Bolivia - Financial Markets and Pension Reform Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6412-BO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 6.1 MILLION (EQUIVALENT TO US $9.0 MILLION) TO THE REPUBLIC OF BOLIVIA FOR A FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT NOVEMBER 7, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective October 1995) Currency Unit = Boliviano (Bs) US$1.00 = Bs 4.86 Bs 1.00 = US$0.21 ABBREVIATIONS AND ACRONYMS AFPs - Pension Fund Administrators BCB - Central Bank of Bolivia CAS - Country Assistance Strategy CIF - Cost, Insurance and Freight CNV - Comisi6n Nacional de Valores - Securities & Exchange Commission CPAC - Capitalization Program Adjustment Credit EU - European Union ESAF - Enhanced Structural Adjustment Facility FOPEBA - Basic Pension Fund FC - Complementary Pension Fund FSAC - Financial Sector Adjustment Credit GDP - Gross Domestic Product ICB - International Competitive Bidding IDA - International Development Association IDB - Inter-American Development Bank IMF - International Monetary Fund INASEP - Instituto Nacional de Seguros de Pensiones - National Institute of Pensions PPF - Project Preparation Facility RUN - Registro Unico Nacional - National Registry System SAC - Structural Adjustment Credit SDR - Special Drawing Rights SBEF - Superintendency of Banks & Financial Entities SIREFI - Financial Sector Regulatory System SNSR - Superintendency of Insurance and Reinsurance TGN - Tesoreria General de la Nacion - Treasury of the Nation FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY BOLIVIA FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrower: Republic of Bolivia Implementing Agency: Ministry of Capitalization, Superintendency of Banks, and Comisi6n Nacional de Valores Beneficiaries: Ministry of Capitalization, Superintendency of Banks, Comision Nacional de Valores, and Superintendency of Pensions Poverty Category: Not applicable Amount: SDR 6.1 million (US$ 9 million equivalent) Terms: Standard IDA terms of 40 years maturity with 10 years grace period, and 0.75% service charge, less any waivers Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waivers Financing Plan: See Schedule A. Rate of Return: The project's institution building features make it not amenable to the calculation of rates of return. Measurement of benefits would be through assessment of (i) the efficiency and transparency of the financial markets regulated; (ii) the solvency of financial intermediaries; and (iii) the growth of the depth of markets. Staff Appraisal Report: n.a. Project Identification Number: BO-PA-34606 Map: IBRD 20516 This document has a restricted distribution and may be used by recipients only in the performrance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BOLIVIA FOR A FINANCIAL MARKETS AND PENSION REFORM TECHMCAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Bolivia for SDR 6.1 million, the equivalent of US$ 9 million, on standard IDA terms with a maturity of 40 years to help finance a Financial Markets and Pension Reform Technical Assistance project for the establishment of a strengthened financial sector environment and institutional regulatory capacity in the areas of banking, pension and securities operations, the reform of the pension system, and implementation of the capitalization distribution program. 2. Country Background. Bolivia has undertaken a far-reaching economic program since 1985 aimed first at restoring price stability and thereafter seeking to structurally reform the economy for sustainable growth. Reforms have been supported by a series of annual arrangements under an Enhanced Structural Adjustment Facility (ESAF) of the IMF and by adjustment credits and other assistance from IDA, IDB and bilateral donors. The new Govermment assumed office in August 1993, with the pledge to reduce and rationalize the role of the state and to move the social agenda forward. The centerpiece of the Government's program is the capitalization of six major state-owned enterprises and the distribution of 50% of the shares of these enterprises to the Bolivian population. This program is supported by the Capitalization Prograin Adjustment Credit (CPAC), approved on July 6, 1995. CPAC will assist the Government in strengthening the enabling environment so that private investment is forthcoming as the Government withdraws from these sectors and spurs growth in an efficient manner. 3. An integral part of the capitalization plan is the distribution of shares in capitalized companies to Bolivians through privately managed deferred-distribution accounts. Such accounts would be managed by pension funds which would also manage defined- contribution pension funds and which would be regulated by a Superintendency of Pensions. A private bank/investment firm will be contracted to have a Trustee in place to hold the shares until their distribution to pension funds for their management. Integral to the reforms would also be measures the Government will take to improve regulation of securities markets so as to create the foundation for transparent and efficient secondary market trading of distributed shares and pension fund investments. Reform of insurance regulation and supervision is planned, to improve mechanism for contractual savings and coverage of risks faced by capitalized companies. These reforms are integrated into a strategy for the development of long-term financial markets which the adjustment credit supports and which would also be supported by this project. 