Argentina - Public Sector Reform Technical Assistance Loan Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 18054 IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (LOAN 3362-AR) June 30, 1998 Poverty Reduction and Economic Management Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Peso (Arg$) EXCHANGE RATE Arg$1 = US$1 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ANA - Nacional Customs Administration (Administraci6n Nacional de Aduanas) CBRA - Central Bank of the Republic of Argentina DGI - General Tax Directorate (Direcci6n General Impositiva) ICR - Implementation Completion Report IDB - Inter-American Development Bank PERAL - Public Enterprise Adjustment Loan PEREL - Public Enterprise Reform Execution Loan PSRL - Public Sector Reform Loan PSRTAL - Public Sector Reform Technical Assistance Loan SEF - Superintendency of Financial Entities SIDIF - Integrated Financial Management System (Sistema Integrado de Infiormaci6n Financiera) TATAL - Tax Administration Technical Assistance Loan Vice President: Shahid Javed Burki Director, SMU: Guillenno Perry Director, CMU: Myrna Alexander Task Manager: Luis-Jose Meia FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln. 3362-AR) Contents Preface ......................i....... ...................i Evaluation Summary ...................................... ii Part I. Project Implementation Assessment A. Statement of Objectives ..................... 1 B. Achievement of Objectives................... 3 C. Customs Modernization Program. ............... 5 D. Administrative Reform of the Central Government... 7 E. Financial Management Reform.........8........8 F. Modernization of the Central Bank and SEF ............ 11 G. Major Factors Affecting the Project ............ 13 H. Project Sustainability........................ 14 I.. Bank Performance ......... ............... 14 J . Borrower Performance................. ..... 15 K. Assessment of Outcome................ ..... 15 L. Future Operations ........ ................ 16 M. Key Lessons Learned ................. ..... 16 Part H. Tables and Appendices Table 1: Summary of Assessment ........ ............ 18 Table 2: Related Bank Loans/Credits .................. 19 Table 3: Project Timetable..................... ........ 20 Table 4: Cumulative Loan Disbursements: Estimated and Actual ................. ..... 20 Table 5A: Project Costs ...................... ...... 21 Table 5B: Project Financing .................... ..... 21 Table 6: Status of Legal Covenants.............. ..... 22 Table 7: Bank Resources: Staff Inputs ................ 25 Table 8: Bank Resources: Missions............ ...... 25 Table 9: Matrix of Project Activities ................ 26 Appendix A: Borrower's Contribution to ICR 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. IMPLEMENTATION COMPLETION REPORT AIRGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln. 3362-AR) Preface This is the Implementation Completion Report (ICR) for the Public Sector Reform Technical Assistance Loan in Argentina, for which Loan 3362-AR in the amount of US$23 million equivalent was approved June 25, 1991, and became effective December 10, 1991. Final disbursement took place on May 17, 1996. The ICR was prepared by Cecilia Zanetta (consultant), under the supervision of Luis-Jose Mejia, Task Manager (LCSPR), and reviewed by Antonio Martin del Campo (LCSPR) and Carmen Machicado (LCSPR). The ICR is based on information in the project files, discussions with staff in the project's implementation unit, the Ministry of Economy, Customs Department and the Central Bank, UNDP and OPS. The Borrower contributed its own evaluation of the project's experience and provided background material and support. IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln. 3362-AR) Evaluation Summary 1. The Public Sector Reform Techmical Assistance Loan (PSRTAL) was primarily designed to provide technical assistance and support to the Argentine Government to carry out activities identified as critical under the Public Sector Reform Loan (PSRL) for drastic change in the public sector during the Menem administration. 2. Supporting public sector reform was a fundamental objective in Argentina, because of the public administration's inefficiencies, excessive size, and pervasive effects on the economy. The PSRL provided support for measures that improved the efficiency of current and investment expenditures, increased revenues while reducing the distortions in resource mobilization, and transformed the Central Bank into a monetary authority. The PSRTAL was designed to complement the PSRL by providing technical support to strengthen the agencies responsible for these reforms. 3. Project objectives were to support: a) modernization and computerization of the Customs Department (Administracid6n Nacional de Aduanas --ANA); b) the administrative reform and modernization of Central Government administration and the Central Bank; c) a new framework and systems for comprehensive financial management, integrated budgetary processes and effective control of allocation of public resources; and d) restructuring of the Superintendency of Pinancial Entities (SEF). Implementation Experience and Results 4. The project advanced the reform and modernization of the public sector at the federal level, and set the basis for their extension to the provinces. It helped in consolidating in particular the reorgaization and downsizing of the federal government, the decentralization of secondary education and other public services, and the reorganization of the Central Bank and the SEF. 5. After a successful start, the implementation of the project experienced considerable delays in 1992-93, due to tardy passage of legislation, the complexity of the operational and technological frameworks, and procurement difficulties. However, these difficulties were overcome and smooth implementation ensued. 6. Federal employment decreased by 15 percent (and an additional 41 percent were transferred to the provinces); the latter now manage education and health services, and imt legislation deregulating economic activities has been passed. The budget is again effective to plan, manage and control public expenditures. A state-of-the art financial management system has been implemented and continues to be expanded and perfected. The Central Bank and SEF changes helped to improve monetary policy management. The elements required for reform and modernization of customs are in place: a new automation system has been implemented, a new code has been developed, and the ANA school and lab are operational. But the consolidation of the reforms is still pending, as the result of ANA's merger with the Tax Directorate. 7. The Bank's performance with respect to project identification, preparation and implementation was highly satisfactory; somewhat less so for project appraisal. It correctly identified the need for focused assistance for implementation of the reforms supported under PSRL but failed to foresee the length of time needed to do this. During supervision, the Bank project helped balance the maintenance of planned course of action with the flexibility to respond to macroeconomics and political changes. The Borrower's performance was highly satisfactory regarding project preparation, implementation and compliance with loan covenants. Its combination of political support, strong determination of individual actors and excellent technical resources were key to the project's success. 8. The outcome of the project was highly satisfactory in promoting public sector reform and effectively consolidated the changes advanced by the PSRL. Moreover the reorganization of the Central Bank was helpful in sustaining monetary stability which with the passage of the Convertibility Law, became the cornerstone of the government's reform strategy. 9. The lessons of this Loan were; a. Technical assistance loans can be effective complements of structural adjustment loans in lending for reform. b. Bank interventions can be most effective when they capitalize on windows of opportunities that provide unique momentum to the implementation of reforms. c. Individual reforms are more likely to be implemented when they are critical to the success of an overall reform strategy. d. The success of technical assistance loans depends on a combination of factors, among the most important of which is strong political support. e. Overcoming resistance of the status quo is critical to the long-term sustainability of the improvements and reforms. f. Strong leadership within the target government agencies is required to successfuly carry out the reforms. iv g. The lack of ownership and responsibility tend to result in excessive reliance on information technology specialists for business solutions. h. It is important to identify key in-house personnel receptive to change to bring them on board in the reform process. i. Non-technical aspects are crucial in terms of the impact they can have on the successful incorporation of reforms. j. Training components are key to project sustainability. k. Technical assistance loans should not be expected to be short-term, one-time interventions. Part I Project Implementation Assessment A. Statement of Objectives 1. When the Menem administration took office in July 1989, Argentina was experiencing a four-digit hyperinflation, widespread economic stagnation and massive public sector deficits, as the result of over four decades of heavy state interventionism, inward-looking trade orientation, and a chronically inefficient public sector. The Government decisively undertook the implementation of structural measures that drastically reduced the role of the state in the economy and tackled fiscal imbalances. The reform of the public sector was central to the Government's reform program, as the public sector's structural inefficiencies, disproportionate size, and the pervasive distortions it introduced into the economy were at the core of the staggering fiscal deficits and economic instability. Moreover, the sustainability of the Government's stabilization program depended on the successful reform of the public sector, as increasing public savings was the most effective and direct way to generate the aggregate domestic savings necessary to fuel economic growth. 2. The Bank provided strong financial and technical support to the Government's efforts to reform and modernize the public sector through several lending operations, including the Public Sector Reform Loan (PSRL), and the Public Enterprise Reform Adjustment and Execution Loans (PERAL and PEREL). The PSRL was highly instrumental in supporting the design and financing of measures that improved the efficiency of current and investment expenditures, increased revenues while reducing the distortions in resource mobilization, and limited monetary emission by disengaging the Central Bank from public finances and trnsforming it into a monetary authority with circumscribed powers. The Public Sector Technical Assistance Loan (PSRTAL) was conceived to complement the PSRL by providing additional technical support to strengthen the capacity of key government agencies responsible for the implementation of the reforms aimed mainly at expenditure reduction and rationalization, while the Tax Administration Technical Assistance Loan (TATAL) was conceived to play the same role in relation to revenue mobilization. 