Argentina - Public Investment Strengthening Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6660-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$16 MILLION TO THE ARGENTINE REPUBLIC FOR A PUBLIC INVESTMENT STRENGTHENING TECHNICAL ASSISTANCE PROJECT OCTOBER 30, 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 EOUIVALENTS Currency Unit = Peso US$1.00 =Peso$1 as of October 1st, 1995 FISCAL YEAR January 1 to December 31 GLOSSARY OF ABBREVIATIONS AO = Administrative Officer BAPIN = National Investment Project Data Bank CC Component Coordinator DNIP = Direcci6n Nacional de Inversi6n Publica y Financiamiento de Proyectos (National Directorate for Public Investment and Project Financing) EA = Environmental Assessment GAEP = Budget Preparation Support Group GOA = Government of Argentina ICB = International Competitive Bidding ICR = Implementation Completion Report IDB = Inter-American Development Bank IERR = Intemal Economic Rate of Return LIB = Limited International Bidding ME = Ministry of Economy NCB = National Competitive Bidding NGO = Non-Governmental Organization NPD = National Project Director NPIP = National Public Investment Plan OECD = Organization for Economic Cooperation and Development PAU Project Administration Unit PCU = Project Coordination Unit PIP Public Investment Plan PPS = Process and Procurement Supervisor PPU = Project Preparation Unit QA Quality Assurance SAGyP = Secretariat of Agriculture, Livestock and Fisheries SEP = Secretariat of Economic Programming SIDIF = Argentina's Integrated Financial Information System SIGADE = UNCTAD-developed Debt Management System SNIP = Sistema Nacional de Inversi6n Puiblica (National Public Investment System) SOE = Statement of Expenditures SRNyAH = Secretariat of Natural Resources and Human Environment UNCTAD = United Nations Conference on Trade and Development UN/OPS = United Nations Office of Project Services  FOR OFFICLAL USE ONLY ARGENTINA PUBLIC INVESTMENT STRENGTHENING TECHNICAL ASSISTANCE LOAN TABLE OF CONTENTS Page No. Loan and Project Summary i The Proposed Loan Background 1 Project Objectives 3 Project Description 3 Project Financing 5 Project Implementation 5 Project Sustainability 5 Lessons Leamed 6 Rationale for Bank Involvement 6 Agreed Actions 7 Environmental Assessment 7 Program Objective Categories 7 Participatory Approach 7 Project Benefits 8 Project Risks 8 Schedules A-D 9-13 Technical Annex Section A: Detailed Project Description Project Background 14 The National System for Public Investment and National Budget Formulation 26 Project Objectives and Description 34 Section B: Project Administration and Implementation 47 Section C: Selected Documents and Data Available in Project File 59 Technical Supplement Draft Terms of Reference for the Project Administration Unit 60 Draft Terms of Reference for Environmental Studies 64 Draft Terms of Reference for Natural Resource Studies 78 Draft Terms of Reference for Infrastructure Studies 85 This Report is based on work carried out bythe Ministry of Economy in Argenina and missions in December 1994 and June 1995 caried out by Mr. Luis-Jos6 Mejia (rask Manager, LA I PS) and Carmen-Gloria ravo (Consultant [a A PS). Mmes. Nicole Klein (AFIcB) and Katrina Sharkey (EDIDM) acted as Peer Reviewess. Mr. Paul Meo is the Sector Division Chief (LAlPS), Mr. Gobind T. Nankani is the Department Director ([-Al) and Mr. Orville OCimes (AlDR) is the Projects Advisor. This document has a restricted distibution and may be used by recipients only in the performance of their | official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization. l   i ARGENTINA PUBLIC INVESTMENT STRENGTHENING TECINICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: The Argentine Republic. Implementing Agency: Secretariat of Economic Programming (SEP) in the Ministry of Economy (ME). Beneficiaries: The National Directorate of Public Investment and International Projects (DNIP) in SEP and the project preparation units of 43 Central Government Ministries and Agencies. Povertv Not applicable. Amount: US$16 million equivalent. Terms: Fifteen years, including five years of grace, at the Bank's standard variable interest rate. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlending Terms: Not applicable. Financing Plan: See Schedule A. Net Present Value: Not applicable. Project Identification AR-PA-37049 Number:   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE EBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE ARGENTINE REPUBLIC FOR A PUBLIC lNVESTMENT STRENGTHENING TECHNICAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Argentine Republic for the equivalent of US$16 million to help finance a project for Public Investment Strengthening. The loan would be at the Bank's standard variable interest rate, with a maturity of 15 years, including five years of grace. 