Mexico - Second Basic Health Care Project

Document of The World Bank Report No. 13878-HE STAFF APPRAISAL REPORT MEXICO SECOND BASIC HEALTH CARE PROJECT AUGUST 30, 1995 Country Department II Human Resources Operations Division Latin America and the Caribbean Regional Office  CURRENCY EQUIVALENTS Currency Unit = New Peso (N$) US$1.00 = 6.0 New Pesos (June 1995) FISCAL YEAR January I - December 31 UNITS OF WEIGHTS AND MEASURES Metric US Equivalent I meter (m) 3.28 feet I kilometer (km) = 0.62 mile (mi) I kilograni (kg) 2.20 pounds (lb) I metric ton (m ton) 2,250 pounds I liter (1) 0.26 gallons (gal) I cubic meter (m') 1.3 cubic yards ACRONYMS CAS Country Assistance Strategy CONAPO National Population Council DALYs Disability Adjusted Life Years DDM Data-for-Decision-Making Training DGE General Directorate of Epidemioloogy DIF Family Social Welfare Agency DSU Decentralization Support Unit GDP Gross Domestic Product IDB Inter Americanl Development Bank TMSS Social Security Institute for Private Sector Employees IMSS/SOLIDARIDAD Special Basic Health Program tor the Uninsured INSP National Institute for Public Health ISSSTE Social Security Institute for Public Sector Employees MIS Managenment Informatiorn Systems NAFIN National Financing Agency OECD Organization for Economic Cooperation and Development PAHO/WHO Pan American (World) Health Organization PASSPA Health Care Program for the Ulninsured Population PHC Primary Health Care PCU Project Coordination Unit PEMEX Mexican Petroleum Company SHA State Health Authority of the SSA SHCP Federal Secretariat of Finance SPCU State Project Coordination Unit SSA Federal Secretariat of Health TAPS Primary Health Care Workers UNICEF United Nations Children Fund  MENICO BASIC HEALTH CARE PROJECT II STAFF APPRAISAL REPORT TABLE OF CONTENTS 1. THE HEALTH SECTOR ................................................ 1 A. SOCIO-ECONOMIC CONTEXT .................................................1 B. HEALTH SECTOR ORGANIZATION AND FINANCING ................................................ 3 C. HEALTH SEC TOR I SSUES ................................................ 4 D. LESSONS LEARNED ................................................ 9 E. GOVERNMENT AND SECTOR STRATEGY ................................................ 10 F. RATIONALE FOR BANK INVOLVEMENT ................................................ 11 2. THE PROJECT .................................................12 A. PROJECT CONCEPT AND OBJECTIVES ................................................ 12 B. PROJECT AREAS .................................................12 C. PROJECT DESCRIPTION ................................................ 14 D. PROJECT COSTS AND FINANCING ................................................ 24 E. PROCUREMENT .................................................26 F. DISBURSEMENTS .................................................31 G. ACCOUNTS AND AUDITS ................................................ 32 H. IMPLEMENTATION ................................................ 32 I. PROJECT SUPERVISION AND REPORTING ................................................ 35 J. PROJECT BENEFITS AND RISKS ................................................ 36 K. ENVIRONMENTAL IMPACT ................................................ 38 L. PROGRAM OBJECTIVE CATEGORIES ................................................ 38 3. AGREEMENTS REACHED AND RECOMMENDATIONS ................................................ 39 LIST OF TABLES TABLE 1: BASIC DATA SHBET ................... iv TABLE 2: HEALTH CARE PROVIIRS IN MEXICO, 1990 ........ .. . 3 TABLE 3: HEALTH EXPENDITURES, PuBuc AccouNTs, 1994 ................................................ 4 TABLE 4: PROJECT STATES AND JURLSDCoNS ................................................ 14 TABLE 5: CoMPoNENTs PRoECa CoST SuMMARY ................................................ 25 TABLE 6: F iNAN cG PLAN ................................................ 25 TABLE 7: INCREMENTAL RECURRENT CosTs PER YEAR ................................................ 26 TABLES : PROCUREMENT METHOD ................................................ 28 TABLE 9: SUMMARY OF ESTIMATED COSTS AND BENEFITS ................................................ ........... 38 ANNEXES ................................................ 41 i. First Basic Health Care Project, Executive Summary and Evaluation 9. Operating Manual 2. Health Coverage and Population 10. Monitoring and Evaluation Indicators 3. Health Care Financing 11. Economic Benefits 4. Basic Health Care Package 12. Civil Works 5. State Health Care Capacities and Priorities 13. Management Information System (MIS) 6. Lessons Learned 14. Project Administration, Monitoring and Evaluation 7. Preparation, Selection and Evaluation of Subprojects 15. Documents in the Project Files 8. Project Costs and Financing This report is based on the findings of the appraisal mission that visited Mexico in November 1994. The mission was composed of Mmes./Messrs. Annin H Fidler (Task Manager), Cannen Hamann, Rosita Estrada, Kevin Rost (aA2HR) Afauricio Mathov (lENTI), James Cercone, Hector Sanchez, Nydia Maraviglia (consultants). This report wsprepared in the field in close cooperation with the counterparts fom the Secretarfa de Salud. Peer reviewers are Jose-Luis Bobadilla and William McGreevey (PHN). Messrs. Edilberto L Segura and Kye Woo Lee are the Department Director and Division Chief, respectively, for this operation.   - ii- MEMCO SECOND BASIC HEALTH CARE PROJECT LOAN AND PROJECT SUIMMARY Borrower: Nacional Financiera, S.N. C. Guarantor: United Mexican States Implementing Agencies: Secretariat of Health and State Health Authorities Beneficiary: Same as above. Poverty: Program of Targeted Interventions. The project targets the delivery of a basic package of cost effective interventions to health jurisdictions selected according to a poverty index. Amount: US$310.0 million. Terms: Fixed rate US dollar single currency loan for up to 15 years. Each semester's aggregate disbursements (Disbursed Amount) will have a grace period of 3 years and a final maturity of 9 years from the rate fixing date for that Disbursed Amount. Interest Payment Dates and Rate Fixng Dates: October 15 and April 15. Financial Benefits and Risks: The Borrower has selected fixed rate US dollar single currency loan terms in order to improve its overall liability management and reduce its risks. It considers US dollars to be an appropriate currency for its debt management strategy, and a fixed interest rate basis appropriate to diversify its interest rate risk, given the large share of variable rate funding in its overall poitfolio and its limited access to fixed rate funding from other sources. Commitment Fee: 0.75 percent on undisbursed balances, beginning 60 days after signing, less any waiver.  Hnancing Plan: See para. 2.42. Net Present Value: See paras. 2.80-2.85 and Annex 11. Staff Appraisal Report: 13878 - ME Map: 113RD No. 26724R Project Code MX-PA-7689  - Iv - Table 1: Basic Data Sheet A. General Country Data1 Maeico Year GNP Per Capita (US$) 3,470 1992 Area (Thousand Square Kilometers) 1,973 1994 Population Estimate (Mllions) 84.9 1992 Urban Population (percent of total) 73.7 1992 Population Projection (Millions) for the year 2000 99 1992 Stationary Population 182 1992 (Assuming that in year 2000 a Net Reproduction Rate of 1 is reached) B. Social hidicators Crude Birth Rate (Per Thousand) 28 1992 Crude Death Rate (Per Thousand) 5 1992 Annual Rate Of Population Growth (percent) 2.0 1980-92 Total Fertility Rate 3.2 1992 Infant Mortality Rate (Per Thousand) 35.0 1992 Maternal Mortality Rate (Per 100,000 Live Births) 200 1988 Babies With Low Birth Weights < 2,500 gr. (percent) 9 1990 Life Expectancy At Birth (Years) 70.3 1992 Population Age Structure (percent) 1990 0-14 Years 44.7 15-64 Years 51.8 65+ Years 3.4 Adult Illiteracy Rate (percent of persons 15 and over) 13 1992 Primary Net Enrollment (percent) 98 1992 C. Health Sector Resources Population Per Physician 652 1992 Population Per Nurse 495 1992 Population Per Hospital Bed 401 1992 D. Coverag Population With Access To Health Services (percent) 86 1994 Population With Access To Drinking Water (percent) 78 1987-92 Women Of Fertile Age Group (15-45) Using Contraception (percent) 52.3 1994 1 Sources: Worid Development Report, 1994; World Tables, 1994; State of World's Children, UNICEF, 1994.   Introduction This report presents the Second Mexican Basic Health Project for which an IBRD Loan of US$310.0 million to Nacional Financiera S.N. C. (NAFIN) is proposed. The project is consistent with the Bank's Country Assistance Strategy (CAS)2 for Mexico. It will improve the health status of the poor in the eleven most disadvantaged states at a total cost of US$443.4 million. The proposed project builds on the First Basic Health Care project (PASSPA 1)3 which is expected to close in 1996. Chapter I on the Health Sector describes the socioeconomic sector settings, health care financing, analyzes prominent health sector issues, lessons learned and sets forth the Government's strategy and rationale for Bank involvement. Chapter II on the Project describes the three project components which include: a strategy for providing a basic health care package selected from a menu of cost-effective interventions; the support that the project will provide for institutional development to decentralize services and functions from the federal level to the states and transfer responsibilities from the states to the health jurisdictions; and the initiative for modernizing and restructuring of the Secretariat for Health (SSA) to assume an active leadership and regulatory role. Chapter III on Agreements summarizes agreements reached and lists conditions to be applied to the loan. Additional background information is provided in the Annex section. 1. THE HEALTH SECTOR A. SOCIO-ECONOMIC CONTEXT 1.1 Background: The peso devaluation in late December 1994 triggered an economic and financial crisis which is resulting, during 1995, in negative economic growth, high interest rates and inflation of about 42 percent. With the assistance of the international financial institutions, the Government is taking the necessary steps to avert a banking crisis, which would plunge the economy into an even deeper recession. In addition, a Program of Essential Social Services (PROSSE), supported by the Bank Group and IDB, intends to support the Government to establish a social safety net, by financing emergency programs in health, education and labor markets. 1.2 Despite this recent financial crisis, however, Mexico's overall development over the past decade has been substantial. The country overcame the debt crisis of the 1 980s and achieved economic growth after structural adjustment. The Salinas administration introduced macroeconomic stabilization and an ambitious public sector reform program. Many social issues were addressed, in particular health, education and rural poverty. The increase in social expenditures accounted for over 40 percent of all program expenditures. Government's health measures consisted primarily of improving access to basic health and social services, expanding immunization coverage and other primary health care (PHC) programs, and increasing the provision of safe water and waste disposal. As a result, life expectancy increased over the last two decades, from 58 to 70.3 years, and infant mortality declined from 74 to 35 deaths per 1,000 live births. 2 CAS: Report No. 14518-ME; May 22, 1995, discussed by the Board on June 22, 1995 with the Financial Sector Restructuring Loan and the Program of Essential Social Services. 3 PASSPA = Programa de Asistencia a los Servicios de Saludpara la Poblaci6n Abierta  2 1.3 There is an unfinished agenda, however. Nearly 30 million people still live in poverty without adequate access to health and social services. Of a total population of 84 million, 25 percent are considered poor, and another 16 percent (13 million) are extremely poor and not able to meet their basic needs.4 Real per capita income in the richer (mainly northern) states is more than twice that in the poorer (mainly southern) states. Urban centers and the northem states have health indicators similar to OECD levels, while in urban slums, rural areas and the southern states the poor are still subject to an epidemiological pattern,5 characterized by common infections and malnutrition. Life expectancy stands at 55 years in rural areas versus 71 years in urban areas, and 53 years among the poor compared to 73 years among the wealthy. Similarly, infant mortality ranges from under 20 per 1,000 in the wealthier northern states, to more than 50 per 1,000 in the poor southem states. Urban elites and the middle class are increasingly subject to an epidemiological pattem7 with a higher burden of chronic diseases. These disparities place conflicting demands on health services and represent a major challenge for the Mexican health care system. 