEXES I Public Spending in Health and Education, 1980-88 .35 II Key Features of SIF Compared with ESF . .42 III Key Provisions of SIF Supreme Decree . .45 IV SIF Subproject Selection Criteria and Evaluation Methodology . .47 v Technical Assistance ..62 VI Project Implementation Program ..70 VII Poverty Targeting Methodology .. 74 VIII SIF's Internal Monitoring System ..78 IX Detailed Project Costs .......................... ....... 80 X Financing Plan ..81 XI Disbursement Tables ..82 XII Procurement Tables .................................. 84 XIII Selected Documents and Data Available in the Project File ..86 MAP: IBRD No. 20516  - iii- 9OLIVIA Social Investment Fund Proiect BASIC DATA SHEET DATA YEAR SOURCE A. GENERAL COUNTRY DATA: 1. Total Population (Million) (Estimared) 7.1 1989 WDR 2. Population Projection NMillion) 10 2000 WDR 3. Assumed Year of Reaching Net Reproduction Rate of One --- 2030 WDR 4. Size of Stationary Population (Million) 26 2030 WDR 5. GNP Per Capita (USM) 670 1987 WDR 8. Average Annual GDP Growth Rate (%) -2.1 1980-87 IDA 7. Urban Population as X of Total 50 1987 WDR 8. Literacy Rate (%) 63 1985 IDA 9. Area (1,000 Km2) 1,099 1989 WDR 10. Pop. Density (1,000 per Km2) 6.6 1989 WDR B. POPULATION DATA: 1. Crude Birth Rate (Per 1,000) 43 1980-85 WDR 2. Crude Death Rate (Per 1,000) 14 1980-86 WDR 3. Annual Rate of Population Growth (U) 2.7 1976-88 WDR 4. Total Fertility Rate 6.1 1980-85 WDR s. Age-Specific Fertility Rate: 15-19 53 1988 20-24 201 1988 26-29 211 1988 ENPV 30-34 192 1988 36-39 116 1988 40-44 a8 1988 S. Population Age Structure (%) 0-14 Years 41 1988 ENPV 15-64 Years 66 1988 ENPV 665 Years 4 1988 ENPV 7. Women of Child-bearing Age (16-49 as X of Female Population) 48 1988 ENPV 8. Contraceptive Prevalence Rate (Total X) 24 1983 IDA Modern method 10 1983 C. HEALTH DATA: 1. Population Per Physician 1540 1984 WDR 2. Population per Nurse 2480 1984 WDR 3. Population per Hospital Bed 606 1986 IDA 4. MPSSP Budget as % of GDP 0.8 1988 IDA S. MPSSP Budget as S of Total Govt. Budget 4.3 1988 IDA S. Maternal Mortality (per 10,000) 48 1980 WDR 7. Infant Mortality Rate (per 1,000) 110 1987 IDA 8. Life Expectancy at Birth (Years): Women 56 1987 WDR Men 61 1987 WDR 9. Proportion of Births Attended in a Health Instit. 3o 1986 WDR  iv - DATA YEAR SOURCE D. NUTRITION DATA: 1. Daily Calorie Supply 2143 1986 WDR 2. Calorie Intake as X of RequIrements 98 1996 WDR 3. Prevalence of Low Weight for Ago-Grades 1-3 41 1981 IDA 4. Prevalence of Endemi- Goiter (X of pop.) 64-67 1983-84 IDA E. EDUCATION DATA: 1. Primary Education Enrollment Rate (U) 87 1988 WDR 2. Secondary Education Enrollment Rate (U) 37 1988 WDR 3. Higher Education Enrollment Rate (11) 19 1988 WDR 4. Public Education Expenditures as Share of Total 22.9 1988 IDA General Treasury Expenditures (X) 6. Public Education Expenditures as Shnrr of GDP 2.8 1988 IDA F. BASIC SERVICES DATA: 1. Proportion of Households with Access to Piped Water 59 1988 ENPV 2. Proportion of Households with: Sewerage 23 1988 ENPV Septic Tank 4 1988 ENPV Latrine 16 1988 ENPV 3. Proportion of Houssho!ds with Access to Bathtub or Shower 23 1988 ENP" 4. Proportion of Househulds with Trash Collection 22 1988 ENPV 5. Average Number of Roomes per Household 2.8 1988 ENPV SOURCE: WRD: World Bank, World Development Report, 1989. IDA: Internal rep7rt. ENPV: Encuesta Naclonal de Poblaci6n y Vivienda, 1988, INE. NOTE: WDR figures for population ore based on projections fr m 1976 census.  BOLIVIA SOCIAL INVESTMENT FUND PROJECT CREDIT AND PROJECT SUMARY Borrower: Republic of Bolivia Beneficiaries: Social Investment Fund (SIF)/Emergency Social Fund (ESF) Amount: SDR 15.1 million (US$20.0 million equivalent) Terms: Standard IDA terms, with 40 years maturity Onlending Terms: Grant Project Objectives and Description: The project would support the initial phase (1990-93) ot the SIF program, with a view to assisting the Government in its effort to improve the coverage and quality of basic services in the health and education sectors. It would also contribute to the Government's ongoing effort to strengthen the project executing capacity of public institutions. The project would include: (a) a SIF subproject component; (b) an institutional development component, consisting of administrative support for SIF during its first four years and technical assistance to strengthen its operational capacity; and (c) an ESF training component consisting of a program to familiarize staff of selected public institutions with ESF's information management system for appraisal and supervision of projects. SIF subprojects (averaging US$70,000) would include investment and operational support in: (a) health, including nutrition programs (day-care centers, school lunch programs, and basic infrastructure and training for communities to improve the nutritional content of their diet); basic and primary health care (health posts and limited immunization campaigns); and basic water supply and sanitation infrastructure; (b) education, including construction or repair of primary school classrooms and small community libraries, and provision of equipment, furniture and texts; and short-term adult literacy and practical training programs; and (c) institutional support of Requesting Agencies (RAs) (defined Ls public or private agencies that propose subprojects for SIF financing), to permit expansion of their services to underserved areas. Subproject selection criteria would include: (a) consistency with sectoral strategies; (b) poverty targeting criteria; (c) assessment of community needs; and (d) existence of feasible plans for operation of the subproject beyond the period of SIF's financing.  - vi - Benefits: The project's main benefit would be to establish an institution focussed on directing priority health and education services to the poor through expenditures fully integrated into the public investment program, and fully consistent with medium-term adjustment and sector policies, while retaining the efficiencies of operations achieved by ESF, an innovative temporary institution designed to alleviate the adverse social impact of the Government's stabilization and adjustment program. Additional benefits would include: (a) improved coordination among entities working in the social sectors, including the Government ministries, SIF itself, non-governmental organizations, local governments, and community groups; (b) strengthened capacity of entities providing health and education services to target assistance to the neediest groups and to design projects responsive to the groups' priority needs; (c) improved access for the poorest groups to urgently needed health and education facilities and services, thereby enhancing their potential for better health and higher productivity; and (d) a focal point for mobilization of additional external resources for the social sectors. Risks- The risks affecting the project are mainly institutional, since achievement of project objectives will require that: (a) SIF be provided with sufficient autonomy and key staff to carry out its mandate; and (b) close coordination among key institutions (e.g., between SIF and the ministries) be established. There is also a risk that financial constraints may prevent continued operation of subprojects beyond the period of SIF finaacing. These risks are being managed through: (a) the Government's commitment to maintain SIF with the mandate to satisfy basic needs in health and education, with key staff whose qualifications and experience are satisfactory to IDA; (b) coordination agreements, satisfactory to IDA, between SIF and the corresponding ministries specifying, inter alia, that SIF's annual program would be reviewed and incorporated into the public expenditure program, and that, where operating costs of a subproject would be covered by the corresponding ministry, the ministry's prior approval of the subproject would be sought; and (c) appraisal criteria providing that approval of all subprojects will be contingent upon presentation of a satisfactory plan for continuation of operations beyond the investment period and demonstration that the costs have been included in the budget of the responsible entity. Coordination with sector strategies would be enhanced through participation of the Under Secretary of Planning for Social Policies in SIF's Administrative Council and participation of SIF's Executive Director in the National Council for Social Policy.  - vii - Estimated Costs: a/ Local Foreign Total -------US$ Million------ SIF, Subprojects Health 51.2 6.7 57.9 Education 26.8 2.0 28.8 Institutional Support to RAs 0.6 0.0 0.6 Subtotal 78.6 8.7 87.3 SIF Institutional Development Fixed-term SIF staff salaries, travel, training 4.8 0.2 5.0 Equipment, vehicles, maintenance 0.6 1.8 2.4 Technical Assistance 0.4 0.3 0.7 Subtotal 5.8 2.3 8.1 ESF Training Program 0.0 0.2 0.2 Total Costs 84.4 11.2 95.6 a/ Exclusive of taxes and duties, which are not applicable. Financing Plan: US$ Millions IDA 20.0 IDA/Health a/ 5.3 RAs 6.9 Beneficiary Communities 10.2 Government 9.6 Cofinancing 43.6 Total 95.6 a/ Amount to be channeled through SIF for health investments under the Integrated Health Development Project. Estimated IDA Disbursements: IDA Fiscal Year 1991 1992 1993 1994 ---- US$ Million-------------- Annual 3.7 8.0 6.5 1.8 Cumulative 3.7 11.7 18.2 20.0 Rate of Return: Not applicable Map: IBRD No. 20516  BOLIVIA SOCIAL INVESTMENT FUND PROJECT I. INTRODfCTION 1.01 The Government of Bolivia has asked the Association to participate in the financing for a new Social Investment Fund (SIF) and to take the lead in mobilizing additional external financing on concessional terms in support of SIF. The project supports institutional development, as well as funding for projects in health and education, aimed at reaching those in extreme poverty and assisting the Government in developing Bolivia's human resource base, an essential element in its medium-term development strategy. 1.02 During the previous Administration, the Emergency Social Fund (ESF) was created to efficiently channel resources through infrastructure and social assistance projects to alleviate the negative impact of the economic crisis on those most affected and to improve delivery of basic services to the poor. ESF is scheduled to close its operations by March 31, 1991. The proposed project would support the creation of SIF as an institution designed to channel investment resources to health and education; SIF would adopt a medium-term development focus through coor- dination of its investment funding with the Government's sector policies and strategies in health and education and with the public sector invest- ment program. SIF would thus assume the role of a principal executing agency for investments in the health and education sectors. 1.03 Under two previous credits in support of ESF (Cr. 1829-BO for US$10 million equivalent and Cr. 1882-BO for US$27 million equivalent), IDA not only provided urgently needed financing for the effort of alleviation of the social costs of adjustment and of poverty alleviation, but also was instrumental in mobilizing about US$100 million in additional external resources to support the effort. Under the proposed project, IDA would continue to assist the Government to obtain needed financing from other donors. The Consultative Group process would provide the main forum for this coordination. II. MACROECONOMIC SETTING 2.01 The Bolivian economy suffered a crisis of staggering proportions in the first half of the 1980s. Political instability, a crushing debt burden, an oversized and inefficient public sector, extensive controls on economic activity, and erratic macroeconomic management combined to produce hyperinflation (reaching 24,000 percent in 1985) and a decline in output of 10 percent by 1985. High tariffs and quantitative controls, an overvalued exchange rate, price controls and strong regulations, caused a growing share of production to be shifted to the informal sector. Hyperinflation coupled with controls on interest rates and other financial restrictions led to a flight from the peso and a sharp drop in private investment. Economic disruption fomented intense labor disputes, as social groups competed to at least maintain their share of a rapidly shrinking pie.  - 2 - 2.02 The Government that took office in August 1985 immediately under- took an orthodox stabilization program which abruptly ended the hyperinfla- tion. Strict fiscal and monetary discipline was imposed, while most price controls were eliminated and the Bolivian peso was devalued. Bolivia has enjoyed remarkable price stability (compared to other Latin American countries) since 1986. In conjunction with its stabilization program, the Government also implemented a comprehensive structural adjustment program, with the central objective of restoring a preeminent role to the price system in the allocation of resources and reducing the relative size and importance of the public sector in the economy. As part of its adjustment program, the Government: (a) eliminated most quantitative trade restric- tions and instituted an almost uniform tariff policy; (b) liberalized interest rates and other credit controls, while abolishing subsidies; (c) initiated a restructuring of the banking system to increase the sound- ness of bank portfolios; (d) eliminated price controls; (e) introduced a flexible, market-determined interest rate policy; (f) reduced restrictions on employment practices and wage negotiations; and (g) began a reform of public sector enterprises, including drastic employment reductions in the state mining company (triggered by the collapse of the price of tin in late 1985), a reorganization of the Central Bank, the first steps towards the privatization of some state enterprises, and tighter controls on wages throughout the public sector. 2.03 As a result of the adjustment measures, private sector confidence has been bolstered, and its participation in the economy has grown, with increased market competition and efficiency. The easing of employment regulations increased labor discipline and reduced the incidence of strikes, while productivity at the firm level increased as redundant workers were dismissed. In the medium term, this liberalization should increase the demand for labor and consequently lead to a rise in wages and employment (although its short-term effect may be a general decline in wages and employment in the formal sector of the economy). Key aspects of public sector administration have shown remarkable improvement, thereby contributing to the short-term fiscal adjustment while laying the basis for continued improvement in the medium term. Achievements include: (a) an overhaul of tax administration; (b) introduction of a public expenditure accounting system to increase reliability of public spending data--a pre- requisite for efficient fiscal control; (c) introduction of a computerized system to improve planning and tracking of public investment; and (d) strengthened capacity of the Central Bank to carry out monetary controls. 2.04 Nevertheless, much remains to be done to improve the present macroeconomic policy framework and to consolidate the gains already made. The fiscal accounts must remain under tight control, and essential institu- tional improvements must be implemented. Continued efforts are needed particularly in the areas of revenue collection, reform of public sector wage and employment practices, proceeding with implementation of the privatization program, and ensuring that the improvements in public sector accounting recently achieved are applied to all public sector entities. The restructuring of the banking system should be followed through to completion, which will require a number of years. Bolivia continues to face a huge debt burden and a large current account deficit, which still shows the effects of the drop in terms of trade in 1985. This scarcity of foreign exchange underscores the need to continue a flexible exchange rate policy and to diversify and expand exports, in order to achieve a substan-  tial increase in the real exchange rate over the medium term. To achieve the needed diversification in production, Bolivia needs a better-trained, more efficient work force, transformation of which will require strong improvements in the delivery of health and education services. 