2. Background. Argentina is a country which has suffered from a prolonged political and economic decline with a concomitant deterioration of its public institutions. When the present Administration took office in July 1989, Argentina was in the throes of recession and monthly inflation of up to 200 percent, labor productivity had fallen, social services and basic infrastructure had deteriorated, and poverty had become a serious and growing problem. The new Administration addressed these problems with a series of profound structural reforms, which included decentralizing large portions of the economy (privatization of nearly all public enterprises at the national level and transfers to the Provinces of a large number of functions, especially in the areas of health and education), a 15% reduction in federal employment (excluding privatizations and transfers), and strengthening of key institutions, in all of which the Bank has played an important supportive role. 3. The deterioration of the state resulted, among other impacts, in the complete breakdown of the budgetary process. In the absence of the planning framework given by a properly formulated budget, control and evaluation of expenditures has been very weak. In a complex series of efforts, the Government of Argentina has addressed these issues with resolve, and as a result, the National Budget has now been prepared on time three years in a row, and the first tri-annual National Public Investment Plan will be presented to Congress this year, after many years' absence. The new Integrated Financial Information System (SIDIF) collects and consolidates all information on expenditures by the national government. As of July 1995, the use of a single account for the Treasury permits more efficient management of public monies, until then held in more than 4000 separate Bank accounts. A new debt management system (SIGADE, developed by UNCTAD) is in operation in the Public Credit Directorate at the ME. As a result, detailed accounting and budgeting information can now be produced in a timely fashion. In addition, a modern Auditor General's Office has been created and ex-ante control eliminated with a consequent increase in efficiency and transparency. With the control of expenditures significantly improved in this way, the next area which needs to be addressed is the efficiency and effectiveness of expenditures.  2 4. Argentinean public expenditures are roughly divided into two categories: operational expenditures (US$32 billion) 1, and investment expenditures (US$8 billion). The latter is, in turn, divided into physical investment (US$4 billion) and an additional US$4 billion of associated expenditures (e.g., planning and training), including projects cofmanced with the provinces and municipalities. The Government proposes addressing the problem of the efficiency and effectiveness in investment through training in project analysis and evaluation which would create a culture of evaluation by results and impact to replace earlier measurements by cost incurred. The Government strategy is to concentrate initially on real capital investment (through the proposed project) and social investment (through the Social Protection Project, in preparation, in cooperation with the proposed project). The results of these efforts would be expanded to the provincial governments (Second Provincial Development Project, 3877-AR). At a later stage it could be envisaged to expand results to other areas of public expenditure. 5. The Government's investment strategy has altered considerably. The change in the role of the State from production to regulation has resulted in large-scale privatization of state- owned enterprises and a considerable decrease in public investment requirements. Nevertheless, significant investment remains: the Govemment's investment program for 1995-19992 amounts to approximately US$86.8 billion, including national, provincial and municipal governments as well as privatized and public enterprises. Of this amount, US$6 billion are direct national government investments, and US$18 billion are national investments through transfers and loans. 6. The investment programming mechanism has never been strong in Argentina. Information on the status of a sample of investment projects in the present pipeline has revealed that no more than 10% of those projects could provide a detailed feasibility study to justify the project and its design. Poor project preparation has resulted in a weak track record in obtaining extemal financing, and substantial variation in the speed of project implementation, which in some cases is as low as 14% of planned execution. Weak identification mechanisms, poor physical and financial monitoring of execution, little if any consideration of environmental issues and no evaluation of results or impact characterize public investment today. 7. In 1993, to address these weaknesses, the Govemment created the National Directorate for Public Investment and Project Financing (DNIP) within the Secretariat of Economic Programming (SEP) in the Ministry of Economy. In August 1994 the National System for Public Investment (SNIP) law was approved by Congress3. This law assigns to DNIP the responsibility for putting together, with sectoral agencies, the tri-annual National Public Investment Plan (the first year of which coincides with the Budget). These duties 1 1994 budget 2 Argentina en Crecimiento, 1995-1999, Ministerio de Economia y Obras y Servicios PNblicos, Argentina Law 24453  3 include ensuring the quality of national and nationally-cofinanced real capital investment (both ex-ante and ex-post), setting norms for project analysis and evaluation, maintaining an up-to- date inventory of investment projects, identifying projects of national interest, assisting in their preparation and helping find extemal financing. The responsibility for project identification, preparation and evaluation remains with the investment agencies. This decentralization of responsibility to the sectoral agencies is an important step away from the old paradigm of the central planning ministry. Physical and financial monitoring of execution is being addressed by the Secretariat of Finance in the same Ministry, through the Integrated Financial Information System (see para. 3). 