4. Achieving the objectives of private sector investment and sustained growth will require clear and consistent signals to the private sector, adoption of the reforms supported by the CPAC and  2 development of regulations and the institutional capacity to implement these reforms. An umbrella regulatory agency being established for telecommunications, hiydrocarbons, aviation and electricity sectors is supported through otlher IDA technical assistance credits. The Financial Markets and Pension Reform Technical Assistance Credit seeks to provide assistance to the Government of Bolivia in the reforms components related to the financial sector. Specifically, the institutional capacity is either very weak or the institutional framework has yet to be developed for operation and regulation of pensions, securities and banking. Among the issues to be addressed are: * Pension fund supervision had been extremely weak under the system which has existed prior to the pension reform contemplated. Moreover, no regulatory institutions yet exist to supervise the proposed new private pension fund administrators (AFPs); * Securities market regulation is weak. Reforms contemplated in the proposed Securities Law and those responsibilities emanating from the capitalization program and pensions reform imply a large increase in the importance of the regulation and supervision of these markets; * The Superintendency of Banks is generally considered strong but needs further strengthening to deal with an increasingly complex financial market and the fragility of parts of the banking sector. 5. Project Objectives. The project's main objectives are the development of regulations, norms, institution-building measures, and information systems connected with the financial sector components of the CPAC, and support or creation of implementing regulatory institutions. The project's objectives are to establish the institutional framework and capacity for pension funds operation and regulation, the regulation and operating norms for securities markets, and strong banking regulation and supervision. By linking the regulatory and legal frameworks which span across the banking, securities, and pension sectors, the project also addresses broader fimancial sector coordination issues. This will result in more effective integration of norms and their regulatory execution, thus providing an internally consistent framework for instituting financial sector policies via the new or strengthened regulatory agencies. 6. Development of regulations to implement the revised legislation as well as a sustainable institutional framework for supervision of long-term financial markets (including pensions) is fundamental to providing a stable and transparent enabling environment conducive to efficient resource mobilization for private investment. Further, better regulated contractual savings mechanisms can enable the public to better provide for its retirement, death and disability. An effective implementation capability in each of the reform areas addressed will be critical in Bolivia where administration has often been weak. Project results will be reflected in the issuance and approval of specified norms, the implementation of monitoring and inspection procedures supported by institution-building measures in the target agencies, and the maintenance of sound legal and administrative frameworks in order to ensure adherence to financial regulations in the banking, securities, and pension areas. 7. Project Description. Project components are: (i) establishment of the institutional structure and information systems necessary for regulation and supervision of the proposed pension and capitalization distribution systems (32% of total project cost); (ii) improvement in securities regulation, strengthening the institutional capacity of the Superintendency of Securities, and  3 improving information systems to regulate market activity (8% of total project cost); (iii) establishment of a transparent and efficient process for the distribution of capitalized shares including trustee and international bidding arrangements (50% of total project cost); and (iv) continue the institutional strengthening of the Superintendency of Banks (10% of total project cost). The project is expected to fund about 60 staff-years of local consultants and about 12 staff-years of foreign consultants. 8. Project Cost and Financing. The project cost is estimated at US$19.3 million equivalent, with a foreign exchange component of US$12.8 million equivalent (66%). The Credit would finance US$ 9.0 million equivalent (47% of total project costs), including 43% of foreign exchange costs and 55% of local costs. The remaining US$10.3 million would be financed by Government, Superintendency of Banks, and CNV counterpart resources. IDA's share of foreign exchange costs is reduced because of the Borrower's decision to use leasing and other sources of financing for most of the informatics equipment. A breakdown of project costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursement, and the disbursement schedule are shown in Schedule C. A timetable of key project processing events and the status of Bank Group operations in Bolivia are presented in Schedules D and E, respectively. Some of the studies in the preparatory phase were financed by USAID, by the SAC and by a Project Preparation Facility of US$ 2 million. A Japanese Grant for Y34,200,000 has also been approved. IDA has worked closely with the IMF and IDB in all aspects of the project. 