2.05 Investment in key social services is therefore critically important, not only to pursue the goal of poverty alleviation, but also as an integral part of the strategy for structural adjustment of the economy over the medium term. The Government's program emphasizes strengthening the health and education sectors, with SIF assigned a central role in the process. IDA's assistance strategy for Bolivia is to support the Govern- ment's program on three main fronts: macroeconomic adjustment, encourage- ment of private sector development, and poverty alleviation, through measures designed both to generate employment and income for the poor and to improve the delivery of social services through better targeting, increased efficiency, and extension of basic services to underserved populations. III. THE SOCIAL SECTORS Social Indicators 3.01 The population of Bolivia, currently 7.1 million and growing at 2.7 percent annually, is the poorest in South America and has the worst health profile of the continent. Moreover, the massive unemployment and decline in real incomes caused by the economic crisis led to a deteriora- tion in health indicators until 1986. Life expectancy is estimated at 51 years for men and 55 years for women. Infant mortality figures are twice the average for the region, at 110 per 1,000 live births in the 1980-85 period; the rate reaches 277 per 1,000 live births in some poor communities in the highlands and marginal urban areas. Diarrhea-parasitic and acute respiratory infections are the most common causes of infant and child deaths. The maternal mortality rate, at 48 per 10,000 live births, is the highest in the hemisphere, and is associated with frequent births, poor health conditions of mothers, lack of prenatal and delivery care, and an alarming incidence of induced abortions. Tuberculosis is a prominent health problem, and tropical diseases, such as malaria and Chagas' disease, are widespread in the valley and lowland areas. Malnutrition levels are high and endemic: about 60 percent of the population lives in families whose income covers only 80 percent of the minimal daily food requirements, and there is evidence of deterioration of the nutritional status of children during the economic crisis years from 1975 to 1985. 3.02 Unsanitary living conditions exacerbate the poor health status of the population. Only about 69 percent of the urban population anu 10 per- cent of rural households have access to piped water, mainly of unpotable quality. On average, 65 percent of the urban population of the four major cities do not have excreta disposal; virtually none of the rural population has access to such facilities. 3.03 The coverage and quality of education in Bolivia remains a con- straint to the development of the country's human resources, in spite of a dramatic expansion in access to education in the last 30 years (the literacy rate increased from 32 percent in 1950 to 63 percent in 1985).  -4 - About 70 percent of the illiterate population are rural; rates for women are twice those for men. Official estimates for 1987 show that 60 percent of Bolivian six year-olds were enrolled in school, while 95 percent of nine year-olds were enrolled; since 1980, the proportion of school-aged children not attending school has risen by 15 percent. In addition, student dropout and repetition rates are very high for all levels of public education, and classroom conditions are generally very poor, especially in rural areas: about 80 percent to 90 percent of students in rural areas and 40 percent to 50 percent in urban areas do not have access to textbooks. Health Sector: Organization and Institutions 3.04 The health sector comprises a multiplicity of public and private institutions. The Ministry of Social Welfare and Public Health (MPSSP), established in 1948, includes separate Subsecretariats for Public Health (SSP) and Social Security (SPS), both of which administer health services (though to different segments of the population), currently reaching about 26 percent and 20 percent of the population, respectively. Coverage by both subsecretariats has declined since 1982/83 (by 8 and 6 percentage points, respectively), along with budgetary resources (Annex I). Non- governmental Organizations (NGOs) serve about 20 percent of the population, mostly in rural and peri-urban areas. A few municipalities and Regional Development Corporations (RDCs) are active in the health sector, serving a very small percentage of the population on an aggregate basis (though the city of Santa Cruz supports a more extensive health service network than does the MPSSP in that area). Private, for-profit institutions serve less than 5 percent of the population. Traditional medicine is the only recourse of large segments of the population, particularly in rural areas, with about one healer per 500 people. 3.05 The current organization of the public health system administered by the SSP was adopted in 1983 in an effort to improve fulfillment of SSP's mandate: promotion of preventive health care. The Health Assistance Pro- gram (PAS) was developed since 1984 in an effort to decentralize management of the system and to give higher priority to preventive care. It empha- sized community participation and provision of maternal and child care services, workers' health, and water and sanitation. Implementation of the PAS has been hampered by organizational problems and insufficient human and financial resources. One of the objectives of the proposed project is to support achievement of PAS goals by providing financing for needed invest- ments and helping to strengthen institutional coordination between local and central levels. 3.06 The SPS is responsible for policy making and planning of the social security system and administers health benefits through five funds and six insurance plans, all of which emphasize curative interventions, mainly in hospitals, rather than preventive care. The system is character- ized by high administrative costs, while lack of coordination inhibits efficient use of health facilities and investment planning. 3.07 Having proliferated over the last decade, over 300 NGOs provide health and nutrition services in Bolivia. Funded mainly from donations raised in the United States, Europe, and Canada, most are managed by religious, charitable, or civic institutions, and most finance and manage only a few (or even single) service centers. Efforts to improve efficiency by promoting coordination among NGOs in the sector began in 1983 with the  -5- support of UNICEF, leading to the creation of Regional NGO Associations (ASONGs) and subsequently the National NGO Association (FENASONG). The goals of the ASONGs and FENASONG are to improve coordination among NGOs by providing information, training, and technical assistance to members, as well as affording them the opportunity and a forum for sharing experience with each other. Achievement of these goals is hampered, however, by the generally limited managerial and financial capacity and the diverse objectives and working procedures of member NGOs. Moreover, several important NGOs (such as Caritas) are not members. 3.08 Other Providers of Health Services. With the exception of the four largest cities, the local governments generally lack the resources to provide even sanitation infrastructure and waste disposal services, which is generally their main responsibility related to health care. However, three of the four largest cities provide direct health services in addi- tion to maintaining water and sanitation infrastructure: La Paz and Santa Cruz both manage active programs providing health care services, and El Alto supports sanitation and basic health activities based on community participation. RDCs, though not generally active in the health sector, have played a role in mineral- and gas-producing departments in the planning, executing, and maintaining of health facilities, principally in the rural areas. The role of for-profit health providers, which cater to the middle and upper income groups in urban areas, has declined since 1987, as a large number of private medical offices have closed as a result of the economic recession. About 12,000 traditional practitioners (including healers, midwives, and chemists) serve a large proportion of the popula- tion. Support for this diverse group has been provided by UNICEF through a practical (or "empirical") nurse training program and by the Bolivian Society for Traditional Medicine (SOBOMETRA), an association of both tradi- tional and conventional practitioners that emphasizes basic health care through a combination of the two forms of practice. 3.09 Since its inception, ESF has provided funding for execution of both investments and services by many institutions active in the health sector, mainly NGOs, municipalities, and RDCs. In 1988, funding by ESF in the health sector represented about 5 percent of total spending in health, and about 15 percent of spending by MPSSP (Annex I). Under the proposed project, both investments and services to be financed by SIF would be planned in coordination with SSP, to assure rational programming of invest- ments, avoid duplication of effort, and ensure adequate budgeting of incremental operating costs. Education Sector: Organization and Institutions 3.10 The Ministry of Education and Culture (MEC) is responsible for primary and secondary education in Bolivia. Higher education is provided through one private and eight public universities, all of which receive Government funding. In addition, specialized public institutes, decentralized corporations, and private entities administer and execute educational programs. 3.11 The public educational system consists of a 12-year cycle divided into primary education (basic (grades 1 through 5) and intermediate (grades 6 through 8)), and secondary education (grades 9 through 12). At primary through secondary levels, public education is administered through two entirely separate school systems--urban and rural--each with its own  standards and teacher certification requirements. The rural system requires less training for its teachers than the urban system, while offering somewhat higher salaries, in an attempt (only partly successful) to attract teachers to rural areas. In general, both public and private resources have been disproportionately channeled to urban areas. For example, it is estimated that 80 percent to 90 percent of rural students, compared to 40 percent to 50 percent of urban students, lack textbooks. While urban schools have at least five grades, most rural institutions have only three grades. The result is higher dropout rates in rural areas: of those pupils who entered first grade in 1979, about 77 percent of the urban pupils reached fifth grade, compared to 30 percent in the rural areas, and 67 percent of the urban pupils continued on to the next level, as compared to 12 percent in the rural areas. Since literacy and numeracy are not fully achieved in the early primary grades, it is then not surprising that of the 32 percent of the adult population who are illiterate, about 70 percent live in rural areas (while only 50 percent of the population is rural). 3.12 Private schools include both for-profit institutions and schools managed by non-profit NGOs, such as church groups. The private sector is playing an increasingly important role in Bolivian education, especially in the higher grades; in 1987/88, the percentage of students in urban areas enrolled in private schools was about 13 percent at pre-school and basic levels, 17 percent at intermediate level, and 22 percent at secondary level. Moreover, several NGOs are assuming a larger role in supervising public education. In 1988, for example, 70 communities requested that Fe y Alegria (a Catholic NGO) assume supervisory responsibility for their public schools. 3.13 The education system is hampered by a host of problems: poorly trained teachers (a natural result of low quality teacher-training institutions and low teacher salaries); lack of systematic supervision; lack of in-service training; an extreme scarcity of textbooks and other instructional materials (such as paper, notebooks, and pencils); and classrooms that are generally in poor condition, are often overcrowded and lack adequate furniture. All of these problems are directly related to (though not entirely explained by) inadequate budgetary resources. Public spending on education declined by over one third in real terms between 1980 and 1988; as a percentage of GDP, spending fell from 4.1 percent in 1980 to 2.6 percent in 1988 (Annex I). As a result, current expenditures, particularly teachers' salaries, now absorb nearly 100 percent of the budget, crowding out investment, materials, and equipment. ESF helped to fill the gap by providing about US$19 million in 1987(89 for educational infrastructure construction or rehabilitation, equipment, and materials under subprojects supervised primarily by NGOs and community groups. 3.14 While effective use of scarce investment resources requires clear prioritization of investment projects, responsibility for investment planning in education is diffuse and poorly coordinated. In theory, sector goals and objectives are set by the Ministry of Planning and Coordination (MPC), while the National Education Council assists MEC in establishing educational policies. In reality, MPC's role is reduced to a review of investment plans proposed by other agencies, while the decisions to build schools are influenced heavily by the relative pressures wielded by communities rather than through a master plan of priorities and needs. Institutions that participate in programs to improve and expand educational  infrastructure include the National Council for School Construction (CONES), the National Service for Technical Education, the office of Community Development of the Ministry of Peasant and Agricultural Affairs, the Army, RDCs, religious organizations, and peasant communities. CONES focuses on the needs of urban areas, while most of the school construction in rural areas is done by the Army, RDCs and NGOs. 3.15 Under the proposed project, SIF would coordinate with MEC (through CONES) in identifying subprojects to be financed by SIF and included in the public investment program, thereby helping to strengthen the weak existing links of communication. As the MEC's performance in efficiently executing projects has been mediocre at best, however, community and private sector participation (mainly through NGOs) would continue to be emphasized. The Emergency Social Fund (ESF) 3.16 In 1986, the Government created ESF as its primary mechanism for directly improving the condition of the poor and for alleviating the deterioration in social conditions stemming from the adjustment measures. ESF was designed to address the social costs of the economic crisis and the adjustment process by providing temporary employment for those most adversely affected by austerity, and to shore up basic social services in a time of declining government revenues, through fast, efficient provision of financing for small subprojects proposed and carried out by a wide variety of entities. To maximize speed and operational efficiency, ESF was set up independent of the existing public bureaucratic structure, reporting directly to the President of the Republic; was exempted from the normal slow, cumbersome public sector procurement procedures; and was allowed to pay higher salaries than those received by employees of the Central Government. 