Argentina - National Pension Administration Technical Assistance Loan

Report No. PIC4529 Project Name Argentina-National Pension... Administration Technical Assistance Loan Region Latin America and the Caribbean Sector Public Sector Management Project ID ARPA46821 Borrower Ministry of Economy Implementing Agency ANSeS Av. Leandro Alem 650, 80 piso, (1001) Buenos Aires Telephone: 54.1.315.03.40; Fax: 54.1.313.61.94 Date this PID Prepared December 1996 Appraisal Date July 1996 Expected Board Date February 1997 1. Country and Sector Background. Until 1993, the Argentine national pension system was a publicly-administered pay-as-you-go system providing for a universal entitlement. This system suffered from widespread evasion, lax disability rules and low retirement ages, and would have required an impossible contribution rate of 50 percent for equilibrium. 2. To deal with this situation, in 1994 the Government introduced a new integrated system, with a publicly-administered basic pension, and an additional pension for which affiliates may choose between a public and a private option. The private option is based on individual capitalization accounts managed by pension fund administrators (Administradoras de Fondos de Jubilaciones y Pensiones - AFJP). This, and other measures such as ceilings on pensions (with gradual reductions for current pensions above the ceilings) and increases in the retirement ages, is expected to eventually lead the pension system to equilibrium. 3. Payments for the public portion of the pension system are administered by the National Social Security Administration (ANSeS), which issues approximately 3.5 million payment orders per month. This will represent, for 1996, an outlay of US$15.3 billion. Years of inadequate granting and payment processes have created considerable distortions due to errors as well as fraud. Initial estimates by the government put the amount of overpayment at a minimum of US$300 million per year. In addition, a diagnostic study commissioned by ANSeS in 1995 revealed a number of serious deficiencies in the provision of services to the clients. An improved administration of the public pension system is clearly indicated. 4. In 1993, the National and Provincial Governments agreed to transfer the provincial pension funds to the national system. To date, ten provinces (including the Municipality of Buenos Aires) have agreed to the transfer. Absorption of these funds by the National Pension System  (see 1/) would ensure that the same conditions and benefits now offered to the private sector and federal civil servants are available to provincial civil servants. 5. Project Objectives. The objectives of this project are to help ANSeS improve its institutional efficiency and effectiveness in accordance with modern management principles in order to: (a) reduce undue pension payments; (b) improve the quality of its client services; and (c) absorb the Provincial Pension Funds. 6. Project Description. The project, whose total cost is estimated at US$40 million, would be implemented over a four-year period starting in 1997. It would finance technical assistance, consulting firms and the acquisition of computer equipment, through four components: (a) Fraud and Error Control. Activities in this component aim to reduce unwarranted disbursements due to fraud and error by desk-checking existing paper files, carrying out on-site visits where necessary, and updating the beneficiary database. To facilitate sustainability, a Fraud Control Unit would be set up, in charge of verifying procedures and investigating cases of fraud; (b) Improvement of Client Service Quality. Agencies will be reorganized to provide one-stop, full-service 'points of sale', and provided with new processes and systems, trained personnel, and an upgraded infrastructure; (c) Provincial Pension Fund Transfers. The Provincial Pension Funds of up to 22 provinces will be absorbed into the national system after a verification of its files and elimination of errors and fraud; (d) Institutional Strengthening. These activities include the introduction of a new organizational structure, management techniques and an incentive system linked with performance, as well as central monitoring and control and support operations such as maintaining the central database and telecommunications facilities. 7. Project Administration. An administrative unit will be set up in ANSeS, charged with procurement and accounting. Bank financing will cover the project administrator and accountant, and the establishment of an accounting and performance monitoring system. All other costs will be the responsibility of the counterpart. 8. Project Financing. The reform program envisaged will initially involve expenditures of about US$40 million. The Bank will contribute half, and the Ministry of Economy will contribute an equal amount. 9. Project Implementation. The Executing Agency will be the National Social Security Administration (ANSeS). 10. Sustainability. Achieving a sustainable culture change in a large organization commonly takes ten or more years, and is beyond the scope of any one project. The results of the proposed project, although substantial, will be transitory unless the Government of Argentina builds upon these initial efforts, creating a learning organization capable of incrementally improving itself to achieve its objectives. The project will lay the groundwork for this, by introducing an internal and external client orientation; processes clearly aligned with the objectives; a structure consistent with the processes; and a management which permits accountability and authority (including budgetary authority) in line with the objectives and processes. -2 -  11. Lessons Learned from Past Operations. Many lessons have been drawn from technical assistance projects, which this project attempts to address. Two may be particularly underlined: the danger of lack of continuity of counterpart management and the lack of early implementation capacity. For the first issue, a Steering Committee has been constituted, chaired by the Secretary of Social Security, to whom the National Director will report semi-annually. Should the National Director change, the Steering Committee would provide continuity. 12. Bank experience clearly indicates that one of the major sources of delays in implementation is the lack of knowledge of project management and Bank procedures. To eliminate this problem, an experienced project administrator and an accountant/procurement specialist will be hired through the project. These are the only two long-term consulting assignments contemplated. 13. Poverty Category. N. A. 14. Environmental Aspects. The proposed project is not expected to have any environmental impacts. 15. Program Objective Categories. The primary category is Public Sector Management (PB). 1/ With all its problems, the national pension system is considered to be better administered than the provincial funds. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by The Public Information Center week ending December 13, 1996. - 3 -