9. Project Implementation. The project would be a technical assistance facility managed through a Project Coordination Unit established in the Ministry of Capitalization. Procurement would be subject to Bank review procedures and disbursements would be made against 100% of the net-of-tax costs of local and foreign consultants, 100% of the net-of-tax expenses of training, 100% of the CIF cost of imported goods and of the ex-factory cost of local goods and 84% of the cost of locally-procured goods, and 100% of foreign expenditures and 84% of local expenditures for service contracts. The implementation period of the Credit is expected to be 2.5 years, the same as the CPAC. The closing date is December 31, 1998. Performance under the project will be measured against performance indicators presented in Schedule B. 10. The Project Coordination Unit would be staffed by a coordinator and an assistant and would be responsible for coordinating the requests from each of the implementing agencies: the Ministry of Capitalization through the Secretariat of Pensions, the Superintendency of Pensions, and the Secretariat of Capitalization; the CNV; and the Superintendency of Banks. The Project Coordination Unit would work together with the Procurement Unit which is already established in the Ministry of Capitalization by previous credits, to process all procurement requests of the project. 11. Project Sustainability. The project seeks to assist in the development of strong, sustainable Government institutions conducive to long-term private sector growth including the Superintendencies of Pensions, Securities, and Banking. Recognizing that strong institutions require years to develop, the project aims to initiate a process that will maintain itself well beyond the period of the Credit. The following measures are aimed at encouraging sustainability: (i) as improved leadership is exercised in each of the superintendencies, improved salary guidelines adopted over a 1-2 year period, and training undertaken, it is anticipated that a cadre of professionals will develop  4 that will sustain itself beyond the initial phase; (ii) sustainability will be sought through improved operating procedures and manuals, and their implementation; (iii) as the pensions, insurance and securities markets develop in accordance with the Capitalization and related reforms, increasing numbers of public stakeholders brought into those markets, will exert influence upon Government officials to maintain professional regulation and supervision; and (iv) the self-funding mechanisms in each of the superintendencies (e.g.: via charges/assessments to client institutions) will motivate sustainability as the recipients of such regulation will exercise pressure for responsive and cost- effective services. 12. Lessons Learned from Previous IDA Involvement. The project has been designed to take into account the experience of IDA technical assistance operations in Bolivia as well as the experience of financial market projects of this nature elsewhere. IDA-wide experience suggests that: (i) regulatory reform and institutional strengthening need to be supported by an adequate macroeconomic policy environment; (ii) operations should be designed within a broad sectoral context, including a medium-term strategy; (iii) project design should include a realistic assessment of the counterpart's project implementation capacity; (iv) technical assistance design should be preceded by careful analysis of institutional factors, including Borrower commitmnent; (v) Borrowers should be closely involved from the earliest phases of preparation; (vi) projects should be focused and limited in breadth and size so as to facilitate achievable objectives; (vii) projects should have well-defined loan administration/financing arrangements; and (viii) projects should include verifiable indicators of performance. 13. The issues above have been addressed as follows: (i) the project is supported by macroeconomic policy conditions specified in the CPAC and IMF ESAF; (ii) the operation has been designed in a sectoral context, including an ongoing assessment of financial sector development objectives and a Country Assistance Strategy; (iii) credit administration/financing arrangements have been defined and agreed-upon with the Borrower to overcome limited counterpart project implementation capacity; (iv) the project concept mas jointly developed by IDA and Government authorities after analysis of the objectives and constraints to financial market development; (v) the Borrower has had the main responsibility for project objectives and design from initial project identification and the project has the full support of Government officials at the highest level; (vi) the project is limited in scope and size to perform focused implementation; and (vii) a detailed implementation plan has been agreed-upon. 14. Technical assistance components have been included in most of the credits made to Bolivia since 1986. Country-specific lessons stand out from the experience of technical assistance to the financial sector in Bolivia, including two IDA adjustment credits and a USAID-supported technical assistance project. These include the importance of the following: (i) a clear objective in the policy measures and institutional strengthening; (ii) strong legal authority, decision-making and budgetary autonomy of regulatory institutions as a prerequisite before they can fully develop their institutional capacity; (iii) sustained budgetary support or self-sustaining funding sources for regulatory institutions to ensure sustainability; (iv) transparent procedures to attract qualified staff through proper examinations, promotion criteria and competitive salaries; and (v) adequate computer equipment (including integrated mainframe oversight systems) to the consolidation and integration of sectoral data as well as to use the analytical capabilities of staff to their fullest.  