Peru - Education at a crossroads - challenges and opportunities for the 21st century (Vol. 1 of 2) : Main report

Report No 19066-PE Peru Education at a Crossroads Challenges and Opportunities for the 21 st Century (In Two Volumes) Volume I Main Report December 30, 1999 Human Development Department Bolivia, Paraguay and Peru Country Management Unit Latin America and the Caribbean Region uetoteWm Doument o beWrld Bank  ACRONYMS AND ABBREVIATIONS ADE Areas de Desarrollo Educativo (Education Development Areas) AE Area de Ejecuci6n (Area of Execution) AFP Administraci6n de Fondo de Pensiones APP Authorized Pensionable Position CIAS Comite Interministerial de Asuntos Sociales (Inter-ministerial Committee of Social Affairs) CORDELICA Corporaci6n de Desarrollo de Lima y Callao CTAR Consejo Transitorio de Administraci6n Regional (Transitional Council of Regional Administration) DRE Director Regional de Educaci6n FONAVI Fondo Nacional de Vivienda (National Housing Fund) FONCODES Fondo Nacional de Compensaci6n y Desarrollo Social (Social Fund) GRADE Grupo de Analisis para el Desarrollo INEI Instituto Nacional de Estadistica e Informatica INFES Infraestructura Nacional para Educaci6n y Salud (National Infrastructure for Education and Health) IPSS Instituto Peruano de Seguro Social (Peruvian Institute of Social Security) IST Institutos Superiores Tecnicos (Higher Technical Institutes) ISP Institutos Superiores Pedag6gicos (Higher Institutes of Pedagogy) MECEP Proyecto para Mejoramiento de la Calidad de la Educaci6n Primaria MED Ministerio de Educaci6n (Ministry of Education) MEF Ministerio de Economia y Finanzas (Ministry of Economy and Finance) MINSA Ministerio de Salud (Ministry of Health) OECD Organization for Economic Cooperation and Development ONP Oficina de Normalizaci6n Previsional (Pension Office) PLANMED Planning Unit in MED PROMUDEH Ministerio de Promoci6n de la Mujer y del Desarollo Humano (Ministry for the Promotion of Women and Human Development) PRES Ministerio de la Presidencia (Ministry of the Presidency) USE Unidades de Servicios Educativos (Educational Service Units) UNESCO United Nations Educational, Scientific and Cultural Organization Exchange Rates (1997): Soles 2.66 = US$1 Fiscal Year: January 1 to December 31 School Year: April I to December 31 (180 days/year) Vice Presidents Shahid Javed Burki (through June 30, 1999) David de Ferranti (from July 1, 1999) Country Director Isabel Guerrero Lead Economist Emesto May Sector Director Xavier Coll Education Sector Manager Jamil Salmi Lead Specialist in Human Donald Winkler Development Country Sector Leader Evangeline Javier Task Team Leader Kin Bing Wu  Peru Education at a Crossroads: Challenges and Opportunities for the 21st Century Volume 1: Main Report   PREFACE Peruvian government policy in the 1990s attained macroeconomic and political stability. These accomplishments were particularly noteworthy given the problems of macroeconomic imbalances, hyper-inflation, and civil unrest of the late 1980s. These achievements created the preconditions for the success of long-term policies that can both sustain economic growth and address problems of persistent poverty. The Government of Peru (GOP) has made poverty alleviation one of the cornerstones of its policy. In 1997, about 49 percent of Peru's population of 25 million lived in poverty and 15 percent in extreme poverty. The World Bank's assistance program for Peru emphasizes support for the GOP's poverty reduction strategies and projects. In order to guide its own work, to deepen its dialogue with government, and to inform public discourse, the Bank initiated a coordinated set of studies bearing on poverty reduction. The studies covered four topics: poverty itself, health, indigenous peoples and education. This report conveys the findings of the education study. Almost all Peruvian children enroll in primary education and opportunities for secondary and higher education well exceed what would be expected for a country of Peru's income level. The GOP views investment in education as essential for social cohesion, for personal and moral development, and for improving individual economic productivity and employment prospects. Educational improvements thus underpin both poverty reduction and long-term economic and social development. Despite achievements to date, significant gaps remain -- between the rich and poor, between the rural and urban areas, and between the indigenous and nonindigenous populations -- in school completion rates and learning outcomes. Overall