3.17 Eligible subprojects have included small-scale employment- generating subprojects and social assistance programs, all targeted to low- income populations and areas. Financing for proposed subprojects must be requested by local governments, RDCs, Government Ministries, NGOs, or community groups (thus, the process of project generation is largely demand driven). The subprojects have been executed by commercial contractors or NGOs and supervised by a third party. ESF evaluates each subproject based on sectoral and regional programming priorities, a site inspection, and estimated social benefits; in the case of revenue-generating infrastructure subprojects, a rate-of-return analysis is also carried out. 3.18 Performance and Impact of ESF. A Project Performance Audit Report evaluating the experience under the first IDA credit in support of ESF was distributed to the Board on March 22, 1990. As of October 31, 1989, ESF had approved US$144.5 million in subprojects and disbursed US$108.0 million; 747 subprojects were in execution and 1,243 had been completed. Subprojects are distributed in the following categories: social infrastructure (including water and sanitation, housing, school construction, health construction (posts and clinics), and restoration of the cultural patrimony (e.g., historic churches)) representing 48 percent of total commitments; economic infrastructure (including urban improvements, roads, irrigation, drainage, erosion control, and reforestation) representing 36 percent of total commitments; direct social assistance (including operating costs of health and education projects,  - 8 - such as personnel, school lunches, training, textbooks, desks, vaccinations, and health equipment), accounting for 11 percent of total commitments; and productive support (including lines of credit for cooperatives and purchase of materials for self-help productive projects), representing about 5 percent. 3.19 Benefits and achievements reflect the diversity of interventions. In aggregate, ESF has succeeded in generating over 568,000 man-months of employment--one of its primary objectives. Some quantified benefits by subproject category include: (a) water and sanitation projects are estimated to have directly benefited over 609,000 people; (b) the school renovation and construction program has helped to stabilize the deteriorating condition of public infrastructure, benefitting an estimated 261,000 primary school children; and (c) the road program introduced a successful model of labor-intensive road maintenance to Bolivia, while nearly 7,000 kilometers of rural access roads were opened or maintained, helping to integrate rural areas into the market economy. Benefits of social assistance projects, while harder to quantify, have provided: (a) access to primary health care services to those subject to particularly high health risks, primarily women and children in low-income areas, through the construction of nearly 400 health posts; (b) administration of nearly 2.4 million inoculations; (c) provision of about 640,000 textbooks and nearly 64,000 desks for children of primary school age; and (d) training programs intended to teach productive skills to mainly rural populations reached about 25,000 trainees. 3.20 At the macroeconomic level, the investments made through ESF are estimated to have generated an increase of as much as 2 percent in GDP. These resources have eased the adjustment process by providing more than US$100 million in foreign currency through the end of 1988--financing which may not have been made available without the existence of a vehicle such as ESF. ESF's impact within the economy has been particularly strong on the construction industry: subprojects have been carried out by more than 800 small- and medium-sized construction firms; the number of persons employed for at least one month under ESF-financed subprojects during 1988 is estimated to be greater than such employment in the entire constructIon sector before ESF. 3.21 Poverty Targeting. ESF's mandate called first for provision of temporary employment to individuals displaced by the economic crisis and second for delivery of basic services to the poor. ESF has been very effective with respect to its employment-generating objective: workers employed under ESF-financed subprojects are generally less educated, poorer and spend less on food per capita than the average Bolivian. A survey of urban projects revealed that 43.1 percent of such workers' households fall within the lowest three deciles in per capita food consumption; only 7.6 percent fall within the top three deciles. Further, it is estimated that, on average, workers employed under ESF subprojects earned 43 percent more than they would otherwise have earned. 3.22 With respect to ESF's second objective--provision of basic services to the poor--surveys indicate that virtually all beneficiaries of ESF subprojects were poor. However, ESF was not equipped to distinguish among relative poverty levels of potential beneficiary communities, nor to accurately target the infrastructure and social services it provided to specific groups. The limitations in targeting resources to the neediest  - 9 - groups is partly a direct result of the demand-driven nature of ESF. Typically, the poorest communities are also those with the weakest institutions, access to information, and links to communication systems. These factors are crucial in determining Government and NGO presence in many of the neediest areas of Bolivia; this has meant that institutional intermediaries are not available for organizing projects in the poorest areas. In the absence of an institution with which to work, even outreach efforts by ESF staff could not succeed in generating projects in such communities. 3.23 The Government and ESF leadership believed that, in view of the devastating effects of the economic crisis on the vast majority of the population, which lives in poverty even in prosperous times, and given the nature of ESF subprojects, the benefits would necessarily reach the general target group, even if the majority of beneficiaries were not at the very bottom of the income scale. Nevertheless, ESF recognized early on the limitations stemming from its demand-driven format of subproject generation, and evolved mechanisms to approximate a poverty-targeted approach. First, a Promotion Department was created to identify target areas and approach institutions in those areas to inform them of ESF and how they might take advantage of its benefits, encourage the demand for social assistance projects, and provide some assistance te subproject sponsors (RAs) in preparing acceptable proposals. Second, to help orient the Promotion Department's activities, a system was established to set funding targets by political Department, taking into account factors such as: GNP per capita, institutional capacity, unemployment, infant mortality, urban social infrastructure, condition of rural life, and school attendance. Actual funding levels have closely adhered to these department targets. However, in view of the wide variations in income distribution within political departments, this was necessarily a crude mechanism. Improved targeting of benefits would require socio-economic profiles of potential beneficiary communities, which have not been available to date. During 1989, a working group in ESF began to compile a data base on communities to address this problem and to develop a methodology to improve poverty targeting; this methodology will be used by SIF. Lessons Learned through the ESF Experience 3.24 The ESF experience provides a number of valuables lessons. First, as discussed above, alleviation of structural poverty requires modification of the demand-driven format with greater direction and care in targeting investments and services to ensure that the neediest groups are benefited and that their most urgent needs are addressed. Second, the large role played by NGOs in the health and education sectors underscores the value of continuing to build the links established with such agencies (paras. 3.07, 3.12). ESF achieved notable success in establishing a cooperative relationship with NGOs and other private groups working at the local level, setting an encouraging precedent for future efforts. It was ESF's reliance on such agencies that made possible the rapid identification of hundreds of small projects. Reliance on contracts with the private sector for execution of civil works and other aspects of subproject execution was also important in achieving rapid disbursements. Third, financing of investments must be coordinated with budgeting of funds to cover operating costs to ensure the flow of benefits from infrastructure investments. Fourth, a simplified procurement process can be successfully applied for small and widely dispersed subprojects, provided an effective system of  - 10 - quality control supplies the necessary checks and balances. Fifth, highly qualified leadership and staff is essential to the success of such a program, and the incremental costs made necessary by the higher-than- average salaries needed to attract such staff are exceeded by the efficiencies obtained, both in speed and in quality of work accomplished. All of these lessons are being taken into account in the design of SIF and the proposed project. Transition from Emergency to Longer-Term Development 3.25 A longer-term, development-oriented perspective evolved within the Government as the sense of economic emergency gave way to a more considered appraisal of Bolivia's development needs. The Government's long-term development strategy would emphasize private sector initiatives to generate employment (para. 2.05), while public spending would focus more heavily on development of Bolivia's human resources by improving provision of essential health and education services. This effort will require strong management to assure that investments in social infrastructure and services are allocated within coherent sectoral development strategies by effective institutions. 3.26 The central question concerns how best to pursue these long-term objectives, and specifically, what is the most effective long-term institutional arrangement to accomplish these goals. In view of ESF's considerable success in efficiently channeling investment resources in a number of sectors, the possibility of continuing ESF, either in its existing form or with some modifications, was considered. However, several factors weigh against this choice. First, ESF was not designed as an instrument to integrate its projects with sector strategies and the overall public investment program, but rather to select subprojects quickly with strong emphasis on their short-term Amployment effect. Since it funded a broad range of investments in several different sectors, in some cases acting in areas that were more properly under the purview of other agencies, there exists a potential for duplication of effort, inconsistencies, and therefore inefficient resource allocation, which would increase with time. Second, the exemptions from normal public sector operating procedures granted ESF could not be continued on a long-term basis without creating distortions within the public administration. 3.27 At the same time, it was recognized that the MPSSP and MEC--the line ministries in the very sectors in which the Government wishes to increase its resource allocation for both investment and services--have relatively weak capacity for planning and supervising the execution of investments. In contrast to agencies in other sectors in which ESF was active, such as roads, the requirements of managing large and complex systems for provision of health and education services, respectively, leave MPSSP and MEC few resources (either financial or human) to dedicate to the sectors' investment needs. To address this problem, the Government decided that what was needed was a permanent institution that would: focus exclusively on health and education; be structured to coordinate with the respective ministries, with its programming well integrated into the sector strategies and investment plans; build upon ESF's strengths with respect to efficient funding and management of investment projects and coordination with the wide range of public and private agencies, particularly NGOs, active in health and education (paras. 3.07-3.08, 3.12); and target its benefits to the neediest communities (a mandate that the sectoral  - 11 - ministries, are at present ill equipped to carry out). Such an institution would complement rather than duplicate the efforts of the line ministries and would be a cost-effective way of enhancing public investment capacity in these critical sectors. The Social Investment Fund (SIF) has been created to carry out this mandate. Over the longer term, as the sectoral ministries acquire the necessary project planning, execution, and evaluation capabilities, as well as the ability to target benefits to the poorest segments of the population, SIF itself would be phased out. 3.28 The operating life of ESF has been extended to March 31, 1991 (it was originally to have been closed at the end of 1989), to permit a smooth transfer of its systems to SIF, while it phases out its own subproject financing activities. ESF's "bank' of subproject proposals (those that have been pre-appraised but that ESF was unable to finance due to funding or time constraints) in areas such as roads, housing and irrigation will be transferred to the appropriate agencies. In addition, the ESF has developed a program for training staff of interested public institutions to familiarize them with ESF's systems for managing information and controlling costs in the process of subproject appraisal and execution. This program would be supported under the proposed project. The Social Investment Fund (SIF) 3.29 Drawing on the ESF experience, SIF has beer created as an institution capable of attracting and efficiently channelling external resources to help address the country's needs in health and education. Its objectives are to: (a) increase external assistance to the social sectors by providing an efficient mechanism for donors to. contribute to priority investments in health and education; (b) extend coverage of health, education, and water and sanitation services to reach more of the poor in Bolivia; and (c) provide a coordinating link with the many agencies active in the social sectors, including them as participants (subproject proposers and executors) in its program. It will not adopt ESF's central goal of employment generation in choosing subprojects for funding, and will stress instead identification of subprojects that would meet the most urgent needs of poor communities. (Annex II presents a summary of SIF's main features compared with those of ESF). 3.30 Organizational Structure and Staffing. The Supreme Decree that established the SIF provided it with legal autonomy under the direct oversight of the President of the Republic (Annex III). The Executive Director of SIF, appointed by the President, has the rank of Minister. SIF's Executive Director is a full member of the National Council on Social Policy (CONAPSO), which is chaired by the President of the Republic and comprises the Minister of Planning and Coordination (MPC) (Vice President of CONAPSO), and the Ministers of MPSSP, MEC, and Labor. The Administrative Council (CA), SIF's Board of Directors, consists of SIF's Executive Director, the Under Secretary of Planning for Social Policy, and three other members appointed by the President. The CA is charged wi h establishing SIF's internal structure, work programs, and procedures, approving all subprojects for SIF financing, and presenting semi-annual reports of SIF's activities to the Government. 