3. The PSRTAL's specific objectives, as stated in the Memorandum to the President were to support: a) the modernization and computerization of the Customs Department (Administraci6n Nacional de Aduanas -- ANA); b) the administrative reform and modernization of the internal administration of the Central Government; 2 c) the establishment of a new framework and the development of systems for comprehensive public sector financial management, integrated budgetary processes and effective control of improved allocation of public resources; d) the reorganization and modernization of the Central Bank and e) the implementation of a program for a complete restructuring of the Superintendency of Financial Entities (SEF). 4. To accomplish these objectives, the project was designed to strengthen the capacity of the following institutions: a) the Ministry ofEconomy by providing consultant services, computer equipment and software to: i) manage the economic reforms; ii) allocate and control public resources through an integrated national budget and accounting information system for financial management, budget programming, execution and control -- including institutional strengthening of the entities that constitute the internal and external control network; and iii) administer customs by establishing new administrative procedures and related computerized systems; b) the Central Government Ministries and the Presidency by providing consultant services, computer equipment and software to modernize its internal administration by developing new uniform procedures and information systems for personnel, financial resources, and facilities management; c) the Central Bank through the provision of consultant services, computer equipment and software to improve its organizational structure and administrative procedures, develop key information systems and enhance staff capabilities, with special emphasis on the SEF. 5. The total cost of the project was US$31.5 million equivalent, with US$23 of IBRD financing. A matrix of key project activities specifying objectives, outputs, impact and timing targets was agreed during the project design. This matrix provided a sound, well- thought-out road map for the project, effectively identifying barriers to the implementation of the reforms being promoted under the PSRL and providing a sequence of activities designed to overcome these barriers. In general, the activities that were actually implemented under the project do not show major deviations from those in the original matrix, except as required by changes in macroeconomic conditions, political strategy, and lessons from earlier project implementation. Although evaluation criteria and performance 3 indicators were identified for each project component during project design, no baselines were estimated at the time and no emphasis was placed on their systematic follow-up. Thus, their contribution was limited to expanding the conceptual understanding of each component, rather than as serving as an effective monitoring and evaluation tool. B. Achievement of Overall Project Objectives 6. Overall, the project, in conjunction with other Bank operations -- i.e., PSRL, PERAL, PEREL, and TATAL -- has been highly successful in supporting the government's program to reform and modernize the public sector. This program has been widely recognized for its effectiveness in reforming and modernizing the public sector at the federal level and setting up the basis for extending the reforms to the subnational governments. The PSRTAL has been highly instrumental in the implementation of key reforms, in particular the reorganization and downsizing of the federal government, the structural reform of the central administration (which included decentralizing secondary education and other public services to the provinces), the implementation of a financial management system that has revolutionized the government's budgetary and accounting systems, and the reorganization of the Central Bank as an independent monetary authority. 7. The success of the PSRTAL is closely linked to that of the PSRL, complementary in terms of objectives, government counterparts, and time frames. Through the PSRL, the Bank worked closely with top government officials in the design of the necessary reforms and provided strong financial incentives fbr the adoption of an enabling policy framework within a short time frame --i.e., two-and-a-half years. Concomitantly, the PSRTAL supported the government administration in crafting and adopting the normative and operational tools required to carry out these reforms, a sustained effort which lasted over a seven-year time span. Thus, the PSRTAL played a key role in doing the field work that enhanced the operationalization of the drastic reforms introduced under the PSRL. 8. Macroeconomic Policies: Substantial Achievement. Despite its relative small size, the project has effectively contributed towards the stabilization and eventual rebounding of Argentina's economy by supporting the implementation of measures to reform and modernize the public sector. The savings in public expenditures resulting from the downsizing and reorganization of the central administration have had a direct and significant impact in reducing fiscal deficits. The increased efficiency in the management of public financial resources resulting from the implementation of a modem financial management system has permitted the rationalization and control of public expenditures, the preparation of a rigorous budget for the first time in decades, all of which ultimately contributed to tight control of monetary emission and, consequently, inflation. Finally, the successful reorganization of the Central Bank as an independent monetary authority has been critical to the success of the 1991 Convertibility Law. 9. Financial Objectives: Substantial Achievement. Although financial objectives per se were not pursued in this project, significant savings have resulted from increased 4 efficiency in the functioning of the public sector, the reduced role of the government in the economy, and the rationalization of public expenditures. They included increased customs collections of approximately US$150 million per month after 1991; savings of US$63 million from the optimized use of physical space; fiscal net gains from deregulation estimated at approximately US$322.4 million per year; and gains from foregone interest resulting from the implementation of the Consolidated Treasury Account, estimated at approximately US$21 million per year. Finally, the closer more effective monitoring of the banking system by a strengthened SEF should help prevent future sector crises, as it already demonstrated during Argentina's successful containment of the spillover effects of the 1995 Mexican financial turmoil. This helped the Government to react swiftly to strengthen the banking system, and with comparable fortification of the fiscal accounts, sustain Argentina's reform program. This contrasted markedly with the banking collapse in 1980-82, whose cost has been estimated at approximately US$60 billion, equivalent to 55 percent of GDP at the time' 10. Public Sector Reform: Substantial Achievement. This is the area in which the project has made its central contribution. It has successfully accomplished its original objectives by effectively supporting the administrative reform and modernization of the internal administration of the Central Government; the establishment of a public sector financial administration system for the comprehensive public sector financial management, integrated budgetary processes and effective control of improved allocation of public resources; and the reorganization and modernization of the Central Bank and the SEF. The successful implementation of these three components has consolidated the reforms introduced during the first part of the Menem administration with the support of the PSRL and other related Bank operations, thus drastically transforming Argentina's public sector by redefining the role of the Central Government, modernizing it, and increasing its efficiency while simultaneously decreasing public expenditures. All the government entities that participated in the program are now significantly stronger, both in terms of their organizational structure as well as technological environments. Although the Ministry of Economy, the Central Bank and the SEF were the focus of specific reform and modernization components, all other ministries and some decentralized agencies in the Central Government have also been strengthened and modernized through the administrative reform component and their incorporation into the new financial management system. 11. The project has helped set up the basis for modernization of the Customs Department (ANA) and supported the development of specific elements of its computerization system. However, the final outcome of this component is less certain, as the final implementation of the reforms has recently been put on hold after the demotion of ANA's top administrator and the decision to merge ANA with the General Tax Directorate -- Direcci6n General Impositiva, DGI. 'World Bank and IMF reports, Sept. 1997. 5 12. A detailed analysis of the factors that affected the implementation of each component and the achievement of their specific objectives follows below. C. Custom Modernization Program (US$6.8 milion) 13. Traditionally, ANA imposed an excessive administrative burden on business activities and introduced significant distortions in the economy by distributing unevenly among importers its direct discretionary costs, imposing unduly complex, lengthy procedures for the entries of goods, and tolerating smuggling. Similarly, the inefficient management of customs activities contributed to the country's fiscal imbalances, both directly by under-collecting revenues as the result of the deficient coverage of taxable transactions and/or inaccurate valuations, and indirectly by failing to provide accurate controls to enforce the compliance with domestic taxes. 14. Moreover, the legal framework of ANA was highly complex and provided its top administrators with much decision-making discretion but no accountability. External monitoring was virtually impossible and the fragmented nature of the operations provided fertile grounds for corruption. Attempts to remedy the situation failed. 15. Component's Objectives and Implementation: Full restructuring of ANA was conceived as part of the program supported under PSRL This aimed at streamlining operations as much as possible, bringing neutrality to the determination of value, and increasing coverage to encompass the maximum number of transactions. The PSRTAL was set up to provide support for: a) preparing, monitoring and implementing an Automated Plan to develop and implement a computerized customs information system to simplify and improve administrative, operational and control systems; b) preparing new guidelines and procedures including legal framework and administrative reorganization; and c) training staff on related new regulations, plus introductory courses on the proposed information systems. 