challenges also remain for upgrading quality at all levels and for extending coverage of early childhood, secondary and higher education. Peruvian education has thus reached a crossroads. The current situation reflects important accomplishments. One path into the 21" Century would pursue steady incremental improvements of the current situation. Another path for policy would aim for a marked improvement in intellectual and technical capacity of the population through a focussed commitment to closing gaps and meeting remaining challenges. This report seeks to inform discussion of these options by examining the impact of public and private finance, and policies for their use, on education and labor market outcomes. As such, it is one contribution to a larger discussion of human resource development and poverty reduction. This World Bank document reports the work not only of its own staff but, also, to an unusual extent, that of Peruvian academics, policy analysts, and public officials. The document reflects a collective effort.  IT  TABLE OF CONTENTS VOLUME 1: MAIN REPORT Task Team and Reviewers ....................................... vii Ackinowledgments ....................................... lx Executive Summary ....................................... xi 1. Sector Overview.1 1.1. Achievements.1 1.2. The Evolving Education System ........................................3 2. Education Finance..11 2.1. The Budget Process.11 2.2. Public Expenditure on Education .13 2.3. Household Expenditure on Education ....................................... 24 3. System Performance Indicators ........................................ 29 3.1. Access, Repetition, and Retention ....................................... 29 3.2. Labor Market Outcomes ........................................ 34 3.3. Learning Outcomes ....................................... 37 4. The Teaching Profession ....................................... . 47 4.1. Teacher Qualifications and Employment Status ....................................... 47 4.2. Conditions of Service and Compensation ....................................... 51 4.3. Incentives and Accountability ....................................... 56 5. Second-Generation Reform ....................................... 61 5.1. Improve Equity ....................................... 61 5.2. Enhance Quality ............................... 64 5.3. Improve Efficiency of Resource Use ............................... 65 5.4. Conclusion ............................... 68 References ............................... 75 111  VOLUME II: BACKGROUND NOTES AND APPENDICES Background Notes ........................................l. 1. The Structure of Education .1 2. Income Elasticity of Demand for Education and Engel's Curve .3 3. Private and Social Returns to Public Education in Urban Peru .7 4. Determinants of Achievement .13 5. Teacher Education and Professional Development .41 Appendices ....... 51 1. Student Enrollment Statistics .51 2. Teacher Statistics .59 3. School Statistics .75 4. Indicators of Equity and Efficiency .83 5. International Comparison of Between-School Variation in Achievement . 105 6. Public Expenditure on Education.1. II 7. Household Expenditure on Education .157 8. Population Projection .173 9. External Support for Education Since 1990 .179 10. Selected Indicators for International Comparison ..................................... 189 iv  LIST OF TABLES IN THE MAIN REPORT 1. A Comparison of the Existing and New Education Structures ........................................6 2. Urban Peru: Rates of Return to Public Education, 1997 ............................................... 35 3. Index of Fourth Grade Mathematics Outcomes, 1996 ................................................... 38 4. Summary of Effects Crossing between Departments, Schools and Students ............ 43 5. First Generation Reform and Its Implications for Second Generation Reform ......................................................... 70 6. Summary of Policy Options ......................................................... 72 LIST OF FIGURES IN THE MAIN REPORT 1. International Comparison of Enrollment of Students between the Ages of 3 and 23 ..........................................................2 2. International Comparison of Public Expenditure on Education as a Percentage of Gross Domestic Product ..........................................................2 3. Trend of Enrollment in Public Institutions by Level, 1990 to 1997 ................................7 4. Trend of Enrollment in Private Institutions by Level, 1990 to 1997 ...............................7 5. Ministry of Education Operational Structure ......................................................... 