8. For the National Public Investment System to function effectively, four areas need to be addressed: (a) the lack of public and private sector awareness of the importance of evaluation of results and impact as a measure of the effectiveness and efficiency of expenditures; (b) training of selected management and staff in sectoral agencies in project identification, analysis and preparation as well as the use of evaluation; (c) the lack of broad national strategies in selected sectors; and (d) the relative lack of experience, given its recent creation, of the central unit (DNIP) in guiding a process of this nature. 9. Project Objectives. The project aims to enhance the effectiveness and efficiency of the government's public expenditure management by improving its investment process, strengthening its project analysis capabilities and building up the project and program evaluation capacity in Argentina. These goals would be achieved by: (i) building the ownership/commitment of senior government officials to the application of good practice in the formulation and implementation of strategic investment decision-making; (ii) building a sustainable decentralized capacity to identify, prepare, select and evaluate investment by central government agencies; (iii) carrying out basic studies in support of public investment strategies in priority sectors; and (iv) supporting DNIP in the implementation of the National Investment Plan System (SNIP). 10. Project Description. The project would be implemented over a five-year period starting in late 1995, and would finance high level workshops, training programs, technical assistance and some equipment through five components, as follows (see Technical Annex for more details): Sectoral Investment Decision Making (US$1.2 million, or 5% of total project cost). Actions would take the form of Senior Policy Interventions, a series of high-level seminars with the objective of familiarizing decision-makers with best practice in the areas of public investment and public expenditure management from selected OECD countries and the concepts of public expenditure efficiency and investment evaluation launched through the National Public Investment System; and High Level Workshops, directed at senior officials/decision makers, journalists as well as individuals and firms from the private sector.  4 Improvement of Agencies' Project Analysis and Evaluation Capacity (US$7.6 million, or 30% of total project cost). The objective of the component is to enhance the effectiveness and sustainability of public investment and to create a culture of analysis and evaluation of investments and public expenditures through training and technical assistance to up to 100 national government investment agencies. It consists of: (1) Main Capacity Strengthening Courses, in-depth courses in investment decision-making (including environmental considerations), project management, procurement and project cycle implementation, aimed at middle- management and personnel of the investment agencies as well as individuals from the private sector. These courses would be offered by a team composed of four international facilitators/trainers and four trainers from a local training institute; (2) Technical assistance to investment agencies in the application of project analysis techniques learned. This subcomponent consists of assistance to the agencies in the preparation of at least one project following approved guidelines, preparation of an annual investment plan, and preparation of a five-year investment program; and (3) technical assistance to investment agencies in the application of impact evaluation techniques through the analysis of selected existing projects. This subcomponent consists of approximately 30 evaluations. * Basic Studies in Support of Sectoral Investment Strategies (US$8.6 million, or 35 % of total project cost), leading to project identification and the preparation of sectoral strategies for selected agencies. These strategies would improve the quality of investment by improving prioritization of efforts on a country-wide basis. Indicative terms of reference for the environment, natural resources and infrastructure sectors have been prepared (see Technical Supplement) by the corresponding agencies in Argentina with assistance from the appropriate Bank sectoral divisions, who will supervise their implementation. * Support to the Preparation of the National Public Investment Plan (US$2.7 million, or 11% of total project cost). The quality of the National Public Investment Plan (NPIP) directly depends on quality at entry, and therefore the bulk of the strengthening effort is addressed to the investment agencies. Nevertheless, strengthening of DNIP is required for this Directorate to put together the NPIP. To this effect, DNIP will receive