Colombia - First Programmatic Labor Reform and Social Sector Adjustment Loan Project

26508 July 14, 2003 COLOMBIA FIRST PROGRAMMATIC LABOR REFORM AND SOCIAL SECTOR ADJUSTMENT LOAN PROJECT INFORMATION DOCUMENT Project Name: CO - First Programmatic Labor Reform and Social Sector Adjustment Loan (PLaRSSAL) Region: Latin America and the Caribbean Region Sector: Multi-Sector Task Managers: Vicente Paqueo and Wendy Cunningham (LCSHD) Project ID Number: PE-P079060-LEN-BB Borrower: Republic of Colombia Guarantor: Not applicable Implementing Agency: Ministry of Finance Environmental Category: Not Applicable Date PID prepared: 28 July 2003 Projected Board Date: 9 September 2003 1. Country and Sector Background: Sector-Related Country Assistance Strategy (CAS) goal supported by the project Document number: CAS 25129 Date of last CAS discussion: January 19, 2003 As described in the 2003 Country Assistance Strategy (CAS) discussed by the Board of Directors on January 19, 2003 the Bank's strategy focuses on three goals: (i) fast and sustainable growth; (ii) quality governrment institutions; and (iii) sharing the fruits of growth. Achievement of these goals will strengthen the foundation for peace and the possibility for conflict resolution. As noted, violent conflict is Colombia's greatest challenge at present. To support this strategy, the Bank lending program envisioned in the CAS focuses on operations that would: (i) have the most tangible impact on poverty alleviation; (ii) achieve fast and sustainable growth while protecting the poor; (iii) incorporate the lessons learned from the Bank's operations, particularly from on- going Learning and Innovative Loans; and (iv) pilot innovative interventions with important demonstration effects. The PLaRSSAL will directly contribute to achieving the CAS objectives in a variety of ways:  * Economic growth. For faster and sustained economic growth, Colombia needs to increase employment of workers and total factor productivity growth. The labor reforms supported by the PLaRSSAL would contribute to increased employment. Moreover, the education and training reforms advanced by the government and nurtured by these operations would increase the pace of the country's human capital accumulation and push the private sector productivity towards the technological frontier. In the Bank's report, Closing the Gap in Education and Technology (2003), these two conditions are deemed necessary for sustained and rapid economic growth in the technologically changing global economy. * Building quality government. The PLaRS SAL would contribute to the development of quality government by supporting reforms intended to promote the transparency, social accountability, coordination, and rationalization of key social programs and institutions. In addition, the operations would enhance the participation of Colombia's citizens and the ability of beneficiaries to make choices and informed decisions. Such actions are expected to reduce inefficiencies and improve relations between the Colombians and their government. * Sharing the fruits of growth. The labor, education, training, social assistance, and health reforms supported by PLaRSSAL would obviously enhance the ability of all people, especially the poor, to share in the fruits of economic growth. Employment is the single most important source of income for poor people. Hence, reforms that would reduce unemployment and underemployment as well as raise employment in the formal sector are likely to lower poverty and improve income equality. In addition, improved cost-effectiveness and targeting of ICBF (Colombian Institute for Family Welfare) and SENA (National Training Program) programs to low-income people (called for by PLaRSSAL) would reduce welfare inequality. Moreover, a movement towards universal access to good quality basic education and health services promoted by PLaRSSAL would favor lower income children. 2. Objectives: The PLaRSSAL supports the general government objective of promoting greater employment, more rapid human capital accumulation, and better social protection, especially of the poor and vulnerable. This objective would be achieved through more efficient and equitable use of social sector resources, improved regulatory environment and better institutional practices. The specific objectives , that the current administration seeks to attain with PLaRSSAL assistance, are detailed in Table 6, which also presents corresponding performance indicators. These have been selected to be as close as possible to outcome measures. The indicators are currently being finalized by the Government of Colombia (GOC) and Bank team and the monitoring of these indicators will be used to track progress and provide data for the Implementation Completion Reports. The strategy to attain those objectives consists of, among others:  (a) Reduction in the cost of employment and training, especially of the poor and young workers, through the implementation of labor reforms under Law 789; (b) Development of a comprehensive and integrated skills development strategy and modernization of SENA functions, responsibilities, and use of resources; (c) Increased efficiency in the use of education resources through the sustained and full application of a system for education resource transfers based on enrollment, as provided for in Law 715; (d) Establishment of information systems and reorganization of the educational systems of territorial entities, necessary to support the implementation of the education provisions of Law 715 intended to improve efficiency and equity; (e) Greater transparency and better social control of publicly funded social