10 6. Public Expenditure on Education and Central Government Expenditure as a Percentage of Gross Domestic Product Expenditure, 1970 to 1997 ................ 14 7. Percentage Change of Gross Domestic Product, Central Government Expenditure, and Public Education Expenditure, 1970 to 1997 ............................. 14 8. Public Spending on Education and GNP Per Capita in Lower Middle Income Countries ......................................................... 15 9. Total Recurrent and Capital Expenditures on Education 1970 to 1997 (in constant 1997 soles) ......................................................... 17 10. Composition of Public Expenditures on Education, 1990 to 1997 (Percentage, Re-grouped According to the Latest Classification) .......................... 17 11. Inter-Governmental Transfer of Resources (Percentage of Total), 1990 to 1997 ......................................................... 17 12. Public Expenditure on Education by Level, 1990 to 1997 (Percentage) ..................... 19 13. Per Student Recurrent Public Expenditure on Education by Level, 1990 to 1997 (Constant 1997 Soles) ......................................................... 19 14. Lorenz Curve for Incidence of Public Expenditure ..................................................... 22 15. Lorenz Curves for Incidence with 5 Simulations ........................................................ 22 16. Lorenz Curves by Education Level ......................................................... 22 17. Lorenz Curve for Incidence of Private Expenditures - All Levels .............................. 27 18. Lorenz Curve for Incidence of Private Expenditures - Only Public Schools .............. 27 19. Lorenz Curve for Incidence of Private Expenditures - Only Primary Schools ........... 27 20. School Survival Rates by Gender, 1997 ......................................................... 32 21. School Survival Rates by Urban and Rural Areas, 1997 ............................................. 32 22. School Survival Rates by the Mother Tongue, 1997 ................................................... 33 23. School Survival Rates by Poorest and Richest Consumption Quintiles, 1997 ............ 33 24. Evolution of Estimated Premia by Educational Level, 1985 to 1997 .......................... 34 v  25. Mathematics Outcomes and Recurrent Public Expenditure on Basic Education Per Student ....................................................... 39 26. Mathematics Outcomes and Household Expenditure on Basic Education Per Student ........................................................ 39 27. Poverty and Recurrent Public Expenditure on Basic Education Per Student .............. 40 28. Poverty and Household Expenditure on Basic Education Per Student .................. 40 29. Determninants of Effective Learning in Primary Education: Findings from Literature Review ....................................................... 44 30. Remuneration of Teachers in Real Terms, 1990 to 1997 ............................................... 54 31. Index of Remuneration of Government Employees 1970-1997 .................................. 55 32. Index of Private Sector Salaries in Metropolitan Lima, 1970-1997 (Based August 1990=100) ....................................................... 55 33. Index of Purchasing Power of Private Sector Salaries 1972, 1990, 1997 .................... 55 34. Index of Purchasing Power of Public Sector Salaries 1972, 1990, 1997 ..................... 55 35. Estimates and Projections of School Age Population, 1995-2020 .............................. 68 vi  TASK TEAM AND REVIEWERS This report was prepared by: Kin Bing Wu, Team Leader With contributions from: Juan Pablo Silva and Arturo Review of Public Expenditure on Education Miranda Suhas Parandekar and Juvenal Diaz Analysis of Household Expenditure on Education Pete Goldschmidt Analysis of Academic Achievement Patricia Arregui and Sandro Analysis of School Survey in Lima/Callao and Cusco Marcone Jaime Saavedra and Eduardo Analysis of Social and Private Rates of Retum to Maruyama Education and Labor Market Outcomes Kye Woo Lee Teacher Supply and Demand and Compensation Maria Amelia Palacios Teacher Training Richard Webb Budget Process & Higher Education Livia Benavides External Support for Education Eduard Bos Projection of School-age Population