technical assistance in the preparation and application of policy and project analysis methodologies and on-the-job training to prepare medium-term expenditure and investment frameworks. In addition, this project will help disseminate the SNIP Law and its application, notably through the setting up of a help-desk for telephone assistance. * Project Administration (US$2.5 million, or 10% of total project cost), consisting of project administration, office equipment, yearly extemal audits and an agreement with a procurement agency for procurement and administration services. Price  DV1 V ILL, pUI .U 1 9 .3 VVJLISJl flJ>s II VV LI l ' 5 contingencies constitute an unallocated amount of US$2.3 million (9% of total project costs). No physical contingencies are contemplated, because the scope of all major studies and consultancies has already been well defined and is not expected to change significantly. 11. Project Financing. Total project costs are estimated at US$25 million. A Bank loan of US$16 million (64% of total project costs) is proposed. The government would provide counterpart funding of US$9 million (36% of total project costs), which would cover all taxes and duties, equipment maintenance and office rental, as well as portions of project activities. 12. Project Implementation. The Executing Agency will be the National Directorate of Public Investment and Project Financing (DNIP) in the Secretariat of Economic Programming (SEP) in the Ministry of Economy (ME). DNIP's Head will be the National Project Director (NPD), who will ensure that the project is implemented according to plan. The NPD will be assisted by a Project Administration Unit staffed with DNTP personnel and consultants, and responsible for project processing, administration and accounting. 13. The completion date for the project would be December 31, 2000 and the closing date June 30, 2001. Procurement of goods and consulting services would be carried out in a manner consistent with Bank Guidelines (see Technical Annex). An Administrative Manual, detailing steps to be followed in implementing and monitoring the project, would be prepared by DNIP, discussed during negotiations and finalized before effectiveness. The government is considering entering into an agreement with a UN agency for administration and procurement services; procedures would follow the guidelines described in the Administrative Manual. The use of an independent auditor was agreed at negotiations. 14. . Project Sustainability. Commitment of the Government to a transparent and efficient public investment system is shown by the approval of the SNIP Law in August 1994, which defines the public sector's responsibilities in public investment. The accessibility for consultation by both govemment and Congress to the project data bank and the quarterly presentation to Congress increases the transparency of the process. To ensure the sustainability of the public investment system, training will continue to be provided after the end of the project. To this effect, cost-recovery measures will be introduced during the project. 15. Lessons learned from Previous Bank Involvement. Previous efforts by the Bank (and IDB) in other countries indicate that public investment strengthening efforts were not fully successful because relevant literature4 shows: (i) these efforts were directed at creating The Reform of Public Sector Management: Lessons from Experience, Policy and Research Series; Uganda: Managing Public Expenditure (10512-UG), June 1992; Ecuador: PER - Changing the Role of the State, June 1992; others.  6 central planning ministries operating under a protective state umbrella; strengthening of the central units usually precluded strengthening of the sectoral agencies; (ii) the efforts lacked scope. and were inadequate in size as they were carried out through limited components within larger projects; (iii) there was no strategic framework integrating public investment in the broader scheme of public expenditure management and efforts were carried out in isolation from mainstream resource allocation activities; and (iv) results of strengthening efforts were not institutionalized. The above lessons have been taken into consideration as follows: (i) the investment system is decentralized, and the bulk of the effort is directed towards strengthening sectoral agencies; (ii) the proposed project is a stand-alone one; (iii) public investment will form part of the budget preparation annual exercise within the framework of the SNIP and Financial Administration Laws in Argentina; and (iv) all activities are line with DNIP's basic functions, and it will therefore be implemented by DNIP's management and staff, with minimal assistance from long-term consultants. 