16. In view of past failures, the government's strategy was to reform, modernize and bring transparency to the entity from the outside. A close collaborator of the Minister of Economy become ANA's top administrator. ANA's new administration decided to develop the MARIA system, an adaptation of SOFIE, the French customs system. As this was to be financed with ANA's own funds, the Bank agreed to utilize some Ln. 3362 resources to support the development of components of the MARIA, such as the establishment of the secondary communication networks linking some of the ports and Customs headquarters, the acquisition and installation of computer equipment to set up internal electronic mail, and the installation of a chemical analysis laboratory to improve valuation assessments of exported goods. 17. Despite resistance within ANA, the implementation of the MARIA system and the overall restructuring of ANA's operations continued until 1996, when reports of an organized smuggling network ("Aduana Paraleld') resulted in the firing of ANA's top 6 administrator. ANA has since been merged with DGI --Direcci6n General Impositiva - thus creating considerable uncertainty regarding the future of the both agencies. 18. Achievement of Component's Objectives: Partial Achievement.2 By 1994, several performance measures indicated that the reforms being implemented to modernize ANA were successful. Collections had been increased from US$100 million to US$250 million per month since 1991, irregularities in the valuation of merchandise was decreased from 50 percent in 1992 to 18 percent in 1993 and the dispatch costs and times of imports and exports had been reduced by 30 percent. Finally, through automation, discretionality in Customs operations had been reportedly reduced and the number of intervening agents was reduced by 15 percent. against the backdrop of the controversy over " Paralela" -- and because of inconsistency in reports, it is difficult to assess the value of the MARIA system and the benefits of activities financed under the project. For instance, the future implementation of the simplified procedures and norms that resulted from the revision of the Customs Code financed under the project is not guaranteed. The same is true for the electronic mail system. Although the equipment has been purchased, the system is not in place and its implementation is on hold because it is not fully compatible with that of DGI. In the meantime, it has been proposed that the equipment be used to continue to support the transition to the MARIA system. On the other hand, the remaining activities financed under the project are rendering the expected results. The chemical analysis lab is now in place and effectively contributing to the improved valuation of exported goods. Also, the Customs School has been newly equipped and more than 1500 ANA staff members trained in management and customs procedures. Computer equipment to support the transition to the MARIA system has been financed instead of the originally proposed secondary network system, as such need has now been satisfied with DGI's own communication system. Moreover, the new administration has confirmed the continued implementation of the MARIA system, which was expected to account for approximately 85 percent of all customs operations by the end of 1997. 2Ref. Table 9 7 D. Administrative Reform and Modernization of the Central Government (USS4.9 million) 19. In one of its first steps towards structural adjustment, the Menem administration embarked on an Administrative Reform Program aimed at reducing public expenditures and rehabilitating the oversized and deteriorating public administrative apparatus through streamlining employment levels and rationalization of administrative structures and functions in the federal government. Another important objective was to deregulate some of the functions of the central government, to free a significant number of economic activities, such as insurance, ports, regional markets, and pharmaceutical products from the highly complex, outdated, vague, and often redundant government regulations. Finally, the reform program also included the decentralization of some public services -- mainly health and education -- to the provinces in exchange for an increase in the revenue-sharing transfers. 20. Component's Objectives and Implementation: The focus of the activities financed under this component was to support the implementation of reforms in: a) the continued modernization of the National Public Administration; b) deregulation; and c) decentralization of public services. Most of these activities were implemented early on in the project and provided the basis for the rationalization of public expenditures that characterized the first part of the government's reform program. 21. Those activities related to the modernization of the national administration included the redefinition of organizational structures, the rationalization of physical space, the development and implementation of monitoring systems of administrative reforms (SIPRA), the simplification of administrative procedures and the internal administration system, inventory and asset management, a new procurement system, and the development of a human resource database linked to the payroll. In relation to deregulation, the project provided support to rationalize and simplify the body of norms and regulations governing various economic activities. Finally, with regard to the transfer of public services to the provinces, the project provided support to formulate the conceptual and operational frameworks for the decentralization of health and education services including analyzing the impact of the transfer, preparing the legal basis for decentralization, and formulating guidelines for the actual transfer. 22. Achievement of Component's Objectives: Substantial Achievement. The overall objectives of this component were largely attained, with the activities financed playing a key role in the implementation and monitoring of the government's Administrative Reform Program. This has led to a major reorganization of the federal government. By early 1993, the Federal Government shrank from 671,000 in 1990 to 284,000 as a consequence. Actual employment fell by 15 percent while an additional 41 percent (teachers and health workers) were transferred to the provinces. The immediate fiscal savings were relatively modest because of the Government's obligation to pay severance claims associated with these reductions, which totaled some US$312 million in 1991-92. Moreover, there was a 50 percent reduction of organizational structures and 8 average processing time of administrative documents, as well as savings of US$63 million from the optimized use of physical space. 23. Activities under the deregulation component have also been very successful, supporting the preparation of norms deregulating a number of economic activities, including the insurance market, elimination of restrictions on air transportation, opening of fishing and mining markets to foreign participation, simplification of procedures for pharmaceutical operations, demonopolization of the postal system, elimination of major import and export quotas, merchant marine, interest rates, corporate law, transfers of funds, and mergers and acquisitions. The fiscal net gain from deregulation was estimated at US$322.4 million from 1992 to 1994. Moreover, the impact resulted in increased production, competitiveness and exports, reduced costs, as well as demonopolization and increased transparency of markets. 24. The decentralization of public services to the provinces was implemented between 1992 and 1993. The transfer of health and education services and related public employees to the provinces resulted in US$1.2 billion in savings in the federal 1992 budget, which cut has been maintained thereafter. Of course, the related expenses had to be absorbed by the provinces, for which increased resources were transferred through national revenue-sharing. E. Public Sector Comprehensive Financial Management and Performance Control Reform (US$5.1 million) 25. Another basic problem was the government's inability to program and control public spending efficiently. The bulk of the public expenditures occurred in decentralized agencies, special accounts, public enterprises, provinces and social security funds, with the Treasury having discretionary control over only 20 percent of non-interest expenditures in 1988. As the former entities reached the limits of their budgets, they customarily arranged for ad hoc, bail-outs by the central government or the Central Bank, ultimately financed by the inflation tax. 26. The budgetary process had been destroyed by the early 1980's, and successive attempts to reestablish it since 1983 had all failed. Unstable macroeconomic conditions aggravated the weakness in the budget process, as the Treasury was forced to manage short-term flows on the basis of the immediate priorities of continually changing quarterly targets rather than an agreed budget. The budget became just a formality, as inflation usually rendered it irrelevant within weeks of its preparation --(and the 1990 budget was never approved). Other problems included: a) omission from coverage of important sources of expenditures, such as public enterprises' revenues and other funds; b) absence of budget programming and subsequent review oriented towards improving the allocation of public resources; c) ex-ante and ineffectual control of budget execution; d) weak 3 The fiscal net gain is calculated as the difference between reduced expenditures and increased revenues, minus revenue losses and severance payments. 9 senior-level monitoring and unenforceable reporting requirements; e) no public investment planning; and f) the lack of modern information systems to support financial management. 27. To regain control, the Government, with assistance from the Bank, prepared a Public Sector Financial Management Reform that established a comprehensive definition of the public sector, defined financia responsibilities and set up a modern control and auditing framework. The Public Sector Financial Management Law -- Reforma de la Administracidn Financiera del Sector Pfiblico Nacional, Ley 2415 -- enacted on Sept. 30, 1992, focused on: a) implementing a comprehensive budgeting process; b) clearly delineating responsibilities; c) developing mechanisms for control and auditing; and d) defining levels of indebtedness. 28. Component's Objectives and Implementation: The activities financed under this component directly supported the implementation of the Public Sector Financial Management Reform. Specifically, they supported: a) the design of new criteria, methods, and normative frameworks for budget programming and public sector financial management consistent with the new law; b) the development and implementation of an Integrated Financial Management System (SIDIF4); and c) the training and professional enhancement of officers of key agencies. 