Supported by: Anna Maria Mayda, Roberto De Research Assistance Vogli, Olympia Icochea, Aude Damon, Yukiko Arai and Atsuko Toi Aracelly Woodall, Douglas Task Assistance Flandro and Pierre Sandoval Leslie Evans English Editing Luisa Maria Rojas, Berta Van Spanish Translation Zuiden, Ivonne Treneman Elizabeth Mestanz Word processing in Spanish Gladys Eopez, Gladys Del Valle, Support of various kinds from the staff of the World Ana Maria Arteaga and Nancy Bank Resident Mission in Lima Escalante World Bank Reviewers: Peter Moock Marlaine Lockheed Ernesto Cuadra Fernando Reimers Jaime Saavedra vii  Ministry of Education Reviewers: Juan Fernando Vega Cesar Guadalupe Jose Rodriguez Juan Pablo Silva viii  ACKNOWLEDGMENTS The study is made possible by the support of the Ministry of Education (MED), Ministry of Economy and Finance (MEF), Ministry of the Presidency (PRES), and Regional Education Directorates. Special thanks are due to current and former officials of the following agencies: Ministry of Education Sr. Felipe Garcia Escudero (Ministro), Srta. Susana Seto (Vice Ministra), Srta. Esther Gago (Ex-Vice Ministra), Sr. Juan Fernando Vega, Sr. Cesar Guadalupe, Sr. Jose Rodriguez (PLANMED), Sr. Walter Twanama (Ex-Oficina de Planificaci6n Estrategica y de Medicion de la Calidad), Sr. Jorge Ferradas (MECEP), Sra. Virginia Cachay (Ex- Unidad de Seguimiento y Monitoreo), Sr. Cesar Serpa (Ex-Unidad de Presupuesto), Dra. Blanca Encinas (Ex-Direcci6n Nacional de Educaci6n Inicial y Primaria), Sr. Rolando Andrade Talledo (Direcci6n Nacional de Capacitaci6n y Formaci6n Docente), Sra. Carmen Trelles (PLANCAD), Sra. Tula Luna (Ex-Direcci6n Nacional de Educaci6n Secundaria y Superior Tecnologia), Sra. Luz Chung (Ex-Unidad de Desarrollo Curricular y Recursos Educativos de Educaci6n Secundaria), Sra. Marimoly Vela Tellez (Direcci6n de Educaci6n de Adultos), Sra. Carmen Cecilia L6pez Diaz (Oficina de Personal), Dra. Maria Belen Suazo (Oficina de Personal), Sra. Nery Escobar (Unidad de Formaci6n Docente), Sr. Juan Carlos Godenzzi (IJnidad de Educaci6n Bilingue Intercultural), Sr. Paul Roeders (GTZ-Proyecto Reforma de Formaci6n Magisterial), Sra. Carmen Salardi (Directora General de Administraci6n). Ministry of the Presidency Sr. Alejandro Arrieta (Ex-Secretario Interministerial de Asuntos Sociales), Dr. Nelson Vidal La Torre (Ex-Asesor del Despacho Ministerial), Sr. Adrian Fajardo Christen (Asesor Principal del Despacho Ministerial). Ministry of Economy and Finance Sr. Javier Abugattas (SIAF), Dra. Hedy Huarcaya (Direcci6n de Sectores Sociales, DNNPP-MEF), Sr. Carlos Pichilingue (Direcci6n de Regiones, DNPP-MEF), Sra. Neride Sotomarino (Ex-Oficina de Inversion), Sr. Rafael Capristan Miranda (Oficina de Inversiones). Direcci6n Regional de Educaci6n La Libertad: Sra. Rosa Neyra (Direcci6n Regional de Educaci6n), Sr. Estuardo Loyola Rabines (Oficina Asesoramiento Tecnico), Sra. Rene Vereau Orbegozo (Oficina de Administraci6n), Sr. Walter Rebaza Vasquez (Direcci6n Tecnica Pedag6gica), Sra. ix  Regina Pacheco Ponce (Direcci6n, Aldea Infantil Santa Rosa de la Fundaci6n por los Nifios del Peru). Arequipa: Prof. Carlos Urbiola L6pez (Direcci6n Tecnica Pedag6gica), Sr. Oscar Lazo Rodriguez (Relaciones Pfblicas), Sr. Hector RodrIguez Alvarez, Sra. Luz Perez, Postigo, y Sr. Sauil Begozo Jacobo. Cusco: Sr. Juan C. Galvin (Director de Asesoramiento Tecnico). Puno: Prof. Elias Peralta Hinostroza, (Direcci6n Regional de Educaci6n), Arq. Jose Manuel Pineda Barreda, (Infraestructura Educativa), Sr. N6stor Marca Limachi, (Top6grafo), Prof. Florencio Madarriaga (Especialista en Educaci6n), Lic. Leticia Ramos Cuba (Relaciones Publicas). Loreto y Lima: Prof. Luis Veintemilla Soria (Direcci6n Regional de Educaci6n), Sra. Herman Rodriguez Flores (Area Estadistica), Prof. Bernardo Vasquez Cahuaza (Jefe de Presupuesto). Banco Central de la Reserva del Peru Sra. Maritza Guabloche Colunge (Apoderado General), Sr. Victor Hugo Diaz (Dpto. Entidades Gubernamentales), Sra. Judith Guabloche, Sra. Augusta Alfageme. Instituto Nacional de Estadistica e Informatica (INEI) Sra. Genara Rivera (Directora de Estudios Sociales), Sr. Renan Quispe (Sub Jefe de Estadistica). The World Bank team is grateful to educators and researchers in universities, research centers, and non-governmental organizations for sharing their work and perspectives. Universidades/Entidades de Investigaci6n/Organizaciones No Gubernamentales Sr. Juan Ansi6n (Pontificia Universidad Cat6lica del Peru), Sra. Carmen Montero (Instituto de Estudios Peruanos), Sr. Hugo