5 15. Lessons from credit administration in Bolivia have also been addressed: Delays have been experienced in procuring goods and services because of weaknesses in the project unit, the procurement organization, and/or the payment system. This project will aim to remedy this through the staffing and operational guidelines of the project unit, and through close supervision, including use of local staff in the Resident Mission. While problems have been experienced in some projects with the prompt delivery of audit reports, holding the audit firm accountable directly to the project unit and IDA has largely resulted in remedying this difficulty. 16. Rationale for IDA Involvement. The project is consistent with the Country Assistance Strategy (CAS) presented to the Board on February 8, 1994, that had as its cornerstones second generation reforms to restructure and redirect the role of the state and a reform of the country's education system. The CAS specifically identifies a lending program whereby IDA would assist in strengthening essential public institutions--in particular those relating to Social Security reform that are the project's main focus. Further, support of mechanisms for the distribution system of the Capitalization Program will be critical to the CAS objective of broadening the benefits of economic growth. The Government has assigned this project a high priority because it is crucial for the success of Bolivia's Capitalization program. 17. IDA provides a unique and catalytic function through its support of reforms of the policy environment and the linkage between these reforms and the institutional capacity to implement them. Moreover, IDA offers important institutional experience (in accordance with the CPAC) in pensions reform and in capital markets development in Bolivia and elsewhere. 18. Agreed Actions. During negotiations agreement was reached on: i) consulting, equipment, training needs and financing plan of the Project (as described in the Technical Annex), including financing mechanisms (including budgetary transfers) to satisfy counterpart financing requirements for the period of the Credit for the CNV, and the Superintendency of Pensions; (ii) terms of reference in the form of a matrix of key project activities, including objectives, outputs, timetable, implementation plan, and performance indicators; and (iii) in addition to meeting all financial reporting requirements, a full progress report will be prepared and submitted to IDA every six months. 19. Credit effectiveness is conditioned on: (i) the appointment of a head of the project unit; and (ii) issuance of a report by the Government providing greater clarity as to the characteristics of the deferred share distribution system, and (iii) signing of the Subsidiary Agreements by the CNV and the SBEF. 20. Conditions of disbursement for specific components of the credit are as follows: i) expenditures by Superintendency of Pensions component, that require creating the Superintendency of Pensions; ii) expenditures to draft new securities regulations, that require a legal framework for the securities market, satisfactory to IDA; and iii) expenditures to draft new Banking Law regulations, that require a legal framework for the Central Bank, satisfactory to IDA.  6 21. Envirommental Aspects. Environmental category C. The project is not expected to have any direct environmental impact. 22. Program Objective Categories. The project, supported by policy reforms, would primarily contribute to the private sector development and economic management categories. While this project does not have poverty alleviation as its direct target, the deferred share distribution mechanism supported by the project could create a new old-age source of income for the majority of Bolivia's population that has no access to retirement benefits. 23. Participatory Approach. To ensure participation and ownership of the project by the executing entities and beneficiaries, several actions have been taken as part of the project implementation strategy including: (i) a public awareness campaign with respect to pension reform issues and to evoke public participation, (ii) ensuring utilization of local skills in most project components, both for cost-effectiveness reasons as well as to promote long-term sustainability, (iii) involving the Borrower in developing incentive mechanisms to retain local staff once they have taken up responsibilities for managing specified project components, and (iv) including a structured training component managed by supervisors under the respective project components, in order to assure ownership and establish sustainable functions to be executed by local staff. 