29. This component became highly important after the Convertibility Law, as programming and controlling of public expenditures was central to maintaining price stability. The Public Sector Financial Management Reform invested full financial and budgetary authority in the Secretariat of Finance, within the Ministry of Economy. Its Minister then designated one of his close collaborators to serve as both Secretary of Finance and executive coordinator of the PSRTAL implementation unit. This was key to the successful implementation of the Public Sector Financial Management Reform and the SIDIF, as it combined ample political support with strong leadership. The strategy adopted was to reform from within the Secretariat of Finance, with the overall concept for the SIDIF being developed in-house by permanent staff with consultant support. 30. Although generally underestimated, non-technical strategies for introducing the reform within the key agencies in the national public administration were as important as developing a sound technical solution for the SIDIF. Key officers from the budget, treasury, accounting, and public credit units were involved early on in the process, which proved to be critical in developing a sense of ownership of the reforms among the main users. Structured group interactions led by a sociologist were organized over week-ends to promote cohesiveness between staff of different units, which helped to integrate previously encapsulated centers of power. An aggressively implemented training component effectively disseminated the reform in financial administration by orienting 2,800 professionals in the national and provincial administrations and universities in the SIDIF and new budget, treasury, and accounting procedures.. Finally, regular meetings and retreats between the Minister of Economy, the Secretary of Finance and top officials 4 This system was originally named SIPRECO. 10 in the national public administration where the final objectives of the reform were continuously emphasized (informally dubbed "spiritual retreats" by the administrators) were critical to build up and sustain the momentum for change that characterized the early years of the Menem administration. 31. Achievement of Component's Objectives: Substantial Achievement.5 The implementation of the Comprehensive Financial Management and Performance Control component has been highly successful in drastically revamping the national fiscal accounting and budget processes, thus contributing to the improved allocation of public resources and control of spending. In 1991, for the first time in nearly half a century, the National Administration budget for the following year was submitted on time, and approved before the start of the fiscal year. Savings in non-interest expenditures have been estimated at approximately US$450 million. Also, the consolidation of approximately 5,000 public bank accounts into the Consolidated Treasury Account -- Cuenta Unica del Tesoro - has resulted in the almost complete elimination of check and cash transactions, and savings in maintenance and commission costs as well as foregone interest from idle funds estimated at approximately US$21 million per year.6 Finally, the adaptation and implementation of the SIGADE (Debt Management and Analysis System), a system developed by UNCTAD, has contributed to the optimization of the debt portfolio. 32. The SIDIF has revolutionized the allocation and control of public expenditures in the national government, incorporating into a single operational framework the previously dissociated functions related to the budget, treasury, accounting, and public credit. It was developed around two basic concepts: a) total interrelation between the different systems and b) normative centralization and operational decentralization. In this way, the SIDIF was conceived as a system that interrelates a central database managed by the Ministry of Economy (central SIDIF) with local databases (local SIDIFs) corresponding to the administrative/financial units (SFAs) of the different organisms within the central administration, and decentralized entities. The central SIDIF is now totally operational, with local SIDIFs operating in three organisms of the central administration and three decentralized entities. The remaining SFAs, which are currently operated and connected to the central SIDIF with a transitory software package, will continue with the implementation of their local SIDIFs under a loan by the IDB. 33. Overall, the implementation of the SIDIF has contributed to increase transparency in the management of public resources by having on-line, real-time information on all financial transactions within the national public administration integrated into a single database with access open to multiple users. It has also contributed towards increased efficiency and effectiveness in the allocation of financial resources by relating budget allocations to physical output measures, thus allowing the better estimation of costs and s Ref Table 9 6 Estimated based on US$40 million of public current expenditures, 50% of which has been assumed to be transferred through public bank accounts, with an average of ten days of idle funds, and an annual interest rate of 5 percent. 11 productivity measures. Finally, it has strengthened policy decision making by providing timely and dependable information on public finances. F. Reorganization and Modernization of the Central Bank (CBRA) and Superintendency of Financial Entities (US$3.28 and US$1.62 million respectively) 34. The need to reorganize and redefine the role of the Central Bank was recognized early on during the Menem administration. For decades the Government had abused the power to create money, using the Central Bank as the ultimate source of revenue for the public sector. With the support of the PSRL, several reforms were adopted to separate the Central Bank from the non-financial public sector and establish it as a monetary authority. A new CBRA charter adopted in 1992 provided it with sufficient autonomy to function as a monetary authority, restricted CBRA financing for the public sector, and removed functions not directly related to the preservation of currency stability, including the removal of trade credit and bank liquidation functions and the transfer of legal authority over failed institutions to the courts. 35. The reorganization of the Superintendency of Financial Entities (SEF) was also an important element in the government's reform strategy and a condition of the PSRL. The CBRA's Directors approved a reorganization of the SEF in July 1990 and carried it out in September 1990. An action plan was developed aimed at strengthening the functions of the SEF, which are a vital complement to those of the CBRA. Among the functions to be strengthened were the evaluation of banks' portfolios, banks' inspection, and the overall prudential regulation of the banking system. 36. The CBRA and the SEF had severe deficiencies in their computing and communication equipment. These seriously limited the CBRA's capacity to maintain and process information for policy-making modeling, as well as routine daily activities such as monetary programming, balance of payments programming and analysis of financial institutions. The lack of up-to-date communication systems also posed an additional obstacle to the modernization of the CBRA's operational capacity. Transmission of information on transactions to the CBRA's accounting system as well as between the CBRA and SEF was generally poor and slow, thus hampering the decision making ability of CBRA's management. Moreover, the CBRA's mainframe computer was both obsolete and operating dangerously close to its capacity limit. 37. Component's Objectives and Implementation: Although originally conceived as two separate components, the reorganization and modernization of the CBRA and SEF were later merged into a single component to reflect the integration of the two entities that resulted from their reorganizations. The PSRTAL supported the design and implementation of a computerization and communications strategy to support the CBRA/SEF organizational reform, including the development of main applications, such as accounting and current accounts, and the training of technical personnel and end users. 12 38. The implementation of the CBRA component illustrates some of the key elements that contribute to the fate of technical assistance projects. During the first two years, the leadership of the CBRA relied almost exclusively on external consultants to design the main computing and communications strategy that was to support the modernization of the CBRA/SEF. Given the high degree of specific know-how involved in the functions performed by the CBRA, the lack of involvement of CBRA staff resulted in the inadequate definition and specification of the systems designs. This affected the bidding documents for the corresponding computer and communication systems. As a result, bids were several times higher than anticipated and the procurement process was voided in October 1992. 39. Thereafter, the institution decided to have another go at the procurement, mainly for the transparency of working under the Bank and UNDP/OPS' procedures. This time, however, it was decided to redesign the computer and communication strategy mainly in- house, with the ownership of the systems in the hands of permanent CBRA staff working with potential providers in the definition of the final product. Several providers were willing to participate in giving informal advice to the CBRA. 40. Both the Bank and UNDP/OPS worked very closely with the CBRA in designing the second round and permitted some flexibility in procedures. Under a two-step process, technical proposals were analyzed first. An evaluation commission reviewed all proposed technical solutions and those found acceptable were asked to supplement them with complementary elements to level the proposals. Prices were considered in the second step. The winner finally was awarded the contract with a bid price less than a fourth of the lowest bid under the previous process. The CBRA is a success regarding the ownership and acceptance of the new systems within the institution, and the transparency and competition of the procurement. The record contrasts sharply with the comparable case for the Banco Naci6n, which took place at the same time and ended up with a scandal involving the supplier and government officials. 41. Achievement of Component's Objectives: Substantial Achievement. The successful reform and reorganization of the Central Bank played a principal role in controlling inflation and stabilizing prices. The average monthly CPI inflation fell from 24.9 percent in 1990 to zero in February 1994 and an annual inflation rate of 3.92 by the end of 1994. The restructuring in the CBRA operational structure has been complemented with a communications and computer system that provides adequate information storage, transmittal, and processing capacity. The new systems are now being fully operated by CBRA staff. In-depth training was provided for final users and almost 900 applications were developed at no cost to the CBRA. The information required for routine daily operations and policy making is readily available and reports are produced on demand. 