1.4 While trying to address these new pattems of chronic disease, the health system must simultaneously provide equitable access to primary health care for the poor, who suffer from a heavy burden of communicable diseases. The Government is committed to the goals laid out in the UN- sponsored "World Summit for Children"6 and has achieved considerable progress in reaching the Summit's principal objectives. It has addressed health problems through large scale vertical programs such as universal childhood immunization and diarrhea control, which have substantially reduced infant mortality. However, much more remains to be done. Many services do not reach the poor and the quality of services is often unsatisfactory. According to national estimates, about 11 percent of the poor have no access to health services. Moreover, according to national survey data, one third of the population feel that their health needs are currently not met by the health care system, although the proportion dissatisfied with services received varies widely, from 20 percent among the middle class, 7 to 31 percent among the poor and reaches a high 47 percent among indigenous people. Prenatal care barely reaches 25 percent of pregnant women, (mostly living in pen-urban slums and rural areas), and 34 percent give birth without any professional assistance.8 1.5 As part of its poverty alleviation policy and to ease the most prominent health problems facing the uninsured, the Government has adopted several strategies. These include targeting interventions to reach the most disadvantaged areas in the poorest states. In addition, social security was expanded and coverage of the IMSS-Solidandad program increased (a Government financed basic health care program for the uninsured, rural poor under the auspices of the Mexican Social Security Institute - Instituwo Mexicano de Seguro Social - IMSS). An attempt has also been made to augment the mandate of the Secretariat of Health (Secretaria de Salud - SS4) to determine sector priorities, to re-allocate resources from curative to public health and transfer decision-making power from federal to state health authorities (SHAs). The Bank financed First Basic Health Care project (Loan No.3272-ME; FY 1990) supports these initiatives in four states9 and marginal areas in the Federal District (Annex 1). 4 National Center for Population and Health Studies, 1994 (Centro Nacional de Etudios en Poblaci6n). 5 Refer to Annex 2 for a description of the epidemiological trnsition in Mexico. 6 The World Summit for Children was held at the UN headquarters in New York in September 1990. More than 80 heads of state, among them President Salinas, signed an agreement to reduce infant and maternal mortality, reduce malnutrition, provide drinldng water, sanitation, access to education and protect children in difficult circumstances. 7 National Health Survey, E,cuista Nacional de Salud (ENSA 1), 1988 8 A national sutvey demonstrated that 7% of pregnant women have no access to prenatal care and 15% give birth without any professional assistance. (EAcuesta Naaonal de Salud Matermlo-iizn, SSA 1994). 9 Oaxaca, Chiapas, Guerrero and Hidalgo.  3 1.6 However, these measures, which increased federal health spending to 2.8 percent of GDP by 1994 (accounting for 23 percent of total federal expenditures),'0 have been only parfally effective. Health service access and poor service quality continue to be problems. The effectiveness of the health budget is impaired by institutional fragmentation, managerial weakness and duplication of services, resulting in a loss of efficiency, equity and quality. The Government intends to rationalize resource allocation, to search for alternatives to sole government provision and financing of health services, and to strengthen the role of the private sector. B. HEALTH SECTOR ORGANIZATION AND FINANCING 1.7 The Second National Health Survey" found in 1994 that people who had sought fonmal health care during the previous 15 days had done so through the following sources: Private sector providers (32.9 percent); IMSS, for fonnal sector employees and their families (31.5 percent); Social Securty Institute for Federal Government Employees (Inslituo de Salud y Servicios Sociales de los Trabajadores del Estado - ISSSTE) (6.4 percent); IMSS-Solidanidad (2.8 percent); SSA (18.4 percent); and Others (8 percent). Some 98,624 physicians, 4,730 dentists, and 148,957 nurses and auxiliary nurses work for public institutions; about 56.5 percent are employees of IMSS and ISSSTE and serve the half of the Mexican population that is insured by these agencies. The other 43.5 percent of health workers are employed by the SSA and state health authorities. These workers provide fewer services per capita to the uninsured population than are available to social security affiliates. The main providers of health services and the affiliates/population they cover are presented in Annex 2, and summarized as follows: Table 2: Health Care Providers in Mexico, 1990 Health Care Provider:12 Affiliates/population: percent Social Security (IMSS, ISSSTE, etc.) 44,627,508 55 Ministry of Health (SSA) 27,587,913 34 Uninsured Population uithout access to 8,925,502 11 services Total Population 81,140,923 100 1.8 Overview of Health Hnancing. After 1988 the Salinas administration made health care a priority. As a result, federal health spending increased nearly 15 percent per year in real terms and has now reached an estimated 2.8 percent of GDP, or around 17 percent of the federal programmable budget. Overall, IMSS and ISSSTE account for 68 percent of federal health expenditure; the SSA, for 27 percent; and the Anned Forces and other parastatal entities, such as PEMEX, account for the remaining 5 percent. Spending increases, however, have not been evenly distributed between the main providers. Between 1987 and 1993, IMSS increased spending by 80 percent, ISSSTE by 23 percent, and the SSA by 44 percent. Although spending increased in the SSA, resources are disproportionately 10 Source: Federal Budget Report 1993 and Frenk: "Economia y Salud", FUNSALUD, 1994 11 Encuesta Nacional de Salud (ENSA II), 1994. 12 National Health System: Swatisical Information Bulletin No. 10, 1990.  4 allocated to salaries and administrative costs. In addition to the increases in spending by the SSA and the social security institutes, the decline in quality of public services and increases in income levels have led to a rapid increase in private sector spending, which now accounts for at least 2 percent of GDP, or an estimated US$79 per capita. (Annex 3 provides a description of health care financing). Table 3: Health Expenditures, Public Accounts, 1994 ______________n _ (US$ nmlhons) _ US$ SSA 2,484 68 0.71 IMSS 5,674 144 1.71 IMSS-Solidaridad 317 30 0.10 ISSSTE 585 72 0.19 Armed Services and 151 93 0.05 PEMEX _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Total Public 9,211 106.2 2.76 Private 6,865 79.1 2.06 Grand Total 16,076 185.3 4.82 C. HEALTH SECTOR ISSUES 1.9 Despite increases in public health care spending and a notable improvement in the SSA's service network over the past six years, issues grouped under equity, quality and efficiency continue to affect the health care delivery system, particularly in the poorest states. Equity 1.10 Lack of Access. Access to health care is a constitutional right for all Mexicans. Yet more than 10 percent of the population do not have access to permanent health services at all. About 39 million Mexicans are uninsured and depend on services provided mainly by the SSA and IMSS - Solidaridad.14 Among factors limiting access, the following are the most prominent: (a) geographic isolation as a result of difficult terrain and lack of roads or transport (in the project states, about 55 percent of the population live in rural communities of less than 5,000 inhabitants, which usually do not have health facilities); (b) poor quality of care and lack of health personnel, basic medicines and supplies in many rurl health centers, which lead users to skip the first level of the system and seek assistance in secondary and tertiary level facilities; (c) cultural barriers which limit the use of modem health services, mostly in indigenous communities where the population relies on taditional healers and midwives; and (d) a poor referral system which constrains access to secondary and teriary care. Many of these issues would be addressed through both the basic health care and the institutional development components of the proposed project. More services can be made available, if states participate in budget planning, service administration gets improved, the basic service network is expanded and rehabilitated, private sector participation is promoted and incentives are used to attract personnel for hardship areas. 13 Source: Secretaria de Haenda y Credito Pziblew (SHCP), 1994 and Frenk, J. et aL: Exonomia y Salued Propuestas para el avnce del sistema desalud en Mec. FUNSALUD 1994. 14 In 1992, 55S% (48 million) of the population had access to services through the social security system, and only 2% of the population is covered by private in_ure.  5 1.11 Structural barriers to access to health services, including shortages of essential drugs and supplies in public clinics, force many families to pay out-of-pocket to satisfy their health needs, at costs that are prohibitive in relation to low incomes. A FUNSALUD"5 study revealed that in 1994, 38 percent of citizens had to estrict family expenses to pay their medical bills. About 1.6 million families experienced catastrophic illnesses in 1992, with costs so high that basic family needs were jeopardized. These issues would be addressed through the proposed project both in the basic health care and the institutional development components, by increasing coverage in the niml areas through the use of Primary Health Care Technicians (TAPS), 16 auxiliary nurses and health promoters, rehabilitating of the basic health network and reallocating and training personnel. Basic health services will be made available to those states and health jurisdictions which are most in need. Furthermore, the project would promote community involvement in health: participation in mainning health posts, incentive schemes to induce health personnel to work in remote areas and testing of innovative approaches to health provision and financing involving the private sector. Additionally, where user fees are collected, the project would support their reinvestment at the facility level under supervision of community authorities (Presidentes Mwnicipales). 1.12 Inequitable Distribution of the Burden of Disease. Another recent study by FUNSALUD demonstrated that Mexico lost 12.8 million disease-ad4usted life years (DALYs) due to premature death and disability in 1991, mostly in poor niral areas where the burden of disease and disability is largest, particularly among males. Children under 5 years account for more than a third of the disease burden, mostly due to infectious diseases. The economically active population (15 to 44 years) is subject to an ever increasing burden of chronic diseases and traumas. In addition to this FUNSALUD study, the Banks 1993 World Development Report (WDR) and a policy study commissioned by the SSA18 set the framework to define health priorities for Mexico.'9 The basic health care component of the proposed project would address these priorities by providing access to a basic health care package including both public health and basic clinical services. The targeting mechanism of the project would maximize the impact of investments by selecting communities with the highest disease burden. 