DIaz (Instituto de Jnvestigaci6n para el Desarrollo y la Defensa Nacional), Sr. Moises Ventocilla (Instituto Cuanto), Sr. Luis Carlos Gorritti (Foro Educativo), Sra. Cecilia Thorne (Pontificia Universidad Cat6lica del Perui), Sr. Jose Martin Vegas (Foro Educativo), Sr. Santiago Cueto (GRADE - Grupo de Analisis para el Desarrollo), Sr. Julio Dagnino (Instituto de Pedagogia Popular), Sr. Eduardo Palomino (Colegio de Los Andes). x  EXECUTIVE SUMMARY Peruvian education has achieved notable successes in the second half of the 20th Century. Primary education now reaches almost all children. Secondary and tertiary education institutions enroll about 80 percent of the 12- to 16-year olds and 30 percent of the 17- to 25-year olds, respectively. Few countries in Peru's income range achieve comparable coverage. These accomplishments are particularly impressive given Peru's geographical and ethnic diversity and its recently overcome problems of macroeconomic instability and civil unrest. The current government has steadily increased public expenditure on education, despite constraints imposed by disciplined fiscal policies. Nonetheless, at 3 percent1 of Gross Domestic Product (GDP) in 1997, Peru's public spending on education remained significantly less than the Latin American average of 4.5 percent. That Peru was able to attain high enrollment with a very low level of public spending results from several factors: (i) relatively equitable distribution of public resources to benefit the poorer quintiles of the consumption distribution; (ii) the ability to contain the growth of personnel expenditure, channeling the additional public resources to build up the infrastructure and capacity; (iii) mobilizing high household expenditure on education (total household spending on public and private education accounted for about 2 percent of GDP-much higher than the OECD's 1.3 percent); and (iv) having achieved near universal primary education before qualitative improvement and expansion of other levels. These factors operated in the context of what might be labeled a first generation of reform occurring in the early 1990s. This reforrn was characterized by rationalization of the public sector, regionalization of administration, deconcentration of social services, encouragement of private education, and extension of free and compulsory education. Despite these accomplishments, important challenges remain. Disparity between the rich and poor -- and between rural and urban areas -- remains pronounced in access to preschool, secondary education, and tertiary education, as well as in school completion rates. Disparity is also manifested in levels of achievement between indigenous and non- indigenous populations, and between public and private schools. Meanwhile, the earnings differentials between workers with different levels of education are growing. In urban areas, the largest increase in earnings differentials is between university educated and secondary educated workers. This signals a growing demand for higher skill levels in an open economy that is facing increasing international competition and technological change. These trends have serious implications for the employment prospects and future life-time earnings of disadvantaged groups. Peru has thus reached a crossroads for education policy. The status quo reflects major accomplishments. One direction for policy would, therefore, involve useful but In Peru, pensions are paid out of the recurrent budget of each ministry, not out of a separate pension fund as in many other countries. Pensions accounted for about 21 percent of the total public expenditure on education. Net of pension, public spending on education accounted for only 2.4 percent of the GDP in 1997. xi  relatively limited improvements in the current situation. This direction, however, may prove inadequate to fulfill the government's goal of having a highly educated citizenry - fully competitive by international standards - to underpin poverty reduction and to facilitate economic and social development. A second generation of reform would be required if this direction were taken. This study explores these possibilities. It reviews evidence to guide reforn in the education process itself. In this context, it lays out options for a second wave of reforn. Either of the broad directions for policy will need to identify specific ways of improving educational quality. Experiences of other countries provide important insights. Of more direct relevance is analysis of the