Argentina - Jefes de Hogar (Heads of Household) Program Project

Report No. PID10834 Project Name Argentina-Social Protection VI (@) Region Latin America and Caribbean Region Sector Social Assistance Project ID ARPE73578 Borrower(s) ARGENTINE REPUBLIC Implementing Agency Address MINISTRY OF LABOR, EMPLOYMENT, AND FORMATION OF HUMAN RESOUR Address: Avda. L.N. Alem 638 Piso 10 Contact Person: Claudia Berra Tel: 54-114-310-5674 Fax: 54-114-310-5592 Email: Cberra@trabajo.gov.ar Environment Category B Date PID Prepared November 9, 2001 Auth Appr/Negs Date March 11, 2002 Bank Approval Date May 21, 2002 1. Country and Sector Background Argentina is in its fourth year of recession and is facing serious financial and fiscal difficulties. As a result, the rates of both unemployment and poverty have increased. The political changes since December 2001, the financial restrictions and the subsequent devaluation have led to a sharp decrease in economic activity, worsening the already serious situation. In this context, it is imperative to have effective safety nets in place. Suport to the poor unemployed is a key part of the safety net in Argentina. The strategy is to build on successes of existing programs, improve on those aspects that have not worked as effectively, seeking simple, transparent and efficient mechanisms to reach the poor and to better coordinatee various interventions. The Government's program includes an intense effort to strengthen fiscal performance, including a reform of social programs to smplify and consolidate them. In the future, particular attention would be paid to: (i) reducing duplication and administrative costs; (ii) improving targeting where needed and increasing coverage; and (iii) putting in place a registry of beneficiaries which can both help to target programs and reduce fraud.Poverty alleviation. Progress on the economic front in Argentina produced real gains in terms of reducing poverty and improving welfare in the first half of the 1990s. Poverty rates fell from 40t in 1990 to a low of 22t in 1994. However, since 1995 poverty rates have increased as a percentage of the population, and income distribution has deteriorated. The worsening of income distribution reflects the fact that the gains from earlier economic growth have gone largely to the more skilled and educated in the labor force, and not to the poor. In addition, unemployment has risen, and unemployment rates are higher among the poor, than for the general population. Many poor are underemployed or in temporary jobs or work intermittently in construction activities. The lack of full time and secure employment is seen by the poor as one of their most critical  needs. Future anti-poverty efforts need to focus on three broad areas:n First, reforms and policies that will lead to a pattern of more rapid growth and feature a high level of employment per unit of output;f Second, improving the access of the poor to basic services, that will raise their overall welfare and, by improving their human capital, increase productivity and their ability to compete in an increasingly globalized economy;f Third, reduce the vulnerability of the poor to shocks and losses in income, chiefly by improvements in safety nets to both protect the poor during economic downturns, and keep them from making short term adjustments that will have negative impacts on their long term ability to reduce their poverty.Social Spending. Argentina has one of the highest levels of per capita public social spending in Latin America, providing more than countries such as Chile, Costa Rica and Uruguay. Social spending has risen in importance over time, from about 15 percent of GDP in the early 1980s, to about 18 percent today, taking over the fiscal space created by privatization. There are three main components: social insurance (57%), universal social sector programs, mainly education and health (36%), and programs specifically targeted to the poor (7%). While the share of total spending targeted to the poor is relatively small, the poor benefit in varying degrees from all social programs. The lowest 20% of the income distribution receive 22 percent of total social spending.Argentina has numerous social assistance programs: food, nutrition, health, employment, training, education, shelter, clothing, income subsidies, and other emergency programs, plus those aimed at strengthening communities. This assistance appears to be strongly pro-poor: 65 percent of benefits go to the poor and 47 percent goes to the poorest 20%. In some cases, results have been impressive: an evaluation of the Trabajar program, supported by the Bank, estimated that 80% of benefits went to people in the bottom 20% of the income distribution, and 40 percent of the benefits reached the lowest 5 %. The issues are mainly low coverage and the pro-cyclical bias in social spending - problems that have recently affected the Trabajar Program as well. About 75 percent of the poor do not receive any public assistance and over half got neither public nor private help. Government spending is pro-cyclical and rises and falls with GDP changes. This situation is even worse for the social sectors and, whereas targeted programs should be part of a social safety net that expands during a crisis, they fluctuate even more than total social spending: a 5 percent drop in GDP is associated with a 99 drop in targeted social sector spending. 2. Objectives The project would support the fourth phase of Trabajar, a social safety net self-targeted to poor households. Through the execution of small infrastructure facilities and productive projects (on a pilot basis), the program would contribute to improvements in the living standards of the communities where the sub-projects are located and provide temporary employment for poor workers. The project builds on the experience of the Social Protection I-III Projects: The Social Protection I Project safeguarded critical social programs, including the first phase of Trabajar, a national public works program (implemented at the provincial level), during the 1995-96 tequila crisis. The Social Protection II-III Projects financed the continuation of the Trabajar program during 1997-2001. This series of projects shared the objective of supporting improvements in the Trabajar program, particularly in the areas of targeting, transparency of implementation procedures, the quality of - 2 -  sub-projects, and evaluation - which have wide applicability to other social programs in Argentina. The Social Protection II Project (Loan 41950-AR) closed as scheduled on June 30, 1999 and received a satisfactory rating in the Implementation Completion Report (ICR) and from OED. The Social Protection III Project (Loan 43660-AR) will close shortly. 