1.13 Inequitable Distribution of Fmancial Resources. Despite increases in federal health expenditures and considerable investments in the poorer states, the distribution of resources between states remains highly inequitable. The project states receive 25 percent fewer resources per capita from the SSA budget than the national average, although the burden of disease in those states is significantly higher than the national average. Resource allocation to the states does not consider their revenue generating capacity; in fact, states with the highest tax revenues per capita receive higher per capita resources from the SSA. The First Basic Health Care project addressed these issues by directing additional resources to the poorest states. The proposed new project would continue to correct this inequitable distribution by: (a) targeting reGources, using as criteria epidemiological and demographic indicators; (b) defining resource allocation according to public health and basic curative service priorities; and (c) testing altematives for health care financing and service provision. 15 (Fundacdn Mexcana para la Salud - Mexia Foundation for Health) 16 TiaemC de Atendan Prbnaria a la Salud (TAPS). 17 Fek, J. et al.: Ecnoenia y Salud. Propuesas para el avwce del sistema de salud en Mexco. FUNSALUD 1994. DALY - Disability Adjued Life Ye&. This iuicator is mo sensitive, because icmares no orly notaity but alo disabiities. 18 McKinsey, 1994-95 19 EUX: Haaa uma refonma de la salud en Mexico. 07/94.  6 Quality 1.14 Low Quality of Services. The quality of the health services provided to the uninsured population is generally poor. This was confirmed by a qualitative study on customer satisfaction20 which found that 83 percent of users were dissatisfied. The principal reasons were: (a) poor service; (b) lack of resources, such as drugs and well trained personnel; (c) lack of access; and (d) high costs. In addition, the study revealed that quality issues are not limited to the lack of resources, personnel and technical problems; 40 percent of patients felt that they were not treated adequately, 61 percent considered services too bureaucratic, 8 percent did not receive medical treatment when needed, and 26 percent had to postpone an intervention for economic reasons. These perceptions are not limited to users of health services; physicians and local health authorities also identify them as major constraints. An expert panel found quality problems in 73 percent of SSA health center visits. The main reasons for these shortcomings are linked to deficiencies in infrastructure, health personnel involved in service delivery, and lack of accountability of managers. As a consequence, the poor, who rely on SSA's health services, have to incur out of pocket expenses for pnvate care or, in extreme cases, have to forego medical treatment. The proposed project would address these issues through: (a) improving the provision of services; (b) rationalizing procurement and distribution of drugs; (c) enhancing regulation, accreditation and evaluation procedures; (d) providing technical and total quality management training to health personnel; (e) empowering local communities to provide feed-back on the perceived quality of health services through participating in the staff incentives program. 1.15 Deterioration of Health Services Network. Health facilities in the project states are generally in poor conditions. The overall deterioration of the delivery system was demonstrated in the infrastructure inventory carried out before the implementation of the ongoing health project. It showed that many facilities in fact were no longer operational. This was mainly due to insufficient funding for basic maintenance, lack of personnel, supervision and managerial constraints. While the First Basic Health Care project restored the most seriously damaged facilities in four states, many of the deficiencies are also present in the new project states. As a consequence, patients bypass first level care and go directly to second and third level facilities, at higher costs both for patients and institutions. 1.16 The physical decay of infrstructure and equipment contributes to a vicious cycle. Staff are demotivated to work in a deteriorated workplace and patients refuse to attend those facilities and prefer to attend district hospitals, despite high opportunity costs for travel and waiting time. The Government tried to break this cycle with programs such as the Hospital Digno and with interventions, supported by the ongoing project, to engage the community more in the maintenance of facilities after their rehabilitation or construction. Once the civil works program is concluded, 1,141 mostly nurl health post and 25 hospitals will have been upgrded and 267 new first level care facilities will have been constructed. In order to reduce deterioration in the poorest areas, the proposed project would finance construction and rehabilitation of first level facilities only if justified as cost-effective means to delivering the basic health package. The project will also address the issue of preventive maintenance for existing health facilities, by encouraging the states to allocate resources for infrastructure maintenance. 1.17 Staff Skill Mix and Allocation. Overall, Mexico has 24 hospital beds per 10,000 people, but the distribution is inequitable; only 5 public hospital beds per 10,000 people are available to the 20 Fwicuesta de SatAcd6n con los Servwos de Salod en Mczw. F'USA4LUD; 05/94  7 uninsured poor in the project states (Annex 5 provides data on health facilities in the project area). Mexico has one doctor for every 652 people, but too few health professionals, such as nurses and primary care technicians. There is only one nurse per 495 people, which is 50 percent less than in other middle income countries.21 In addition, doctors tend to be concentrated in urban areas, whereas most rural areas cannot attract permanent health professionals. Newly graduated doctors are supposed to practice a year of social service in nral municipalities as part of the licensing requirement (medcos pasantes). However, due to poor pay, poor living conditions and inadequate supervision, an ever shnnking proportion of graduates actually fulfills this requirement, leaving many rural health posts empty. Because of a centrally managed staff roster and a number of unauthorized positions, SSA staff are distributed unevenly. In reviewing the staffing pattem of the project states, the SSA found that about 10 percent of staff were appointed outside civil service norms. Frequently, actual functions and tasks performed by SSA staff differ considerably from the job description and assignment originally intended. Attempts to reassign or reclassify staff in the past have met strong union resistance and reluctance of some SSA central offices. The proposed project would address this issue by: financing the training of primary care technicians (TAPS) for rural health posts; helping the SSA to rationalize the staff skill mix and staff allocation; devolving to the states greater autonomy in allocating staff according to actual needs; supporting staff incentive programs for hardship areas; and providing technical training to health staff at state and jurisdictional levels. Efficiency 1.18 Decentralization. Greater efficiency can be achieved by decentralizing management functions and budgets to the states and transfer responsibilities to health jurisdictions. SSA management at the federal level has not been sensitive to local needs in the past or has been limited in its ability to act, due to bureaucratic requirements and processes. Distance and several layers of administration often delay remedial actions at the local level. During previous administrations, 14 of the 32 states were decentralized; this transferred some, but not all decision-making power such as planning, budgeting and personnel from the federal to the state level. However, decentralization came to a halt in the past administration. The new administration intends to complete and deepen decentralizaton in all statesW2 Experience in the ongoing project shows that after investing in institutional development and de facto transferring functions and decision making from the federal to the state level the base for de jure decentralization is established. The proposed project would support the transfer of more management, technical and administrative functions (including planning, budgeting, procurement, and personnel management) from the federal to the state and from the state to the health jurisdictions. 1.19 Management Constraints. The efficiency of health spending and provision has been impaired in the past by managerial weakness at all levels. Inappropriate management practices have prevented adequate responses to both the epidemiological dynamic and the health needs of the population. For example, although health, financial and administrative data are routinely collected, the quality of the data is often unreliable and indicators are not used as management tools. Surveillance and research are often seen as ends in themselves, rather than means for facilitating decision making. To coriect this problem, the Institutional Development and Decentraization Component of the project would finance Management Information Systems (MIS) and management training at all service levels. A special training program would be designed to enable health managers to use data, hence allowing staff to use the resources at their disposal more effectively and to evaluate the effects of their interventions. 21 This reflecs a physician:murse rate of 1:1.3. However, a physician: rwwe raio of at least 1:2 is reconuended. 22 Background paper on decentralization and proposed chronogram in project files.  8 1.20 Management Information Systems (MIS). Over the past several years, the SSA has considerably improved the epidemiological information system. However, the lack of parallel financial, accounting, and management information systems to generate indicators for policy-making, planning, and management puiposes has limited the use of the systems for decision making. Information on the regulatory functions of the federal SSA (such as supervision, sanitary regulation and quality control) is highly fragmented or non existent. And, frequently the available information is not used for policy-maling. At the state levels, a lack of computers, software and trained staff has also constrained the effectiveness of the information systems and information on personnel, pharmaceuticals, and inventories is inadequate. The proposed project would support the development of management information systems by consolidating the MIS started under the ongoing project and implementing the improved MIS system in the new project states. In addition, it would finance training of SSA staff at the federal and state level so that they can make timely, better informed decisions. 1.21 Health Financing. Total health spending has reached an estimated 4.8 percent of GDP, and annual spending of the SSA has increased 44 percent in real terms since 1987. In 1992, federal expenditures for health reached 2.8 percent of GDP, or US$106 per capita, while private outlays amounted to US$79 per capita (Annex 3). Although health expenditures have nearly recovered to levels seen before the economic crisis in 1977, several constraints still limit efficiency of health sector spending: (a) a bias towards costly interventions; (b) centralized decision making and resource allocation; (c) lack of financial management tools at die central and local levels; and (d) constraints on resource availability for dnigs and medical supplies, maintenance, and well trained personnel. The proposed project would address these issues through institutional development, improvement in resource allocation and by creating opportunities for testing alternatives for health financing involving the private sector. 1.22 Misallocation of health spending also constrains quantity and quality of health services for the uninsured population and prevents improvement in health conditions. To improve the health conditions of the poor, more resources must be allocated to neglected areas and the orientation to costly interventions has to be addressed by reducing overspending on administration (currently 31 percent) and increasing preventive programs, now at a low 5 percent compared to 64 percent for curative programs. Financing a basic package of interventions would focus resources on the most cost effective interventions and ensure that critical inputs to the delivery of health services, pharmaceuticals and appropriate categories of trained staff are provided in priority areas. 