determinants of educational outcomes in Peru itself. An innovative assessment of fourth graders' achievement levels in 1996 generates an empirical basis for such an analysis.2 The 1996 assessment has limitations - as do those in other countries, particularly in initial efforts - and hence the results obtained should be viewed as suggestive rather than definitive. That said, the findings are encouraging in indicating potential directions where change could make a difference. This report draws preliminary conclusions based on analyses of determinants of mathematics achievement. After controlling for a number of explanatory variables, the perfornance of poor and extremely poor departments was better than non-poor departments. Some departments were doing a better job in educating over-aged students. Aymara students performed as well as Spanish-speaking students. Quechua students could achieved as much as others if they were not studying in predominantly Quechua schools, thereby indicating the potential for policy to reduce the disparity. Teachers who graduated from universities and from Institutos Superiores Pedag6gicos, teachers who have had longer years of service, and teachers who have had more in-service training courses, were positively associated with higher student achievement, relative to those teachers who have not had these qualifications, years of service and training opportunities. Non-availability of textbooks was associated with lower achievement. Parental expectations - potentially modifiable through publication of assessment results and learning determinants - helped shape outcomes. Even within the limitations of this first assessment effort, the findings are sufficiently important to warrant attention for the policy possibilities to equalize educational outcomes and improve quality more generally. Because the burden for financing education is disproportionately heavier for poorer households than richer households, public policy cannot rely on general increases in income to bring improved educational quality for disadvantaged populations. The public sector has assumed the mandate to ensure the equality of educational opportunity for all and improved economic opportunity for all - by directing more public resources to the poor. Past constraints on public expenditure allow room for new allocations to meet this mandate without exceeding reasonable overall public allocations to the sector. But 2 The 1996 assessment is not yet in the public domain. This report, therefore, provides no data on specific test results or on averages of scores of departments. To protect the underlying data, statistical analyses report only the effects of various independent variables on outcomes, rather than more comprehensive fimdings. xii  increased public commitment to education will prove to be of little value unless the resources are committed not only to the right groups but also to the right interventions. To level the playing field for all Peruvian children, then, it is necessary to improve equity, quality, and efficiency. All countries face these challenges. In Peru, the policy options to meet them include the following: * Improve equity: Government support can come in the form of proven supply-side interventions. These include extending the current provision of each class with a set of instructional materials and supplies from primary education to preschool and secondary education; expanding provision of bilingual education programs and texts; stepping up recruitment and strengthening training of indigenous teachers; training rural teachers in multi-grade teaching; providing incentives to rural teachers; extending cost-effective health and nutrition programs for school-age children; and expanding access to secondary education (in part by establishing distance learning programs). Also important are demand-side financing measures (such as grants and scholarships targeted to rural areas and indigenous students, particularly girls). * Improving quality: Many of the interventions just listed to improve equity will also enhance quality. Additional options include: changing the system of incentives -- such as adjusting the salary scale to reward higher levels of skills and competency, opportunity for professional development, and open-ended tenure to be determined by performance. Setting standards for learning and teaching, strengthening teacher pre- service and in-service training, teacher performance evaluation, and rewarding schools for improved performance (perhaps through