Bolivia - Educational and Vocational Training Project

Document of FILE COPY uThe World Bank FOR OFFICIAL USE ONLY Report No. P-2028-BO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF BOLIVIA FOR AN EDUCATIONAL AND VOCATIONAL TRAINING PROJECT March 31, 1977 This document bas 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 AND EQUIVALENTS Currency Unit Bolivian Peso $b US$1 $b20.00 $bl US$0.05 $bl million US$50,000 MEASURES AND EQUIVALENTS Kilometer (km) 0.62 miles Square Kilometer 0.386 square miles ABBREVIATIONS AND ACRONYMS CONES National School Building Council FOMO National Manpower Development Service IBA Bolivian Apprenticeship Institute IDB Inter-American Development Bank PREALC Regional Employment Program for Latin America and the Caribbean SNDC : National Community Development Service UNESCO : United Nations Education, Scientific and Cultural Organization UNICEF : United Nations Children's Fund USAID : United States Agency for International Development  FOR OFFICIAL USE ONLY REPORT AND RECOIMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF BOLIVIA FOR AN EDUCATION AND VOCATIONAL TRAINING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Bolivia for the equivalent of US$15 million to help finance a primary and community education and vocational training project. The loan would have a term of 20 years, including four and one-half years of grace, with interest at 8.5% per annum. PART I - THE ECONOMY Introduction 2. A report entitled "Economic Mtemorandum on Bolivia" (1546-BO) dated tMarch 23, 1977, was distributed to the Executive Directors. Country data sheets are attached as Annex I. Background 3. Despite the increasing importance of petroleum and natural gas exports, as well as significant mineral deposits, Bolivia remains one of the poorest countries in South America. The majority of its population is engaged in traditional agriculture. Only a small part of the labor force is employed in the modern sectors. The infrastructure is primitive and the road and rail networks cover only a fraction of the country. The combination of strong tra- ditional ties within the indigenous communities and geographic, health and educational obstacles to population mobility has perpetuated the demographic concentration on the inhospitable 3-4 thousand meter plateau, the Altiplano. About half of Bolivia's population lives a physically, culturally and econo- mically isolated subsistence existence in this region, which is rich in mineral deposits but limited in agricultural potential. 4. The 1952 revolution sought to put an end to the dual structure which had characterized Bolivia's economy since colonial times and to deprive the landowning -and mining oligarchy of its econornic base. This objective was only partially achieyed. Progress was made in eradicating feudal relations, distributing the land and eliminating obstacles to social mobility. The agrarian reform and the nationalizationlof large mines, however, were followed by falling production.- GDP declined in the 1950s and did not recover to its pre-1952 level until 1961. During the subsequent decade, output increased 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.  - 2 - steadily at an average annual rate of around 5%, providing for per capita income increases averaging 2.5% p.a. As a result, GNP per capita, which had fallen by 24% in the 1952-60 period, recovered to its 1952 level by 1970 and was more equally distributed. However, the momentum of economic growth was again lost in 1969/71, when political instability led to declining private investment and deteriorating public finances. The deterioration of public finances reflected a structural problem in the economy. Bolivia's public sector is proportionately one of the largest in South America and a source of livelihood for a sizeable segment of the population. With scarce employment opportunities in the private sector, pressures to expand public employment proved difficult to resist. Large expenditures on wages and salaries, combined with a weak tax system, have limited the resources available for public invest- ment. Moreover, the inability of the public sector to generate adequate savings limited its capacity to utilize available external capital assistance. 5. On coming to power in 1971, President Banzer faced the need to provide jobs for the unemployed and to revitalize investment and growth. Initially, this task was complicated by a sharp deterioration in Bolivia's terms of trade, which produced a weakening in the balance of payments and a further deterioration in public finances, eventually resulting in a substantial devaluation in 1972. However, more rational economic policies were put into effect and a more favorable climate for private investment was established. New laws offering guarantees and incentives to private investors, especially in the hydrocarbon field, were promulgated and claims pending from earlier nationalizations were settled. The Government also improved public adminis- tration and the pricing policies of some public undertakings. These policies were successful in increasing private investment and in bolstering the rate of growth. Recent Economic Developments and Prospects 6. Bolivia's economic performance has continued to be strongly in- fluenced by movements in its terms of trade, which have been particularly volatile in recent years. The sharp increases in petroleum and mineral prices in 1974 resulted in a major terms of trade gain, which led to a dra- matic reversal in the balance of payments and increase in foreign exchange reserves. While GDP increased by about 5%, improvements in the terms of trade helped raise gross domestic income by more than 20%, permitting a substantial increase in both consumption and investment. Moreover, this was accomplished within the context of an unprecedented improvement in public finances. After current deficits in 1970-73, the Central Government achieved savings equivalent to one-third of its capital expenditure. For the public sector as a whole, savings in 1974 exceeded 10% of GDP and covered nearly 90% of capital expendi- ture. On the balance-of-payments side, a near doubling of exports permitted a trade surplus which exceeded US$160 million despite a rapid increase in imports. The current account showed a surplus for the first time in decades and net capital inflows approached US$90 million, nearly four times their 1973 level, as a result of substantially higher loan disbursements to the public sector and increased foreign investment associated with hydrocarbon exploration. As a result, foreign exchange reserves rose by a record US$124 million.  - 3 - 7. The extreme dependence of the Bolivian economy on its foreign sector was once more brought into focus in 1975 and early 1976 as, with world eco- nomic recession, the country's terms of trade deteriorated and export volumes declined. Mineral exports fell by well over 20% as the weighted average of mineral prices declined by approximately 13%, and shipments of most minerals fell as a direct result of the recession and the unloading of speculative stock on international markets. The situation was exacerbated by the fact that exportable surpluses of crude petroleum were significantly reduced for the second year in a row due to falling production and rapidly rising domestic consumption of hydrocarbon derivatives. While the export picture was helped by a significant price increase for natural gas exports to Argentina, this could not compensate for the overall decline in export earnings. On the whole, merchandise exports in 1975 declined by 16%. On the other hand, growth of GDP and investment continued unabated as imports rose by about 36% in the wake of the start-up of new public investment projects and the liberalization of imports for consumer durables and motor cars earlier in the year. As a result, the balance-of-payments current account shifted from a surplus of US$150 million in 1974 to a deficit of US$190 million in 1975. Despite further substantial increases in disbursements of medium-term loans to the public sector, net foreign exchange reserves fell by US$54 million to US$134 million, or about 2.5 months of imports. The weakening of the balance of payments was accompanied by a deterioration of the fiscal situation. The Central Government's current surplus decreased to just about 1.7% of GDP, after reaching 2.6% in 1974, and increased borrowing from external resources and the domestic banking system was necessary to finance growing public invest- ment. However, some public utilities strengthened their financial situation due to increased rates. 8. The authorities, reacting to the weakening of the external accounts, took action late in 1975 to tighten trade restrictions. This resulted in a significant reduction of import growth to only 2.0% during 1976. This, toge- ther with a recovery in mineral prices and overall merchandise exports, helped reduce the current account deficit by about US$50 million. At the same time, Bolivia continued to attract substantial external capital inflows which enabled it to finance the current account deficit and recoup the foreign exchange reserves lost the preceding year. Conservative incomes policies applied since 1974 have resulted in a reduction of inflation to an annual rate of about 14%. 9. Economic growth prospects over the medium- to longer-term depend on the Government's ability to increase savings and stimulate investments particularly those for developing hydrocarbon, mineral and agricultural resources. Investment in mining and hydrocarbons-is accelerating. Inten- sified exploration for hydrocarbons by the state-owned petroleum company and private foreign companies is underway and may lead to significantly increased production and exports of crude petroleum and natural gas, which could permit an acceleration of economic growth towards the end of the decade. Recent exploration results have been fairly positive, i.e. a new oil field with immediate commercial potential was discovered at Montecristo near Santa Cruz and a private foreign concern made a gas strike in the Abapo-lzozog region in  - 4 - the southeast of the country. Fiscal performance has remained weak during the last two years, with the Central Government performance being adversely affected by the deficits of decentralized agencies and state-owned enterprises. However, the authorities are beginning to implement mining and income tax reforms so as to improve the yields, efficiency and equity of the tax system. Debt Service and Creditworthiness 10. Bolivia's external debt outstanding and disbursed at the end of 1976 amounted to US$1.0 billion. Service on external debt amounted to 18.8% of exports of goods and non-factor services net of investment income abroad. Average terms of external debt have worsened as 46% of the newly contracted public debt over the last two years has been from commercial banks. Between 1971 and 1976, average maturity has declined from 24 years to 14 years while the average interest rate has increased from about 4.4% to 7% and the grant element has fallen from 36% to 17%. Because of the heavy investment require- ments associated with development of the mining and hydrocarbon sectors and the large import content of these investments, Bolivia's trade gap and current account deficit can be expected to rise for the remainder of this decade. As a consequence, the debt service ratio is expected to increase to about 23% by 1980. However, as investments in these sectors come to fruition, exports will accelerate and import requirements of investment will decline. A gradual fall in the debt service ratio is therefore likely in the 1980s. In view of the nature and growing size of Bolivia's debt, prudence in selecting and utilizing external capital will have to be an essential element of debt management. 11. Bolivia enjoys a substantial resource base in agriculture, minerals and hydrocarbons, which has to be developed to sustain rapid economic growth and, in particular, to achieve a rapid expansion of export earnings in the foreseeable future. If production in the export sectors, particularly mining and hydrocarbons, can be increased and prices for major export products remain adequate, Bolivia can be considered creditworthy for moderate amounts of external lending on conventional terms. Nevertheless, some additional lending on soft terms (available from the Inter-American Development Bank's Fund for Special Operations and the USAID) is justified by Bolivia's poverty and its large and continuing external capital requirements. The country will require substantial external financing of investment to supplement the domestic savings effort at least until the early 1980s. The Government, in pursuing its progressive development policies, is making a serious effort to mobilize domestic resources and has prepared its first five-year economic plan. Imple- mentation of the underlying investment program will require external assis- tance for high priority projects in excess of the foreign exchange component. Although substantially increased suppliers' and financial credits will prob- ably become available, prudent debt management requires that they should cover not more than about a third of the public capital inflows needed during 1977-80 for meeting a GDP growth target of 6% annually. The remainder should be obtained on softer terms from bilateral and international develop- ment financing agencies, including the Bank.  - 5 - PART 11 - BANK GROUP OPERATIONS IN BOLIVIA 12. Although Bolivia is an original member of the Bank, it did not obtaini any Bank Group funds until 1964. Bolivia's tight budget constraints and restricted capacity to service external debt had limited Bank Group assistance until recently. Apart from a US$23.3 rmillion Bank loan for a gas pipeline, Bank Group operations until FY75 were exclusively through IDA. Following Bolivia's emergence as a natural gas and petroleum exporter, albeit on a limited scale, IDA's lending was phased out with the Agricultural Credit I Project in June, 1975. By February 28, 1977, the Bank Group had approved 18 operations for Bolivia amounting to US$184.9 million, of which eight have been fully disbursed. Net of undisbursed balances, Bolivia's debt to the Bank and IDA in 1975/76 represented 7.9% of its public debt. The Bank's share of the service on this debt is about 4%. Both figures are expected to increase niarginally by 1980. 13. Bank Group lending to Bolivia has assisted in the development of various sectors. US$27.2 million have been for agriculture where our lending has helped thie Governraent to initiate long term progress for the development of a viable livestock industry, to increase agricultural production and to improve living conditions on the Altiplano, as well as to strengthen the Banco Avricola as a development institution. The five loans for power projects, totalling US$53.4 million, have been instrumental in modernizing the sector, expanding electricity services, stabilizing the electricity supply and setting up a regulatory agency. Also, a,public poizer company was set up which has been operated in an efficient and financially sound manner. Two railway loans totalling US$40.0 million, of which US$3.3 million were cancelled when ElUFE obtained funds from bilateral sources to purchase locornotives, have helped to improve the quality of management, efficiency of operations and financial condition of the national railways. Three operations, for a total of US$28.2 million, for medium- and s;aall-size mining aim at increased production and improved sectoral coordination. A loan for a water supply and sewerage project of US$11.5 million is expected to improve services in the main mlining cities and 70 rural communities. Finally, thie proposed loan would assist Bolivia to develop its human resources in a more effective and rational way. 14. Because of the narroiw scope for private investment, IFC becamie active in Bolivia only in 1973 through an investment of US$400,000 in a firm prodtucing cables and plastic products. Wlith expanding opportunities for private investment, however, IFC has most recently agreed to take an eqluity participation of up to US$550,000 in Sanco Industrial S.A. (BISA) in conjunction with a 13ank loan of US$10.0 million for the same institution to assist in financing-medilmT--sized industrial and mining enterprises, and US$337,500 in Banco Hipotecario Nac-ionall to assist in the developnent of mortgage banking. The two IFC investments aim at corntributing to the esta- blislhmlent of a local raarket for long-term securities. Annex II contains a sumnary statemaent of the status of bank Croup operations in Bolivia as of Februarvy28, 1977, and notes on the status of ongoing, projects.  15. Remarkable progress has been made in achieving the goals set for Bank lending to Bolivia. On the macro-economic level, the Government has made important strides towards formulating a coherent and consistent set of overall economic policies. On the sector and project level, public services have been improved and the institutions strengthened. The financial positions of the railroads and power sectors compare favorably with that of similar entities in other developing countries. Also, during the last two years, the Govern- ment has established an excellent record in providing the required counterpart funds for Bank financed projects. Future Bank lending will continue to support Government efforts to establish infrastructure necessary for sustained economic development while simultaneously improving the distribution of the benefits of economic growth. In this context, Bank activities will focus on the less developed regions and the lower income strata of the population. At present four projects are at an advanced stage of processing: an aviation development project to improve domestic air transport and assist agricultural development in the remote northeast area; a third project with the Ilational Railways (ENFE) for its continued rehabilitation; an urban project to finance urban upgrading, sites and services, employment generation schemes and supporting social infra- structure; and an agricultural project for the development of alpaca/llama husbandry to assist subsistence farmaers in the Altiplano and improve their living standards. For the r,iore distant future, further Banl. projects in irrigation, agroindustries, highway maintenance, electric energy, forestry, industry and mining are under consideration. PART III - EDUCATION IN BOLIVIA Formal Education 16. The Ilinistry of Education and Culture is responsible for administer- ing all formal public education and supervising the decentralized and private institutions in Bolivia, except for the universities. The Itinistry's admin- istrative structure includes separate subsecretariats and directorates for urban 1/ and rural education, eachi with its own primary, secondary and teacher training divisions, a carryover from the period of 1955-71 when responsibility for rural education was in the Miinistry of Rural Affairs and Agriculture. 17. Average annual enrollments grew at 5.5% in pre-basic and basic educa- tion and at 10.7% at the intermediate and secondary levels during 1970-73, but inequality between rural and urban areas lhas remained high. In comparison with male attendance, the number of females enrolled at the basic level has been rising slowly and accounted for 46% of total enrollments in urban areas and 41% in rural areas in 1973. At the intermediate level, only 42% of urban students and 23% of rural students were female. Only in teacher education did the percentage of females exceed males at 65% of' total enrollments. 1/ Urban schools are defined as those located in towns of more than 2,000 inhabitants.  - 7 - 18. Average retention rates and tlhe internal efficiency of the education system lhave remained low. Ilationwide, it is estimated that of those entering the basic level about 41% completed grade 5; of those continuing fron this level only 68% completed grade 8; and only 54% of entrants to secondary schools completed grade 12. If the very substantial number of overaged students were discounted, the aforementioned figures would be even lower. Based on past trends, it is likely that more than half of the pupils enrolling in 1976 will not reach fourth grade -- the minimum level to achieve permanent literacy. Although expenditures on education accounted for 27% of the total Central Covernment recurrent budget, primary schools were able to accommodate only 56% of school age children in rural areas in 1976, as against sufficient places for children in urban areas. 