3.31 SIF's Executive Director is supported by a Deputy Director, three operational departments (Health, Education, and Supervision), four administrative departments (Legal Affairs, Fund-raising, Administration and  - 12 - Information), and two units (Auditing and Technical Control) which report directly to the Executive Director. SIF would have a professional staff of about 100 people (65 percent of ESF's staff). Administrative costs of ESF have averaged about 3 percent of its total overall budget; SIF's annual administrative costs are expected to reach about 4 percent to 5 percent of its total annual budget, owing to more intensive promotion and evaluation procedures. About one third of SIF's administrative costs would be covered by support from the National Treasury; the balance would be funded by external donors (it is expected that all cofinanciers would allocate a percentage of total funding to administrative costs). 3.32 Programming. While the capacity of ESF was determined primarily by the level of international support available, SIF's programming would be mainly a function of the absorptive capacity of the social sectors. Once fully operational, SIF expects to commit about US$40 million annually to subprojects in health and education (compared with US$23 million committed annually by ESF in those sectors). Although SIF's ability to fund subprojects will ultimately still depend on the international community's continued willingness to provide financing, the amount that can be committed annually will also be heavily determined by the speed with which the more demanding subproject appraisal procedures (which require application of poverty targeting mechanisms and appraisal of requesting agency institutional capacity, including their ability to finance the recurrent costs of SIF-financed subprojects) can be accomplished. Average subproject size is estimated at US$70,000. IDA Assistance Strategy in the Social Sectors 3.33 Under the umbrella of IDA's overall strategy for support of the Government's objectives of laying the basis for sustained economic growth and improving the living conditions of the bulk of the population (para. 2.05), IDA's strategy for assistance in the social sectors is focused on long-term institutional strengthening, development of appropriate sector policies and strategies, concentration of resources on primary health and education, and extension of coverage through financing for both public and private agencies. As part of this strategy, IDA has supported ESF with two credits (1829-BO of SDR 7.8 million (US$10 million equivalent), intended as a pilot project, and 1882-BO of SDR 19 million (US$27 million equivalent), intended as support for the main phase of ESF operations). In addition, IDA is supporting the strengthening of MPSSP with a credit for the Integrated Health Development Project (paras. 3.34(c) and 4.06, below). IDA played a particularly active role in collaborating with ESF in the setting of program objectives and procedures and in the supervision of ESF. As a result, IDA was instrumental in mobilizing cofinancing for the two projects; the success of the ESF program has also attracted other donor support for ESF not tied to the IDA-financed projects. 3.34 The proposed project is an integral part of the package of actions developed by the Government to fulfill its broad social and economic objectives. The proposed credit would provide IDA support for the vital transition from ESF to the development objectives of SIF, while assuring continued financing for urgently needed investments in health and education  - 13 - essential to human resource development in Bolivia. It would complement other ongoing and proposed IDA-supported projects, including: (a) the Economic Management Strengthening Operation (EMSO) (Cr. 1977-BO), which supports strengthening of public sector management and improved coordination of the public investment program; (b) the Export Corridors Project (Cr. 2012-BO), which supports export promotion and reduction of export delivery costs through improvements in transport infrastructure. A portion of the credit (for labor-intensive maintenance works and drainage improvements on the main routes) was designed to be channelled through ESF during its final phase; (c) the Integrated Health Development Project (IHDP), which supports institutional development of MPSSP, improved training and distribution of human resources, and the implementation of an Integrated Health Care Model in the cities of Santa Cruz, Cochabamba, La Paz and El Alto. Financing for infrastructure under the project will be channelled through SIF; (d) a proposed Primary Education Project, which would support institutional development for the education sector, including strengthened planning and management of the primary education systems; and (e) two proposed projects in water and sanitation: (a) an urban project to extend the existing infrastructure network in Bolivia's major cities; and (b) a rural water supply project in low-income communities in the Altiplano area. 3.35 The complementarity of the proposed project with those listed above is in itself an important element in IDA's assistance strategy. IDA's support for policy and sector strategy formulation through the EMSO project, the IHDP, and, eventually, the proposed Primary Education Project, would strengthen the policy guidance to be provided by line ministries to the SIF. Support for SIF through the proposed project would help to assure effective translation of those policies into investment and actions at the community level, through its strong emphasis on community participation and its specific mandate to identify and help satisfy the basic needs of the poorest segments of the population. IV. THE PROJECT Objectives 4.01 The principal objective of the project is to support the initial phase (1990 through 1993) of the SIF program, with a view to assisting the Government in its effort to improve the coverage and quality of services in health and education by: (a) devolving increased responsibility to local governments and NGOs; (b) shifting priorities towards basic and preventive health care and towards primary education; (c) developing mechanisms to improve the targeting of social programs to the poor; and (d) introducing  - 14 - procedures to facilitate coordination among the various actors in the social sectors. The project would also contribute to the Government's ongoing effort to strengthen public sector institutions' project executing capacity through support for a training program for selected public agencies to familiarize them with ESF's information management systems. IDA's support for the project forms an integral part of its sectoral and overall assistance strategy for Bolivia (paras. 3.34-3.35). Summary Project Description 4.02 The proposed project would consist of: (a) SIF subprojects; (b) SIF institutional development; and (c) an ESF training program. The proceeds of the credit would be lent to the Republic of Bolivia, which would pass them on in grant form to SIF and ESF, which would have overall responsibility for execution of their respective parts of the project. SIF's financing of subprojects would be on grant terms. 4.03 SIF Subprojects. The project would support subprojects in the education and health sectors selected by SIF according to selection criteria and appraisal procedures agreed with IDA (Annex IV). The project is defined to include all subprojects carried out by SIF and financed in part with funds provided by cofinanciers under the project, as well as those financed in part from the proceeds of the proposed credit. All such subprojects are to be selected according to the same eligibility criteria and carried out under the same appraisal and supervision procedures as are applicable to subprojects financed from the proceeds of the proposed credit. Moreover, subprojects financed from other sources would also be governed by the same rules. Eligible subprojects under the project would include: (a) health, including nutrition programs (day-care centers, school lunch programs, and basic infrastructure and training for communities in improving the nutritional content of their diet); basic and primary health care (health posts and limited immunization campaigns); and basic water supply and sanitation infrastructure; (b) education, including construction or repair of primary school classrooms and small community libraries, and provision of equipment, furniture and texts; and short-term adult literacy and practical training programs; and (c) institutional support of Requesting Agencies (defined as public or private agencies that propose subprojects for SIF financing), to permit expansion of their services to underserved areas. RAs selected for institutional support subprojects would be appraised to determine institutional capacity according to a methodology satisfactory to IDA. Such subprojects would be designed to support an investment subproject in either health or education to be carried out by the RA in an underserved area and would be conditioned on the carrying out of that investment subproject. 4.04 SIF Institutional Development. This component would consist of: (a) support for the administration of SIF during its initial three years: (b) improvement of an information system and data base intended to enhance SIF's ability to appropriately design, target and monitor subprojects, with a view to maximizing their desired impact; and (c) consultants, services to carry out studies related to the development and improvement of SIF's financial management and operational capability. To achieve the above purposes, the credit would finance about 130 man-months of technical assistance, 100 man-years of fixed-term technical staff time, training and travel expenses related to the administration of SIF, and incidental expenses related mainly to data collection.  - 15 - Detailed Project Description 4.05 SIF Subprojects. The following types of subprojects would be eligible for financing under the project.1 (Detailed subproject selection criteria are provided in Annex IV). (a) Health (i) Day care and child nutrition centers: Construction, repair, or expansion of facilities, provision of equipment and supplies, and financing of operating costs (for a maximum of 18 months) of centers: (a) providing day care for children of 6 months to 6 years, in single-parent households or whose parents must both work; or (b) providing meals to children under the age of 14 who must work full time; (ii) School meal programs: Provision of equipment and operating costs (for a maximum of 18 months) to assist in initiating programs for the distribution of one meal per day to children of pre-school age to 12 years in areas judged to suffer from significant nutritional deficiencies; (iii) Nutrition training and development programs: An integrated program designed to improve the diet of poor rural communities, consisting of installation of basic infrastructure (such as wells or cisterns and simple greenhouse structures of plastic sheeting), provision of simple tools, seeds, and fertilizers, and training for beneficiaries in improving the nutritional quality of their diets. (iv) Basic and primary health care: Construction, expansion, or repair of health posts, provision of basic equipment, supplies, and medicines, financing of personnel and other operating costs (for a maximum of 18 months), training for para-medical personnel (nurse's aids, midwives, and health promotion agents), and basic health and hygiene education programs for the beneficiary communities. (v) Immunization campaigns: Provision of medicines and supplies, travel expenses, and material for community education required for the carrying out of immunization campaigns in areas threatened by epidemics of specific diseases and with a high percentage of population in SIF's target group. (vi) Water supply and basic sanitation: Installation of basic infrastructure (e.g. wells, distribution pipes or ducts, small-scale sewerage systems or latrines), in marginal urban 1/ SIF also plans to finance from other sources, as available, cultural subprojects, such as rehabilitation of buildings of historical or cultural interest. SIF's approval of financing for such subprojects would be contingent on specific earmarking of funds for the purpose by exte-nal donors or lenders.  - 16 - areas and rural communities, combined with training for communities in the importance, treatment and use of safe, potable water and the importance of basic hygiene. (b) Education (i) Construction, expansion, or repair of primary school buildings in depressed urban areas or rural areas, and/or provision of equipment, furniture, instructional supplies, or textbooks. (ii) Repair or expansion of buildings or rooms for use as libraries in target communities, as a complement to ongoing formal or informal educational programs; provision of equipment, furniture, and reading materials; and financing of operating costs (for up to 18 months). (iii) Repair or expansion of facilities used for short-term training programs for adults with less than secondary education, provision of tools and supplies, and financing of operating expenses (for up to 18 months). (c) Institutional Support for RAs Construction of new buildings or modification of existing structures, together with provision of equipment, supplies and financing of initial operating costs (up to 18 months) necessary to permit installation of a base of operations in an underserved target community. Institutional support subprojects must be linked to a subproject in health or education. 4.06 To ensure sustainability of subproject benefits, all RAs would be required to submit a plan for coverage of subproject operating costs beyond the start-up period as a condition of approval. All subprojects involving construction would adhere to SIF guidelines incorporating norms established by and agreed with MPSSP or MEC. Funds for investment under the IHDP would be channeled through SIF, which would be responsible for their supervision. Any additional health subprojects that would involve new construction would be based on similar designs, and would receive final approval by MPSSP. In education, prototype models for primary schools used under the ESF program were found to be generally cost effective and would serve as general models. Mechanisms have been established for coordination of SIF with the MPSSP and MEC, respectively, to ensure consistency of all subprojects with sectoral policies, investment plans, and, where necessary, current expenditure budgets (see paras. 5.13-5.14, below). 4.07 SIF Institutional Development. The institutional development component would focus on building the institutional capacity of SIF as well as on the smooth phase-out of ESF and dissemination of its information systems and subproject appraisal and supervision methodologies to selected public agencies. 