1.23 Centalized decision making contributes to inefficient resource use too. Health care spending levels and priority areas detennined at the central level result in ineffective allocation and lack of accountability and transparency for resource use. Annual budgeting decisions are based on a centrally defined health care model and on historical budgets, with limited flexibility and lack of incentives to optimize resource use. The lack of financial, accounting and control systems both limits local decision making and impedes informed central policy making. 1.24 Reductions in federal resources have led to increased user fee revenues and increasing participation of state governments. In the project states, user fee revenues (cuotas de recuperaci6n) have increased annually at over 68 percent in real terms, and now account for almost 10 percent of total revenues. At the facility level, user fee revenues surpassed the federal budget allocation 2 to 3  9 times in some cases. Many of the poorest families seek care in the private sector due to poor quality or unavailability of equipment and resources. This suggests that if the quality of public services can be enhanced, there is considerable scope for increasing cost recovery for services, pharmaceuticals, and supplies. The autonomy and efficiency with which these revenues are spent, however, is limited by federal regulations requiring that 15 percent of all revenues be retumed to the central level and by strict guidelines on the use of the resources at facilities.23 Allowing facilities and state health authorities to retain all user fees and revising the regulations goveming user fee expenditures would increase the efficiency and effectiveness of these expenditures. Contributions from state and municipal govemments have also been increasing, in response to the decline of federal resources. State contributions, an average 3 percent of total sector spending, are typically used to finance projects of special interest to the state, such as infrastructure in priority areas, or the response to epidemiological emergencies. Devolving functions from federal to state levels would increase accountability and transparency in state spending, and also improve community participation. The proposed project would achieve efficiency gains by targeting resources, promoting disease prevention, providing a cost- effective basic health package and implementing a decentralized budgetary process and improving accounting, control, and auditing systems at the state and local levels. D. LESSONS LEARNED 1.25 Lessons Learned. The First Basic Health Care project was the first health related Bank experience in Mexico and provided the most valuable lessons to consider for the proposed project. Most prominent lessons are: (a) Targeting. While the First Basic Health Project targeted poor states, resources often did not reach populations most in need within the state. Therefore, it is necessary to target delivery of a cost-effective basic health care package to the most disadvantaged municipalities within a poor state. This is the approach being followed under the proposed project by focusing on jurisdictional investment programs. (b) Improve Access to Basic Health Care. The First Basic Health Project supported infrastructure rehabilitation of first level health centers and second level hospitals in order to provide an environment suitable for basic services of high quality for the uninsured. It has been demonstrated that the use factor of rehabilitated facilities with adequate medical staff and supplies increased significantly. The proposed project will continue to finance the rehabilitation of the first and second level care network to provide quality services to the uninsured and operate mobile units to support effective outreach to small communities without health centers. (c) Rural Staffing. The First Basic Health Care project supported the training and recruitment of community health care workers (TAPS) who are selected from the community where they wil serve. They were utilized in the project for staffing health posts in communities where no medical doctor was available and they have been instrumental in increasing the user rate of the basic health service network. The proposed project will build on this successful experience and finance training of more TAPS to serve remote communities. (d) Build Ownership in the States. The First Basic Health Care project featured institution building by decentralizing procurement of essential supplies and improving the management capacity and information systems. The proposed project will continue to support project states' institutional capacity through the training programs and decentralizing project implementation. It would also promote the involvement of political stakeholders, particularly the State Governors, to guarantee continued support for the project, foster ownership and sustainability. (e) Joint Annual Review Meetings: The First Basic Health Project featured joint annual project review 23 Although the decenbalzed sates retain 100 percent of the revenues, the facilites are obligated to return between 25 and 30 percent to the state level. In the centazed states, the facilities retain approximately 70 pecent, then return 15 percent to ihe federal level and 15% to the state level.  10 meetings and a mid-term review with the Bank and the Government. The proposed project would continue this practice and use these meetings to review the preparation of annual implementation and work plans and evaluate the performance of subprojects and other project elements. E. GOVERNMENT AND SECTOR STRATEGY 1.26 Improving the effectiveness, efficiency and quality of health services, particularly in the four poorest states was a high priority in the development agenda of the past Govemment. But recent developments, especially social unrest in Chiapas, demonstrated that equitable access to health care has not yet been achieved. This hampers economic development in poor regions, jeopardizes investments in basic education and deprives citizens of their constitutional right to health care. The new Government will continue a strategy of reducing inequities in access to basic health care, targeting those states with the lowest poverty indicators, and improving quality and resource use. 1.27 In addition, administrative reforms of the SSA will take place. To promote them, a Health Cabinet (Gabinete de Salud) was established to guide the SSA restnucturing and to promote coordination among sectors, in particular for decentralizing services to the states and providing better access to health care for the poor. This Cabinet, created by presidential decree, is headed by the President and includes reprsentatives from social security, finance and other social sector entities. 1.28 The SSA would redefine its institutional structure and functions, by assuming the lead role in the sector in: (a) defining national health policy, policy analysis, monitoring norms and regulations; (b) strengthening the state health services by transfening functions and responsibilities from the central level to the state and from the state to jurisdictional levels; and (c) guaranteeing the delivery of basic 24 health interventions, regardless of social, economic, cultumal or geographic factors. In a recent study commissioned by the SSA to assess the needs for sector modernization and the implications for the institution, the following essential strategies were outlined: * Secure universal access to a basic package of health seruces Einphasize public health and disease prevenion I *ncrease insitutional response to the needs of the most vulnerable population groups Focus on development of human resources and incentives for community participation * Foster institutional development and provide better quality service * Decentralizefinctions and responsibilities from federal to state and transfer responsibilities to health jurisdictions. 1.29 There exists broad consensus in Mexico that implementing these strategies would be achieved by supporting a three pronged approach: (i) promote access to basic health care services, 2 (ii) foster institutional development and decentalization of services and functions; and (iii) support the modernization of the SSA at the federal level. The project with its three components (i) Basic Health Care Services, (ii) Institutional Development and Decentralization and (iii) Modernization and Restructuring of the SSA, is in line with this strategy. Specifically, the Government would use the project to: (a) correct imbalances in the eleven poorest states carrying the greatest burden of disease by offering a basic health care package; (b) decentalize services in all states by supporting institutional 24 E: Haca ua reforma de la salad en Mexi. 07/94 25 See Annex 4 for a detailed description of the Basic Health Care Package.  I1 development; and (c) assist the SSA in institutional modernization by implementing the recommendations of studies and pilot projects on sector reform, policy, legal and operational issues. F. RATIONALE FOR BANK INVOLVEM'LENT 1.30 The proposed project is consistent with the Bank Group's country assistance strategy (CAS) discussed by the Board on June 22, 1995 together with the Financial Sector Restructuring Loan and the Program of Essential Social Services which inter alla emphasizes poverty reduction, human resource development and institutional development. The First Basic Health Care Project provided an effective model for improving the health status of the poor in five project states; the new project would expand and deepen this experience in seven additional target states. This would complement the objectives of other Bank-financed projects (Primary Education I and II, Initial Education, Low-Income Housing, Decentralization and Rural Development II, Water Supply and Sanitation Projects) that contribute to poverty alleviation and equitable access to social services in many of the same states. The proposed project provides an opportunity for the Bank to support the Mexican Government in carrying out the Bank's recommendations for the health sector, presented in the 1993 World Development Report, especially to redirect health expenditures to the most cost-effective interventions ('buy the cheap DALYs first"). 1.31 The last administration laid the groundwork for enabling the new Government to alleviate the most prominent health problems facing the uninsured. The Bank would support these efforts through the proposed project, which draws on the experience of the First Basic Health Care Project, health sector work and the project preparation effort: (a) The First Basic Health Care project (Ln. No. 3272 - ME)26 was initiated in 1991 and is expected to close in June 1996. It promotes an integrated approach to decrease the disease burden of the poor in the country's four poorest states and the Federal District (Annex 1). It also provided valuable experience and lessons learned for the preparation of this project. (b) A health sector study was initiated by last administration, with the assistance of the Bank, IDB, and WHO. Its purpose was to: (a) define sector policies and priorities for cost-effective health interventions and investments; (b) by outline the appropriate roles of the SSA, social security, non- governmental organizations (NGOs), and the private sector in the provision of health care services; (c) identify means of strengthening sector financing and more efficient use of resources. (c) The preparation of the Second Basic Health Care Project, which aims to eliminate many of the constraints of the health sector, such as the lack of access, equity, productivity, efficiency, and quality, the Government plans to expand basic health coverage for uninsured and underserved populations, using a health risk-focused and decentralized approach. At the same time, it plans to strengthen the institutions at federal, state and jurisdictional levels and to decentralize services in order to achieve a more efficient and effective service delivery and to modernize the SSA to enhance its leadership function in the health sector. 