42. The SEF has also been restructured to strengthen its monitoring and regulation of the banking system. With the support of the new CBRA communications and computer systems, the time between the moment in which a financial institution presents its information and the moment in which it is available to be used in SEF's analysis has been 13 reduced from six months to five days. Information from "alarm indicators" as well as current accounts are available in real time, including disqualified current accounts (it used to be more than four months). The time required to prepare information of the consolidated financial system and the principal debtors has been reduced to five days. Banks' inspections have been greatly improved, CBRA teams are on-site in banks identified as problematic, and other banks are inspected at least once a year. G. Major Factors Affecting the Project 43. After a successful start, the implementation of the project experienced considerable delays during 1992-93. These resulted from such factors as delays in the passage of enabling legislation, the high complexity of the operational and technological frameworks to embody the different reform components, and difficulties in some bidding processes. Many of the products to be developed were highly innovative for which it developed that there was no available "know-how" . Where government agencies failed to clearly determine the conceptual definition of the final products, bidding documents were vague and unclear. As in the case of the communications system for the Central Bank and two other sub-components, poorly defined bidding documents resulted in highly inflated prices and unenforceable contractual arrangements which ultimately retarded implementation. 44. The UNDP/OPS was responsible for the purchase of all the equipment and hiring consultant services. It caused some delays in the implementation of the project, partly due to the fact that UNDP/OPS' operational procedures atop those of the Bank extended processing times and added to the complexity of administrative procedures. This however, was considerably improved after 1994 when UNDP/Buenos Aires took responsibility for managing local consultants and small purchases of equipment and training. On the other hand, the project benefited from its increased administrative transparency and additional technical support, particularly in relation to complex bidding processes, as in the case of the Central Bank, (reportedly key to the success of the second bidding process). 45. Although the different components financed under the PRSTAL generally resulted in the expected outputs, the Government continues to develop further some sub- components, now under a loan from the Inter-American Development Bank (IDB). This suggests that even after the seven years of support through the PSRTAL, there is still a need for both technical and financial assistance to continue with the implementation of the second and third generations of reforms. 46. Project Costs. The Loan financed some 70 per cent of the sum originally allocated for the Customs Modernization component, as ANA decided to self finance the MARIA system. The cost of the Administrative Reform component was approximately 10 percent below the planned US$5.6 million. The cost of the Central Bank and SEF Modernization component was 97 percent of the initial allocation; and the Financial Management Reform component exceeded the original budget by approximately 15 percent. Finally, the administration costs of the project were four times higher than 14 anticipated, including the costs of both the implementation unit (US$1.4 million) and UNDP/OPS (approximately US$1 million). The extended duration of the project, as well as the complexity of coordinating so many diverse components appear to have contributed towards the higher administration costs. H. Project Sustainability 47. Sustainability: Likely. The intended reforms have been successfully implemented and are now operational. On administrative reforms, education and health services have been effectively transferred to the provinces, and legislation has been passed deregulating economic activities. The budget has regained the status of an effective tool to plan, manage and control public expenditure, and the new financial administrative system continues to be expanded and perfected. It is now under the leadership of the former Treasurer of State, which reflects its genuine acceptance by the government bureaucracy. And the Central Bank and SEF have been restructured and modernized. All these reforms have been fully consolidated and the corresponding technological support systems are currently being operated by permanent staff . 48. In the case of the Customs Administration, the MARIA system has been implemented, the new Customs Code has been developed, and the ANA school and lab are operational. However, the final consolidation of the reforms is still pending, as the result of the recent ANA merger with DGI. 49. Moreover, those activities whose results fell somewhat short of the expectations, such as SIRHU and SABEN7, are continued under the project financed by the IDB. I. Bank Performance 50. Project Identification: Highly Satisfactory. The Bank correctly identified and diagnosed the need for financial and technical support to consolidate the public sector reforms under the PSRL. The PSRTAL was just one of several operations implemented within the framework of a broad, comprehensive Bank strategy designed to support the Government's efforts to reform at all levels of government. 51. Project Preparation: Highly Satisfactory. The Bank's performance was highly satisfactory with respect to the sectoral and technical aspects of project, identifying a detailed matrix of activities to be performed under each component, as well as the corresponding inputs. Greater effort should have been made though in defining baselines for project evaluation criteria and following them up systematically. 52. Project Appraisal: Satisfactory. During appraisal, the Bank set up useful mechanisms to mitigate the various risks. It also took advantage of a historic opportunity with timely support of Government efforts to implement reforms and actions that were 7 See Table 9, components BI. 5.1 (Human Resources Management System; SIRHU) and 1.5.3 (Pilot Inventory of National Real Estate Assets; SABEN). 15 critical to the country's adjustment. However, the appraisal failed to assess the project execution period properly. 53. Project Supervision: Highly Satisfactory. The Bank worked closely with the Borrower to adopt corrective measures when necessary. Strong close technical assistance was provided by the Bank's task managers. J. Borrower Performance 54. Preparation of the Project: Highly Satisfactory. The project had a unique combination of political support, strong determination of key actors and excellent technical resources that were pivotal in the success of the program. The Government also successfully made it an integral element in the reform of the public sctor. 55. Project Implementation: Highly Satisfactory. The project executing unit had excellent performance in providing technical support to the different participating agencies coordinating the different components, and furthering compliance of the covenants. Its systematic progress tracking contributed to the effective implementation of the program. The record also illustrates the utility of using top professionals in project management with experience with ]Bank procedures in accounting, disbursement and procurement. 56. Compliance with Covenants: Highly Satisfactory. Over the life of the project, compliance with the legal covenants and agreements was complete. K. Assessment of Outcome 57. Overall Rating: Satisfactory. On the whole, the project objectives have been satisfactorily met. The project widely promoted public sector reform and effectively consolidated the reforms supported by the PSRL, It also set the grounds for the reform of the Customs Administration, whose final consolidation is still pending. 58. Moreover, the reforms supported under the PSRTAL, particularly the establishment of a financial administration system to manage and control public expenditures and the reorganization of the Central Bank as an effective monetary authority, helped sustain monetary stability which, after the passage of the Convertibility Law, became the cornerstone of the government's reform strategy. 59. In summary, through the PR.STAL and related operations, the Bank helped Argentina capitalize on a rare historic opportunity in which a group of decisive politicians, charismatic leaders and sound professionals transformed a structural crisis into a successful redefinition of Argentina's public sector. 16 L. Future Operations The Project provided support for a first phase of the government's program to reform and modernize the public sector. It effected improvements which remain inforce, whose operational arrangements are in place and continue to be satisfactory. Also, the Government's pursuit of still further performance betterment and efficiency continues. It is thus anticipated that, assisted by inputs from the IDB, federal level operations will continue to be upgraded. Also, the Project set a basis for extending these reforms to provincial and municipal levels, on which Bank dialogue and assistance have been continuous and are ongoing. M. Key Lessons Learned 60. The lessons from this experience are; a. Technical assistance loans can be effective complements of structural adjustment loans in lending for reform. b. Bank interventions can be most effective when they capitalize on windows of opportunities that provide unique momentum to the implementation of reforms. c. Individual reforms are more likely to be successful when they are critical to the success of an overall reform strategy. The PSRTAL benefited from its interdependency, e.g., passage of the Convertibility Law put additional pressure to implement the financial management system and to modernize the Central Bank, thus providing additional impetus to the implementation of these components. d. The success of technical assistance depends on a combination of factors, among the most important of which is strong political support. The reforms supported under the PSRL and consolida!cd under the PSRTAL benefited from a unique combination of strong political support and a solid leadership with a high level of determination, and access to a pool of sound professionals e. Overcoming resistance of the status quo is critical to the long-term sustainability of improvements and reforms. A strong conviction on the part of the highest political authorities is required to sustain momentum during the implementation of reforms. However, the ultimate test is their final acceptance by in-house government personnel and the incorporation of technological solutions in day-to-day operations. f. Strong leadership within government agencies is required too. A Government agency has to provide a well-defined vision of its future and clear specification of how to realize this vision. Consultants can add technical or managerial expertise, but they cannot instill the vision. 