4.08 Institutional strengthening of SIF. As compared with ESF, SIF's mandate calls for substantially greater emphasis on poverty targeting, institutional issues (including assessment of RAs) and monitoring and  - 17 - evaluation of subprojects, to include assessment of the subprojects' real impact on beneficiary groups. SIP would require technical assistance to develop improved methodologies for these tasks and to train staff in their correct use. Specifically, consultants would be needed to assist in development of guidelines for measurement of poverty in a community and assessment of priority needs; appropriate adaptation of subproject models to local conditions and needs; appraisal of institutional capacity of RAs (particularly important in the case of social assistance (e.g. nutrition or training) subprojects); appropriate methodologies for monitoring the execution and impact of various types of health and education projects; and optimal design of informal training programs. In addition, the increased need for information management and analysis would require a D.inicomputer and software to enhance the systems that SIF would share with ESF and retain when ESF closes; technical assistance would be needed for the installation of the new equipment and to help SIF eliminate problems in its use as they arise. Finally, SIF would also receive periodic technical assistance to strengthen technical skills and to analyze and recommend solutions to operational problems as they arise. A total of 130 man-months of technical assistance would be used for these tasks. Final terms of reference for each task would be submitted to IDA for review prior to selection of consultants; selection would be carried out according to procedures satisfactory to IDA (para. 5.11). (Annex V provides detailed descriptions of tasks for which technical assistance will be required). 4.09 SIF Operations. The project includes support to establish SIP as an institution with the administrative and technical soundness required to achieve the objectivres of the program. To accomplish this objective, the costs (during 1990 through 1993) of salaries of fixed-term technical and managerial staff, their travel and training expenses, additional office equipment and supplies have been included in the project cost and would be partially financed from the proposed credit. Included in the administrative costs are expenses related to development of an expanded information management system, including a data base of community profiles, which would be used not only in the course of SIF operations, but is also expected to be a valuable input for MEC, MPSSP, and MPC in planning public expenditures, including investments. SIF's administrative costs also include those related to developing an enhanced program of monitoring and evaluation of subprojects as well as periodic evaluation of SIF's institutional performance which will entail substantially more allocation of SIF staff time. The monitoring exercise would be carried out yearly under terms of reference designed in consultation with IDA. 4.10 ESF Training Program. The project would support the carrying out of a training program for other public agencies to familiarize them with ESF's systems for information management used in subproject appraisal and supervision. The program would be organized as a series of seminars; the outline for the seminars, together with the list of teaching materials and criteria for selection of participating agencies, would be subject to IDA's prior review.  - 18 - V. PROJECT IMPLEMENTATION Institutional Arrangements 5.01 SIF. SIF would have overall responsibility for the project, except for the ESF training program. The Borrower would pass on the proceeds of the credit in grant form under subsidiary contractual arrangements, satisfactory to IDA, to be signed by the Borrower with SIF and ESF, respectively. It would be a condition of effectiveness that the contractual arrangement between the Borrower and SIF had been duly signed and ratified (para. 8.03 (a)). It would be a condition of disbursement for the ESF Training component that the contractual arrangement between the Borrower and ESF had been duly signed and ratified (para. 8.04 (a)). 5.02 SIF was established by supreme decree under the direct oversight of the President of the Republic with the mandate to satisfy basic needs in health and education for the poorest segments of the population. To strengthen its coordination with the normative ministries in the social sectors, the Under Secretary of Planning for Social Policy will sit on its administrative council, and the National Commission on Social Policy (CONAPSO--an inter-ministerial commission that includes the Ministers of Public Health and Education) would approve its work program. It would be a condition of effectiveness that a Regulatory Decree incorporating SIF's by- laws specifying its organizational structure had been issued in a form satisfactory to IDA (para 8.03 (b)). Assurances were obtained at negctiations that the mandate, scope of operations, structure, operating procedures, and staffing of SIF would continue to be maintained in a manner satisfactory to IDA (para. 8.02 (a)). 5.03 ESF. ESF would have responsibility for carrying out the training component, as well as for phasing out its operations by March 31, 1991 and for the orderly transfer of its physical assets to SIF by June 30, 1991. At negotiations, agreement was reached with the Government on an implementation program specifying, inter alia, the arrangements and timetable for carrying out ESF's training program, and a timetable for the phase-out of ESF operations, the transfer of its assets to SIF by 'une 30, 1990, and its termination by no later than September 30, 1991 (para. 8.02 (b)) (Annex VI). Subprcject Identification and Appraisal 5.04 SIF has adopted a subproject processing cycle that differs in important respects from the pattern of project generation employed by ESF (paras. 3.17, 3.22), reflecting SIF's more active role with respect to subproject selection to assure consistency with sector policies and adequate targeting of benefits to underserved groups. As distinct from ESF, which undertook promotion mainly to carry out an initial screening of subprojects proposed by RAs and help stimulate demand for social assistance subprojects, SIF has developed two forms of promotion, which it terms active and passive. Its active promotion program would employ its new poverty targeting methodology to identify needy communities which had been beyond the reach of ESF, assess the most urgent needs of those communities, and identify institutions to serve as RAs (paras. 5.05-5.08). Under the passive promotion program, SIF would receive subproject proposals submitted by RAs and screen them for consistency with priorities of MPSSP or MEC and  - 19 - with poverty targeting criteria. In both cases, at least two site visits would be made to verify that the proposed subproject is appropriate to the needs of the community and that the intended beneficiaries are part of the target group. Thus, while subproject selections would still be made in response to proposals from RAs, the proposals themselves would be guided by SIF through its promotion program, which would be based on this initial needs assessment (Annex VII). 5.05 Poverty targeting. SIF's major tarc:3t population is defined as communities with a majority of the populatioui with rates of infant mortality greater than 170 per 1,000 live births and illiteracy over 40 percent of the adult population (lack of available data precludes use of family income as a defining variable). As community-level data are not available, SIF has developed an approach based on identification of target cantons (roughly the equivalent of counties), which would permit continuous refinement as its data base of community profiles is built (Annex VII). The first step in identifying target cantons was the construction of maps showing the location of existing health and education infrastructure. This data is then combined with population data and available indicators on health and education for each area. 5.06 Each project presented for approval by an RA would be screened at three levels. First, its general geographical location would be considered and evaluated against available survey data or poverty maps. Second, if a community profile does not already exist in the data base, one would be developed based on a site visit by SIF staff; the profile would include the results of interviews with representatives of both the community and the RA, as well as information regarding factors such as climatic zone, resource base, existence and quality of infrastructure (especially for health (including sanitation) and education), basic services, the economic base, and general socio-cultural factors. Third, the proposed subproject itself would be evaluated in terms of its intended beneficiary group, in comparison with the assessment of priority needs generated by the community profile. 5.07 The more difficult problem in targeting benefits concerns reaching those communities which have no advocate organization to serve as RA. To organize this effort, several provinces characterized by acute poverty will be selected on the basis of the poverty maps currently available. SIF will then identify organizations already working within those provinces and assess their potential for expanding their activities into underserved communities, as well as their capacity for implementing projects. Promotional efforts would then be directed through these organizations, with assistance provided as necessary in the formulation of project proposals. Where indicated, support may be provided to assist qualified agencies in extending their operations to target areas (para. 4.05 (c)). 5.08 In the short term, there will be an unavoidable gap in targeting efforts, resulting from the fact that critically poor communities will not be included in the first phase of promotional efforts, as a result of limitations of data to identify them, or because their remoteness of location combined with relatively small population may make the cost of delivering services prohibitive. Nevertheless, the mechanisms described above should make possible both the prevention of "leakage" of benefits to relatively well-off areas, and extension of benefits to an increasing percentage of the neediest among the poor. Primary responsibility for  - 20 - poverty targeting will lie with SIF's Education and Health Departments, each of which will include a Promotion Unit. Guidelines for application of the poverty targeting and all aspects of pre-appraisal screening of subprojects are contained in a draft Promotion Manual; agreement was reached on the content of the Manual during negotiations (para. 8.01 (a)). It would be a condition of effectiveness that the Promotion Manual had been approved by SIF's CA in a form satisfactory to IDA (para. 8.03(c)). Assurances were obtained at negotiations that the procedures set forth in the guide would be applied in the process of subproject identification (para. 8.02 (c)). 5.09 Appraisal of Subprojects. A subproject is defined as the minimum set of activities and/or items necessary to assure the realization of expected benefits. In determining the costs of subprojects, SIF would take into account the imputed value of the contribution (in kind or in cash) to be made by the beneficiary community, as well as all financial costs. No subproject would exceed US$500,000. SIF's appraisal of subprojects would take into account a series of factors, including: (a) for water and sanitation subprojects (in conjunction with health projects), economic analysis, including rate-of-return calculation; (b) for subprojects for which quantitative economic analysis is not applicable (e.g., social assistance, school construction, health post construction), an assessment of cost effectiveness es reflected in their cost per beneficiary; (c) for subprojects involving construction, adherence to norms for appropriate waste disposal and environmental impact in general; (d) provision for maintenance of infrastructure and/or sustainability of subproject operation beyond the project period, including recovery of operating costs by the RA where appropriate; (e) adherence to norms established by the MPSSP and/or MEC, wherever applicable; and (f) site visits and assessment of the institutional capacity of the RA and of the proposed subproject Supervisor, who will be chosen on the basis of technical qualifications to supervise the works/activities of the subproject (in some cases, it may be the RA itself). The methodology to be used in the appraisal of each type of subproject is described in detail in an Evaluation Manual containing detailed selection criteria for each type of subproject; a final draft of the Evaluation Manual was reviewed at negotiations, and agreement was reached on its content (para. 8.01 (a)). It would be a condition of effectiveness that the CA had approved the Evaluation Manual in a form satisfactory to IDA (para. 8.03 (c)). Assurances were obtained at negotiations that all subprojects would be selected according to the procedures and guidelines set forth in the Manual (para. 8.02(c)). 5.10 For some types of subprojects, SIF and IDA have agreed that improved selection criteria or design standards are required. In these cases, technical assistance has been included in the project to assist in the preparation of improved designs or appraisal methodologies. Included in this category are subprojects for: nutritional development and training programs, water supply and basic sanitation, literacy and practical train- ing programs, and institutional support for RAs. During negotiations, it was agreed that development of methodologies for selection and appraisal of the respective subprojects in a manner satisfactory to IDA and their incor- poration into the Evaluation Manual would be a condition of disbursement for each of these groups of subprojects; it was further agreed that development of institutional appraisal criteria and their incorporation into the Evaluation Manual would be an additional condition of disbursement for subprojects for institutional support for RAs (para 8.06 (b)).  - 21 - 5.11 Review by IDA. SIF would have authority to approve subprojects (as defined in para. 5.09) costing less than US$250,000 equivalent that fall within agreed project selection criteria. Subprojects that: (a) have a total cost of more than US$250,000; (b) fall within the categories of health or education and are consistent with SIF's targeting objectives, but would support activities and services other than those specified in the Evaluation Manual; or (c) for which circumstances may justify division of a project into two or more contracts; would be submitted to IDA for prior review. In cases where SIF considers that economies may be obtained through division of a subproject into various contracts, the subproject proposal, together with the proposal for procurement of the goods or works required, would be submitted for IDA's prior review. The first 10 subprojects under health and education, respectively, and the first two subprojects for institutional support for RAs would be submitted for ex ante review by IDA. All subprojects would be subject to random ex post review by IDA during project supervision. (This procedure diff-rs from that followed under the two ESF projects, which required ex post review by IDA of all subprojects costing from US$50,000 to US$250,000, as well as ex ante review of all subprojects over US$250,000). Final terms of reference for all technical assistance would also be subject to IDA's review prior to selection of consultants (para. 4.08). The Government's and SIF's agreement to the above procedures for prior review was obtained at negotiations (para. 8.02 (d)). 5.12 Contracting and Execution of Subprojects. Upon selection of a subproject and selection of the supplier or contractor (paras. 