26 Programa de Apoyo a los Servicios de Salud a la Poblacdn Abierta (PASSPA)  12 .2. THE PROJECT A. PROJECT CONCEPT AND OBJECTIVES 2.1 Concept. The overall purpose of the second Basic Health Care project is to improve the health status of the uninsured population by supporting the Government's strategy for the health sector, which aims at a targeted delivery of basic health care, and implementing policy, institutional and operational reforms to improve the efficiency, effectiveness and quality of health services. The proposed project draws on the experience of the First Basic Health Care project and continues to support the Government' s policy of providing assistance to the less developed states and jurisdictions and improve the health conditions of 15 million uninsured and underserved poor living in eleven project states. 2.2 Objectives: (a) support equitable access to a cost-effective package of quality health services for the uninsured and underserved; (b) support institutional development through the modernization and decentralization of technical, managerial, and financing processes in the states; and (c) support the modernization and restructuring of the SSA to assume an active leadership role in the sector. This will be achieved through three components: 2.3 I. Basic Health Care Component. This component supports a basic health care package, with interventions selected from a predefined menu and targeted to the most disadvantaged areas. The health care package will be prepared and implemented by states and jurisdictions through annual investment plans, considering local priorities and focusing on cost effective preventive and curative interventions. 2.4 II. Institutional Development and Decentralization Component. This component improves the management and decision-making capacity in the states and jurisdictions through training, strengthening of support systems (planning, supervision, procurement and MIS) and decentralizes functions and services from the center to the states and transfers responsibilities from the states to the health jurisdictions. 2.5 m. Modernization and Restructuring of the SSA. This component supports institutional and operational reforms in the SSA, to restructure its central office, to modernize management, budgeting and resource allocation, evaluation and information systems, and finances studies and pilot tests for alternative health care delivery and financing. B. PROJECT AREAS 2.6 The project covers the four states where the first project has been implemented (Oaxaca, Chiapas, Guerrero and Hidalgo) and includes health risk areas in seven additional states (Puebla, Veracruz, Zacatecas, Michoacdn, San Luis Potosi, Campeche and Yucatan). The inclusion of these states is justified because of high poverty incidence, combined with health and epidemiological indicators below the national averages. Specifically, project states and health jurisdictions were selected with the help of a matrix of poverty indices27 and epidemiological and demographic2s 27 Indadores Socdoewwonucos e Indwe de Marginaci6n; Instiuto Nacional de E&astfsca y Geografica, (INEGI) 1990/ CONAPO, 1990.  13 surveillance data (Annex 2). Investments would be targeted to: (a) poor states, as determined by a poverty index and health indicators; (b) selected health risk areas within project states; and (c) uninsured and underserved populations. Specifically, the goals would be accomplished through an innovative project design and a "bottom up" strategy that promotes investment at the local level. Under state guidance and supervision, health jurisdictions would define health risk areas and prepare annual action plans for contending with their principal health problems. 2.7 Selection Process. 29 The eleven project states and priority health jurisdictions were selected based on three indicators: (i) the CONAPO (Consejo Nacional de Poblaci6n- National Population Council) poverty index,30 (ii) routine epidemiological surveillance data3' on disease incidence and prevalence and (iii) general mortality data (Annex 2 and 5). Poverty is usually associated with poor heath status: In the project area, average life expectancy is 67 years, 5 percent below the national average, and infant mortality is 42/1,000 compared with 35/1,000 for the national average. (Annex 5). In 1990, 32 percent of the population and 38 percent of the country's uninsured poor lived in the eleven project states. Within the selected states, a similar procedure was followed for choosing priority health jurisdictions and municipalities. Each participating state conducted a diagnostic survey to detennine those health jurisdictions that should be included into the project area. As a result of this exercise, the project would target the neediest people living in areas where both economic and health conditions are worst. In its first year of operation, the project would be implemented in 16 of the total of 78 health jurisdictions in the eleven project states benefiting a population of 3.8 million. In the following years it would be gradually expanded to include a total of 60 jurisdictions, based on the same targeting criteria, a competition mechanism for project funds, but also taking into account the absorptive capacity of health jurisdictions. It is expected that a total population of 15 million, constituting 53 percent of the entire population in the project states, would benefit from the project's interventions. The Bank would require that the same selection criteria be followed if during the duration of the project any other state would be added to the project area. 28 Direccid5n General de Epdemilogia (SSA) Bolet(n Mensual de Wgilanda EpidenuolOgica. Direcci6n General de Estadisiica, Informatica y Evahuaciin (SSA): Mortalidad 1992. 29 See Annex 5 for specific tables on the CONAPO poverty index 1990, the mortality data (10 principal causes for morbidity and mortality) and epideniological surveillance indicators. 30 The CONAPO poverty index ranks staes, jurisdictions and mumcipalities based on results of "prinpl components analysis", using the 1990 INEGI census, which takes the following variables into account: (a) population density; Q,) illiteracy in populon > 15 years; (c) population > 15 years without pnnwy schooling; (d) saaon; (e) pertage of households without electicity; (f) drinking water; (g) percentage of overrowded households; Oh) percentage of households with dirt floor; (1) percentage of population in localties of fewer than 5000 inhabitants; j) per capita income of less than two minum salaries; and (k) presnce of indigenous population. The national average would receives the index "0". A composite index between 0 and 1 would be considered as "high" , between 1 and 2 as 'very high". A negative index (below 0) would indicate a better than national average poverty ituaon ('low") and would not be considered for the project. 31 The epidemriological profile of health jurisdictions was fed by data from the routine epidemiological surveillance system and the morbidity and mortality data, available to the SSA and published on a mondtly basis. Direcaon General de Epidemiologfa (SS&4) BokIfn Mensual de Wgilancia EpidemiokSgica.  14 Table 4: Proiect States and Jurisdictions State Population Jurisdictions Project Target NpuIati1o Target PopulAtion Target Pp. as *Fist Priojct in State Jurisdictions FIst Year Total Projet % of Total Pop. Carnpeche 577,773 3 2 48,888 48,888 8 ChMapas* 3,595,670 7 6 932,446 3,243,093 90 Guerrero* 2,800,129 7 6 614,957 1,703,403 60 tfidalgo* 2,043,578 6 6 275,897 1,154,911 58 Mlehoaan 3,851,794 8 3 125,179 835,304 21 Oaxaca* 3244,956 8 6 1,203,955 1,203,955 31 Puebla 4,476,693 10 9 163,949 1,932,521 43 San Luis POtiW 2,168,701 6 6 177,083 1,246,811 57 Veracruz 6,737,646 11 8 130,032 4,304,113 64 Yucatan 1,471,689 3 3 199,987 378,241 25 Zacaiteas 1,372,999 9 5 110,452 767,827 56 Note: Population estimate as of 1993. * - States tiat participated in the First Basic Health Care Project C. PROJECT DESCRITIION Component I: Basic Health Care Services (US$335.3 million or 75.6 penten tof total costs, induding contingencies) A. Public Health Interventions B. Essential CliniCal Care 2.8 Basic Health Care Services.32 The objectives of the Basic Health Care Services component are disease and injury prevention and health promotion through two strategies: (a) public health programs that have a broad impact and generate positive externalities in the community and (b) a predefined, cost-effective package of essential clinical care, responding to the health needs of the individual, that reduces the burden of disease in the target population. In order to address the health conditions of the uninsured poor this component would include: (i) public health outreach, covering highly cost effective interventions in preventive health and (ii) public health education, promoting lifestyle changes to prevent disease. Essential clinical services would be offered in clusters of cost effective curative interventions. The investments financed through this component are included in a menu of interventions prepared according to cost-effectiveness and epidemiological impact criteria (Annex 4). Selected health jurisdictions (para. 2.7) would use this menu to fonnulate annual investment subprojects. 2.9 Jurisdictions would prepare annual work and investment plans according to criteria, including state health priorities, epidemiological profiles, poverty index, definition of beneficiaries, expected increases in efficiency and quality, costs, and available technical and management capacity to implement the plan. Furthermore, the project would use a new process for timely release and rapid flow of budgetary funds to the states and jurisdictions. A federal Advisory Committee (Annex 14), 32 This component is striAusred in Pubhc Health Interventions and Essential Clinical Services. However, since it is impossible to separte die delivery of those two subcomponents, the entire component was costed as one package.  15 composed of representatives from the agencies directly involved in project implementation, would review and approve annual work and investment plans. 2.10 The proposed project would support the primary health care network and the cost-effective delivery of the basic health care package through the financing of: (a) civil works, including the construction and rehabilitation of f[ealth infrastructure; (b) vehicles, including fully equipped medical mobile units; (c) equipment, pharmaceuticals and medical supplies; (d) personnel, technical assistance and training; and (e) supervision (Annexes 7, 9, 10, 14). Subcomponent I. A. Public Health Interventions: 1. Public Health Education 2. Public Health Outreach 2.11 This subcomponent has two main strategies: (a) public health education; and (b) public health outreach. Public Health Education: Health education and promotion are cost-effective tools to prevent infectious and chronic degenerative diseases and create awareness to prevent accidents and addictions. Examples of health education and promotion programs that would be eligible for financing through this component include priority topics such as: (a) children's health; (b) food hygiene; (c) reproductive health; (d) nutritional education; (e) early detection of cancer; (f) mental health issues; (g) prevention of accidents; (h) prevention of addictions; (i) healthy lifestyle promotion; 0) prevention of vector bome and zoonotic diseases; and (k) promotion of oral health. The subcomponent would support the preparation, printing and distribution of educational pamphlets, posters and air time for spots in electronic media, including in native languages spoken by the major ethnic groups in the project areas to reach effectively the indigenous population. In addition, the project would support health education programs for schools and the community, by financing seminars and teaching materials. The component would also finance the design and implementation of social marketing programs to target specific regions in the states to promote health programs such as immunization, diarrhea control or accident prevention. 