19. In 1976 recurrent expenditures accounted for 92% of the Ilinistry of Education's budget and 99.6% of that was absorbed by personnel salaries. The relatively hiigh recurrent costs per student of some US$65 and US$139 at the basic and secondary levels, respectively, are due to pupil:teacher ratios, inadequate workloads and, teachers' salaries averaging about US$1,500 per year at the lower levels of education or almost five times the average per capita incomae in Bolivia. The situation is caused partly by an overproduction of teachers who are guaranteed employment in public schools which, in turn has contributed to the proliferation of small, uneconomic colleges offering inadequate training for new teachers. In 1973, the pupil:teacher ratios ranged from 24:1 in the basic level to a low of 4:1 in industrial secondary schools. Bolivia thus has the lowest average pupil:teacher ratios in Latin America and this results in very high recurrent costs per student. 20. The present education system has an overly academic orientation, which bears little relation to the students' environment and work prospects. The typical Bolivian primary school continues to function as an isolated institution, particularly in rural. areas where the relationship between the school and the community is in most cases not mutually supportive. Some rural communities view the school as directed against their cultural tradi- tions and irrelevant to their wiorld of work. Attendance is often ciotivated only by a hope that the school may provide some raeans of survival in dealings outside the commnunity. This isolation is aggravated by the rural studenits' difficulties in speaking Spanish--the official language of instruction despite the fact that about 60% of the population speak Aymara, Quechua and Cuarani. Vocational Training 21. Until the last few years, Bolivia did not have an organized system of vocational training to prepare skilled and semiskilled manpower. Neither the public nor the private sector has assigned much importance to training per se as a iaeans of raising productivity and facilitating adaptation to changing technology. Trained workers are not generally rewiarded by higher salaries or aore rapid advancement on the job in comparison withi other employees. Indeed, training l1as sometimes been a deterrenit to getting a job, precisely because emaployers fear pressures for higher salaries. Promaotion within firms is based on various factors, most notably longevity, and there are no *widely recognized  - 8 - standards to use in categorizing skill levels. There has been a similar lack of attention to managerial training, even on the part of the largest enter- prises. 22. The main organizations which have offered vocational training pro- grams are the National 14anpower Development Service (FONIO), established in 1972 as a decentralized agency of the Ministry of Labor, and Bolivian Appren- ticeship Institute (IBA), which started in 1968 under the I5inistry of Education. IBA, though poorly equipped, enrolls 5,000 persons annually. Nevertheless, 80 percent of these are women studying mainly language, mathematics, honemaking and childcare, rather than courses which would conventionally be classified as skill training. In contrast, FObIO offered 85 courses in metal-mechanics, construction and woodworking, electricity, agriculture and services, with a total output of some 1,200 in 1975. About 45 percent of these were new entrants to the labor market; the remainder were already employed persons seeking to upgrade their skills. 23. Until recently, FOIO has focussed its activities on rapid quantita- tive expansion. As a result, it borrowed rather than designed most course material, which was not alwiays directly relevant to the needs of Bolivian enterprises or to the educational and skill levels of Bolivian workers. Given the prevailing literacy levels of the work force and the job entry requirements of most occupations, a shift to shorter and simpler courses requiring less forr,mal education is indicated. As yet FOMO has not established a placement or follow-up service for its trainees, neither does it evaluate its activities. Some instructor training has been carried out by a Spanish teclnical assistance team, but further strengthening of this activity is required. Government Strategy for Educational Development 24. Following the recomriendations of a sector assessment undertaken in 1973 in cooperation with UJIESCO, the Itinistry of Education has established various long-term objectives for educational development wlhich include: (a) administrative decentralization and merging of rural and urban education; (b) developing more relevant curricula in terms of the environment and tuture employmnent prospects of students; (c) providing adequate school places at the primary and secondary levels, and channelling raore resources into rural education; (d) improving the internal efficiency and effectiveness of the formal education system by increasing student:teacher ratios, reducing the supply and improving the quality of primary teachers, rationalizing school location planning and raising student retention rates; and (e) experimenting with the use of bilingual instruction. In the area of employment-related education and training, in 1975 the Ilinistry of Labor commissioned and the Regional Employment Program for Latin Anerican and the Caribbean (PREALC) executed a lNational 1Lanpower Study for Bolivia. This study, together with an appraisal of the draft Five Year Development Plan indicates that, in addition to inaproving the management and quality of present training programs, there is an urgent need to increase the annual output of skilled and semiskilled workers and upgrade a large proportion of the presently eraployed workers and managers.  - 9 - 25. Due to its limited capacity to undertake simultaneously major educational reforma and/or expansion programs, the Bolivian Government has opted to focus attention on the developmenit of a relevant and cost-effective primary education system and on the provision of vocational training for the adult population. In support of this strategy, USAID has provided assistance to help the Government in educational administration and has recently signed a loan for a rural education project in thie Quechua-speaking valleys of the Cochabamba Department. In addition, a similar small-scale project is being implemented in the Tarija Department with local resources and UNICEF technical assistance. A USAID education project for teacher training is in the pre- liminary stages of preparation, and the IDB has provided grant assistance to examine alternatives for the future development of technical education nation- wide. The proposed Bank project will complement these efforts by financing a scheme to improve and expand rural primary education and teacher training in the Aymara-speaking highland region of thie La Paz Department and to expand a national system for vocational training in Bolivia. PART IV - THE PROJECT 26. The project was prepared by the Government with assistance from UJNESCU in January/February and the Bank in llarch, April/Hlay and August, and was appraised by the Bank in September 1976. To expedite preparation, the Bank agreed on I1ay 27, 1976 to advance US$366,750 from the Project Prepa- ration Facility to help finance the establishment of a project unit, pre- liminary architectural design work and elaboration of core furniture and equipment lists. To date about US$268,000 have been withdrawn and most of the balance should be disbursed by the Closing Date of April 30, 1977. Negotia- tions were held in Washington on February 3-4, 1976. The Bolivian delegation was led by Ing. Fernando Anker. Objectives and Composition 27. The proposed project, which would be the first Bank operation in the education sector in Bolivia, presents a two-pronged approach to the complex probler,s discussed above by assisting (a) primary and community education and (b) vocational training. Iloreover, the project will reinforce Bank activities in its ongoing and future rural and urban developnent projects in the La Paz Department and its prospective railways operation. The project lhas the following two components. 28. A. Primary and Conmunity Education. This component is confined to five zones in the densely populated Ayrnara-speaking higlhlanid region of the La Paz Department and has been designed to assist the Covernnenit in finding cost-effective ways of (a) increasing access,to prirmary education through expansion and improvement of basic and interia.ediate schools, more efficient use of prir.tary facilities and teachers, and reorganization of primary school adniinistration and supervision; (b) developing moru appropriate curricula, learning materials and teacher training programs for primary education; and (c) designing a community education program for the non-school age population.  - 10 - Wlith a view towards raising the efficiency of the system, the project will aim at gradually increasing primary student:teacher ratios to 35:1, improving average retention rates to 70% and reducing overaged students from the present 40% to 20% of total enrollments by 1985. The project will introduce more rational school location planning and teacher assignment, extensive use of multigrade teaching, expansion of accelerated programs for overage students, automatic prormotion, bilingual education, revision of school calendars to take account of agricultural cycles and a campaign to encourage rural families to leave female children in schools for longer periods. If successful in meeting qualitative and efficiency objectives, the project will serve as a model for a national primary education program in several years' time. Specifically, this component will finance: (a) construction, furnishing and/or equipping of 955 basic classrooms, ten intermediate schools, one teacher training college and 287 houses for basic teachers; (b) development of curricula and learning materials for all project institutions; (c) in-service training for about 1,300 teachers, teacher trainers, directors and supervisors of project institutions; (d) introduction of bilingual education (Spanish and Aymara) in the first three grades of all project basic schools, supported by radio; (e) community education and training activities, supported riainly by radio and mobile action programs; (f) a preinvestment study on the education and training needs of thle low income migrant population of La Paz City; and (g) related technical assistance, comprising 8-1/2 man-years of specialist services and 54-1/2 man-years of fellowslhips for local staff. 29. Primary Education. The project provides for the necessary facilities to permit most children in the five project zones to have access to a five year basic education within about a 5 km walking distance of their homes. It will provide new and/or upgraded schools required to accommodate some 37,820 chiildren annually by 1985, and housing for about 25%o of primary teachers in rural areas of the project zones where alternative accommodations are not available. In addition, ten intermediate schools will be constructed, repla- cing and extending inadequate facilities. lIhen full enrollment capacity is reached in 1985, about 4,590 students annually will be accommodated in these ten intermediate schools. 3U. Administrative efficiency wilL be improved by merging of the rural aiid urbani subsystems into a unitary restructured nucleus sysLeml of school adminiistration and supervision within the project area. Legislation estab- lishing the unified system has been approved. The furnisliing to tlhe Bank of  - 11 - satisfactory legal evidence that the two subsystems have been merged will be a condition of disbursement of loan funds for the primary and community educa- tion component of the project (Schedule 1, paragraph 4(1i) of Loan Agreement). Also, plans for revising school calendars in accordance with agricultural cycles and for the expansion of the existing national accelerated basic education program for overaged children will be submitted for the Bank's comments within six months of loan signing, and these programs will commence in calendar year 1978 (Section 3.06 of Loan Agreement). 31. The project will provide for the replacement of inadequate physical facilities at the Warisata Rural Teacher Training College, as well as for staff training and the preparation of new curricula in order to ensure an ade- quate supply of well-trained teachers for the project schools. Participants will specialize in language and social sciences, natural sciences or agricul- ture, and will receive training as well in handicrafts, health and nutrition and community development, subjects which they will be required to teach in the project schools. For admission to Warisata preference will be given to candidates having a working knowledge of both Aymara and Spanish and that efforts will be made to increase recruitment of competent women students and staff (Section 4.06 of Loan Agreement). 32. Curriculum Development. Based on a study of needs in 1977, new curricula will be formulated during 1978 and experimentally implemented in all project schools during the academic years 1979-81. These curricula will place greater emphasis on practical activities and experimentation in agriculture, health, home skills and rural crafts. They will rely on more modern teaching techniques, including the use of radio in language instruction and of the vernacular in the first three grades of basic schools. Learning materials and teachers' guides supporting the new curricula will be prepared and implemented on an experimental basis at the same time. These experimental curricula and learning/teachers' materials will be introduced in the project institutions and at WJarisata starting during the .1979 academic year, after review by the Bank (Section 3.07 of Loan Agreement). 