6.09-6.13), a multilateral agreement would be signed by SIF, the RA, and the contractor or supplier selected. In addition, a separate contract would be signed with an independent Supervisor for all infrastructure subprojects (if different from the RA). Model contracts have been reviewed and found satisfactory to IDA. In general, legal contracts would not be used for supervision of social services projects (such as training or nutrition programs), since experience has shown that the use of contracts in such cases can be counterproductive. Following presentation by the contractor of a performance bond (bank guarantee), SIF would disburse an advance of 20 percent of total subproject cost (the same practice as followed by ESF); in cases where the remoteness of a subproject or other factors warrant, a larger advance may be approved by IDA. Further disbursements would be made according to the progress of physical works, as certified independently by both the subproject Supervisor and a SIF field representative. During the transition stage from ESF to SIF, ESF field offices in Cochabamba, Santa Cruz, Potosi, Oruro, La Paz, Tarija and Sucre would be used jointly for supervision and disbursements, to be turned over to SIF once ESF completes supervision of its projects. SIF's Supervision Department would provide technical assistance to RAs in basic budgeting and accounting to improve efficiency of the utilization of resources generated by the project (e.g., user fees and tariffs), where applicable, with a view to assuring a stronger basis for subproject sustainability. Details of the above procedures are included in SIF's Supervision Manual, the content of which was agreed at negotiations (para. 8.01 (a)). Sector Coordination 5.13 SIF's overall strategy and plan would be presented to CONAPSO, of which SIF's Executive Director is a member. In developing its annual operational budget, which would be fully articulated within the annual  - 22 - public investment program, SIF's management would establish geographic priorities based on its poverty targeting methodology and would agree on these priorities with the MPSSP ana MEC. For those subprojects for which Government funds would be needed as counterpart during project execution or to cover recurrent costs thereafter, final approval of the subproject by the corresponding ministry would be required. The principles of coordination are set forth in agreements to be signed by SIF and the MPSSP and MEC, respectively, as a condition of effectiveness (para. 8.03 (d)). The details of procedures to assure coordination are also described in SIF's Promotion and Evaluation Manuals, to be approved by the CA as a condition of effectiveness (para. 8.03 (b)). 5.14 Following up on the positive experience of ESF. SIF would assure that subprojects carried out by NGOs are not only consistent with sector priorities, but also conform to Government norms (incorporated into SIF's subproject appraisal guidelines) for design, scale and quality. SIF would work through existing networks of NGOs, such as the ASONGs, to avoid the duplication of activities and effort that has occurred among NGOs operating in the same area. Information Management, Monitoring, and Evaluation 5.15 ESF has developed an efficient, computer-based management information system, used mainly to track physical and financial progress of the more than 2,300 subprojects submitted for its consideration. The equipment and software would be shared with SIF in 1990 and transferred to SIF upon ESF's closing. Under SIF, a Directorate of Information would be established, with the responsibility to expand the scope of information management to include full monitoring of the processing of subproject proposals, supervision of subproject execution, and maintenance of internal monitoring indicators, such as average time spent at each stage of processing, and data such as commitments, disbursements, and average cost per beneficiary organized by subproject type (Annex VIII). The system would also be used for the establishment and maintenance of "community profiles"--sets of social indicators on communities where ESF- or SIF- financed projects have been, or will be, carried out. Indicators would be used to reflect the number and type of beneficiaries of each type of subproject, such as the number of children by age group receiving text books, vaccinations, and school lunches, in order to monitor real benefits provided under SIF subprojects. 5.16 At a second level, monitoring would be carried out to evaluate SIF's own performance in identifying, appraising, and supervising the execution of subprojects, as well as that of RAs. The goals of this work would be to identify persistent problems arising under subprojects, recommend solutions to them, and assess the degree to which SIF's goals are being achieved under current approaches, guidelines and practices. In connection with these reviews, SIF will take account of any evolution in sector strategies, changes in sector expenditure plans, and progress in implementing them. Technical assistance would be used to help SIF carry out annual surveys and performance evaluations (Annex V, paras. 22-26). 5.17 Finally, longer-term monitoring would be carried out to measure the impact of subprojects on the health and educati^n profile of beneficiary communities, based on a comparison with pre-project data. The assistance of the National Statistical Institute (INE) would be enlisted in  - 23 - designing and carrying out surveys to ensure comparability with national data. Technical assistance would be used to carry out periodic sample surveys, beginning in the third year of SIF operations. A timetable for establishment of baseline indicators is included in the implementation program agreed upon at negotiations (para. 8.01 (b)). Supervision 5.18 SIF would enhance its ability to monitor the quality of construction and social services through the creat n of a Technical Control (Fiscalia) Unit (TCU), which would report directly to the Executive Director. The TCU would review periodically the work of the Supervision Department and the subproject (non-SIF) Supervisors and would be responsible for bringing to the Executive Director's attention any problems or irregularities and recommending action for their solution. TCU's records and reports would be made available to IDA for review during project supervision. During negotiations, a draft of the Supervision Manual was reviewed and understanding reached on its content, on final Terms of Reference for the TCU; agreement was reached on provision for IDA's access to TCU and Supervision Department records and reports (para. 8.02 (e)). Beneficiary Contributions 5.19 The total cost of each subproject involving construction would include items to be contributed by the beneficiaries, generally in the form of land, labor, and materials. The exact proportion of beneficiary contribution to investment would vary by subproject type and the assessed resources of the beneficiaries. RAs would also contribute to subproject cost, usually in cash. In addition, SIF would require that RAs provide evidence of their ability to maintain operation of the subproject beyond the period of SIF assistance as one of the criteria of subproject selection (para. 4.06). For many types of subprojects, such plans would be based in part on application of user fees, although support from other sources is also envisioned. Where appropriate and feasible, plans to involve beneficiaries themselves in the maintenance of physical infrastructure would be encouraged. In particular, mechanisms would be developed with the help of technical assistance to facilitate the management of maintenance and operation of water supply and basic sanitation infrastructure by beneficiaries themselves (Annex V). Accounts, Auditing, and Reporting 5.20 While the proposed project would not provide financing for ESF subprojects, IDA continues to have administrative responsibility for the financing provided to ESF by a number of cofinanciers for which funds are still disbursing. Therefore, ESF would continue to maintain records and report to IDA as agreed under Credit 1882-BO. SIF would maintain its own separate accounts, disaggregated by type of subproject, technical assistance activity, or administrative cost category, and by expenditures financed by IDA, other donors (by name), and the Government. All project accounts, the Special Account, and all disbursements against Statements of Expenditure (SOEs) would be audited annually by an independent auditor acceptable to IDA in accordance with the Bank/IDA guidelines (para. 6.07). SIF would submit to IDA its audit reports within four months of the end of each year (i.e. before April 30 of the following year). A final audit  - 24 - report for ESF would be prepared and sent to IDA no later than July 31, 1991. All audit reports would certify that the funds were used for the purposes for which they were provided and that procurement of all contracts was carried out in accordance with agreed guidelines. Assurances were obtained at negotiations that the Government, ESF, and SIF would comply with these requirements (para. 8.02 (f), (g)). 5.21 SIF would submit to IDA monthly summaries of subprojects in its portfolio, showing clearly those to be included in SOEs for financing, by IDA or by any cofinanciers, their status of execution, and key indicators. Reports will also include all other subprojects financed by SIF, showing source of financing for each. Quarterly progress reports would be submitted to IDA on the first day of each April, July, October, and January, until the project is completed (the first such report to be submitted by July 1, 1990). These reports would review, among other things, the sources of funds (including cofinancing) for ESF and SIF, respectively, and application of funds. In addition, reviews of procurement under subcontracts would be carried out on a quarterly basis, and reports summarizing their findings would be submitted to IDA. SIF would prepare a final report on implementation experience and the outcome of the first four years of the SIF program within six months of the Closing Date of the project. The Government's agreement to these requirements was confirmed at negotiations (para. 8.02 (h)). VI. PROJECT COSTS, FINANCING, DISBURSEMENTS AND PROCUREMENT Project Costs 6.01 The project would be carried out over four years; it is defined to include the first two years of SIF financing commitments (1990 through 1991), the first four years of SIF administrative expenses (1990 through 19-93), and the costs of the ESP training program. Costs for SIF subprojects are based on SIF's commitment targets for its first two years (US$70 million), plus the average contribution of RAs and beneficiary communities, estimated on the basis of ESF experience. Foreign costs represent about 12 percent of the total. Since specific subprojects are still to be identified, no contingencies have been calculated; any increase in the expected average subproject cost (US$70,000) will be reflected as a reduction in the number of subprojects executed. A summary of project costs is shown in Table 6.1. (Annex IX contains a detailed cost table).  - 25 - Table 6.1: SUMMARY PROJECT COSTS BY COMPONENT Foreign Total Local Foreign Total Exchange Cost ------ USS 4ilon-w-- SIF Subprojects Health 51.2 6.7 67.9 12 6o Education 26.8 2.0 28.8 7 s0 Institutional Support to RAs 0.6 0.0 0.6 0 1 Subtotal 78.6 8.7 87.3 1O 91 SIF Institutional Development Administration 4.8 0.2 6.0 4 5 Equipment, vehicles, maintenance 0.6 1.8 2.4 76 8 Technical Assistance 0.4 0.3 0.7 40 1 Subtotal 5.8 2.3 8.1 28 9 ESF Program 0.0 0.2 0.2 0 0 Total Costs 84.4 11.2 96.6 12 100 I/ Exclusive of taxes and duties, which are not applicable. Financing Plan 6.02 The proposed IDA credit of US$20 million equivalent would represent about 20.9 percent of total project costs. An additional US$5.3 million of IDA financing would be provided under the proposed IHDP; total IDA financing under both projects would represent about 26.4 percent of project costs. Counterpart requirements would be met by the Government and RAs. Beneficiary communities would provide contributions of labor or materials. Cofinancing from various donors in the amount of US$43.6 million would complete the financing plan. The financing plan is presented in Table 6.2 (see also Annex X). The Government's agreement to provide the necessary counterpart funds was confirmed at negotiations (para. 8.02 (i)). Table 6.2: FINANCING PLAN USS Millions IDA 20.0 IDA/Health */ 6.3 RAs 6.9 Beneficiary Communities 10.2 Government 9.6 Cofinancing 43.6 Total 96.6 a/ Amount to be channeled through SIF for health investments under the Integrated Health Development Project (IHDP).  - 26 - 6.03 The above financing plan includes partial financing by IDA and other external sources of incremental recurrent costs (salaries). This is necessitated by the need to pay fixed-term salaries above the civil service scale to attract and retain appropriately qualified and experienced personnel to administer the program. The Government is unable to finance salaries above the civil service scale for two reasons. One is the general constraint on counterpart funds owing to the need for fiscal austerity. Secondly, Bolivian law precludes bc .h the Government from paying any salaries above the civil service scale, and public employees from receiving incremental salaries or benefits from non-Governmental sources. Thus, to assure SIF's ability to attract appropriately qualified and experienced personnel, they are to be hired under fixed-term contracts outside the civil service system and their salaries paid from external sources. (Cofinanciers are also expected to contribute proportional amounts to help finance incremental operating costs). The need to rationalize the civil service salary scale to improve the quality of all key public sector personnel is one of the central issues being addressed under the EMSO project (para. 3.34 (a)). Under that project, a fund has been set up to finance key personnel from external sources in the short term. A long-tenm goal is to restructure the civil service salary scale and to gradually return responsibility for its financing to the Government. However, achievement of this goal is not expected during the lifetime of the project. IDA'S financing of such costs (about 30 percent) would be made on a declining basis, as cofinanciers' financing becomes effective, and would reach zero in the last semester of project execution. Cofinancing Arrangements 6.04 The financing plan presented in Table 6.2 is contingent on final commitments by cofinanciers. While SIF's target for annual subproject financing commitments is US$40 million (US$30 million for the first year), based on estimated absorptive capacity in the health and education sectors, the actual size of its program would depend on the amount of financing available. It would be a condition of effectiveness that agreements for external financing in amounts not less than US$10 million in aggregate and commitments for an additional US$15 million had been obtained or other arrangements, satisfactory to IDA, had been made to obtain such cofinancing (para. 8.02 (e)). Thus, at effectiveness, financing would be secured for 80 percent of the total project costs (100 percent of SIF's planned commitment requirements for subprojects during the first year). Commitments for the remaining US$18.6 million are expected to be obtained during the first 12 months of project execution. During negotiations, it was agreed that the failure of financing agreements in an aggregate amount of not less than US$10 million to become effective by September 30, 1990 and of financing agreements in an aggregate amount of not less than US$25 million to become effective by March 31, 1991, would constitute an event of default, unless the Government and SIF had made alternative arrangements, satisfactory to IDA, to secure adequate financing for SIF's programmed commitments for subprojects (para. 8.05). To assure that the proportions of financing participation remain as shown in Table 6.2, SIF's programming of commitments for subproject financing would be reviewed jointly by SIF and IDA on a yearly basis, and adjustments would be made as necessary to reflect availability of financing. Commitments under the IDA credit would be distributed throughout the period from effectiveness to December 31, 1991. A memorandum of understanding would be signed by IDA with each cofinancing agency specifying, inter alia, items to be financed,  - 27 - administrative responsibilities of IDA with respect to the financing (if any), and procedures for supervision and exchange of information. Disbursements 6.05 The proposed IDA Credit would be disbursed over a period of four years, to be completed by June 30, 1994 (Closing Date). Subproject activities supported by the Credit are expected to be completed by December 31, 1993. Though substantially shorter than the profile for LAC projects in the social sectors, the expected disbursement period is consistent with profiles for credit projects, which the proposed project resembles more closely, and reflects experience under the two credits in support of ESF. 6.06 Disbursements will be made against the following categories of expenditure: (a) SIF subprojects: 90 percent of disbursements by SIF against eligible subprojects (para. 4.05) approved on or before December 31, 1991 according to SIF's project selection and evaluation procedures; (b) Institutional development: (i) 100 percent of the cost of consultants' services; (ii) 100 percent of the cost of salaries, travel, and training for SIF staff through December 31, 1992 (the salaries and travel expenses of the Executive Director and support staff are not financed by IDA); and (iii) 100 percent of foreign expenditures and 80 percent of local expenditures for equipment, supplies, and maintenance; and (c) ESF training program: 100 percent of foreign expenditures for the ESF training program. Retroactive financing of no more than SDR 15.1 million (US$2.0 million equivalent) would be permitted against approved expenditures incurred after January 1, 1990 (para. 8.02 (j)). (Annex XI contains the estimated disbursement schedule). 