services, including: o Regular measurement of student learning achievement in all schools and public dissemination of results; o Strengthening the application of current regulations regarding the licensing of health providers and insurers to inform clients about the quality of their services; o Promotion of results-based management and periodic, rigorous evaluation of the major social programs; and systematic measurement of costs; and citizens' monitoring and oversight of these programs; and o Development of a system of evaluation of teachers' performance, as provided for in Law 715; (f) Development and pilot testing of incentive schemes to improve teachers' performance; (g) Advance towards the completion of the health care reform, i.e., o Expansion of the population affiliated with the Subsidized Regime (health insurance); and o Measures to deepen the hospital restructuring to facilitate the transition towards demand-based financing of public hospitals and expansion of the Subsidized Regime coverage; (h) Advancement of the development of a comprehensive Social Risk Management System for Colombia that is efficient and ready to assist the vulnerable in times of crisis and the help the structural poor in normal times, including  o The development of the Ministry of Social Protection into an effective backbone of an integrated social protection system, able to shape, coordinate and oversee the various social protection policies, programs, and their implementation; and o Better targeting and streamlining of ICBF, SENA and other social assistance programs; (i) Encouragement of the use of private providers through competitive contracts, vouchers, and other innovative schemes to improve efficiency and effectiveness in education, training, and social assistance. 3. Description: Two programmatic structural adjustment loans are being proposed to support the above- mentioned labor and social sector reform program. Building on the Social Sector Adjustment Loan (SECAL), the first PLaRSSAL operation focuses on the approval and the initial operationalization of the recently passed labor reforms and the acceleration of the implementation of the education, health, and social protection reforms, in accordance with Laws 789 and 715 respectively. The PLaRSSAL I focuses specifically on: (i) Greater efficiency in job skills formation and the labor market. The operation would support the development of regulatory decrees enabling the implementation of Law 789. These regulations will provide incentives to employment for vulnerable groups (the young, the elderly, disabled individuals, and unemployed household heads), re-allocate tied funds (from the Cajas de Compensacion) to employment creation programs, and increase coverage and privatization of the apprenticeship system. Moreover, the PLaRSSAL I would promote the modernization of SENA, starting with increasing its internal efficiency (e.g. reduction of overhead costs) and improving the impact of its courses on workers' wages. (ii) Quality and coverage improvements in the education sector. Implementation of the regulatory and budgetary frameworks encouraged by the SECAL would be promoted by the proposed operation. The PLaRSSAL would push these specific outcomes: (i) an increase in enrollments from better use of education resources and, hence, a rise in the student:teacher ratio; and (ii) improvement in student learning achievement. These improvements will be achieved through a more efficient deployment of the teaching staff and the testing of all students in grades 5 and 9.' (iii) Increased coverage, efficiency, and targeting of social protection programs, including the health sector and ICBF. The concept of a comprehensive social risk management system was introduced in the SECAL. The next step, which is supported by this operation, is to: I The matrix specifies coverage of testing at 90 percent. One hundred percent coverage was deemed unrealistic by the Ministry of Education (MEN) due to the inability of the MEN to reach students living in conflict areas.  (a) establish a source of funds for emergency social protection demands; (b) improve targeting of health and early childhood (ICBF) services-both of which have large budgets and wide coverage, but do not effectively reach the most vulnerable populations; and (c) evaluate ICBF programs credibly, laying the groundwork for a more efficient and strategic use of its resources. The outputs to be measured are budget allocations, regulatory decrees, and evidence of increased coverage, specifically in the Subsidized Regime program. 4. Loan Amount and Disbursements: The two PLaRSSAL operations are proposed for a total of $350 million. The first (US$200 million), which would be in the form of a fixed spread, U.S.-dollar-denominated loan, would be made to the Republic of Colombia. Disbursements under the proposed loan would be made to an account (Deposit Account) of the Republic of Colombia, established at the Banco de la Republica for this purpose. As mentioned, the proposal would be to disburse the loan in one tranche upon Board approval. This tranche arrangement has been designed with the government and reflects its and the Bank's assessment of the necessary timing for implementing the proposed conditions. Aside from financial pressures due to an urgent financing gap, the timing of the loan is calibrated to support the government in its efforts to continue the momentum of the SECAL and the momentum of the social sector reform. 5. Contact Point: Task Manager Vicente Paqueo The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-458-2534 Fax: 202-522-0050 6. For information on other project related documents contact: The InfoShop