2.12 Public Health Outreach. The project would strengthen public health outreach programs by supporting the following groups of activities: (a) Prenatal, pregnancy, delivery care, family planning, control of sexually transmitted diseases (STDs). Training and equipment for midwives would be provided to address prenatal, pregnancy and delivery care in remote areas. The project would provide devices for reversible family planning, including contraceptive pills and barrier methods. STD control would be achieved through condom distribution in high risk groups. (b) Well baby clinics, child care and immunization: The project would finance immunization against measles, polio, diphtheria, pertussis and tetanus and the immunization of women of childbearing age to prevent neonatal tetanus. It would also finance the provision, storage and delivery of vaccines and supplies, including syringes and needles, cold chain equipment such as refrigerators, mobile units and the construction and maintenance of storage rooms for vaccines; further the project would promote and finance well baby clinics for growth monitoring and of infants and nutrition counseling for their mothers. (c) School Health: Comprehensive school health and dental programs are a cost-effective method of preventing the development of more complicated clinical conditions later on. The project would finance school health programs in the project jurisdictions with an emphasis on nutrition counseling, ophthalmologic testing, bucodental health programs, deparasitation and school-based reproductive health education programs. (d) Infectious Diseases and Vector Control: The  16 component would finance detection, surveillance, follow-up and controlled treatment of infectious diseases such as tuberculosis and leprosy. Vector borne diseases, such as malaria and dengue would be controlled through fumigation of endemic areas with environmentally safe residual insecticides. The project would finance portable fumigation equipment and mobile outreach teams for early detection and treatment of cases in endemic areas. (e) Water and sanitation: The project would provide for water testing and monitoring of drinking water quality and chlorination, in order to reduce the incidence of waterbome infections, particularly cholera. It would also support the construction of adequate systems for the disposal of human feces, (latrines) in order to reduce the transmission of infectious diseases and the contamination of food and agricultural products. Subcomponent I. B. Essential Clinical Care 2.13 Subprojects would be selected by the jurisdictions from among four main categories: 1. Reproductive Health 2. Child Health and School Health 3. Infectious and Vector Borne Diseases 4. Chronic Diseases, Palliative Treatment, Consultations The above programs would be selected by each jurisdiction on the basis of the epidemiological profile and health priorities (para. 2.7). Priority interventions in the clinical package are: (a) reproductive health, which includes prenatal and delivery care, treatment of gynecological and obstetric emergencies, provision of family planning devices, treatment of sexually transmitted diseases and detection of breast and cervico-uterine cancer; (b) child health and school health, which would treat acute respiratory diseases, diarrhea, rash and fever illnesses and meningitis; (c) treatment of infectious and vector borne diseases such as tuberculosis, intestinal infections, parasitic diseases, mycosis, hepatitis, pneumonia, genito-urinary infections, leprosy and where endemic, malaria, dengue, leishmaniasis, Chagas disease and onchocercosis; (d) treatment of chronic diseases, limited or palliative treatment and consultations for conditions such as diabetes, hypertension and asthma, AIDS, arthritis, pain management, and treatment for traumas and acute abdominal conditions. Each cluster would also include the consultations necessary to determine whether a patient's condition is to be included into the package. 2.14 The Basic Health Care component would finance the health infrastructure, manpower and outreach facilities necessary to carry out the above mentioned activities in the target areas and to deliver the public health package. More specifically, proposals presented by health jurisdictions would include financing for: (a) construction, upgrading, expansion and maintenance of physical facilities such as health posts and centers, second-level hospitals, birth centers and community health clinics located in small rural and other underserved areas. The selection of infrastructure investments (new construction or rehabilitation) would need to be justified in terms of cost-effective investrnents in comparison to alternative ways of delivering the respective basic health care package, (e.g., contracting with private or other public health care providers, existing local government facilities, etc.); (b) basic equipment for first and second level care, such as medical instruments (surgical instruments, scales, delivery tables and instrument packages for midwives); (c) essential office equipment; (d) procurement of essential pharmaceuticals (according to essential drug list), family planning devices; (e) laboratory equipment; (f) radio equipment to improve referrals; (g) vehicles, such as ambulances, fully equipped four wheel drive medical mobile units, bicycles and motorcycles; and (h) technical training, incentives for hardship posts, incremental fixed-tern staff, including Primary Care Technicians (TAPS), community volunteers and midwives (Annex 8).  17 2.15 Incentives: Given the difficulty in recruiting and particularly retaining health care professionals in remote rural areas, this subcomponent would provide financing for hardship incentives on a declining basis. These incentives would be used to attract and retain recent medical school graduates (pasantes medicos), nurses and TAPS by offering a premium in addition to their base salary which together represents more than they would earn in urban areas. The incentives would be controlled and awarded by the community based on their level of satisfaction with the service provided. The operational manual will specify the selection criteria, incentive amounts and procedures to be followed by the municipality (para. 2.16). This process would be supervised by the respective SHA. 2.16 Each year, the selected health jurisdictions would prepare an investment plan, based on the epidemiological profile of the population. However, investments in infrastructure and equipment would be subject to a detailed diagnostic infrastructure review, before their inclusion in the proposal (para 2.7). For the first year, subproject proposals of nine states were reviewed by the Bank during appraisal and considered satisfactory. The proposals of two states33 will be presented during the first year of operation. The appraisal mission also reviewed an outline of the operational manual (Annex 9). At negotiations, it was agreed that the project would be implemented and subprojects submitted, approved, supervised and evaluated accordivng to critenia defined in the Operational Manual (pam. 3.1(a)). As a condition of loan effectiveness, the SSA will have put into effect the Operational Manual satisfactory to the Bank (pam. 3.2(a)). Component IU: Institutional Development and Decentralization: (US$61.1 million or 13.8 permt of total costs, induding oingencies) A. Transfer of Planning and Budgeting Functions to the States B. Human Resources Development 2.17 This component would strengthen and decentralize management and services of the SSA, with special emphasis of the needs of the 32 states and 234 health jurisdictions. It would make available the support systems and processes required for effective decision making at all levels of the health care system (para. 1.18). It would support the SHAs to: (a) improve the planning and execution of budgets through more efficient financial management; (b) support training of state managers to better identify and respond more rapidly to epidemiological problems using management information systems (MIS) data for decision-making; (c) improve the coverage and quality of sanitary regulation and health services accreditation; (d) reduce losses of drugs and materials through improved procurement, stock management and preventive maintenance; and (e) improve the overall quality of basic health care service delivery. This component would also finance the training needed to strengthen the states' basic information systems which complement the MIS financed under Component m. C. (paras. 2.31 to 2.39). Sub-component II A. Transfer of Planning and Budgeting Functions to the States 2.18 The project would provide technical assistance and consulting services to help the SSA to define the service functions to be transferred to the states and jurisdictions, respectively, with the objective of improving efficiency, efficacy, and quality of service provision. The subcomponent would prepare the states for the decentralization of functions from the federal to the state level, and transfer 33 Campeche and San Luis Potosi.  18 responsibilities from the state to the jurisdictional level. It will ensure that the state and juiisdictional health authorities are in a position to assume their new responsibilities. 2.19 The subcomponent would finance decentralization support units (DSUs) in each state, which assist the SHAs in management training, facilitate consulting services and provide technical assistance to define and implement new functions at the state levels. Specifically, DSUs would support: (i) definition and adaptation of the new functions and responsibilities to be transferred to state and jurisdictional levels; (ii) decentralization of operational and financial responsibilities from the federal to the state and transfer of functions from the state to jurisdictional levels, including relevant positions of the health budget; and (iii) assessment and adaptation of the policy and regulatory framework to coordinate and eventually merge the services provided by the SSA and by IMSS-Solididad (paras. 1.5-1.6). A proposed set of specific functions to be transferred (such as: health budget, integral supervision of health programs, procurement of drugs and medical supplies and civil works, staff allocation, technical and managerial training, and sanitary regulation) was reviewed and found acceptable by the appraisal mission. Al negotations the SSA presented a decentralization tinetable specifying the functions to be transfened to the states, and it was agreed that the SSA would cooperate with the states to ensure adherence to this timetable (pam. 3.1(b)). Sub-component II. B. Human Resources Development: 1. Genemal Management TIaining 2. Data-for-Decision-Making (I)DM) Thining 3. Training for Management Information Systems (MIS) 2.20 This sub-component would focus on the human resources and manpower development needed for planning, managing and implementing more efficient, high quality health services at the state, jurisdictional and municipal levels. The overall objectives of this subcomponent are to improve the capacity of state and jurisdictional staff to: (a) implement the decentralization of services; (b) plan, execute and monitor budgets, procure goods and services, control logistics and stocks of drugs and supplies; (c) manage human resources; and (d) identify and respond to epidemiological needs. The sub-component would support three areas: (a) geneml management training; (b) data for decision- making training; and (c) training for MIS. 2.21 (a) General Management Training: This training program would be directed to managers responsible for developing health strategies, determining priority programs and establishing norms and procedures, including for the basic health care package (para. 2.8). (i) Training for senior management: It would finance courses, seminars and study tours, in response to the need for management skills of state health staff, directly responsible for managing newly decentralized functions and for providing technical support to jurisdictions. It would also offer seminars on management of organizational change and strategic planning, health sector reform, alternative health care delivery systems, and altemative public and/or private financing schemes in countries of Latin America and/or Europe' where health reform has already advanced. About 70 senior staff from both the SSA and the SHAs would participate in this program. (ii) Training for state and jurisdictional officials: About 500 staff of both state and jurisdictional levels, directly involved in the implementation of the decentralization process and sector modemization at state and jurisdictional levels would benefit from the general management training during the life of the project. The implementation of this training 34 Specific coutitnes to be detenmined. Candidates are Chile, Costa Rica, Colombia, Spain, England, Genmany.  