33. In-Service Training. The project will support a comprehensive in-service training program for about 1,200 basic and intermediate teachers andl about 100 school directors, supervisors and teacher trainers. A tentative training schedule was developed during project appraisal; a satisfactory, more fully elaborated training program will be prepared within six montlhs of loan signing (Section 3.09 of Loan Agreement). 34. Bilingual Radio Education. The Government will initiate bilingual radio programs in the first three grades to help Aymara-speaking children learn Spanish. Pupils and teachers will receive in advance printed material related to the weekly transmissions. The language prograr.s will be introduced in the 1978 academic year (Section 3.08 of Loan Agreement). 35. Community Education. Under the proposed project the Ilinistry of Education will establish a community education program relying primarily on the formation of rural radio listening groups, supported by simple printed materials and live demonstration and follow-up activities by mobile action  - 12 - teams. Beneficiaries will be encouraged to adopt new and useful practices in agriculture, health, nutrition and education. The Government will use its best efforts to contract a satisfactory local radio station on terms and conditions satisfactory to the Bank to implenent this program (Section 3.10 of Loan Agreement). 36. Preinvestment Study. The preinvestment study will help to identify and propose solutions to the social and enployment problems and related education and training needs of the low-income migrants to La Paz City from the surrounding Altiplano. The final report and recommendations will be made available to the Bank within eighteen months of loan signing (Section 3.11 of Loan Agreement). 37. Technical Assistance. The loan will finance 8-1/2 man-years of specialist services and 54-1/2 man-years of fellowsliips in curriculun devel- opment, learning/teaching materials production, teacher training, school radio broadcasting, bilingual instruction, community development, school organiza- tion and supervision, and evaluation techniques. The cost of technical assistance is estirmated at US$55,000 per man-year of specialist services and US$12,000 per man-year of fellowship. Specialists will be employed on terms and conditions satisfactory tu the Bank, suitable counterparts for the special- ists will be provided, and all fellowslhip recipients will be selected and placed in consultation witlh the Bank (Sections 3.02(a) and 3.12 of Loan Agreement). 38. B. Vocational Training. Under this component FOMO will expand its operations to train new workers and contribute to raising productivity levels by upgrading the skills of those presently einployed. The project will also help FOMIO to develop training in the mining and rural sectors through mobile action programs and to establish management consulting and training services for small and mediurm-scale enterprises. Specifically, this component will consist of: (a) construction, furnishing and/or equipping of six vocational training centers; (b) two mobile training workshops for the mining trades and fifteen sets of equipment and transport for training in agricuiltural and rural artisan occupations; (c) preinvestment study on the socio-econoinic conditions in the major highland mining areas to identify employment generation possibilities and related training needs and recommend action programns; and (d) technical assistance including 9-1/2 man-years of specialist services and 8-1/4 man-years of fellowslhips. 39. Training and In-Plant Services. The six training centers and seventeen mobile training units will enable FO0IO to offer job entry and skill upgrading courses in 38 occupations, with a direct annual output of about  - 13 - 7,700 workers. Mobile training will focus on the mining and rural sectors and submission to the Bank of a satisfactory detailed training plan will be a condition of loan disbursement for all equipment and vehicles required (Schedule I,' paragraph 4 (iv) of Loan Agreement). Also, within two years of loan signing an in-plant training unit will be established to help enterprises diagnose training needs and implement on-the-job training programs for em- ployees requiring skill upgrading (Section 2.08 of Project Agreement). 40. All training will be based on occupational analysis and flexibility will be ensured through the use of short self-contained training modules. In addition, FObIO will establish national standards for specific skills, conduct trade testing and award certificates to successful graduates. FOlIO will introduce the aforementioned techniques, beginning with-the mining sector, within one year of loan signing '(Section 2.09 of Project Agreement). To cater to the large numbers of FOMO participants having minimal education, FOMO will design audiovisual training materials which do'not rely so heavily on reading and writing and these materials will be put into use within two years of loan signing (Section 2.10 of Project Agreement). In order to help graduates of the training courses to find j-obs, within one year of loan signing, FOM1O will establish a guidance and placement service, which will work closely with the employment service of the Hfinistry of Labor (Section 2.11 of Project Agree- ment). 41. - A management consulting and training unit will be established as a separate division of FOlIO, reporting to the Board through the Executive Director. The unit will focus on raising-productivity in"enterprises in the urban and rural sectors through management training, consultancy, organization of local research,-establishment of an informat-ion service and in-plant career development schemes. About 360 middle- and upper-level m'anagers will be trained annually. The management consulting and training unit will be estab- lished within two years of loan-signing and the program will be evaluated annually thereafter in consultation -withi thie employers' associations (Sections 2.12 and 3.06 of Project Agreement). 42. Preinvestment -Study. A preinvestinent study will explore the possi- bilities of employmaent generation and -relevant training needs of the popula- tion living in the major highland -r'ining areas. The final report and recoin- mendations for action programs will be nade available to thie Bank within 18 months of loan signing (Section 2.13 of Project Agreenment). 