16. Rationale for Bank Involvement. This project is fully consistent with the Country Assistance Strategy presented to the Board on May 4, 1995' with the Provincial Bank Privatization Project (Ln. 3878-AR), which focuses on: (i) consolidating structural reforms; (ii) reducing poverty and developing human resources; and (iii) rebuilding infrastructure. This project will contribute towards the first objective by improving fiscal management through a more efficient use of scarce budgetary resources. The project will also help improve the effectiveness of public investments which are complementary to private sector development. The project will complement other Bank projects in the Public Sector Management area, which have focused on strengthening greatly weakened institutions, in central, provincial and municipal governments, with special emphasis on revenue-generating or expenditure- controlling institutions. It is a first crucial step for improving the efficiency of the use of general public investment in Argentina. It is also complemented by the Social Protection Project (in preparation) which addresses the need to monitor social programs, and by the Second Provincial Development Project (3877-AR) which addresses the need to strengthen public investment units in provincial governments. With public investment expected to grow from its depressed levels, while being concentrated on fewer activities, it is critical to improve the government's institutional capacity to produce high quality project analysis, management and evaluation6. The project would strengthen the agencies involved in the public investment process through training and consulting assistance. The studies financed are in priority sectors (Environment, Infrastructure, Natural Resources), and will help compensate for the expected decline of formal Bank Economic and Sector Work in the next several years. 17. Agreed Actions: One of the conditions for effective implementation of the project, that the regulations for implementing the Public Investment Law (SNIP) be approved, was Country Assistance Strategy of the World Bank for the Argentine Republic, April 10, 1995. 6Evaluation Capacity Development Report of the Task Force, July 5, 1994.  7 fulfilled on May 22, 1995. At Negotiations, agreements were reached with the Government on the following: (i) use of the Special Account and Statement of Expenditures; terms and conditions, accounting and auditing procedures; (ii) annual audit of the project special account by auditors acceptable to the Bank, and submission of the audit statement to the Bank no later than June 30 each year; (iii) the carrying out of the Project Implementation Plan in a timely fashion; (iv) provision by Project Administrator of semiannual project implementation reports in December and June each year including measure of quantitative and qualitative objectives achieved, and review and updating of project implementation schedules; and (v) preparation by the ME within six months of project completion, of an Implementation Completion Report (ICR) to assess the success of the project. In addition, a draft Administrative Manual was prepared. 18. As Conditions of Effectiveness, (i) The project's Administrative Manual, detailing administrative procedures and defining reports to be used by staff and the Bank for project supervision would be completed and agreed with the Bank; and (ii) the Project Administrator would be hired. 19. Environmental Assessment. This project finances technical assistance in the area of strategic decision-making and studies that will be key precursors to future infrastructure investments. For that reason, the project is classified as category "B" and includes provisions to ensure that environmental analysis is incorporated where appropriate. 20. Program Objective Categories. The primary category is Public Sector Management (PB). 21. Participatory Approach. Terms of reference for all studies identified have been prepared by the corresponding sectoral entities and are presented in the Technical Supplement. The project is heavily oriented towards the decentralized investment units (activities totaling 73% of total project costs are aimed at these units). Provincial and municipal governments, although not directly targeted or financed under this project, will be encouraged to join the Public Investment System, by sending staff to the same training, using the same methodologies as central government staff, and providing information to the central databank BAPIN. Several provinces have already expressed a serious interest in participating. The project has been prepared jointly by the staff of DNIP and consultants hired by ME, with assistance from the Bank. 22. Project Benefits. The main project benefit would be an increased awareness and application by the government of evaluation of results and impacts to better measure the effectiveness and efficiency of public expenditures. This is expected to result in improved The use of the Special Account will be reviewed when and if the government enters into an agreement with an agency for procurement and administrative services.  8 project analysis and preparation and a more rational allocation of resources, and help increase the productivity of public investmnents. 23. Project Risks. The major risks are (i) unsustained government commitment to reform; and (ii) excessive politicization of the selection of projects resulting in improper use of the investment system. These risks would be mitigated as follows: (i) high-level government commitment is shown by the approval in August 1994 of the National Public Investment System Law and in May 1995 of its regulation, and (ii) although the final selection of projects is and should be a political decision, a properly working public investment system, such as the one being implemented, will ensure that enough information on the pool of projects is available to permit a technically sound decision, while access by Congress and government to this information will enhance the transparency of the decision-making process. 24. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and I recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments Washington, D.C. October 30, 1995  9 Schedule A Estimated Project Costs (US$ thousand) |__ __ Local Foreign Total % Sectoral Investment Decision Making 544 700 1,244 5.0 Improvement of Sectoral Project Analysis and Evaluation Capacity 5,697 1,885 7,582 30.3 Basic Studies 8,623 0 8,623 34.5 Preparation of the NPIP 2,309 399 2,708 10.8 Project Administration 1,670 850 2,520 10.1 Base Cost 18,843 3,834 22,677 90.7 Price Contingencies 2,003 320 2,323 9.3 Total Project Cost 20,846 4,154 25,000 100.0 Financing Plan (US$ million) Local % Foreign % Total % Government 8.9 35.6 0.1 0.4 9.0 36.0 XBank 12.0 48.0 4.0 16.0 16.0 64.0 Total 20.9 83.6 4.1 16.4 25.0 100.0 m I  10 Schedule B Summary of Procurement Arrangements (in US$ million equivalent) Procurement method Project Element ICB NCB Other N.B.F. Total Cost Goods Computer Equipment 0.552 0.552 (0.420) (0.420) Miscellaneous Supplies b/ 0.175 0.175 (0.133) (0.133) Consulting Services d 20.219 20.219 (13.749) (13.749) Project Administration 2.071 2.071 (1.698) (1.698) Counterpart Staffing 1.983 1.983 (0.000) (0.000) Total 23.017 1.983 25.000 (16.000) (0.000) (16.000) Note: Nurnbers in parentheses are the amounts financed by the World Bank N.B.F.: Not Bank Financed a/ LIEB: Limited International Bidding b/ Local Shopping c/ Services to be procured in accordance with World Bank Guidelines: "Use of Consultants by World Bank Borrowers and by the World Bank as an Executing Agency (August 1981) Allocation of Loan Proceeds (in US$ thousand equivalent) Amount of Loan Percentage of Expenditures to be Category Proceeds Financed Goods 550 76% of expenditures Consulting Services 13,750 68% of expenditures Project Administration 1,700 82% of expenditures TOTAL 16,000 Bank Loan Disbursement Schedule (in US$ million equivalent) FY96 FY97 FY98 FY99 FY00 Annual 1.4 5.0 4.6 3.0 2.0 Cumulative 1.4 6.4 11.0 14.0 16.0  11 Schedule C ARGENTINA PUBLIC INVESTMENT STRENGTHENING PROJECT Timetable of Key Project Processing Events (a) Time Taken to Prepare: Twelve months (b) Prepared by: The Ministry of Economy with Bank assistance (c) First Bank Mission: July 1994 (d) Appraisal Mission: June 1995 (e) Negotiations: October 1995 (f) Planned Date of Board Presentation: November 1995 (g) Planned Date of Effectiveness: January 1996  12 Schedule D THE STATUS OF BANK GROUP OPERATIONS IN ARGENTINA STATEMENT OF BANK LOANS (s of Sepeber 30, 1995) (USS mInon) Loan Fil AMOUNT (1s UNDISBURSED Number Year Boromwr Pue co ) Fuly didtsd blo (44) 5,361.2 0.0 of which SAUSECALIDeb Reduction loam: 2575 196 Argentina Agrculture Sector 350.0 2815 1967 Argina Trade Poicy 496.0 296 1969 Argatk Trde Policy II 30.0 3291 1991 Argantin Pubic Enerprs Reform 300.0 3394 1 92 Argwntinr Pubic Sector Reform 325.0 3555 1993 Argantine DDSR Support 450.0 3558 19 Argeti Fhami Sector Adustrent 4D0.0 3556 1993 Argwentina Pub Entaprme Ref II 30.0 2641 1966 Argnrtine Wwr Supply 40.0 2.0 2854 1987 Argetwn Power Dibubon 276.o 69.8 2920 1988 Arganna Mucip Devaopmnt 120.0 3.7 3280 1991 Argeti Provincial Devlomt 2D0.0 116.7 3281 1991 Argetn W r Supply 100.0 92.8 329 1991 Artira PEREL 23.0 0.3 3297 1991 Arprbi Agrku Swva 33.S 11.5 3382 1991 Argeia Pub SaW Reform TA. 23.0 4.7 3460 19l2 Argntina Tax Admintstration 11 20.0 3.9 3520 1993 Argentia Yar," II 300.0 14.2 3621 1903 Argntn Flood Reheb 170.0 37.4 3611 1993 Argetn Rood Menance & Rehab 340.0 221.5 363 194 Argenin Matamal & Child Heft 100.0 83.0 3709 1994 Argeta Cap iulc 500.0 500.0 3710 1994 Argetin Caphl Makets TA 8.5 7.4 3794 1995 Arpntina S eonary Education 1 190.0 190.0 '313 1995 Argentina Provincial Refonm 300.0 200A 380 1/ 1995 Argetn Miia Development II 210.0 210.0 3877 I/ 1995 Argetin Provrma Dav. II 22.0 225.0 *37 19s Argentina Provncial Bank Prlvatlz. INA 333.0 39211/ 1995 Argent Higher Educetion Reform 165.0 166.0 939 11 1996 Argentina Dank Reform IOU 800.0 39271/ 1996 Arwntia Mhnng Secor Devlpmet 30.0 30.0 39311/ 1996 A ti PrwAncl Het S dor ev. 101.4 101.4 TOTAL 9136.6 of w*ich ha ben repaid 2,5855 TOTAL NOW OUTSTANDING 7,251.1 AMOUNT SOLD 12.8 of which he ban repaid 12.8 TOTAL NOW HELD BY BANK AND IDA 983.5 728.3 TOTAL UNDISBURSED -37 rDsbrsing SECAL. SAL or Debt Reducton Loan I/ Not yet signed. 05-Oct-95  13 Schedule D ARazXnStK STATXIX2T OF IZC INVXSTNSrrS As of September 30. 1995 (In Millions US Dollars) - Original Oross Cemitmants - Reid nod Undeb Fiscal Years zrc irc by by iMl. Committed Obligor Type of Business Loan Equity Ptpnt. Totals ITC Ptpa. Ptmt. 1392 Prigoritico Rilpl&tanu. a Food and Agribumins.m 12.00 1.00 6.00 19.00 10.33 5.00 2.00 1992 MM SoCiedad de Sola S.A Financial Services - .13 - .18 .lS - - 1992 Oleaginoma Oeste. S.A. Food and Agribusineas 20.00 - 15.00 35.00 14.1C 14.34 1332 Poliur. S.M. Chemicals and Petrachemc - 7.00 - 7.00 7.00 - 1392/93 Petrolara Argentina San J Mining and Extraetion of 15.00 27.00 35.00 77.00 39.50 2931. 