17 g. There is often a weak culture of consultant supervision in government. This causes undue reliance on consultants for problem identification and project definition, with the consequent weakening of ownership and lack of adequate accountability for consultant performance. h. Target agencies' lack of ownership and responsibility result in excessive reliance on information technology for solutions. i. It is important to identify key in-house personnel receptive to change and to bring them on board in the reform process. j. Non-technical aspects are crucial in terms of the impact they can have on the successful incorporation of reforms.. k. Training components are key to project sustainability. 1. Technical assistance loans should not be expected to be short-term, one-time interventions. TALs should be conceived as programs with medium and long time frames, possibly followed by subsequent loans to support reforms as a continuum. m. A detailed activity matrix and annual work plans are effective tools in ensuring the continued focus of TALs. 18 Summary of Assessments A. Achievement of Objectives Achievement of Objectives Substantial Partial Negligible Not Applicable Macro Policies 1 Sector Policies _ Financial Objectives _ Institutional Development Physical Objectives Poverty Reduction Gender Issues Other Social Objectives Environmental Objectives Public Sector Management I _ Private Sector Development Other B. Project Sustainability Project Sustainability Likely Unlikely Uncertain C. Bank Performance Bank Performance Highly Satisfactory Deficient Satisfactory Identification I Preparation Assistance Appraisal Supervision Except for the Customs Administration component, in which sustainability is uncertain. 19 D. Borrower Performance Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation _ Implementation _ Covenant Compliance 1 Operation (if applicable) _j _ E. Assessment of Outcome Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory Table 2 Related Bank Loans/Credits Loan Purpose Aont Year of (US$ NP Approval Status Preceding Operations Loan 2712-AR Public Sector Management 18.5 1986 Disbursed Loan 3015-AR Tax Administration Technical 6.5 1989 Disbursed Assistance Loan 3292-AR Public Enterprise Reform Execution 23.0 1991 Disbursed (PEREL) t32. Loan 3394-AR Public Sector Reform 325.0 1991 Disbursed Subsequent Operations Loan 3460-AR Second Tax Administration TA 20.0 1992 US$2.1 million undisbursed (as of 7/27/97) 20 Table 3 Project Timetable Steps in Project Cycle Date Planned Actual Date/or Duration Identification (Initial Executive October 1990 Project Summary Preparation Six months Appraisal March 1991 Negotiations May 1991 Board Presentation June 1991 Signing August 1991 Effectiveness December 1991 Loan closing June 30, 1995 March 31, 1998 Table 4 Cumulative Loan Disbursements: Estimated and Actual (USS million) Cumulative FY92 FY93 FY94 FY95 FY96 Disbursements Appraisal Estimate 3.0 13.0 21.0 23.0 0 Actual 3.0 3.7 7.5 18.2 23.0 Actual as % of 100% 28% 36% 79% Estimate I I I_I_____ Date of final Disbursement: May 17, 1996. 21 Table 5 A Project Costs Appraisal Estimate Actual Bank GOA Total Bank GOA Total Consultant Services and Training I. Customs Modernization Program 3,800 800 4,600 1,200 0 1,200 II. Administrative Reform & Modernization 3,600 580 4,180 4,550 400 4,950 of the Central Government III. Public Sector Financial 3,700 1,200 4,900 6,230 95 6,325 Management & Performance Control IV. Central Bank and Financial Entities (*) 2,500 1,690 4,190 4,700 5,100 9,800 V. Project Implementation Unit 600 400 1,000 1,375 100 1,475 VI. Administrative Costs 1,010 205 1,215 VII. Auditing 160 0 160 Subtotal 14,200 4,670 18,870 19,225 5,900 25,125 Equipment I. Customs Modernization Program 3,000 2,000 5,000 2,680 1,500 4,160 II. Administrative Reform & Modernization 2,000 80 2,080 100 300 400 of the Central Government III. Public Sector Comprehensive Financial 1,400 1,500 2,900 990 300 1,290 Management & Performance Control IV. Central Bank and Financial Entities (*) 2,400 0 2,400 0 0 0 V. Project Implementation Unit 0 250 250 25 500 525 VI. Administrative 0 0 0 VII. Auditing 0 0 0 Subtotal 8,800 3,830 12,630 3,775 2,600 6,375 Total Project Costs 23,000 8,500 31,500 23,000 8,500 31,500 (*) Originally conceived as two separate components, the Reorganization and Modernization of the Central Bank and Financial Entities were merged into a single component. Table 5B Project Financing Appraisal estimate (US$N) Actual estimate (US$M) Source Local Foreign Total Local Foreign Total costs costs costs costs IBRD 6.5 16.5 23.0 19.3 3.7 23.0 Government 8.5 0.0 B.5 8.5 0 8.5 Total 15.0 16.5 31.5 27.8 3.7 31.5 22 Table 6 Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status Loan Agreement 3.01(a) 10 C The Borrower shall carry out the objectives of the Complied. project as set forth in Schedule 2, and provide funds, facilities, services and other resources required for the project. 3.01(b) 10 C The Borrower shall maintain in MEC, a Project Complied. Coordinating Unit with functions and responsibilities satisfactory to the Bank, including, inter alia, the following (1) coordinate the execution of all parts of the project; (ii) approve the procurement of goods and the selection of, and the terms of reference for, the consultants proposed by the Executing Entities; (iii) review of all consultants' reports. 3.01(c) 10 C The Borrower shall ensure that the Project Complied. The Coordinating Unit is at all times headed by MEC's responsibility for Subsecretary of Technical and Administrative the National Coordination as National Project Director, assisted Directorate of the by a full-time Deputy Director with qualifications, Project is held by experience and terms of reference satisfactory to the the Secretary of Bank, and by qualified staff in adequate numbers. Finance at MEOSP (previously MEC). 3.01(d) 10 CP The Borrower shall carry out the Project Substantially substantially in accordance with the Implementation complied. Program set forth in Schedule 5. 3.02(a) 10 C The Borrower shall enter into contractual Complied. agreements, satisfactory to the Bank, with an agent or agents acceptable to the Bank, for handling contracting of consultants, the procurement of goods and for arranging training activities under the project. 3.02(b) 10 C The Borrower shall exercise its rights under the Complied. contractual arrangements referred to in paragraph (a) of this Section in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive such arrangements or any provisions thereof. 3.03(a) 10 C The Borrower shall carry out all studies and Complied. (i) activities included in the Project under terms of reference satisfactory to the Bank, which, when applicable and unless the Borrower and the Bank shall otherwise agree, shall include specific programs or plans of actions to meet the objectives I _of the Project. 3.03(a) 9 C The Borrower shall promptly after the completion of Complied. Cii) each study, furnish to the Bank copy of its findings and recommendations including such programs or plans of action. 3.03(a) 9 C The Borrower shall afford the Bank a reasonable Complied. (iii) opportunity to comment on such findings, recommendations, and programs or plans of action. 3.03(a) 9 The Borrower shall, where appropriate, and taking (iv) into account the Bank's comments thereon, prepare programs or plans of action to carry out the recommendations of such studies. 23 Table 6 (cont.) Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status 3.03(b) 10 C The Borrower undertakes to carry out such programs Complied. and plans of action as required to meet the objectives of the Project as set forth in Schedule 2 to this Agreement and the Program. 3.04(b) 9 C Not later than 15 days prior to each such exchange of Complied. viewii, the Borrower shall, through the Project Coordinating Unit, furnish to the Bank for its review and comment a report on the progress achieved by each Executing Entity in carrying out their respective parts of the project, in such details as the Bank shall reasonably request. 3.05(a) 10 C Procutrement of the goods and consultant's services Complied. required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to Loan Agreement. 3.05(b) 10 C Public servants employed by the Borrower under any Complied. kind of administrative arrangements (including leave without pay) shall not be eligible for providing consulting services to be financed out of the proceeds of the loan. 3.05(c) 10 C The Borrower shall maintain in the Executing Entities Complied. qualified staff in adequate numbers as counterparts of the consultants employed under the Project. 3.06 9 C The Borrower shall prepare and furnish to the Bank Complied. through the Project Coordination Unit not later than September 1 of each year. for its review and approval, an Anaual Work program containing a detailed description of the Activities included in, and the objectives, institutional arrangements, counterpart resourms for, and anticipated results, of the execution I_ of each part of the Project. 3.07(a) 9 C Furnish to the Bank for approval the content of such Complied. programs as well as the schedule for its implementation. 3.07(b) 10 C Select the beneficiaries of such training programs in Complied. accordance with criteria satisfactory to the Bank. 3.07(c) 9 C Not later than September 30 of each year exchange . Complied. views with the bank on the training programs to be carried out in the following calendar year. 3.07(d) 9 CP Furnish to the Bank a re port of such scope and detail as Substantially the Bank shall reasonably request, on the results of each complied. of such training programs and the benefits to be derived therefrom. 4.01(a) 1 C Maintenance of records and separate accounts to reflect Complied. operations, resources and expenditures in respect of the proiect. 4.01(b) 1 C Have the records and accounts for each fiscal year Complied. audited and furnish to the Bank the audit reports not later than six months after the end of the fiscal year. 24 Table 6 (cont.) Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status 4.01(c) 1 C For all expenditures made on the basis of SOEs, Complied. maintain records and accounts, retain all records evidencing such expenditures, enable the Bank's representatives to examine such records and ensure that such records and accounts are included in annual audits. Covenant Types: 1 = Accounts/Audits 8 = Indigenous people 2 = Financial performance/generate revenue from 9 = Monitoring, review and reporting beneficiaries 10 = Project implementation not 3 = Flow and utilization of Project funds covered by categories 1-9 4 = Counterpart funding 11 = Sectoral or cross sectoral 5 = Management aspects of the project budgetary or other resource or executing agency allocation 6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/ 7 = Involuntary resettlement regulatory/institutional action 13 = Other Present Status: C = covenant complied CD = complied with after delay CP = complied with partially NC = Not complied with 25 Table 7 Bank Resources: Staff Inputs v Stage of Actual project cycle Weeks US$ Through appraisal 20.8 47.0 Appraisal-Board 13.4 30.3 Board-effectiveness 5.7 16.3 Supervision 97.8 255.2 Completion 10.9 23.0 TOTAL 148.6 372.0 /1 Includes Bank-financed and trust fund consultants. Dollars are direct costs only. Table 8 Bank Resources: Missions Stage of Project cycle Month/ Number Specialized Types of year of Days in staff skills problems persons field /1 represented 2/ problems Implementation Development Status objectives November 1990 4 14 A,C,E,G February 1991 1 7 Appraisal through March 1991 8 14 A,B,C,D,E,F Board approval Board approval July 1991 1 5 A through effectiveness Supervision March 1992 4 7 A,E 1 October 1992 5 7 A,D,E,G 2 April 1994 3 10 A,E,G 2 November 1994 1 7 H S HS June 1995 2 14 E,H HS HS Completion June 1997 1 15 E 1/ Mission leader. 