19 program would be coordinated at the national level by the central PCU which, in cooperation with other departnents in the SSA, would contract training institutions or consultant firms to carry out the training. During appraisal, the mission reviewed the training program proposed for 1995 and found it satisfactory. Duing negotiations, agreement was reached that the fina proposal for the CY 1996 traunng progran, including its content and cost, drm1t contrads for the taining hstitutions or TORs for consultant firms to cany out the training would be submitted to the Bank for its eview by December 31, 1995 (para. 3.1(c)). 2.22 (b) Data-for-Decision-Making (DDM) Training. lb define priority programs and improve decision making, the SSA started a training program under the First Basic Health Care project, to strengthen the management and technical capacity of state health services. It applied the concept of total quality management CIQM)35 in obtaining, organizing and analyzing epidemiological information. This sub-component would expand this program to those states not yet covered, in order to: (a) increase the ability of decision makers at jurisdictional and state levels to use appropriate data for setting health priorities, establishing policies, allocating resources, and managing programs in the health sector; (b) help technical staff to manage information in an understandable and compelling fashion; and (c) support the health information systems to improve data quality and access. This training prgram would benefit about 1,000 staff. Linked with the National E4idemiological Surveillance System (para 2.35), it would allow the state and jurisdictional health services to apply management and decision-making sldlls to diagnose problems in programmatic areas, identify solutions, prepare action plans, budget resources, implement decisions that are within their authority and finally evaluate the effectiveness of actions taken or communicate recommendations for action to authorities. SSA's General Directorate of Epidemiology (DGE) would be responsible for carrying out the training program. Jointly with the PCU, the DGE would subcontract consulting firns or academic institutions to assist in preparing and implementing the training modules. The DGE has prepared the teaching materials and manuals and has experience in the implementation of this training, including in distance based learning methodology in close collaboration with the U.S. Centers for Disease Control and Prevention (CDC). The DGE would also be responsible for monitoring, supervising and evaluating the application of the training program by the states and jurisdictions. At the appraisal, the Bank reviewed the training program and the draft contract for the training program starting in 1995, and found it satisflactory. 2.23 (c) Training for MIS. In its sector strategy, the new administration is proposing the decentralization and modemization of the SSA, granting states and jurisdictions greater management and decision making power (para. 1.28). As decentralization takes place, new management tools and information systems will be needed. lb implement those, the project would support technical assistance for training technical staff at state and jurisdictional levels in MIS, and it would finance related operations to be agreed upon in the annual investment plans (i.e., seminars on epidemiology, sanitary regulation, services administration, hospital management, budget preparation, monitoring and evaluation of indicators). The actual demand under this training category will vary from state to state in function of the existing technical capacity and assessment of specific local needs. The hardware for the different MIS modules would be financed under Component m (paras. 2.31 - 2.39). 2.24 The proposed MIS will require training in the following areas: (a) Health Services: for allocating and managing resources, preparing budgets, monitoring and evaluating indicators, 35 Total Quafity Management (TIQM) was described for tie first time by W.E. Denung (M1T, 1992). Its concet centers on extenal customer satisfaction and dte role of intenal customers in an orgaizataon as the key to improve producivity and efficiency.  20 establishing financing mechanisms, accounting and controlling funds for health services; (b) Procurement and Stock Control: for procurement methods, bidding documents, procurement financing, stock control, logistics and distribution of drugs and medical supplies; (c) Epidemiological Surveillance: for management of data on morbidity, mortality, program coverage, demographic registration; (d) Hospital Management and Accounting: for training hospital managers to improve management and decision making within the SSA's hospital network; and (e) Sanitary Regulation: for the coordination, implementation and quality control of sanitary regulations in states and jurisdictions. About 2,000 staff from the state health services would participate in these training programs during the life of the project. Component m. Modernization and Restructuring of the SSA (US$47.0 miion or 10.6 p t of total cost indludig contangenes) (A) Restructuring of the SSA (B) iblicy and Operational Studies and Pilot Tlesting: (C) Management InformationSystem MIS) (D) Project Administration, Monitoring and Impact Evaluation. 2.25 While the second component was geared to the institutional development in the states and jurisdictions, this third component would support policy, institutional and operational reforms of the central level SSA. It would support the framework for the Government's decentralization strategy, which, inter alia, intends to merge services for the uninsured population and make the 32 states responsible for their administration (para. 1.26). The component would also upgrade the hardware for the health sector MIS (para. 2.38). The SSA's institutional mission and functions would be redefined to regain its sector leadership role while transferring many administrative and service delivery tasks to the states. Specifically, this component would support the SSA to concentrate on: (a) formulating national health sector policies, strategies, programs, and standards to ensure a comprehensive and harmonious development of the National Health System; (b) monitoring and evaluating the impact of these policies and strategies whether they meet the objectives and targets defined for the health sector; (c) improving hospital management and establishing standards for services and accreditation of health facilities; (d) enhancing budget planning, evaluation, auditing and supervision functions; and (e) revising current norms and regulations to boost flexibility and efficiency of health care services in the 32 states. Sub-component m. A. Restructuring of the SSA 2.26 This subcomponent would have two phases. During the frst phase, which akeady started during project preparation, the SSA jointly with consultants is (a) defining its new mission, objectives and functions, (b) proposing a new organizational model, specifying human resources, infrastructure, technology and the legal framework needed for its operation and (c) identifying the requirements for training and MIS to support the modernization and decentralization process. This first phase was initiated in November of 1994 and will be concluded by the end of 1995. 2.27 The second phase consists in the implementation of the studies findings after approving an action plan. Expected results would include the implementation of: (a) the legal and regulatory framework for modifying the internal structure of the SSA, in light of the decentralization; (b) the procedures to improve the SSA's capacity to fonnulate, monitor and evaluate policies, programs, and norms; and (c) the human resources training program and skills mix. The subcomponent would  21 finance training workshops on health reform, health financing and resource allocation, and training in other topics to facilitate the restructuring process. Specifically, it would finance about 60 person- months of technical assistance to help the SSA to implement the action plan, in addition to equipment and materials. Based on the diagnostic survey of the existing MIS, carried out in the first phase, the component would finance its modernization to facilitate the information flow within SSA departments and between the center, the states and the jurisdictions. The MIS would facilitate policy and operational decisions and speed up the response to problems presented at different service levels. The design of the required network for both central and state levels, as well as the purchase of the required hard and software, would be financed under the proposed loan (para. 2.31 - 2.39). During appraisal, the mission reviewed the draft terms of reference for the MIS and a model contract for the first phase survey and found them satisfactory. A pre-investment assessment and feasibility study has started. Sub-component m B. Policy and Operational Studies and Pilot Testing 2.28 Under this sub-component, the project would support policy and operational studies, pilot testing of alternative health delivery and financing models which would allow the SSA to define new policies and strategies for the health sector, as well as to improve the efficiency and quality of service delivery. It would be implemented under the auspices of the General Directorate of Evaluation and the General Directorate of Economic Studies of the SSA, which would subcontract with academic institutions or consulting firms (such as the National Institute of Public Health - INSP, FUNSALUD). The project would finance technical assistance, equipment, and implementation costs of the results of these studies and pilot models. 2.29 Policy Studies. Further to the recommendations to be developed by the current study' on the new role and functions of the SSA, there are several other policy issues that need to be addressed in the health sector, such as: capacity, cost, quality and efficiency of the main groups of health service providers, particularly the social security systems, the private sector and alternative financier/provider arrangements that could be adopted to optimize the provision and utilization of health services. The studies grouped under this sub-component have the purpose of providing a decision maling basis for administrative, legal and financial requirements of health reform. The proposed policy studies would cover the following topics: (a) technical regulation and efficient regulatory instruments; (b) alternative financing mechanisms for purchase or sale of services to third parties, including the private sector; (c) introduction of better health budgeting mechanisms for a more equitable resource allocation to the states and better evaluation of output targets and indicators; and (d) feasibility study on public-private joint ventures for vaccine production and quality control. Outlines of the TORs for these studies were discussed during appraisal and are available in the project files. Additional topics could be identified, presented and agreed upon during the annual project reviews. 