Argentina - Public Sector Reform Loan Project : Korea - Public Hospital Modernization Project

 Public sector reform loan Report No: ; Type: Report/Evaluation Memorandum ; Country: Argentina; Region: Latin America And Caribbean; Sector: Public Sector Management Adjustment; Major Sector: Public Sector Management; ProjectID: P006026 December 29, 1995 Argentina: Public Sector Reform Loan (L3394-AR) The Implementation Completion Report (ICR) for the Argentina-Public Sector Reform Loan (PSRL, approved in FY92 and closed on December 31, 1993), was prepared by the Latin America and the Caribbean Regional Office. The ICR does not contain a Borrower's contribution. The loan, in the amount of US$325 million, was part of a larger package of US$1.5 billion committed by the Bank between 1989 and 1995 to assist the Government of Argentina in reforming the public sector. Other related operations include two public enterprise reform loans, four technical assistance loans and two provincial reform loans for a total of US$1.2 billion. The Inter-American Development Bank provided cofinancing for the PSRL in the amount of $325 million, and the Government of Japan provided a grant of 150 million yen in support of the Technical Assistant component. The main objective of the PSRL was to reduce the structural deficit of the public sector by introducing reforms aiming at revenue mobilization, expenditure reductions and reorganization of the Central Bank. The Government of Argentina was highly successful at achieving most of the reforms supported by the PSRL. The efficiency of the tax structure and of tax administration improved considerably. The Federal Administration was reformed and the budget process improved. And, most importantly, the reorganization of the Central Bank played a key role in stabilizing prices. However, the Government did not enact and implement a Public Procurement Law and reduced potential VAT revenues by granting exemptions for industrial promotion. Also, the transfer of responsibility for secondary education to the provincial governments contributed to reduce the federal government deficit, but may have created unintended negative impacts on the financial health of the provinces. Fiscal performance began to falter during the second semester of 1994. Thus, continuing success of the program will depend upon the capacity of the Government to adjust to the external shocks following the recent crisis in Mexico, to improve competitiveness through productivity growth and to resist political pressures threatening fiscal equilibrium. The ICR rates project outcome as highly satisfactory, sustainability as likely and institutional development as substantial. OED rates project outcome as satisfactory and sustainability as uncertain because the project achieved most of its objectives but with a few shortcomings, and because there are continuing risks associated with possible disruptions in capital flows, failure to improve competitiveness and political developments that may threaten fiscal equilibrium. OED also rates Bank performance as highly satisfactory. There are two main lessons derived from this operation. First, at times of crisis—as was the case in Argentina in 1989—countries can be more likely to enact far- reaching reforms. And, second, the enactment of meaningful policy reforms is also facilitated when this comes in the wake of an extensive policy dialogue based on high quality economic and sector work by the Bank. The ICR is of satisfactory quality but does not discuss the changes of the structural fiscal deficit, a monitorable indicator provided by the President's Report; and does not assess the effect of the reforms of the Federal Government on the financial health of the provincial governments. No audit is planned.