2/ Key to specialization: A. Sr. Public Enterprise Specialist B. Legal Counsel C. Sr. Country Economist D. Principal Financial Management Specialist E. Consultant E Sr. Country Officer Q Tax Administration Specialist H. Task Manager 26 Table 9 Matrix of Project Activities Activity O ut Impact Sustainability A. Custom Modernization Program 1.1.1-2 Design of Own sources N.A In operation. Network 1.1.3 Primary Network Own sources N.A In operation. 1.1.4 Secondary Network N.A Activity has been canceled after merge with General Tax Directorate (DGI). 1.2 Electronic Mail * Purchase of equipment. N.A Has not been made operational. * Training still pending. 1.3 Laboratory * Purchase of equipment. + In operation as planned. II. Training * Almost 100 courses for N.A In operation, now with own 1500 people. sources. * Purchase of equipment for Customs School. m. Internal Procedures * Four applications had N.A Activity has been canceled as been developed, part of PSRTAL. It was including accounting, continued with Customs' own payroll, human resources. resources management, and registry. IV. Revised Customs * Revised Customs N.A It is difficult to assess given the Regulations Operation Manual recent merger with DGI. * Proposed changes to current Customs regulations. B. Administrative Reform and Modernization of the Central Government 1.1 Strengthening of * National System for Administrative Professionals in + It has been adopted and is in Functions Government operation, with approximately Administration 90% of the personnel in the (SINAPA). central administration having * Development of been re-assigned to categories systematic employment within the new system. categories, with critical posts filled through concursos pbicos. 1.2. Reform Information * Database was utilized + It is operational under CECRA System (SIPRA) for monitoring the (Executive Committee for the reform in general and Monitoring of the PSRL's conditions in Administrative Reform). particular. * For the first time, actual government posts were matched with approved public posts. 27 Table 9 Matrix of Project Activities (cont.) Activity - Output Impact Sustainability B. Administrative Reform and Modernization of the Central Government (cont.) 1.3. Reorganization of * Studies to support the + Approximately 220,000 sq. Physical Spaces development of a meters released, with savings of rationalization program. US$63 millions. 1. 4 Administrative * Normative framework + - In operation in the Ministry of Procedures for the systematic Economy (MEyOSP), but there follow-up of are problems replicating the government documents. system in other ministries. I. 5.1 Management of * Design of the central It is being continued under the Human Resources database. NA BID loan. Lack of definition in (SIRHU) Although it has been bidding documents was closely installed in pilot related to the partial success of entities, only Health is this activity. using it for its payroll as planned. 1.5.2 Integrated * Although with some + - The replication of the local Financial Management problems, it is already SIDIFs was more complex than System for the Central operational in the anticipated. Based on the three Administration (local MEyOSP. local SIDIFs developed under SIDIF in all ministries) e Basic module has been the PRSTAL, the BID loan is also developed for the financing local SIDIFs in the Ministries of Interior remaining ministries. and Health. 1.5.3 Pilot Inventory of * Only the inventory was NA Being continued under the BID Public Real Estate finalized. loan. Lack of definition in (SABEN) bidding documents was also closely related to the partial success of this activity. 1.5.4 Normative Legislation was drafted but NA It is being continued under the Framework for Public was not approved by BID loan, which finances the Procurement (Purchases Congress. establishment of a Procurement and Contracts) Bureau that operates within the normative framework proposed under the PSRL. 1.6 Installation of This activity was canceled. software and hardware 1.7 Center of Image * Met as planned, with NA It is operational, and its Processing (Electronic 15,000 forms having demonstration effect is Registry) been processed, and staff considered to be very strong. trained. I 28 Table 9 Matrix of Project Activities (cont.) Activity Ouut impact Sustainability B. Administrative Reform and Modernization of the Central Government (cont.) 1.8 Training; * Postgraduate courses for NA In operation, with 38 graduates, Postgraduate Institute government economists, 90 students currently enrolled, for Government implemented through and with approximately 600 Economists (ISEG) agreements with four applications for only 45 universities. vacancies. II. Deregulation I.1 Deregulation of * Development of the + Unlikely to be reversed. High Economic Activities normative framework to impact as the result of deregulate numerous macroeconomic effects, economic activities and estimated at approximately the corresponding laws. US$322 million between 1992 and 1994. III. Transfer of Public Services to the Provinces 111.1. Transfer of Public * Development of the NA Between 1992 and 1993, the Services to the Provinces conceptual and responsibility for the provision operational scheme for of health and secondary the transfer of public education was transferred to the services --mainly health provinces, with savings of in the and secondary 1992 federal budget. Increased education. provincial expenditures were compensated by increased transfers. This strengthens the linkage with final beneficiaries, thus potentially fostering efficiency and accountability. C. Public Sector Compr hensive Financial Management and Performance Control I. Financial * Manuals and procedures NA The new Public Financial Management System corresponding to the Management Law was financial administrative implemented under this reform. component, including the development of the supporting communication and computing systems. 1.1 Budget * Methods and procedures + In 1992, the national budget was for budget rogramming, presented to Congress in time executing, evaluation for the first time since 1965. and control were The budget has been effectively implemented for all recovered as a management tool Administrative Units to improve the allocation and (SAFs) within the control of public funds. central government and decentralized entities. 29 Table 9 Matrix of Project Activities (cont.) Activity Output Impact Sustainability C. Public Sector Comprehensive Financial Management and Performance Control (cont.) 1.2 Treasury * Electronic connection + More than 5,000 public bank between the Treasury accounts were consolidated and banks' networks for under the Consolidated Treasury the transfer of data and Account (CUT). All payments electronic payments. to SAFs are now being done through this CUT, with the total number of checks decreasing from 2000 to 200 checks/month. 1.3 Public Credit * Inventory of bilateral, + UNCTAD 's debt management (SIGADE) multilateral, private and system was adapted to register public commercial debt. and manage Argentina's public * Development of the and private sector debt. It has Debt Management and allowed for the optimization of Analysis System Argentina's debt portfolio (SIGADE) I.4 Accounting * Integration of main + SAFs' main accounting output information outputs are connected to the central from the SAFs to the SIDIF and the CUT. general accounting system. 1.5 Internal Control This activity was canceled (SIGEN) 1.6 External Control * Diagnostic study by + - Not other actions taken under consulting firm. PRSTAL. However, a set of structural reforms are being financed out under the BID loan. 1.7 SIDIF (Integrated Financial Management System; originally d SIPRECO) 1.7.1-3 Communications * Development and + On-line, real-time information System implementation of a on all financial transactions communication and within the central computer system to administration with access open support the Financial to multiple users. Management Reform, Increased transparency and including both hardware efficiency in the management of and systems public resources. development. 1.7.4 Optimization of * Improvements on the + It is important to think of the the SIDIF system described above. SIDEF as an evolving tool; thus, its permanent, on-going optimization is not only to be expected but also to be considered necessary. The BID loan continues to finance it. 30 Table 9 Matrix of Project Activities (cont.) Activity Output Impact Sustainability C. Public Sector Compr hensive Financial Management and Performance Control (cont.) 1.7.5 SIDIF for * Development and + - The replication of the local Decentralized implementation of local SIDIFs was more complex than Organisms Financial Management anticipated. Based on the three Systems in three local SIDIFs developed under decentralized organisms the PRSTAL, the BID loan is (CONEA, AGN, and financing local SIDIFs in ENREN). another 14 decentralized entities, to be eventually reproduced in the remaining ones. II. Training * On-going training + More than 2,800 professionals supporting the in the national and provincial implementation of the administrations have been SIDIF. trained. D. Reorganization and Modernization of the Central Bank (CBRA) and the Superintendency of Financial Entities (SEF) I. Development of the * Development and + The restructuring of the CBRA CBRA's and SEF's implementation of as delineated under the PSRL Information Systems communications and was complemented with a Network computing systems for communications and computer CBRA and SEF, serving system that provides adequate over 4,000 workstations. information storage, transmittal, * Set-up of an electronic and processing capacity. mail. The new system also supports * Development and the SEF's role as regulator and implementation of a controller of the banking system decentralized by providing timely information accounting system. on alarm indicators, current * Training of CBRA and accounts, principal debtors, etc. SEF on the operation of new systems. 