3. Rationale for Bank's Involvement The Bank has experience in implementing public-works programs and has the knowledge to apply to improve their effectiveness and targeting. Also, the Bank has been able to draw on the experience and lessons (appropriately modified) of social funds. More broadly, the Bank engages in a program of sector work and dialogue with the Government on employment creation and labor issues as well as reforms to social spending. During project implementation, the Bank has the experience in targeting analysis and evaluation to assist the public authorities in monitoring the implementation and impact of these programs. Under the 2 previous projects, the evaluations of the program were jointly undertaken by the Bank and the Government. The Bank would continue to provide support on evaluation under this project, particularly in the area of trying to determine the impact of the projects in the communities. The Bank has been working with the authorities on issues related to governance and transparency and would bring that experience to bear in this project with the objective of improving the fairness and transparency of the selection of beneficiaries. 4. Description 1. Sub-projects. These will be small projects (less than $75,000 in most localities; less than $200,000 in large metropolitan areas) of economic and social infrastructure, for productive activities (the latter only in poor rural areas), sponsored mainly by either municipalities or non-governmental organizations.2. Project Administration. This would include the costs to the national government of administering the project, including financial charges for processing payments to beneficiaries, providing technical assistance, supervising program implementation at the local level, monitoring implementation and carrying out evaluations. 5. Financing Total ( US$m) BORROWER 535 IBRD 350 Total Project Cost 885 6. Implementation The Trabajar Program will be managed by the Ministry of Labor, Employment and Formation of Human Resources, through its staff at the national, regional and provincial levels. The Ministry will provide the sub-project menu, criteria and other instructions for sub-project preparation, evaluation, approval, and supervision. It will also distribute the resources available in the Trabajar program to each province (and partido in the case of the Conurbano of Buenos Aires) according to the distribution of households in extreme poverty and with at least one member of the household unemployed. Municipalities, provinces, national agencies or organizations of civil society will be eligible to propose projects for financing by the Trabajar Program. All sub-projects will be evaluated by professionals (mainly engineers or architects) contracted by the -3 -  provincial offices of the MTEyFMH according to a methodology which is specified in the operational manual and incorporates economic, technical, financial, institutional, environmental, and social aspects. A data base on prices of materials as well as unit costs has been built up from previously approved projects and will be used as a basis for determining whether a sub-project is viable or not. For about 30 percent of sub-projects, evaluation would include a site visit. Sub-projects will be labor-intensive and relatively small. The average project size is expected to be less than $75,000 and most projects would employ an average of 20 workers. For large urban areas (some parts of the conurbano as well as the city of Rosario) somewhat larger projects will be eligible in order to fit better into existing municipal development plans. The types of sub-projects eligible will include rehabilitation, expansion, and new construction covering: potable water, sewerage, latrines, housing, roads, urban works, irrigation, schools, health centers, other community social infrastructure, and some community services. In addition, the program would finance on a pilot basis small projects for productive activities for groups of beneficiaries in the poorest rural areas of the country.The sub-projects which receive a positive evaluation will be considered at bi-monthly meetings by committees constituted at the regional level, which include Provincial Managers of Employment and Training (MTEyFMH employees), the Regional Manager of MTEyFMH, a representative from the national office of the MTEyFMH, and members of civil society as observers (currently mostly provincial, business and union representatives). Sub-projects will be ranked by a point system according to several criteria, the most important of which is the poverty level of the area in which the sub-project is located. Sub-projects will be approved up to the limit set by available funds. Payments to workers will be made by checks generally through the banking system (in some isolated areas the post office will be used) processed by the National Social Security Administration. Sub-projects would be supervised at least two times during implementation.Most projects will receive financing only for the labor cost of sub-projects from the Trabajar program. However, for the poorest municipalities in the country, the Trabajar program will provide a share of the cost of materials of sub-projects. Sub-projects which meet the following criteria would be eligible for financing of up to 80 W of the cost of materials: (1) located in one of the 300 municipalities in which the share of the population with unsatisfied basic needs (NBI) is over 40 percent; (2) fall into the categories of potable water, social infrastructure (including education, health and sanitary facilities for those and other community infrastructure) or productive activities; and cost no more than $35,000. The maximum that would be financed in materials would be $20,000 per project. The infrastructure sub-projects would follow standard designs. An agreement signed between the Minister and the municipality would specify the procurement procedures to be followed for materials purchases and documentation would be retained at the municipality for review during sub-project supervision. Since the goods to be purchased would be standard, common construction materials, during evaluation they would also be compared against the unit cost data base. Reimbursements would be made in phases: 40 percent to be paid 10 days after construction has begun, and 30t in each of the following two months thereafter in an account the municipality has in the Banco de la Nacion. It is estimated that materials could be financed for up to 1000 sub-projects, about 20 W of the total number of sub-projects expected to be financed under the proposed loan. Selection of Beneficiaries. - 4 -  Rigorous evaluations (1997 and 1999-2000) show clearly that the Trabajar program is targeted well to the poorest groups. Nevertheless, due in large measure to the fact that spending on the program has rarely been sufficient to provide temporary jobs to all who would be willing to work in the Program, there have been instances of clientilism in the selection of beneficiaries. This project will support the imiplementation of mechanisms to improve both the fairness and the transparency of beneficiary selection with the goal of reducing these practices. 