Transcript of joint meeting of the Executive Directors of the IBRD and IDA, held on Tuesday, June 3, 1986 : Argentina - Public Sector Management Technical Assistance Project

STRICTLY CONFIDENTIAL NM:nm INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION r-J L . Tuesday, June 3, 1986 Washington, D.C. The meeting of the Executive Directors was convened at 10:29 a.m. in the Board Room, 1818 H Street, N.W., Washington, D.C., Mr. A.W. Clausen, Chairman, presiding. r l L-1 MILL ER REPORTING CO .. INC . 507 C Street, N.E. Washington, D .C. 20002 /JO?\ 14/i. /\(\(\Ii  STRICTLY CONFIDENTIAL 2 C O N T E N T S ITEM PAGE MILLER REPORTING CO .. INC. 507 C Street, N.E. Washington, D.C. 20002  STRICTLY CONFIDENTIAL 78 May we turn to the second item on our agenda today, which is a proposed loan in the amount of $18-1/2 million equivalent to the Argentine Republic for a Public Sector \ Management Technical Assistance Project, and Mr. Sokol of the Latin America/Caribbean Region will introduce this for us. MR. SOKOL: Mr. Chairman, Members of the Board: When we reported to you two months ago on Argentina, the Board showed great interest in the economic situation of the MILLER REPORTING CO .. INC. 507 C Street, N .E. W ashington, D.C. 20002 (2 02) 54 6-6666  79 STRICTLY CONFIDENTIAL country and on the Bank's strategy to support its development efforts. Argentina's economic prospects for 1986 have improved. Following a drop of real GDP by about 4-1/2 percent in 1985, the downturn in economic activity has bottomed-out while industrial production and sales are recovering from previously low levels. The government is keeping the Plan Austral on track and the overall public sector cash deficit appears to be under control. Monthly inflation is estimated to have been slightly below 4 percent in May of this year as a result of the lifting of price controls on a number of commodities. Inflation, however, remains at manageable levels. Real interest rates, which were excessively high earlier in the yea, ranging between 5 to 6 percent per month, have now decreased to about 1-1/2 percent per month. Private investment activities in the oil and gas sector have been encouraged by more attractive incentives. However, the export response to the government's program, particularly with respect to grain sales abroad, has been disappointing so far because of the sharp drop in inter- national prices o f the country's agricultural exports and last year's floods in Argentina. MILLER REPORTING CO .. INC. 507 C Street, N.E. Washington, D .C. 20002 (202) 546- 6666  STRICTLY CONFIDENTIAL 80 Nevertheless, the export of processed agricultural corrunodities has increased and industrial exports have expanded. The deficit in the current account of the balance of payments, estimated at $2.3 billion for 1986, is now forecast to be below $2 billion. On the basis of these developments, we foresee small but positive real economic growth this year. Further and unsustained longer-term growth, however, will require the government to step up policy improvements, particularly to eliminate the underlying distortions in the economy and thus to increase private savings and investment, as well as exports, to improve the efficiency of the public sector and to restructure wages and employment policies within a new social pact. We propose to center our future analytical work and l e nding opera tions in support of governme nt e fforts to enhance Argentina's international competitiveness, improve public sector mana ge ment, increase domes t ic r e source mobiliz a tion, s u pport the e x pansion o f private sector activities, and strengthen external finances. The k e y t a rgets would be to s u ppo r t reforms of the g ove rnme n t ' s r ole in p ublic investmen t , p ub lic sector pricing, public enterprise management, dive stiture of MILLER REPORTING CO .. INC. 507 C Street, N .E. W ashington, D.C. 20002 (202) 546- 6666  STRICTLY CONFIDENTIAL 81 selected public assets, restructuring of selected public enterprises, transfer of services and central-provincial government interaction. We would also support basic changes in the incentive system for the private sector, including the trade regime, lowering internal costs of the financial system and restructuring of private sector firms. The proposed public sector management technical assistance project fits squarely into this strategy. It would complement the government's efforts to strengthen economic decision-making, increase domestic resource mobiliza- tion, reduce the overall public sector cash deficit, improve the efficiency of investment, better manage public enterprises and modernize trade and industrial policies and procedures. Thank you. MR. CLAUSEN: Thank you, Mr. Sokol. Mrs. Dominguez please. MRS. DOMINGUEZ: Mr. Chairman, we are pleased that the Bank is supporting a technical assistance project for public sector management, which is a key sector in Argentina's future development. The project presents a continuation of the Bank's support for the government strategy of giving priorities to several policy initiatives that will strengthen Argentina's MILLER REPORTING CO., INC. 507 C Street, N .E. Washington, D.C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 82 management and reinforce its ability to formulate policies and programs directed toward making the