31 Appendix A Borrower's Contribution to ICR Tal como se desprende de la documentación basica que sustenta la formulación de este Programa de Asistencia Técnica, existió previamente un excelente diagnóstico sobre las áreas criticas que hacen al funcionamiento de la administración de Gobierno por parte de los analistas del Banco Mundial. Dicho diagnóstico coma las orientaciones sugeridas por el Banco, permitieron delinear un proyecto complejo y ambicioso pero factible de ejecutar. Cabe destacar, por otra parte, que el gobierno nacional estaba totalmente comprometido en llevar adelante este ambicioso Programa de Reforma, decisión que obliga a los distintos grados de decisión del aparato público a apoyar y compartir cada uno de las objetivos originalmente planteados. Un punto clave de este Programa, donde se verificó la decisión inquebrantable de las autoridades de alcanzar rápidamente los resultados previstos fue el hecho de convocar a entidades y personalidades nacionales para colaborar en estas tareas. Debido a esta acción se iniciaron una variedad de actividades consideradas críticas antes de concretarse el financiamiento del programa. De esta manera se encaró todo el proceso de reestructuración organizativa del Estado que permitió eliminar más del 50% de las Subsecretarias de Estado y reordenarse las estructuras eliminándose alrededor de 120.000 cargos. Al mismo tiempo se llevaron adelante las negociaciones para transferir los servicios educacionales y de salud a las provincias y el diseño de las normas y procedimientos para garantizar el financiamiento de estos servicios. Otra tarea en la que el Gobierno puso su mayor participación fue la reubicación de los espacios fisicos en concordancia con la nueva estructura organizativa del Estado. Debido a que todo el trabajo previo para encarar estos resultados surge del documento básica del Programa, estos objetivos aparecen con una ejecución financiera insignificante en la ejecución global del mismo. La baja ejecución del Programa durante los primeras años obedece en primer lugar a que el personal de la unidad ejecutora participó activamente en las tareas descriptas, postergando la iniciación de las otras actividades sustantivas. 32 Posteriormente y en razón del cambio de autoridades, el Programa que dependía de la Secretaria de Coordinación Administrativa, pasa a depender de la Secretaria de Hacienda, oportunidad en que se decide dar un fuerte impulso a las actividades cuyos objetivos sustentan las reformas macroeconómicas realizadas en una segunda etapa -. La Reforma de la Administración Financiera y la Reestructuración del Banco Central. En el caso particular de la Reforma de Administración Financiera - Componente C, coincidieron los aspectos quo permiten garantizar el éxito de un proyecto (politico y ejecutivo), en razón que el nuevo Director Nacional del Proyecto, el Secretario de Hacienda, Dr. Ricardo Gutiérrez era al mismo tiempo el líder sustantivo de esta reforma y autor del proyecto de ley que puso en funcionamiento las normativas para la Administración Financiera. En tal sentido puede decirse que esta componente fue bien formulado, tenia un fuerte liderazgo y el poder político necesario para su implantación, conjugado con la capacidad de una buena selección de profesionales que garantizaron su ejecución. Dado este ejemplo -que permitió desde el inicio comprobar los avances y resultados-la Unidad de Coordinación se fija como meta reunir estas mismas condiciones en el resto de los componentes que eran parte del Programa de Reforma. Visto el fracaso de la licitación para la reestructuración del Banco Central - Componente D- y con el total apoyo del oficial de proyectos del Banco Mundial, se iniciaron conversaciones con las autoridades de esa entidad para redefinir objetivos, actividades y resultadas, así como reemplazar la coordinación de ese componente. Debido al cumplimiento de las condicionalidades fijadas por las entidades financieras mediante el PSRL, PERAL y PEREL, el Gobierno había avanzado en la reestructuración y leyes que daban autonomía al Banco Central y se creaba la Superintendencia de Entidades Financieras. Por tal motiva se decidió apoyar a esto componente con un ambicioso proyecto de reinformatización. En este sentido la Unidad de Coordinación colaboró en esta reprogramacion de actividades. Se nombró un nuevo coordinador del componente que se transformó en un líder indiscutible de este proyecto, permitiendo generar un procedimiento de licitación novedoso para el para como fue el de empresa integradora. el que debido a su complejidad necesitó atención de los especialistas en compras del Banco Mundial y de la OSP-UNOPS. No caben dudas que el éxito de este proyecto se debe al hecho de reunir las condiciones básicas comentadas anteriormente. En el caso del Componente Reforma Aduanera -Componente A- se intentó realizar la misma experiencia con resultados fallidos, en razón que este proyecto era tan salo de 33 apoyo y no sustantivo y las actividades fueron marginales. Si bien la Reforma Aduanera tenia un fuerte liderazgo por parte del Administrador de la Aduana, Lic. Gustavo Parino, los objetivos principales estaban fuera del proyecto financiado por el Banco Mundial a saber la implantación del Sistema Maria y una Red de Comunicaciones, Esta situación impidió delinear actividades concretas y el esfuerzo se resumió a atender compras de equipamiento y asistir al Centro de Capacitación. En el caso del proyecto de Modernización el Gobiemo Central -Componente B- cabe aclarar que el mismo estaba compuesto por una variedad de objetivos entre los cuales uno de los de mayor impacto eran el SIRHU (Sistema Integrado de Recursos Humanos), cuyo objetivo fue el desarrollo de una base de datos con toda la planta de personal del estado, la que comunicaría con un sistema de administración de recursos humanos. El único resultado alcanzado fue crear un sistema de interfases para transferir a dicha base de datos la información de liquidación de haberes mensual de todo el área dependiente del Poder Ejecutivo, Esta actividad tuvo que ser suspendida por el bajo resultado de la firma adjudicataria y en la actualidad ese objetivo está siendo terminado par la Secretaria de Hacienda. El otro objetivo importante fue el SABEN quo consistia en obtener un sistema de administración de bienes, una metodología de valuación y un inventario de bienes inmuebles. Esta actividad también tuvo que ser suspendida por el bajo nivel de respuesta obtenido por la firma adjudicataria. El fracaso de ambas actividades podrían adjudicarse al hecho que los términos de referencia no especificaban con claridad el alcance de los resultados y si incorporaban muchas exigencias para la selección de firmas. Producto de ello las firmas adjudicatarias aran importantes pero no especialistas en estos ternas, razón por la cual subcontrataron firmas menores para el desarrollo del producto. Esta combinación evidentemente no resultó, con la consiguiente pérdida de tiempo y esfuerzo. Esta experiencia debería orientar a buscar más el perfil de la firma que el tamafño de la misma. Otra actividad que concluyó exitosamente pero cuya ejecución se llevó fuera de este programa, fue la instalación del SIGADE (Sistem? Integrado de Gestión de la Deuda Externa) provisto por la UNCTAD. Cabe resaltar que esta actividad fue iniciada por la Unidad de Coordinación por recomendación del Banco Mundial. 34 Una vez iniciada las conversaciones con la UNCTAD no hubo acuerdo con el especialista del Banco Mundial en el tema Deuda Externa, ló que derivó en la decisión del Gobierno de encarado via PNUD. Además dentro de este componente se licitaron y desarrollaron los sistemas locales de administración financiera para la Administración Central y para Organismos Descentralizados, los cuales han sido instalados en diferentes Servicios Administrativos Financieros en carácter de unidades piloto. Si bien puede considerarse en ambos un resultado exitoso, en el caso del Sistema de Administración Central se generaron demoras excesivas que obligaron a cerrar el proyecto adeudándose el pago final a la firma adjudicataria, pago quo asume el Gobierno una vez que apruebe la totalidad y calidad del producto. Por último cabe resaltar que la demora de más de un año en el Componente de Reforma Aduanera con la licitación de una Red Satelital, fue producto de la indecisión de las autoridades de adjudicar a la firma que hizo la mejor oferta. Asimismo, las demoras en aprobar los avances del Sistema Local de Administración Financiera para Administración Central fue producto de la subestimación de alcances y tiempos por parte de la firma adjudicataria. Este proyecto prolongó un año su plazo de ejecución. Si bien la unidad decidió no incrementar sus costos transfiriendo su personal a otros proyectos, esta experiencia nos indicaría que todo desarrollo u obra que prevé un plazo de ejecución de un año debería ser licitado a mediados de la vida útil del proyecto, dejando para lo último tareas menores. CONCLUSIONES El proyecto debe considerarse exitoso debido a que los principales objetivos fueron alcanzados de acuerdo a lo previsto. Por otra parte debe resaltarse la permanente comunicación a involucramiento entre el proyecto y la contraparte. La gestión, ejecución y seguimiento de este proyecto permitió experimentar la importancia que tiene el gerenciamiento y salidas de una Unidad de Coordinación, que no solo administre sino quo apoyoe, negocie y gestione cada acción comprometida. Asimismo, este programa permitió apreciar las fortalezas de una buena formulación y buen seguimiento de los resultados por parte del Banco Mundial, donde es importante resaltar no solo la experiencia y capacidad sino además la exigencia quo tuvo el oficial del proyecto, Sr. Martin del Campo durante el periodo más critico de la ejecución. 35 Otro aspecto que si bien es permanentemente discutido es la colaboración de la UNPS para aquellos procesos de cierto volumen y complejidad que necesitan garantizar transparencia en la adjudicación. Un aspecto clave para futuros proyectos es garantizar el liderazgo e involucramiento de las autoridades Nacionales. Esta característica no solo garantiza el éxito sino que elimina incertidumbre y la prolongación de plazos de ejecución, los cuales en la mayoría de los casos derivan del cambio de autoridades que plantean objetivos o caminos diferentes a los previstos originalmente. Por último, se cree que deberá hacerse más hincapié en el alcance de cada actividad, situación que permitirá mejorar los terminos de referencia. La experiencia de esta Coordinación indica que. si bien las autoridades son muy conscientes de sus necesidades, no son tan precisos en establecer la demanda. De esta manera, para un solo tema existen una variedad de alternativas y/o propuestas que imposibilitan elegir la mejor. IBRD 29348 BOLIVIA . FARAGUAY -' B R A Z l L gI Fo~y~ lt Tu:,rman Lu E ..r nc.F d _Ca5.g do l Ej r.no j n.lu,n Fe SD.Parana URUGUAY. Buenos A.res ARGENTINA SkRoson c PROVINCE CAPITALS . NATIONAL CAPITAL -v PROVINCE BOUNDAPIES ""-- INTERNATIONAL BOUNDARIES R 9 G 05eos 0 '00 2,'j 3W C 5017 S C- 00 ILr. ETEF.S rh, map ja Cred..:ed b, the Ap Dc.an l.,, oi The ba- Id ean 1 rhe bovnJc,,,:. larj ond - hr n Oa.on :c- å.r. rh.ý mig le. noo .~ply eno rhe p-.a.r åt Ng hc.l bank Gr .p on, .cdgmen, C- hå ealro ep an, fr-ta" , j- a,, :. ..n . oaccpio., al :uch b2.,ndare. APRIL 1998