7. Sustainability The future scale and operation of the Trabajar program would depend on the level of unemployment and other economic conditions. Argentina is now in its fourth year of recession and the unemployment rate has risen. Given its demonstrated success in targeting poor workers and in financing small infrastructure projects, Trabajar (or similar programs) could reasonably be expected to remain a part of the social safety net in Argentina, to be used flexibly for some population groups depending on economic and social conditions. As long as the wage rate continues to be set at the appropriate level, demand for the program would diminish gradually when economic conditions improve. Even after considering the recent cuts in Government expenditures, the current level of funding accounts for a small fraction of GDP and aggregate spending at the national and provincial levels. Thus the Trabajar Program is still considered to be affordable under a scenario of continued fiscal discipline and control.The sustainability of the sub-projects financed under Trabajar is expected to be high given the high share of financing by local governments. In addition, the evaluation methodology (including more attention to design standards and operations and maintenance), the promotion of criteria of relevance of the project for the community, and close supervision will contribute to sustainability of the sub-projects. In the area of cost recovery, the evaluation methodology will include a stipulation that the local practices for a particular types of sub-projects (for example, basic sanitation, street paving, etc.) would be applied for any project financed by Trabajar. An ex-post evaluation (including a survey of the "indirect" beneficiaries of selected projects) of a sample of 110 subprojects was carried out during project preparation. The main conclusions were than in regards to targeting to poor localities, 75 percent of the subprojects visited reflected adequate targeting, 20 percent had fair targeting and 5 percent either had deficient targeting or insufficient information. The evaluation of the quality of the works and their current status was high for 70 percent of the subprojects, 145 were classified as medium, 5 percent were judged deficient and for 10 percent there was not sufficient information to make a judgement. The conclusion was that about 80 percent of the localities visited had optimized the use of the resources. 8. Lessons learned from past operations in the country/sector The lessons learned and reflected in the project design relate mainly to the design of public works schemes, the operational procedures of social funds, and the financing of productive activities. The most important general conclusions which can be drawn from these experiences are as follows.Public Works. One, the level of the wage rate is critical in determining the distribution of benefits from the program, as well as how well it is targeted toward the poor. Maintaining the wage at the level of the ruling market wage for unskilled labor is the best way to improve the transfer of benefits to the poor. An analysis of the wage rate under the - 5 -  Trabajar program has been undertaken during project preparationton ensure good targeting performance. Two, public works programs can be designed to encourage the participation of women, lower transactions costs for the poor as well as the potential cost of foregone income, and the involvement of non-governmental organizations and grass roots participation to prevent abuse. Three, it is important that the program be designed to strengthen the secondary benefits from the assets created. Effective monitoring and supervision of projects is important to ensure the quality of works. Four, whether or not the created assets confer long-term benefits on the poor is also an important issue.The design of the Social Protection VI Project incorporates these lessons. First, the wage rate is equivalent to the expected wage rate for households in the bottom decile of income distribution, in order to maximize the transfer of benefits to the poor. Second, Trabajar includes features to promote the participation of women and lower the foregone income of the poor and encourages the participation of organizations of civil society and communities. Three, in order to ensure adequate benefits from the assets created by the sub-projects, the Program will ensure adequate evaluation, supervision and monitoring procedures. Four, the program will favor poorer areas in several ways including through the formula to distribute resources, the availability of financing for materials in the poorest areas of the country, and close monitoring of the performance of the program in reaching poorer areas. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues : The TRABAJAR program will improve upon its current environmental evaluation system by creating separate environmental checklists for each type of subproject that the program will finance. Each checklist will have sections for the various stages of the project cycle: preparation, evaluation, and supervision. These documents will be reviewed by the Bank prior to project appraisal.The Bank preparation and appraisal missions will evaluate the TRABAJAR program's capacity to carry out enviromental evaluation. Recommendations will be made, if necessary, on changing or increasing technical staff to review environmental projects and environmental aspects of TRABAJAR subprojects. In addition, the preparation/appraisal missions and TRABAJAR staff will meet with the Ministry of Environment and other pertinent line ministries to ensure that TRABAJAR subprojects meet national environmental standards, to understand the full legal framework for environmental issues in Argentina, and to establish a relationship between the TRABAJAR program and appropriate line ministries. Subprojects will be evaluated to ensure that they fall in line with municipal development plans. The Bank missions will also review training and field visits conducted on environmental issues to determine whether improvements in this area need to be made. Special attention will be paid to the issue of appropriate site selection for subprojects. 11. Contact Point: Task Manager Theresa Jones The World Bank 1818 H Street, NW Washington D.C. 20433 -6-  Telephone: (202) 473-5309 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending March 15, 2002. - 7 -