24. Project Benefits and Risks. Given the weak administrative capacity of the Government, the principal benefit of this project would be the initiation of a process for development of a sustainable institutional capacity for efficient regulation and supervision of financial markets. This increased capacity should in turn lead to the growth of the financial sector, better allocation of resources and economic growth. The project's institution building features make it not amenable to the calculation of rates of return. Measurement of benefits would be through assessment of: (i) the efficiency and transparency of the respective financial markets regulated; (ii) the solvency of financial intermediaries including banks, pension funds, and securities brokers, dealers, agents and underwriters; and (iii) the growth of the depth of insurance, pensions and securities markets. The latter will also be heavily dependent upon factors such as macroeconomic stability and management beyond the scope of specific measures supported by the Credit. The proposed project design is estimated to present the least cost solution for the achievement of the project's objectives because of its reliance on existing capacity and local skills. In light of the large implications that the capitalization and the pension reform process will have on the financial sector and Bolivia's development, the proposed project is just supporting the minimal steps that need to be undertaken for the success of the reforms. The project will have a formal semi-annual review process of: (i) continued counterpart commitment in each of the components of the projects, including institutional authority, budgetary support, and (ii) institutional effectiveness in light of the level of support provided. 25. Principal project risks are: (i) the Government may fail to continue its adherence to a strong macroeconomic program required, or financing of the costs of the transition to the new pension system may not be available leading to fiscal problems so that the impact of institutional reform measures becomes overshadowed and handicapped by macroeconomic instability; (ii) the Government may not undertake the policy reform measures supported by the CPAC, in particular,  7 passage of the Pension Law mnay be delayed, or may stagnate in the future implementation of such measures, and thus the technical assistance will not have the desired impact; and (iii) the Government may not fully support the institution building measures required, including those supported by the credit, because of insufficient commitment as shown in staffmg or providing other resources, especially counterpart funds. For example, successful reform of insurance regulation and supervision that the Government is undertaking without IDA assistance, is critical for the pension benefits. Problems in this area could lead to weak results and threaten the sustainability of impact. This project will only assist in the beginning stages of the process, but the passage of financial sector and pension legislation and regulations as well as including independent sources of financing from the sector for the regulatory agencies should help lessen these risks. Risks are further reduced by a project design that is tied to the CPAC conditionality and that provides for self-funding mechanisms in the institutions supported. Recent successful privatization of public enterprises are indications that the Government's commitment to the reform process continues to be strong. 26. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. James D. Wolfensohn President Washington, D.C. November 7, 1995 Attachments   8 Schedule A BOLIVIA FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT ESTIMATED PROJECT COSTS AND FINANCING PLAN (US$ equivalent) A. Estimated Total Project Cost Item Local Cost Foreign Costs Total Refinancing of PPF 600,000 1,400,000 2,000,000 A. Ministry of Capitalization 766,000 8,083,000 8,849,000 B. Pension Reform 4,397,000 1,655,000 6,052,000 D. Comisi6n Nacional de Valores 276,000 1,116,000 1,392,000 F. Superintendency of Banks 785,000 1,951,000 2,736,000 G. Min. of Capitalization - Project Unit 264,000 16,000 280,000 Total 6,488,000 12,821,000 19,309,000 B. Projected Financing Plan Source of Finance Local Cost Foreign Costs Total [Government of Bolivia 3,021,000 7,368,000 10,309,000 IDA 3,547,000 5,453,000 9,000,000 Total 6,488,000 12,821,000 19,309,000   BOLIVIA - FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT IMPLEMENTATION PROGRAM AND INDICATORS Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997 Objectives Activities Drafting and review of norms completed for: establishing a pension fund (AFP); publicitv Establish- Development and Pensions law passed. Defined-contribution systemi ing and Implemen-tation of by AFPs; requirements of fund sales agents; regulation of new affiliates; amount and Superintendency of Pensions functioning linked to start of deferred- Strengtheni Prudential treatment of contributions; investment norms; procedures for purchases, sales, custody with independent staff and budget. distribution accounts. ng Pension Regulations and and transfer of securities; limitations on and treatmcnt of investments abroad; benefit Defined-Contribution pension svstem Consultant follow-up visits Supervision Norms for New norms, including criteria for calculation, of recognition bonds, and estimates of begins mid-vear. conducted to revicw and and Regu- Individual contribution amounts; criteria for permanent disabilltv and j ocedures for claiming and Regu- Individual disability and death benefits, including distnbution of funds to bencEciarics nonTIs for Consultant follow-up visits conducted to revise procedures based lation if and Capitalization disability and death benefits, including distribution of finds to benreficiares; norms for review and revised procedures based on on experience in when (Defined- operational control of AFPs, including criteria for accounts and cross checking; nomis experience in implementation (late implementation. legislation is Contribution) for the disability coverage and insurance mechanisms; and accounting nornis. 