27.00 1S93 Alto Parana S.A. Timber. Pulp and Paper - - - 0.00 1947 _ 1933 Cadipsa S.A. Mining an^d xtraction of 15.00 5.00 20.00 40.00 20.00 13.00 9.20 19S3 Capri S.A.I.C.I Food and Agribusiness - - - o.oo .90 - - 1993 Xmrigan S.. Infrastzrueturs - - 0.00 .S4 - - 1913 Ferroxoproma p-aoano. S. Infraetrzcture 13.00 - 20.00 33.00 12.45 17.07 4.40 1333 Interpack. S.A Timber. Pulp and Paper - - - 0.00 1.27 - - 1333 La Zudtetrial Alimenticia Food and Agribusin.n - - - 0.00 .S - - 1933 Halteri. Pa-pe. S.A. Food and Agribusiness 12.00 - 12.00 24.00 *.00 1C.00 1333 MendomA oa freecom. S.A. Food and Agribusin-ms - - 0.00 .94 - _ 1333 Mtewo Central Argentino 8 Infraetructuro 10.00 3.00 15.00 23.00 12.38 13.00 15.00 1S3S Surfacten S.A. Chemicalm and Petrochmic - - - 0.00 .17 - 1993/94 Molinee Rio de l& Plata S Feod and Agribusiness - 3.00 - 3.00 7.33 - 1993/96 Brida S .A.P.I.C. Niving and Extraction of 55.00 25.00 100.00 1t0.00 74.00 86.00 32.00 1994 C5rveceria y Malteria Qui Food and Agribu.ina.s 15.00 - 15.00 30.00 15.00 15.00 15S4 Crampia General de Coebu Mining azd Xxtraction of 25 .00 15.00 40.00 SO.00 33.00 42.00 - 1934 . rea Distribuidora lior Infraetructure 45.00 - 123.00 173.00 39.38 121.0- 1334 Perrn S.A. C _nt Lad Construction M - - 0.00 1.50 - - 1334 XMaL.a-Argentina. S.A. Timber. Pulp and Paper 11.00 - - 11.00 11.00 - - 13S4 The Argentina xquity Inve Financial Services - 4.00 - 4.00 4.00 - - 1934 YaCylec S.A. Infraetructure 20.00 .04 45.00 65.04 15.49 44.71 - 1lS5 Acedtera Gn-ral Deh-za S Foed and Agribusiness 15.00 10.00 15.00 40.00 25.00 15.00 15.00 1335 Aguas argentina- Ifrantructure 33.00 7.00 134.50 179350 45.00 125.53 - !3J Co e- ia Eeleboradora de P Food and Agribusines. 15.00 - 6.00 21.00 14.33 5.40 - 1SJS C5OPs," A_mricana de Sup Industrial and Conswu.r S 29.00 - - 23.00 24.00 - - 1sS Xingpe S.A. and ZI Caldor Food and Agribunineas 6.00 - 6 .00 6.00 - - 1s3s La Buenos Airs Now York Financial Servic. 2.33 - 2.39 2.33 - - LOSS La Bueno Aire. 8.k. Rati Financial Services - 1.17 - 1.17 1.17 .53 13S5 XMatellone Hermano. S.A. Food and Agribusiness 40.00 - 35.00 75.00 40.00 - 1335 Maxima .CA. AZJP Financial Servie.s - 14.15 - 14.13 14.13 .04 1935 Yn"-laat S.A. Infrastructure 30.00 5.00 - 35.00 35.00 - 30.00 1335 Sancor Cooperativas Unida Food and Agribusinesn 40.00 - 30.00 70.00 40.00 - - 1s35 Coeaa Amricnns S.A. Infraetructure 24.33 15.00 60.01 100.00 39.35 - - 1S55 The Tower Fund, L.P. Financial Service. - 20.00 - 20.00 20.00 - 17.73 1355 The Tower Inve.tXant Mann Financial Service. - .15 - .15 .15 - .13 Total gross com tnants bf 1243.00 200.06 1035.61 2478.67 Laoe c acelletion.. tezuinationa. repayment m ale. S62.19 1.52 311.60 875.31 Total cmitomntm novw held c/ 650.31 198.54 724.01 1603.36 873.35 724.01 225.76 Pending comm_itmenta AZCSA 20.00 - 61.00 51.00 Aguas Argentinas Infrawtructure 40.00 - 120.00 150.00 B3AX3 A GrlRTNA 10.00 8.50 25.00 43.50 roxtYU 40.00 - 30.00 120.00 _EW*a Distribuidora Iniractructure - - 8.00 8.00 T tMC39.LE POIT. 10.00 2.00 - 12.00 TUCUNW1 - .30 - .30 Total pending comietmnt 120.00 10.30 284.00 414.80 Total comLitments held and pending co_ itnents 800.81 203.34 1008.01 2018.16 Total undisburaed con.itasents 87.48 45.43 92.85 225.76 a/ I2kveetXLnte which have been fully cancelled, terinated, written-off, sold, redeemed, or repaid. b/ Gross codni_ent consist of approved and signed projects. C/ *eld cmEietr consint of disbureed and undi- bureed inVeetuento.   TECHNICAL ANNEX   14 SECTION A: DETAILED PROJECT DESCRIPTION PROJECT BACKGROUND Introduction 1. Argentina which has suffered from a prolonged political and economic decline with a concomitant deterioration of its public institutions. Economic policy from the 1940s onward tended to favor the interests of successive private groups with access to power: unionized labor through implicit subsidies (high wages, guaranteed employment); industry, through various subsidies embodied in highly protected markets, tax exemptions through special promotion regimes, and subsidized credits and grants; and public enterprises, through subsidized inputs and high, noncompetitive prices.' 2. The unexpected rise in real intemational interest rates and the abrupt end to voluntary foreign commercial bank credit in the early 1980s provoked a financial collapse, and placed additional pressure on the economy, which was forced to direct domestic savings into foreign interest payments. In the period 1980-1982 the public sector took over much of the private debt, exacerbating the existing structural public deficit. Macroeconomic Effects 3. Economic Instabilitv. In the last forty years, economic policy has been characterized by frequent changes of direction; unforseeable changes in exchange rates; modifications in the nature of the exchange market, which oscillated between total restriction and absolute freedom; abrupt changes in the commercial market, ranging from rigorous price control to total deregulation; short-term subsidies for production; and fluctuations in tariffs on imported goods, among others. 