43. Technical.Assistance. -The project will supplerient teclnical assis- tance already being provided by other -bilatera-l and multilateral agencies witl 9-1/2 man-years of specialist services land -8-1'/4 -man-years of fellowshlips to assist FOMO in in-plant -training., t-ra-ining organization, rural training, instructor and management-training, reorganization of FOllO's management system, procurement, design of buildings and preparation of audio-visual instructional aids. The cost of technical assistance is estimated at US$55,000 per i:an-year of specialist services and US$12,000 per man-year of fellowships. Specialists will be employed on terms and conditions satisfactory to the Bank, suitable counterparts for the specialists will be provided, and all fellowship recipi- ents will be selected and placed -in consultation with tbe Bank (Sections 2.02(a) and 2.07 of Project Ag'reer.ent). '  - 14 - Project Cost and Financing 44. The total project cost, net of identifiable taxes, is estimated at US$21.4 million, including physical contingencies of US$1.8 million and price contingencies of US$4.0 million. The proposed Bank loan of US$15.0 million, equivalent to 70% of the total project cost, will finance the full foreign exchange component of US$9.5 million and US$5.5 million of local currency costs. As mentioned in Part I, paragraph 11 above, local cost fi- nancing is justified in Bolivia in light of the country's poverty and the Government's intensive efforts to mobilize domestic savings, and will enable the Bank to make an adequate contribution to meeting the country's external capital requirements. The Government will make sufficient and timely allo- cations to meet the annual counterpart fund requirements for implementing the project (Section 3.01(a) and (b) of Loan Agreement). 45. The recurrent costs generated by the primary and community education component of the project will be well within the capacity of the Ministry of Education and FOMO to finance. Legislation has recently been adopted to estab- lish a 1% payroll levy on profit-oriented public and private enterprises to secure a regular flow of revenue to finance FOMO's recurrent costs. Furnishing to the Bank of satisfactory legal evidence to this effect will be a condition of disbursement of loan funds for the vocational training component of the project (Schedule 1, paragraph 4(iii) of Loan Agreement). The Government will establish an effective system and begin collection of the 1% levy not later than 9 months after the enactment of the legislation (Section 4.09 of Loan Agreement). The Government will also take the necessary steps to make funds available in the event of any shortfall in revenues needed to cover FOMIO's operating expenditures (Section 3.01(c) of Loan Agreement). Finally, in the interests of reducing the unit recurrent costs of basic education nationwide, the Ministry of Education will review and adjust the supply of teachers in line with demand, on the basis of more efficent student:teacher ratios and teacher workloads (Section 4.07 of Loan Agreement). Project Implementation 46. The two main components of the project will be administered sepa- rately, as follows: A. Primary and Community Education. This component will be adminis- tered by a special project unit which has already been established within the Ministry of Education. The unit includes separate divisions for administra- tion, infrastructure and educational activities, with a total full-time permanent staff of 23 persons. A suitable director and two division chiefs have already been appointed on terms and conditions satisfactory to the Bank. The Bank will be consulted on appointment of the third division chief and on any future replacement of these key project unit staff and on the appointment of the director of the lWarisata Rural Teacher Training College (Section 4.04 of Loan Agreement). B. Vocational TraininR. FOMO will be responsible for implementa- tion of the vocational training component of the project, through its Exe- cutive Director, assisted by a full time architect and vocational training  - 15 - specialist already appointed and working exclusively on the project. FOMO will consult the Bank on any future replacements of the aforementioned staff (Section 3.05 of Project Agreement). 47. Prototype designs for basic classrooms and teachers' housing for the primary education component of the project were discussed and agreed upon during appraisal. Design of remaining project institutions will be executed by consultant firms, contracted on terms and conditions satisfactory to the Bank, and by staff of the Ministry of Education project unit. The Government and FOO1 will establish within six months of loan signing special technical committees to review all architectural designs and equipment and furniture lists and specifications before submitting them to the Bank and they will acquire the necessary sites for the project (Sections 3.02(c) and 3.05 of Loan Agreetnent and Section 2.02(b) of Project Agreements). 48. The basic and intermediate schools and teachers' housing located in rural areas will be constructed by the- National Community Development Service (SNDC), with participation of local covmmunities and supervised by the Ministry of Education. project unit. SNDC is a decentralized agency of the Ministry of Agriculture, with broad experience in managing rural self-help construc- tion projects. The Ministry of Education will contract the services of SNDC for the project on terms and conditions satisfactory to the Bank and all SNDC activities under the contract wi-ll be-supervised and audited by the project unit (Schedule 4, paragraph B.1 of Loan Ag-reement). Construction of the basic and intermediate schools located in urban areas and the teacher training college will be by private contractor.. The National School Building Council (COIES), a decentralized agency of the Ministry of Education with relevant experience, will be responsible for the. bidding, and construction supervision of these project institutions. The tlinistry of Education will contract the services of CONES on terms and conditions satisfactory to the Bank for the purpose of this project (Section 3.02(b) of Loan Agreemenit). Construction of the vocational training centers will be by private contractors and FOMO will be directly responsible for bidding and construction supervision. The Govern- milent and FOtIO will make adequate budgetary allocations for the maintenance of all buildings, furniture and equipment provided under the project (Section 4.05 of Loan Agreement and Section 3.02 of the Project Agreement). Procurement 49. Except for the rural schools. and teachers' housing construction through SNDC, all contracts for civil works will be awarded to foreign or registered local bidders on the basis of comnpetitive bidding advertised