economy more respon- sive to market forces. We are glad to see that 75 to 80 percent of consultants will be from Argentina, increasing the scope, efficiency and effectiveness of the national system for technical assistance. We only want to show our concern related to the procurement of equipment and services, which represents 100 percent of the loan proceeds. In order to facilitate project's administration and to overcome the cumbersome procedures to hire consultants and import equipment, the government will hire UNDP as procurement agent under a management service contract. The execution of this contract will cost a substantial amount to the borrower. Due to the lack of coordination in hiring con- sultants between different departments and agencies within the public sector, we understand that even when management service contract can be costly, it can be beneficial. If it is possible, we would like to learn what percentage will the borrower be paying for administrative services. However, we don't understand why the country has MILLER REPORTING CO .. INC. 507 C Street, N .E. Washington, D.C . 20002 (202) 546-6666  83 STRICTLY CONFIDENTIAL to pay fees for procurement of equipment. We would like to hear from the staff on these issues. Finally, Mr. Chairman, we commend not only the staff but also the Government of Argentina for its efforts to carry out a difficult, yet constructive, program. Thank you, Mr. Chairman. MR. CLAUSEN: Thank you, Mrs. Dominguez. Mr. Sokol. MR. SOKOL: Yes. Mr. Chairman, the government has indicated it wants to enter into a management services contract with the UNDP Office of Project Execution. It would be very helpful to the government; they have requested this assistance. The UNDP involvement began with the project preparation. There was a project which the UNDP financed prior to our PPF that we financed. The services that can be provided by UNDP OPE can help speed up the process of project execution significantly, helping them in the selection of consultants and also the processing and also in procurement of goods and services. MR. CLAUSEN: Thank you, Mr. Sokol. Yes, Mrs. Dominguez. MRS. DOMI NGUEZ: Mr. Chairman, is it possible to know the percentage that they are paying for it? MILLER REPORTING CO .. INC. 507 C Street, N .E. W ashington , D.C. 20002 (202) 546- 6666  STRICTLY CONFIDENTIAL 84 MR. SOKOL: The government is currently negotiating with UNDP OPE a fee and it should not be more than 5 percent of the loan, up to 5 percent. MR. CLAUSEN: Thank you, Mr. Sokol. Mr. Rubianes. MR. RUBIANES: Thank you, Mr. Chairman. We wish to support this project which will reinforce the management capability of the government in its continuous effort to adjust the economy, geared toward development growth. We would also like to congratulate the management for the excellence of the preparation work, done jointly with UNDP and PPF assistance, especially set forth in Annex V. In this annex the key project activities are described in detail and will be of utmost use to other types of technical assistance projects, which may follow in the future. Thank you, Mr. Chairman. MR. CLAUSEN: Thank you, Mr. Rubianes. Mr. Al-Sultan. MR. AL-SULTAN: Thank you, Mr. Chairman. We would like to support this project, and just have two questions to ask. MILLER REPORTING CO .. INC, 507 C Street, N. E. Washington, D .C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 85 First, in view of the many project components, one wonders whether the time frame of four years is sufficient to meet the goals in the document. Secondly, I would like to make a point very similar to the one made by Mrs. Dominguez. Particularly in view of the indigenous capability, would it not be that the use of foreign consultants to a tune I think which will probably cost them more than $5 million may be excessive? Isn't there some way we can get some more indigenous participation in this project? Thank you. MR. CLAUSEN: Thank you, Mr. Al-Sultan. Mr. Sokol. MR. SOKOL: Thank you, Mr. Chairman. The project reflects strong commitment by key government agencies to strengthen economic management and performance. The project has been designed to make it manageable and to be effective. There has been in-depth project preparation. There is a strong coordinating unit that has been created. Annual action programs have been prepared for each component activiti s, results and counterpart inputs. There will be an OPE manage- ment services contract which will help the government in the MILLER REPORTING CO., INC, 507 C Street, N .E. Washington , D.C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 86 procurement of services and goods, and in addition 60 percent of the consultants for the project have been identified and their availability has been confirmed. So this project is, we would say, in fairly good shape in terms of preparation, and should be able to be completed in the time identified. Your second question was with respect to local consultants. Eighty percent of the number of consultants will be local, in terms of staffweeks also, and in terms of amounts, around 65 percent of total consulting amounts. MR. CLAUSEN: Thank you, Mr. Sokol. Other questions? (No response.) MR. CLAUSEN: Then the loan is approved on the terms MILLER REPORTING CO,, INC. 507 C Street, N .E. Washington. D.C. 20002 (202) 546-6666