4. Inflation. Severe macroeconomic and institutional distortions manifested themselves in chronic public sector deficits and endemic inflation. Public sector deficits in the late 1970s ranged from 5 to 14 percent of GDP and in the early 1980s surpassed 15 percent of GDP. Central Bank losses probably raised the combined deficit to over 20 percent of GDP. After the return to constitutional democracy in 1983, public demands to control inflation were reflected in four major stabilization programs, all of which failed to eradicate inflation, and indeed aggravated it. Inflation, high and unpredictable, became the main impediment to the growth of private savings and investmnents. Inefficiency in the Use of Public Resources 5. Lack of budgietarv planning. The deterioration of the state resulted in a complete breakdown of the budgetary process. In the absence of a planning framework given by a properly formulated budget, control and evaluation of expenditures can only be weak. IArgentina: from insolvency to Growth (10827-AR). The World Bank. 1993  15 6. The present administration has enacted a series of structural reforms to recast the foundations of public finance and the insolvencv of the state. In a complex series of efforts, the Government of Argentina (GOA) addressed these issues with resolve, and as a result, the National Budget has now been prepared on time three years in a row, and the first tri-annual National Public Investment Plan will be presented to Congress during 1995, after many years' absence. The new Integrated Financial Information System (SIDIF) now collects and consolidates all information on expenditures by the National Government. As of July 1995, the use of a single account for Treasury permits the management of cash, which until then was held in more than 4000 separate bank accounts. A new debt system (SIGADE, developed by UNCTAD) is in operation in the Public Credit Directorate at the NE. As a result, detailed accounting and budgeting information can now be produced in a timely fashion. In addition, a modem Auditor General's Office was created and ex-ante control eliminated with the consequent increase in efficiency and transparency. With the control of expenditures successfully addressed in this way, the next area which would need to be addressed is the efficiency and effectiveness of expenditures. 7. Argentinean public expenditures are roughly divided into two categories: operational expenditures (US$32 billion) 2, and investment expenditures (US$8 billion). The latter is, in turn, divided into physical investment (US$4 billion, including projects co-financed with the Provinces and Municipalities) and an additional US$4 billion of associated expenditures (e.g., planning and training). A list of the major public investment entities (1994 budget) and a sample of large projects (1995-1999 projections) is given below. Govemment proposes addressing the problem of the effectiveness and efficiency of investment through training in project analysis and evaluation, creating a culture of evaluation by results and impact to replace earlier measurements by cost incurred. The GOA strategy is to concentrate initially on real capital investment (through the proposed project) and social investment (through the Social Protection Project, in preparation, in cooperation with the proposed project). The results of these efforts would be expanded to the Provincial Governments (Second Provincial Development Project, Ln. 3877, approved on May 4, 1995) and at a later stage results could be expanded to other areas of public expenditure, including recurrent expenditures. 8. GOA's investment strategy has altered considerably. The change in the role of the State from production to regulation resulted in large-scale privatization of state-owned enterprises and a considerable decrease in public investment requirements. Nevertheless, considerable investment remains. GOA's investment program for 1995-1999' proposes investments of approximately US$86.8 billion, including National, Provincial and Municipal Governments as well as privatized and public enterprises. Of this amount, US$6 billion are direct National Government investments, and US$18 billion are national investments through transferences and loans ("soft" investments, such as those accompanying physical investments, investments in human resources, management, etc. are not included at present). 9. Inefficiency of public investment. As mentioned before, the erosion of the State has resulted in a weakening of Government as an institution, with, among others, the practically total 21994 budget Argentina en Crecimiento. 1995-1999. Niinisterio de Economia v Ohras y Scrvicios Publicos. Argentina  16 disappearance of planning as a function. This has resulted in (i) a general absence of macroeconomic sectoral strategies; (ii) absence of guidelines for the proper identification and preparation of projects and the evaluation of their results and impacts, with a concomitant inefficient allocation of resources and inadequate implementation of public investment projects. 10. Information recently gathered by DNIP on the status of a sample of investment JUDICLAL BRANCH ...... projects in the pipeline has revealed that no MIN. OF JUSTICE more than 10% of those projects could provide bUN. OF HEALTH a detailed feasibility study to justify the project FOREIGN AFFAIRS and its design. Data on the execution of MIN. OF INTERFOR investment projects reveals substantial PRESIDENCE variation across projects in the speed of project MIN. OF ECONOMY execution relative to planned execution. MIN. OF EDUCATION During 1993, project implementation versus MIN. OFDEFENSE planned as measured bv disbursements relative 0% 20% 40% 60% 80% 1 000