locally and in accordance with. procedurest satisfactory to the Bank. Civil works are of small size (averaging US$60,000 for the intermediate schools and US$280,000 for the vocational training, centers) and located throughout the country, and Bolivia has a competitive local construction industry. Therefore, although foreign contractors will not be precluded frora partici- pating in the bidding, it is unlikely that they will do so or that any civil works contracts will be awarded to foreign firms. Contracts for furniture and equipment will be awarded on the basis of international competitive bidding in accordance with the Bank's guidelines. To the extent practicable,  - 16 - public and private industrial secondary and post-secondary schools and FOMO will be encouraged to bid for production of furniture for the basic education schools. The Government has agreed to permit importation on equal terms to all bidders for the furniture included in the project to ensure timely imple- mentation (Section 4.10 of Loan Agreement). Local manufacturers will receive a margin of preference of 15% of the cif price or the actual tariff, whichever is lower. Furniture and equipment which cannot be grouped into packages for bulk procurement of at least US$50,000, not exceeding in the aggregate US$750,000 (equivalent to about 15% of the estimated total cost of furniture and equipment) will be procured in accordance with local procedures acceptable to the Bank. Disbursements 50. The loan will be disbursed over a five year period, with the project completed by June 30, 1981. Disbursements will finance an estimated 50% of contruction expenditures for the primary and community education component and 30% for the vocational training component; 100% of foreign expenditures or 85% of expenditures for locally procured equipment and furniture; and 100% of expenditures for technical assistance, project administration, preinvestment studies, community education activities, curriculum development and learning materials production, and in-service training. Expenditures on civil works incurred by the Ministry of Education after November 1, 1976 and before loan signing will be financed retroactively up to a total of US$150,000 equivalent (Schedule 1, paragraph 4(i) of Loan Agreement). Conclusions 51. The proposed project will assist the Government in developing a cost-effective primary and related teacher training and community education project, which will incorporate various innovative features (from both the qualitative/educational and organizational/efficiency standpoints) that, if successful, will later be expanded on a national scale. The project will also help to redress imbalances in educational opportunities in the Altiplano area of the La Paz Department by providing new basic school places for about 6,900 students annually, replacing, extending and upgrading places for an additional 21,850 students, and furnishing and equipping school places for all 37,820 children in the project area. In addition, 4,590 intermediate and 425 preservice teacher training students annually would be accommodated in facili- ties to be replaced and extended under the proj,ect and 1,200 teachers and 100 school supervisors and directors will receive in-service training under the project. Finally the project will aim to increase primary student:teacher ratios to 35:1 from the 19:1 prevailing today in the project area, increase retention rates to 70% and reduce overage students from 40% to 20% of total enrollments by 1985. It is estimated that these improvements could reduce recurrent costs per student by as much as 30%. 52. Regarding vocational training, the capacity of FOMO would be extended sevenfold to meet urgent requirements for trained manpower at the managerial, skilled and semiskilled levels, and to initiate new activities in the rural and mining sectors. FO0I0's training programs would be upgraded through the  - 17 - modernization of its course design, instructional techniques and learning materials production. The introduction of trade tess and the certification system would lay the basis for creating wage differentials among skilled workers and thereby leading in due course to a better earnings profile. 53. With respect to the primary and community education component, various of the educational and organizational measures are by definition experimental and therefore the extent to which they will meet stated objec- tives can only be evaluated as they are implemented within the project area. Accordingly, a strong evaluation team and adequate financing are provided in the project to ensure timely preparation of annual evaluation reports during 1977-81 in order to enable the Government and FO1IO to take correc- tive action, if needed, to ensure satisfactory completion of the project (Section 4.03 of the Loan Agreement and Section 3.06 of Project Agreement). The Government and FObIO would also prepare a report providing a preliminary assessment of the project, its results and experience gained during imple- mentation within three months of the Closing Date of the loan account (Section 4.08 of Loan Agreement and Section 3.07 of Project Agreement). PART V - LEGAL INSTRUILENTS AND AUTHORITY 54. The dra't Loan Agreement between the Republic of Bolivia and thle Bank, the draft Project Agreement between the Bank and FOMM, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and a draft Resolution approving the proposed loan are being dis- tributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex IV. Special conditions of dis- bursements for the vocational training and for the primary and community education components are that the Government has (i) furnished legal evidence satisfactory to the Bank that legislation establishing a 1% payroll levy on profit-oriented public and private enterprises to finance FOIIO's recurrent costs has been enacted; (ii) submitted a detailed training plan for the mining and rural sectors; and (iii) furnished legal evidence satisfactory to the Bank that the rural and urban subsystems in the project area have been merged (Schedule 1, paragraph 4(ii), (iii) and (iv) of the Loan Agreement). 55. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOl.tlENDATIONS 56. 1 recommend that the Executive Directors approve the proposed loani. Robert S. NlcNlamara President Attachiments Ilarch 31, 1977   5g -Wa M t Svt * , 'i ' W'-~. -'r-, Mi SW - asic - S I .0 f ft - - d S ..ts S - -a---. - S~~~~~49LCa 0~~~~~~~~~~~~~~~~~S~~~~. n I - S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ C S~~~~~~~~~~~~~~~~~~~~c r ~~~~~~Sbt S -.24 I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. : . *5 dc C CC -~~~~~~ 0. .C C. CCC St Ca, t M C,CICI = CC Cr CC I C * I SiC * Ott uh -- NA C inSCi e 045 CCC COin SO S SiN 84..I C OS ht*O -. SN a, I I C , COi r hNC - fl i 45 SIN