2.30 Pilot Tests. The project would support pilot testing of those institutional, policy or operational models that the Government suggests to adopt as part of the modernization of the health sector. The following topics could be subject to pilot design and testing: (a) alternative models of health care provision involving communities, municipalities or non-governmental organizations; (b) purchasing health care services and support services from the private sector; (c) provision of cost effective health care packages through the social insurance sector; and (d) incentives models (educational, bonuses, clinic group incentives) to improve productivity and quality among the health staff of public 36 McKinsey&Company, Inc.: Defmnici6n del ANuevo Modelo Organizacionalpara la SSA; Mexico, 1995  22 institutions. Proposals for these studies were discussed during appraisal and outlines of TORs are available in the project files. At negotiations, the SSA submitted draft proposals for polcy studies and pilot tests. It was agreed with the SSA that (i) fial TORs for policy stuides and pilot tests for implementation during CY 1996 would be furmished to the Bank no later than December 31, 1995; and (u) for the subsequent years, proposals for policy studies and pilot tests would be presented by the SSA and reviewed with the Bank during the joint annual project review meetings (pam. 3.1(d)). Sub-component El. C. Management Information Systems: 1. Health Services Administration 2. Procurement and Stock Control 3. Epidemiological Surveillance 4. Health Care Facilities 5. Sanitary Regulations 2.31 The improvement of the quality and timeliness of the MIS would be a prerequisite to improve the delivery of basic health care and successful decentralization of services. The objective of this sub- component is to strengthen the existing MIS and to introduce new systems for health services, budgeting and financial management, hospital administration and program evaluation to improve the decision making capacities of all levels in the SSA (para. 1.19-1.20). The sub-component would also strengthen and expand systems developed under the First Basic Health Care project. In order to encourage consistency and avoid duplications, the proposed project would undertake, as a first step, an inventory and assessment of existing procedures, hardware and software. In a second step, the design and implementation of additional modules would be financed by the proposed project. 2.32 The MIS would consider the specific needs of the central level, states and jurisdictions and of health care facilities. The six proposed modules are: (a) epidemiological surveillance; (b) health services administration; (c) human resources administration; (d) financing, budgeting, accounting and evaluation for health care facilities; (e) pharmaceutical procurement, stock control and distribution; and (f) sanitary regulation. 2.33 Health Services Administration MIS: This first module would support the development of a national health services information system. The experience gained by the SSA's General Directorate of Statistics (DGS) in processing and analyzing national data will be used to provide guidance for states participating in the project in structuring their own data networks. The capacity for collection, analysis and interpretation of data on resource allocation and management, budgeting, financing mechanisms, accounting and control of funds and use of infrastructure will be developed to foster decision-making at state, jurisdictional and municipal levels. This system would require the network integration at all levels and would connect jurisdictions and state levels with national systems. 2.34 Procurement and Stock Control MIS: The second module would build on a procurement and stock control system developed and tested in the ongoing health project and will be expanded into the new project states. The respective computer software allows budgets, disbursements and stocks to be monitored. The software for pharmaceutical supply system developed in the Federal District wiU be extended to all states to enhance logistics and distribution of pharmaceuticals and medical supplies. In addition, a new standardized software package for bidding, comparison purchases and direct purchases would be introduced. Eventually the system would be expanded to accommodate all  23 accounting data handled at the state levels. This system would be implemented at the state levels and linked to the national level. 2.35 Epideniological Surveillance MIS: The third module would finance an epidemiological surveillance system to enhance the capture, processing, analysis and interpretation of epidemiological and biostatistical data on morbidity, mortality and program and service coverage for the purpose of public health decision making at the national and local levels. The information system would be closely linked to the "Data for Decision-Making (DDM)" and management training programs which would be implemented and supervised by the SSA's DGE. A number of state staff were already trained during the ongoing project in DDM. The system would be implemented both at the jurisdictional and state levels, the central level systems would be upgraded. 2.36 Health Facilities MIS: The fourth module would finance the design and implementation of systems to improve data management on hospital production, quality, cost accounting systems, and financial management. This system would be introduced in all third level and in selected second level hospitals and be linked to the state systems. 2.37 Sanitary Regulations MIS: The fifth module would facilitate infonnation management and decision making for sanitary regulation and quality control of food and beverage processing businesses and the marketing of food products, beverages and medicines. This system will strengthen the states' abilities to monitor and effectively implement sanitary health control measures based on speedier and more efficient handling of data and will strengthen the task of sanitary inspectors in conjunction with public health laboratories. This system would be implemented at the state levels with datalinks to the central level. 2.38 For implementation of the five modules of the MIS, the project would finance the purchase of computers and the accessories (modems, communication facilities) needed to install a statewide MIS37 and to link it both to jurisdictional, state, and national levels. Before computer equipment is assigned, state health authorities will appoint staff, responsible for system implementation at all levels. Apart from the purchase of hardware, the component would finance (a) temporary staff for the installation and initial start-up of the system; (b) licensed commercial software for word processing, spreadsheets, graphics, data bases, geographic information systems and statistical processing; (c) additional telephone lines and equipment as needed for transmission of data between districts and state capitals and to the central SSA; and (d) custom software development as necessary for the implementation of the MIS modules. 2.39 During the first year of the project, the MIS will be implemented only in the state capitals, linked to selected jurisdictions. In subsequent years the remaining jurisdictions would be included according to their absorption capacity. All jurisdictions would be incorporated by the end of the fourth year of the project. During negotations, agreement was reached that no disbursement for computer equipment shall be made in any state unless a feasibility study has been completed for that state and the Bank has approved the expenditure (pam. 3.1(e)). 37 In the case of the states of Chiapas, Guerrero, Hidalgo and Oaxaca, which currently have a more advanced computer inrructure than the other sates, resource requirements will be lower  24 Sub-component HI. R Project Administration, Monitoring and Impact Evaluation 2.40 This sub-component would support project administration through the central and state project coordinating units (PCUs and SPCUs, respectively), project monitoring and supervision assistance, continuous process evaluation, periodic impact evaluation and final evaluation for each component of the proposed project. The PCU together with the General Directorate for Evaluation of the SSA would be responsible for managing the evaluation activities by sub-contracting individual tasks to national and international consultants, fimns or academic institutions, in accordance with specific TORs. During appraisal, the mission reviewed performance, outcome and policy indicators and (Annex 10) and found them satisfactory. Processes for project monitoring and evaluation will be included in the Operational Manual. The PCU would also provide technical assistance to the states as required to implement the evaluation designs and to measure effective udlization of the resources to be provided by the loan. 2.41 The project intends to positively impact health conditions of the target population through: (i) a novel approach of selecting cost-effective basic health care services to be offered to the uninsured population (component I); (ii) institutional development aimed to assist in the decentralization of health services to the states (component II); and (iii) restructuring and modernize the SSA, to lead and reform the health sector (component III). Accordingly, the evaluation would need to measure three different aspects: (i) project impact on the health status of the beneficiary population; (ii) effectiveness of the state health services in carrying out the specific interventions under a more decentralized regime; and (iii) the impact of the institutional development, decentralization and reform processes on the central level SSA to oversee a modem health system. It is also necessary to monitor the execution of the project according to the implementation plan, appraise success and failures and analyze lessons learned. Data for process indicators and impact indicators will be obtained from the M[S at the states and central level SSA, through routine epidemiological and demographic information, and through special surveys and studies, identified, discussed and approved during annual implementation reviews (Annex 10). Regarding components II and m, evaluation would focus on decentralization of health services, effective management of health resources at the state level, the restructuring of the SSA, and the monitoring and of policy indicators (Annex 10). The evaluation plan would also assess the shift from input-based to outcome based planning and budgeting, and the extent to which the findings of studies and analyses are used at the state and local level for decision making and rapid response to local health needs. At negotiations, the SSA submitted an evaluation scheme of subproject inplementation, which will be part of the Operational Manual. It was agreed a project progress report wiU be presented every year by the SSA to the Bank at the joint annual projed review meetings (paiu. 3.1(f)). D. PROJECT COSTS AND FINANCING 2.42 Project Costs. The proposed project costs, which were reviewed at project appraisal, have been estimated at US$443.4 million, including physical and price contingencies. Investment costs amount to about 54 percent of base costs and incremental recurrent costs account for about 46 percent. Project costs were estimated at October 1994 price levels. Given the current economic situation and factoring in an anticipated project launch in January 1996, an estiinated inflation rate of 52 percent was used between data collection and project start. An inflation rate of 2.2 percent per annum was used for the period 1996 to 2000, and an exchange rate of 6.0 nuevos pesos (N$) per US dollar (Annex 8).  25 2.43 Estimated rehabilitation and construction costs for SSA health facilities are based on average contract and costs analysis carried out under the ongoing project. Estimated contact costs for medical, computing, office equipment and vehicles are based on prices quoted in recent international competitive bids. Estimates for technical assistance and studies are based on current rates for local and foreign experts, and cost estimates for training are based on costing standards prepared by the SSA. 2.44 Project Financing. The proposed loan of US$310.0 million would finance 69.9 percent of total project costs (net of taxes and duties), which would represent 100 percent of foreign exchange and 65.4 percent of local expenditures. The remaining US$133.4 million would be financed by the Mexican Govermment over the 5 years of the project. Retroactive financing of up to US$3.1 million (1 percent of the total proposed loan amount) would be provided to help cover eligible start-up expenditures for technical assistance and other eligible expenditures. Table 5: Components Project Cost Summary