1996). enacted. Funds Initial normative circulars issued. Principal implementing regulations issued through Supreme Decree. Development of Regulations incorporating the following norms drafted: (i) reaffiliation and control of Regulations issued by Supreme Decree. FOPEBA fully operational. 'o Norms for Existing accounts in relation to transfers to individual capitalization (new system) accounts; (ii) including those for the functioning of Consolidation process of Funds norms as to enforcing employer and employee contributions and payment sNstems: (iii) FOPFBA. complenary pesion norms for minimum actuarial finding requirements; (iv) norms for merger; and (v) Strategic objectives of the Government for complementary pension investment norms. existing funds announced in conjunction funds ito FOPEBA with Supreme Decree. Implementing nonms issued by circular, and being implemented and monitorcd. Consolidation process of complementary pension funds into FOPEBA begun. Dev. of Investment Multi-year transition program for Passive funds from equity to a mixed security portfolio Supreme Decree issued providing norms Norms under Norms for passive developed. for passive funds. implementation. funds Portfolio transition program issued via Norms subject to review and circular. revision based on experience. Measures to Audits undertaken for 12 complementary pension funds (based on data to 1986). Norms issued to liquidate or merge 22 Consolidation process of Restructure Administrative restructuring of INASEP completed. complementary pension funds; fundseinto PEBA Existing Funds Evlaino rnfrIcniebgnpr funds into FOPEBA individual account based on guidelines under way. issued in Supreme Decree. und of Tanf C Begin implementation of program for the Incentive continuing. merger and liquidation of FCs into I v n FOPEBA. Studies of Workers Evaluation of existing workers compensation system undertaken. Recommendations developed for Legislation drafted and Compensation modification to existing legislation, existing submitted to Congress. t  Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997 Objectives Activities organization of contributions and benefits. Development of Design study initiated of consolidated data Initiation of data analysis. Database for base of demographic, economic and Data used for regulatory Management of actuarial data by fund member to effect over-sight and is Existing Funds the transition above. disseminated to Data collection (from each FC) and data complementary funds. entry begun. Automation of Initial study undertaken of hardware and software requirements for the operational and lHardware and software purchased and FOPEBA financial management of FOPEBA. installed. Information Operating procedures designed. Management Design and Definition of: Superintendency begins functioning under Ongoing review conducted Development of the organizational structure of the Superintendency of Pensions; Law. of staffing, accounting and Superintendency 'required personnel profile; Supervision of pension funds (operating) financial control systems of Pensions terms of reference for key positions in the Superintendency; begins mid-year. and operating procedures in specifications for the accounting and financial control system and design operating Operating procedures for the risk order to revise each procedures; classification commission defined. according to experience. -data base modules, including an investment module, management module and sales agents Review conducted of staffing skill profile in data base. relationship to evolving needs. Review conducted of implementation of accounting and financial control system Implementation of operating procedures and development of procedures manual begun; Implementation of data base modules begun and revised as necessary. Public Information Design of public information campaign undertaken. International bidding process for public Completion of public Campaign information agency begun. information campaign. Initiation of execution of public information campaign. Computerization Completion of detailed study to develop the specifications for the hardware, software and Bidding documents for hardware and Supplementary support of Super- peripherals needs. Output is technical specifications for intemnational competitive bidding software, provided for refining and intendency of for equipment. Purchase of equipment including upgrading the software Pensions installation., subsequent to initiation of Software provided under agreement its use. reached between the Sup. of Pensions and the Sup. of Pensions of Chile. Select training of staff in equipment use begun Deferred Trustee Trustee for safekeeping of capitalized shares contracted. Transfer of capitalized shares to Trustee Share Aragmnscmltd tri Arrangements Shares of two capitalized enterprises transfered to Trustee. Custodian establishedo Program International AFPs selected by international bidding. Bidding ._.  Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997 Objectives Activities Acceleration of the Registro Unico Nacional RUN begins rural registration campaign using mobile units. RUN registry underway, with completion Regisbty data used to Registry System. Design of RLtN acceleration program completed, including detailed projections of needs for aimed at end-1996. facilitate the assignment increases in operating and capital expenditures. of pension find managers Passing of exception law facilitating registry process to each adult bolivian and Advisors and contracted assistants hired to amplify and accelerate the process. to assign to each such Intemational tender specifications for equipment needed including computers, identity pension fund the shares card peripherals and data storage equipment. of each such Bolivian. Design of the Development of a detailed program for the share distribution program. Fiduciary Account system, including Initiation of passbook Distribution account verification, reconciliation and dIstiabutiono Program control. Iitiationo Detailed transfer system (from the distribution. fiduciary account to AFP), including chocem ofA ransfer mechanisms for random selection, choice of AFPs, transfer verification of individual choice, account mechaonsms, and traes verification. control features Implementation plans for the distribution of passbooks, including verification mechanisms. Mechanisms for distribution of benefits, both urban and rural. Initiation of the implementation of the distribution system through the placement of capitalized shares. - Strength- Strengthening of Recommendations for modifications to draft law concluded, including the drafting of Securities Law passed by Congress. Review and adoption of ening Sec- Legislation amended language for inclusion. Implementation of the plan for the issuance norms in accordance with urities Draft Securities Law presented to Minister of Finance. of norms. market developments. Regulation. Existing rulings reviewed to strengthen and conform them to the draft. Review and adoption of norms in A plan for the issuance of norms (rulings) established accordance with market developments. Institutional Detailed institutional restructuring program Restructuring plan fully Restructuring completed including: (i) assessment of implemented. current staff and future requirements; (ii) preparation of job descriptions and salary structure; (iii) support for budget preparations (including fee setting) and definition of procedures and manuals; (iv) definition of supervision objectives and criteria; (v) deternination of informnation requirements; (vi) preparation of analysis procedures; and (vii) preparation of on-site inspection procedures. Information Design of specifications for hardware, Implementation ofnew Systems software and peripherals completed. systems procedures Bidding and installation completed. completed. Specialized training initiated to improve ___________________________________________________________________________on-line___lion-lin ilink ewith axchanesaan  Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997 Objectives Activities brokerage firms. Upgrading Consultants hired and work begun to Manuals for examination Supervision and prepare: (i) manuals for examination procedures completed and Inspection procedures of brokerage firms and implementation begun. Procedures bourses; (ii) revise charter of accounts Revised charter of accounts for exchanges and brokerage houses; (iii) for exchanges and a manual for financial analysis of brokerage houses brokerage houses; and (iv) guidelines to completed and issued. assess quality of issue proposals. Manual for financial analysis of brokerage houses issued. Guidelines issued to assess quality of issue proposals. Development of Work initiated to: (i) work with the Modify charter of accounts Auditing and accounting profession to develop in accordance with Accounting accounting standards for publicly listed market developments. Standards firms, investment banks, brokerage Implement revised external houses, bourses and agents; (ii) establish audit norms. through a CNV ruling a standardized charter of accounts established for issuers to improve the presentation of financial data; and (iv) issue revised .. external audit norms for publicly-listed firms, investment banks, brokerage houses, bourses and agents. Market Program begun to: (i) support Economic Studies Department in the CNV to gather, analyze Capacity of the Economic Studies Development and and distribute statistical information, bulletins, etc; and (ii) organize seminars, Department in the CNV improved to Promotion conferences and workshops to promote the value of securities markets to both issuers gather, process and distribute statistical and investors. information. Norms issued for approval and regulation of a central depository and clearing system. Central depository and clearing system established and subject to refinement. Strength- Development of Diagnostic of non-banking financial institutions completed. Procedures for liquidation of financial Regulations for non- ening of Norms institutions approved and in place. banking financial Banking Regulations for non-banking financial Regulations for financial Supervision institutions completed. Regula tions in Regulations for financial services services institutions in institutions completed. place. Rulesand pocedues fo finacialRules and procedures for institutions in crisis completed. financial instptutions in Rules and procedures for supervision of Rules and procedures for financial conglomerates completed. supervision of financial conglomerates in place. I Regulations for risk  Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997 Objectives Activities assessment companies completed. Norms for new banking financial instruments updated and in place. Improved Updated inspection and financial analysis manuals. Implementation of recommendations of operational updated manuals. systems Evaluation of of inspections and external audits to financial institutions and implementation of conclusions. Evaluation of portfolio analysis and implementation of conclusions. Strengthening of Technical specifications for second-generation of hardware and software for the stand- Installation begun. Installation completed. Operating alone and networked system completed. Implementation begun. Software Hardware purchased.   