6.07 Documentation of Expenditures. Withdrawal applications for goods and services with a contract value of US$100,000 or more will be supported by full documentation. Contracts of less than US$100,000, disbursements against expenses not undertaken by contract, and all disbursements under subprojects will be made on the basis of Statements of Expenditure (SOEs), for which supporting documents would be maintained by ESF and SIF and would be made available for review by IDA staff. A Special Account in US dollars would be opened in the Central Bank of Bolivia, with an initial deposit of US$2.0 million, corresponding to about four months of expected disbursements. The Government's agreement to the above arrangements for disbursements was confirmed at negotiations (para. 8.02 (k)). Procurement 6.08 For subprojects financed under the project, RAs would be responsible for procurement and would follow IDA's guidelines for procurement. Prior to signing the subproject contract, SIP would assure that procurement procedures followed were in compliance with agreed guidelines. Infrastructure subprojects are expected to total about US$48 million equivalent and to average about US$90,000, with the biggest single project costing no more than US$500,000. For civil works contracts valued at less than US$100,000 equivalent, up to an aggregate of US$6,000,000 equivalent, the RA would carry out local shopping, and would provide SIF with all relevant documentation for review, indicating its choice among the offers presented. SIF would compare offers against its data base of reference prices, and, in the event that all offers exceeded the reference prices, the RA would be advised to negotiate with the firm offering the lowest cost. If negotiations failed to bring the final cost  - 28 - down to the reference level, SIF would assess the need to revise its reference unit prices. For works of more than US$100,000, local competitive bidding (LCB) would be carried out. While SIF's regulatory decree limits subproject size to a maximum of US$500,000, when practicable, civil works contracts would be combined in packages and let through ICB. 6.09 While the limit of US$100,000 for local shopping is unusually high, several factors justify it in this case. First, the bidding process for all public contracts in Bolivia is currently conducted by one or more of the agents contracted by the Bolivian Government (currently Crown Agents and UNDP). SIF would sign a contract with the agents specifying the fees, terms, and conditions for LCB under the proposed project. On a preliminary basis, the agents have proposed a differential fee scale, by which 4 percent would be charged for projects over US$100,000, and 6 percent to 8 percent for projects less than US$100,000. It is estimated, based on SIF's commitment targets and expected distribution of subprojects by size, that this price differential would result in added costs of about US$700,000-US$800,000. This would mean that 10-25 fewer average-sized subprojects could be funded with the same level of financing. Second, the scale of most subprojects will be quite small, demanding little, if any, heavy equipment. Thus, many small firms would have the capacity to carry out the works; ESF had extensive experience with such firms, and found that they were equally, or even more reliable than many large firms, and were willing to work at smaller profit margins than any of the larger companies, helping to keep costs down. Finally, ESF's use of its list of reference prices in negotiating with contractors proved an effective device in minimizing costs with contractors and suppliers of all sizes. Unit costs under its subprojects were below the average for the industry during the period, and far below the average for construction guild member firms. 6.10 As with local shopping, SIF's list of reference prices would be utilized in evaluating bids. Procedures followed for LCB would permit participation by foreign bidders; however, owing to the widely dispersed and remote location of subprojects and to the fact that SIF reference prices are generally the lowest possible, it is most likely that all civil works contracts will be awarded to local firms. Based on the expected distribution of subprojects by size, about 70 percent of the total value of civil works contracts would be contracted through LCB, with the remainder contracted by local shopping. 6.11 To the extent feasible, equipment, textbooks, furniture, and supplies to be purchased under subprojects would be combined for the purpose of procurement in packages of US$100,000 or more, and contracts for their purchase would be awarded on the basis of ICB. Where ICB procedures are used, goods manufactured locally would be given a preference margin of 15 percent. Goods estimated to cost US$100,000 or less, but more than US$20,000, would be awarded on the basis of LCB procedures satisfactory to IDA. Goods estimated to cost US$20,000 or less up to an aggregate of US$600,000 equivalent, would be procured by RAs according to local shopping procedures, with offers from at least three eligible suppliers. Minor computer equipment with an aggregate value of not more than US$120,000 equivalent for replacement and upgrading of SIF's existing microcomputer equipment (which it will receive from ESF) would also be purchased through local shopping procedures.  - 29 - 6.12 Computer equipment and related hardware with aggregate value of not more than US$150,000 equivalent, for the expansion and linkage of SIF's existing system, would be purchased through direct contracting. Direct contracting is necessary in this case because the compatibility requirements of the existing system necessitate the purchase of equipment (and its servicing) that is proprietary and available through only one source. IDA has reviewed and found satisfactory the technical specifications of both the existing system and the proposed expansion and linkage. Moreover, the existing system was acquired through LCB and financed under the previous IDA credits to ESF. 6.13 Consultants required for the project would be hired in accordance with the Bank's Guidelines for the Use of Consultants. 6.14 The following would be sent to IDA for prior review: (a) bidding documents for all contracts to be procured under LCB procedures; (b) the first four contracts to be procured under local shopping procedures; (c) all contracts exceeding US$100,000; (d) proposed procurement arrangements for projects for which the size of the project, goals of applying appropriate technology under subprojects (i.e. avoidance of unnecessary capital intensity), or other circumstances may warrant division of a project into two or more contracts; and (e) the contracts for purchase of computer equipment under contracts awarded through local shopping or direct contracting procedures (paras. 6.11-6.12). Other contracts and bid evaluations would be subject to random ex post review by IDA staff (para. 5.14). The Government's and SIF's agreement on the above procedures for procurement under the project was confirmed at negotiations (para. 8.02 (l)-(n)). VII. BENEFITS AND RISKS Benefits 7.01 The project's main benefit would be to assure the transition from ESF's emergency management approach to social assistance and investment to one fully integrated into the public investment program and consistent with medium-term adjustment and sector policies, while retaining the efficiencies of operations achieved by ESF. Additional benefits would include: (a) strengthened capacity of entities providing health and education services to target assistance to the neediest groups and to design projects responsive to the groups' priority needs; (b) improved coordination among entities working in the social sectors, including the Government ministries, SIF itself, NGOs, local governments, and community groups; (c) improved access to urgently needed health and education facilities and services, thereby enhancing the population's potential for improved health and productivity; and (d) a focal point to mobilize additional external resources for the social sectors, building on the successful experience of previous IDA credits. 7.02 Poverty Impact. All of the benefits of the proposed project would be aimed at improving the health and education status of Bolivia's poor. Improved mechanisms would be introduced to assure that an increasing proportion of the poorest groups are included among the beneficiaries  - 30 - (paras. 5.05-5.08 and Annex VII). The services to be extended under the project would provide beneficiary communities with the basic conditions essential to emerge from poverty. 7.03 Environmental Impact. Pollution of the environment is one of the most pressing problems facing Bolivia, particularly in its urban areas. The adverse impact of inadequate waste disposal and sanitation systems on environmental quality and public health is demonstrated by the preponderance of diseases attributable to unsanitary conditions (paras. 3.01-3.02). The proposed project would contribute to alleviating this problem through provision of financing for basic water and sanitation systems. In addition, all subprojects involving construction or remodeling would provide for approprilte waste disposal according to guidelines satisfactory to IDA; all designs for health posts would include incinerators for safe disposal of contaminated medical wastes. SIF would assure that all aspects of subproject design (including their location) and execution would adhere to environmentally sound principles. Where applicable, special provisions would be included in the multilateral agreements signed by SIF, the RA, and the contractor to ensure adherence to appropriate guidelines. 7.04 Women in Development. In recognition of the essential role of women in realizing Bolivia's medium-term goals, the proposed project would support the development of women's potential (both directly productive and nurturant) through both health interventions specificallv directed at improving women's health conditions (such as nutrition programs for infants and lactating mothers and health/hygiene training programs), construction of day care centers to assist low-income working mothers, and training programs designed to improve literacy rates and enhance productive skills. Under ESF, over half of the training programs were directed toward women. Risks 7.05 The risks affecting the project are mainly institutional, since achievement of project objectives will require that: (a) SIF be provided with sufficient autonomy and key staff to carry out its mandate; and (b) close coordination among key institutions (e.g., between SIF and the ministries) be established. There is also a risk that financial constraints may prevent continued operation of subprojects beyond the period of SIP financing. These risks are being managed through: (a) the Government's commitment to maintain SIF with the mandate to satisfy basic needs in health and education, with key staff whose qualifications and experience are satisfactory to IDA; (b) coordination agreements, satisfactory to IDA, between SIF and the corresponding ministries specifying, inter alia, that SIF's annual program would be reviewed and incorporated into the public expenditure program, and that, where operating costs of a subproject would be covered by the corresponding ministry, the ministry's prior approval of the subproject would be sought; and (c) appraisal criteria providing that approval of all subprojects will be contingent upon presentation of a satisfactory plan for continuation of operations beyond the investment period and demonstration that the costs have been included in the budget of the responsible entity. Coordination with sector strategies would be enhanced through participation of the Under Secretary of Planning for Social Policies in SIF's Administrative Council  - 31 - and participation of SIF's Executive Director in the National Council for Social Policy. Improved coordination would also be pursued under the IHDP and EMSO projects, as well as through the proposed project. VIII. AGREEMENTS AND RECOMMENDATION Agreements Reached at Negotiations 8.01 During negotiations, agreement was reached on: (a) The content of the draft manuals for promotion, appraisal, and supervision of subprojects, and the manuals for administration and legal affairs (para. 5.08); and (b) an implementation program specifying, inter alia, the timetables for: (i) cArrying out key activities under the ESP training program; (ii) phasing out ESF activities and closing that institution; (iii) activities to be carried out with technical assistance; (iv) establishment of baseline indicators for long-term monitoring (paras. 5.03, 5.17). 8.02 During negotiations, assurances were obtained that: (a) The Government would maintain SIF as an institution with mandate, scope of operations, structure, operating procedures, and staffing as agreed with IDA (para. 5.02); (b) ESF operations would be phased out according to an agreed timetable and closed no later than March 31, 1990, and ESF would be terminated by no later than September 30. 1991. ESP would carry out a series of seminars for interested public agencies to train them in the use of ESF's information systems for subproject appraisal and supervision according to an implementation program acceptable to IDA (para. 5.03); (c) The agreed criteria for selection of subprojects and the procedures for poverty targeting (contained in the Promotion Manual) and subproject appraisal (contained in the Evaluation Manual), would be applied to all subprojects considered for SIF financing (paras. 5.08, 5.09); (d) SIF would send to IDA for its prior approval: (i) the first 10 subprojects in health and education, respectively; (ii) the first two subprojects for institutional support for RAs; (iii) any subproject costing more than US$250,000; (iv) any subproject to be divided into 2 or more contracts; (v) any subproject that would include activities or services not specified in the Evaluation Manual; and (vi) final terms of reference for all technical assistance tasks prior to selection of consultants (para. 5.11).  - 32 - (e) Supervision would be carried out for all subprojects in accordance with the Supervision Manual, and all reports of such supervision would be made available on a regular basis to IDA; the TCU would carry out its duties as specified in terms of reference satisfactory to IDA and make available all of its reports to IDA as requested (para. 5.18). (f) ESF would maintain its accounts, have them audited, and report to IDA as agreed under Credit 1882-BE and submit a final audit report to IDA by July 31, 1991 (para. 5.20); (g) SIF would: (i) maintain accounts disaggregated by type of subproject, technical as3istance activity, or administrative cost category, and by source of financing (Government, IDA and other donors, by name); (ii) have its accounts, the Special Account, and all disbursements made against SOEs audited annually in accordance with Bank/IDA guidelines; (iii) submit audit reports to IDA by April 30 of each year (para. 5.20); (h) SIF would submit to IDA: (i) monthly summaries of all subprojects approved by the CA, indicating source (or potential source) of financing, status of processing or execution, and key monitoring indicators; (ii) quarterly progress reports, beginning July 1, 1990, reviewing sources and uses of funds; and highlighting problems identified by the TCU or Supervision Department; (iii) quarterly reviews of Procurement under subcontracts; (iv) reports presenting the results of annual performance reviews; and (v) a final report on implementation experience and the outcome of the first three years of the SIF program. (para. 5.21); (i) The Government would provide the necessary counterpart funds as reflected in the financing plan in Table 6.2 (para. 6.02); (j) Retroactive financing of no more than SDR 1,510,000 (US$2.0 million equivalent) would be permitted against approved expenditures incurred after January 1, 1990 (para. 6.06); (k) SIF would: (i) submit full documentation for withdrawal applications against expenditures with a contract value of US$100,000; (ii) retain for IDA review on request full documentation for all contracts under US$100,000, all disbursements not undertaken by contract, and all disbursements under subprojects, for which withdrawal requests would be made on the basis of SOEs; (iii) utilize funds from any available cofinancing prior to withdrawing proceeds from the proposed credit; and (iv) establish and maintain a Special Account of no more than US$2.0 million in the Central Bank of Bolivia (para. 6.07);  - 33 - (1) SIF would ensure that RAs adhere to IDA guidelines for procurement. Forms of procurement to be followed are: (i) civil works less than US$100,000: local shopping; civil works more than JS$100,000: LCB (maximum contract size would be US$500,000), (ii) goods contracts less than US$20,000: local shopping; goods contracts over US$20,000 but less than US$100,000: LCB; goods contracts over US$100,000: ICB (paras. 6.08-6.12); (m) SIF would select consultants for technical assistance under the project in accordance with the Bank's Guidelines for the Use of Consultants (para. 6.13); and (n) SIF would send to IDA for prior review: (a) bidding documents for all contracts to be procured under LCB procedures; (b) the first four contracts to be procured under local shopping procedures; (c) all contracts exceeding US$100,000; (d) proposed pro^urement arrangements for projects for which the size of the project, goals of applying appropriate technology under subprojects (i.e. avoidance of unnecessary capital intensity), or other circumstances may warrant division of a project into two or more contracts; and (e) the contracts for purchase of computer equipment and software procured under local shopping or direct contracting procedures (para. 6.14). 8.03 During negotiations, the following conditions of credit effectiveness were agreed: (a) that the Government furnish to IDA satisfactory evidence that a subsidiary contractual arrangement, satisfactory to IDA had been duly signed and ratified by the Borrower and SIF (para. 5.01); (b) that the Government furnish to IDA satisfactory evidence that a Regulatory Decree incorporating SIF's by-laws and specifying its organizational structure and functions and its operational guidelines, all satisfactory to IDA, had been duly issued (para. 5.02); (c) that the Government furnish to IDA satisfactory evidence that the Promotion and Evaluation Manuals had been approved by SIF's CA in a form satisfactory to IDA (paras. 5.08-5.09); (d) that the Government furnish to IDA satisfactory evidence that the agreements regarding procedures and mechanisms for coordination had been duly signed by SIF and the MPSSP and MEC, respectively (para. 5.13); and (e) the Government and SIF had entered into financing agreements, in amounts not less than US$10.0 million in aggregate and that additional commitments, satisfactory to IDA, had been received for at least US$15 million, or that alternative arrangements, satisfactory to IDA had been made by the Government and SIF to cover the financing needs of the project.(para. 6.04).  _ 34 - 8.04 During negotiations, the following conditions of disbursement were agreed: (a) for the ESF training program that a subsidiary contractual arrangement, satisfactory to IDA, had been duly signed and ratified by the Borrower and ESF and a legal opinion to that effect had been furnished to IDA, and that the course outlines, teaching materials, budgets, and criteria for selection of agencies had been approved by IDA (para. 5.01); and (b) for subprojects for water supply, basic sanitation, nutrition development and training programs, institutional support for RAs, and adult literacy and training programs, that improved methodologies for appraisal of subprojects had been prepared in a manner satisfactory to IDA and incorporated into the Evaluation Manual; for subprojects for institutional support for RAs, that institutional appraisal criteria satisfactory to IDA had been incorporated into the Evaluation Manual (para. 5.10). 8.05 During negotiations, it was agreed that the failure of financing agreements in an aggregate amount of not less than US$10 million to become effective by September 30, 1990 and of financing agreements in an aggregate amount of not less than US$25 million to become effective by March 31, 1991, would constitute an event of default, unless the Government and SIF had made alternative arrangements, satisfactory to IDA, to secure adequate financing for SIP's programmed commitments for subprojects (para. 6.04). Recommendation 8.06 Subject to the above conditions and assurances, the proposed project would constitute a suitable basis for an IDA credit of SDR 15.1 million (US$20 million equivalent) to the Republic of Bolivia.  - 35 - A , - Page 1 of 7 BOLIVIA SOCIAL INVESTMENT FUND PROJECT Public SpendinR in Health and Education, 1980-88 A. Public Spending in Health 1. Roughly 20S of the population is estimated to receive health services from private for-profit institutions (1Z) or non-profit organizations (NGOs) (20X). The remaining 802 of the population is covered either by publicly provided health services or traditional practitioners. Public funding for health is provided through MPSSP, which comprises two service networks with separate financing; the Sub-secretariat of Public Health (SSP) and Social Security (SPS). The SSP is financed from the TGN, cost recovery and international funding, while SPS is furded from an employer contribution of 102 of the employed participants and 52 of the pension of retired participants. A third source of funding was introduced with the advent of ESF which, as October 1989, had provided US$23.5 million. The amounts channeled through each of these streams is shown in Table 1 together with amounts received by the Government in food aid, a small share of which are distributed in food supplementation programs, directly linked to MPSSP or the provision of health services. Table 1: PUBLIC FUNDING OF THE HEALTH SECTOR US8 Millions of 1987 TON Transfers U8 Pension* MPSSP, / MPSSP ki ESF Food Aid 1990 37.1 3a.6 23.9 1961 23.2 22.3 12.1 1982 21.0 29.3 21.8 1983 19.7 16.0 48.1 1984 17.6 51.6 82.4 1985 19.0 23.4 43.8 1986 11.7 10.7 83.8 1987 16.9 n.a. .3 19@8 20.6 n.s. 4.1 1989 g/ 24.2 Source: UDAPE, Schulthess, ESF, World Bonk */ Executed. f Spending on the provision of hoalth services only; pensions aro excluded. S/ Budgeted for NPSSP; preliminary for ESF.  - 36 - ANNEX I Page 2 of ? 2. SSP spending is supported by three sources: the Treasury (TGN), cost recovery, and international financing (Table 2). The relative shares of these have changed since 1984, with TGN shrinking from 92Z of SSP financing to 50Z. Cost recovery now accounts for 22Z of funding compared to 6Z in 1984, and external aid has risen from 2Z to 28Z in 1984-88. Table 3 shows the SSP expenditures by category. Different sources of funding are earmarked for specific categories: TGN funds about 80Z of .salaries; medicines and "other' cost are largely founded from cost recovery; and international funds provide for most of the investment. Funding for maintenance of new infrastructure is negligible. While figures show that SSP is spending less on salaries than in 1984, the sharp increase in 'other' expenditure partly reflects payments to health workers not on the official payroll. Table 2: SHARES OF SSP FUNDING BY SOURCE (e) Source 1984 1986 1986 1987 1988 TON 92.2 62.2 48.7 60.2 60.1 Cost Recovery 6.6 17.2 30.2 25.4 22.1 International Financing 2.2 20.6 21.1 14.4 27.8 TOTAL 100.0 100.0 100.0 100.0 100.0 Source: Mission Estimates Table 8: SSP EXPENDITURES BY CATEGORY (US8 Millions of 1987) Category 1984 1986 1986 1987 1988 Salari" 25.81 12.60 7.88 18.01 16.81 Food 1.98 1.25 1.77 1.85 7.06 Medicines 0.89 1.21 1.42 2.91 4.67 Other 1.61 2.81 6.88 8.06 16.01 Total Recurrent 29.47 17.77 17.95 28.82 48.05 lnvetment 0.08 2.10 0.67 o.00 8.44 Total 29.59 19.87 18.62 28.82 48.49 Source: Mission Estimates 3. Social Security coverage in health in 1986 was 21.4Z of the population, having declined from 26.22 in 1982, due mainly to the decline in employment in covered sectors as a result of the economic crisis. SPS expenditures have been unstable during 1978-1985, especially for health, as demonstrated in Table 4.  37 ANNEX I Page 3 of 7 Tablo 4: PERCENT SHARE SOCIAL SECURITY EXPENDITURES IN GDP Yoer Total Health Care 1978 2.9 1.6 1979 8.5 2.0 1980 2.8 1.4 1981 2.7 1.2 1982 2.0 1.1 1988 1.9 0.6 1984 8.5 2.0 1986 1.9 1.0 ,986 1.7 0.7 Source: Central Bank of Bolivio and SPS. 4. A breakdown of total financing by ESF on health investments and programs is shown in Table 5. Table 6 shows SIF's estimate of spending by category. Table 5: ESF HEALTH PROGRAMS (as October 1989) ---------------------------------------------------------------__------------__------------ Annual Average Activity No of Approved Disburoed Disbursed Projocts Asount Amount 197-1989 -----------USS Million---------- Primary Health Care Prog. 81 2.4 1.6 0.5 Drinking Water a 282 20.2 15.2 6.1 Sewerage System Infrastructure, HnaIth 196 8.7 6.6 2.2 Nutrition 101 6.1 8.8 1.1 Institutional Support 2 0.1 0.1 - Other 6 0.1 0.1 TOTAL 616 87.8 26.7 8.9 Sources ESF Table 6; SIF HEALTH PROGRAM US$ Million Category Est. Av-rage Program Annual Disburaoemnta 1990-93 1990-92 ________________________________________--_______________________ 1. Nutrition 14.0 4.7 Child Care Conters 5.6 1.9 School Moel Programs and ChtId Nutrition Centers 7.0 2.8 Nutrition Doev./Training 1.4 0.6 2. Primary Health Care 16.4 5.5 Basic Health Care 15.0 5.0 Immunization Campaigns 1.4 0.6 8. Sanitation 16.4 6.5 Water Supply 6.6 2.2 Basic Sanitation 9.8 8.8 Total 46.8 16.7  - 38 - ANNEX I Page 4 of 7 B. Public Spending in Education 5. There are four sources of funding for educationt the National Treasury, local governments, ESF and bilateral and multilateral agencies. Recurrent costs are financed by the National Treasury (TGN) through transfers to the Ministry of Education and Culture (MEC) (Table 1) and the Ministry's decentralized institutions (CONES, SENET and SENALEP), and by local governments. During 1987 and 1988, funding from local governments accounted for 3% and 5% of public funding to education and school tuitions provided for about 60X of local government resources. Since 1987, public investment on education has been mainly channeled through ESP. Bilateral and multilateral agencies have also supported investments by a number of NGOs; however, data are not available on the level of this investment. Table 1: UEC EXPENDITURES ON EDUCATION (Thousands of 1980 Bolivianoa) 1980 1981 1982 1983 1984 1985 1986 1987 1988 Total MEC 6020 8698 8789 8730 U841 8478 2388 2944 sll X of TON 21.3 19.7 28.8 27.7 25 19.9 17.5 18.6 22.9 X of GDP 4.1 2.9 8.2 8.4 8.2 8.8 2.8 2.6 2.6 6. Salaries are by far the most important item in MEC's budget (Table 2). Over 98 percent of public resources are used to finance salaries, including salaries paid to administrative personnel as well as teachers. The estimates of the number of teachers working in Bolivia are very different depending on whether the source is MEC, the Ministry of Finance, or the National Institute of Statistics (INE). In 1988, the Ministry of Finance estimated that there were 23% more teachers on the payroll than MEC. Since the Ministry of Finance pays teachers' salaries (and then charges MEC), these "ghost" teachers are receiving checks each month, even though MEC cannot account for them. MEC plans to solve this problem through the implementation of a computerized system. MEC estimates it could save about 23 percent of the current teacher salaries. This will be important in permitting the budgeting of staff for new schools. Table 2: MEC EXPENDITURES BY CATEGORY (Percent of total) Category 1984 1985 1986 1987 1988 1989 1990 S/ _ ~~~~~~~H Salaries 99.7 99.1 98.2 98.8 97.7 97.6 98.4 Services 0.1 0.6 1.3 0.9 1.0 1.1 0.7 Materials 0.1 0.1 0.2 0.1 0.8 0.7 0.4 Other 0.1 0.4 0.2 0.2 0.5 0.7 0.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 !/ Budget plan  - 39 - ANNEX I Page 5 of 7 7. The largest percentage of MEC's budget is allocated to primary education (73 percent). followed by secondary education (13 percent) (Table 3). These figures, however, do not take into account Universities which are financed through a transfer amounting to 52 of gross tax revenues. The transfers were 1lo of total TGN spending on education in 1981, growing to 20Z in 1988. Table 8: MEC EXPENDITURES BY LEVEL (percent of total) Lev-l 1984 1985 1986 19t7 193 low 2/ Administration 6.4 8.9 6.7 4.0 7.7 3.4 Primary 71.3 74.5 73.6 74.8 72.7 76.7 Secondary 12.6 18.1 18.2 18.6 18.1 18.9 T eher Schools 8.1 3.6 8.6 8.6 8.0 8.O Othor 4.3 4.9 8.4 8.6 8.5 4.6 Totel 11 1 1. .e IO11 1.6 11.1O 1ue.e 2/ Budget plan S. The National Council of School Construction (CONES), is responsible for public investment in prir ry and secondary education focussing mainly on urban areas. Since pril 1987, CONES has had no budget to carry out investments, but it contir 3s to formulate investment plans. Most school construction in rural arer has been financed by NEC under special projects, and by local and regional governmental authorities. Since the creation of the ESF, CONES has concentrated on planning and project proposal preparation, and ESF has become the leading Government organization investing in education. As of October 1989, ESF had implemented 637 education projects (mostly infrastructure), disbursing almost nineteen million dollars averaging about US$6 million per year (Table 4). In comparison, total MEC investment (including CONES) was about $1 million in 1987 and only $0.1 million in 1988. Table 5 shows a breakdown of ESF investments by Department in 1987-88, compared with those of local and regional governments. Table 4: ESF EDUCATION PROJECTS (As of October 1989) Annual Average Activity No of Projectu Approved Amount Disbursed Amount Disbursed 1987-1989 --------- ---us MilI)on