14 Schedule C BOLIVIA FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT Procurement and Disbursement (US$ equivalent) A. Summary of Proposed Procurement Arrangements Procurement IDA Financed Procurement a/ Not IDA Total Category Financed ICB Other Consultants 7,070,000 1,355,000 8,425,000 (6,345,000) (6,345,000) Training 426,000 426,000 (412.000) (412,000) Services contracts 417,000 65,000 482,000 (417,000) (55,000) (472,000) Goods/Equipment 1,650,000 121,000 8,205,000 9,976,000 (1,650,000) (121,000) (1,771,000) Total 2,067,000 7,682,000 9,560,000 19,309,000 (2,067,000) (6,933.000) (9,000,000) Note: Figures in parentheses indicate the amounts financed by IDA a/ Intemational Competitive Bidding, using standard IDA documents, will be used for equipment and for goods valued at greater than US$25,000 equivalent. "Other" IDA procurement includes procurement of consultants according to IDA guidelines, and for goods valued at US$25,000 or less, through shopping procedures acceptable to the IDA (not exceeding US$250,000 in the aggregate). Prior review will be mandatory for all consultant contracts at US$30,000 or above, as well as for printing, distribution and advertising contracts, ICB contracts, and the first contract procured through shopping. B. Disbursement Arrangements Category Amount Percentage Consultant services 4,114,000 100% net of taxes Goods 1,602,000 100% of foreign expenditures, 100% of local expenditures (ex-factorv cost) and 84% for other items procured locally Training and related expenses 412,000 100% net of taxes Service contracts (trustee and 472,000 100% of foreign expenditures and 84% for contracts of local legal assist., & info. campaign) expenditure Refunding PPF 2,000,000 Amounts due Unallocated 400,000 Total 9,000,000  Is Schedule C C. Projected Disbursement Schedule for IDA Credit IDA FY 96 97 98 Annual 3,900,000 3,551,881 548,119 Cumulative a/ 3,900,000 7,451,881 8,000,000 a/ The cumulative amount of $8 mn. by FY98 is $1 mn. below the total credit amount due to the estimated PPF financing of $1 rmn. during FY95, prior to expected Board Approval.  16 Schedule D BOLIVIA FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT Timetable of Key Processing Events (a) Time taken to prepare: 16 months (b) Prepared by: Government of Bolivia with IDA Assistance (c) First IDA mission: March 1994 (d) Appraisal mission departure: October 1994 (e) Negotiations: October 1995 (f) Planned Effectiveness: January 1996 (g) List of relevant PCRs and Project Performance Audit Reports (PRARs): PCR -Financial Sector Adjustrnent Credit (Cr. 1925-1O); June 22, 1994 PCR Public Financial Management Project (Cr. 1809-BO); June 30, 1994 The project was prepared by Hermann von Gersdorff, Sr. Economist, LA3PS   17 Schedule E BOLIVIA FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT Status of Bank Group Operations in Bolivia A. Statement of Bank Loans and IDA Credits as of June 30, 1995 (US$ millions) Amount (less cancellation) LO/CR Fiscal Undis- Number Year Borrower Purpose Bank IDA bursed 16 loans, 33 Credit(s) closed (including 6 reflows) 274.78 440.95 18420 1988 Bolivia Urban 15.00 1.35 20120 1989 Bolivia Export Corridors 37.00 9.97 20130 1989 Bolivia Mining Sector 35.00 23.54 20920 1990 Bolivia Integrated Health Dev 20.00 10.91 21190 1990 Bolivia Eastern Lowlands 35.00 18.99 21340 1990 Bolivia Private Enterprise Dev 16.10 14.40 21870 1991 Bolivia Water Supply/Sewerage 35.00 21.63 22160 1991 Bolivia Technology Dev 21.00 9.37 22790 1991 Bolivia Public Financial Mgt ll 11.30 6.94 22980 1992 Bolivia Struct Adjust Cred 40.00 0.37 23220 1992 Bolivia AgrExpDevProg 22.50 21.17 23950 1992 Bolivia Road Maintenance 80.00 76.84 24430 1993 Bolivia Environ TA Project 4.80 1.87 25310 1993 Bolivia Integrated Child Dev 50.70 *54.25 25320 1993 Bolivia Social Invest. Fund 11 40.00 27.30 25650 1994 Bolivia Municipal Development 42.00 *44.52 26470 1995 Bolivia Regulatory Ref. & Cap. 14.70 12.39 26500 1995 Bolivia Education Reform 40.00 *42.67 22984 1995 Bolivia Structural Adjust. Cr. 8.60 * 9.55 27050 1995 Bolivia Judicial Reform 11.00 * 11 90 27420 1995 Bolivia Land Administration 20.40 * 21.46 Total of open operations 600.10 441.39 TOTAL 274.78 1041.05 Of which repaid 213.28 19.38 NetheldbyBank/lIDA 61.50 1021.67 Amount sold 0.05 -- Of which repaid 0.05 -- Total Undisbursed -- -- 44L3 * Undisbursed balances higher than committed due to exchange fluctuation.  18 Schedule E B. Statement of IFC Investments as of March 31, 1995 (US$ millions) Loan Equity Total Total Gross Commitments 113.24 14.01 127.25 Less: cancellations, terminations, exchange adjustments, 37.56 0.89 38.45 repayments, write-offs and sales Total Commissions now held by IFC 75.27 13.12 88.39 Total Undisbursed IFC 16.59 4.06 20.65  IBRD 20516 B R A Z I L B O L I V I A ROADS. T. 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