formula-based funding) are among the options to sustain the efforts to enhance quality. These measures require complementary improvement in the frequency, quality, and transparency of student assessment (with results available to administrators, principals, teachers, parents, students, and the general public); the recently introduced program of national testing provides an excellent start in this direction. Building consensus with all stakeholders on the direction and means for change will be critical to build a culture of accountability. * Improving efficiency in planning and policy: Efficiency objectives can be advanced by (i) strengthening coordination of educational policy and financial matters between the budgetary entities that have responsibility for education (Ministry of Education, the Regions, universities, decentralized institutions, and Ministry of the Presidency, as well as the Ministry of Women and Human Development); (ii) proactive gathering of information on teachers and school-level finance (in both public and private schools) to guide policy; and (iii) using student achievement data systematically to target additional resources for schools falling below certain performance levels, while recognizing schools which have made above average progress over time. Some measures are easier to implement (such as provision of educational materials) than others (such as setting standards to drive development of teacher professionalism) xiii  because the latter involve institutional and cultural change. Therefore the timeframe of implementation will vary. Many countries have committed far more public resources to education than has Peru, but without achieving universal coverage for basic education. For these countries, increasingly binding fiscal constraints and continued needs to expand coverage of basic education sharply constrain the policy agenda. Peru, in contrast, has positioned itself at a crossroads. One direction to take involves continuation and improvement of the system much as it currently is. On the other hand, Peru has achieved the pre-conditions to initiate a major drive to consolidate equity gains and expand access while improving quality. Choosing this path would require, over time, substantially increased public expenditures on education. A gradual increase from 3 percent to 4.5 percent of GDP net of pensions (that is, to the Latin American average) is, for Peru, feasible given its fiscal discipline and generally improving macroeconomic performance. By increasing public expenditure levels to only the Latin American average, Peru has the opportunity to enhance markedly the intellectual ability and competitiveness of its labor force within a generation. No policy challenge is more significant. xiv  Chapter 1. Sector Overview As a lower middle-income country with a Gross National Product (GNP) per capita of $2,460 in 19971, Peru has made impressive progress in extending education opportunities over the last five decades. Between 1950 and 1997, enrollment expanded 6.6 times, more than double the three-fold increase of the population.2 Total enrollment grew from a mere 14 percent of the population in 1950 to 36 percent in 1997. As a consequence, over the period, the average education level of the population of age 15 and over increased from 1.9 years to 8.6 years3, and the illiteracy rate was reduced from 58 percent to 11 percent. Female illiteracy was reduced from 70 to 18 percent, and rural illiteracy from over 60 to 29 percent. These are impressive accomplishments in a country as physically and ethnically diverse as Peru, particularly in view of its recent history of macroeconomic instability and civil unrest. Chapter I summarizes achievements to date and describes recent developments and issues in the sector. 1.1. Achievements In 1997, school enrollment was practically universal for the 6- to 11-year olds, about 80 percent of the 12- to 16-year olds, and over 30 percent of the 17- to 25-year olds.4 The education system now encompasses about 8 million children and adults, of whom 6.7 million are in the public, formal system. (See Background Note 1 for the structure of the education system, Appendices 1 to 3 for education statistics, and Appendix 4 for gross and net enrollment ratios.) International comparison shows Peruvian enrollment ratio in a remarkably favorable light, as is presented in Figure 1. Each bar in the figure above stands for a particular country in the World Bank's education database, and Peru is high up on the list, where the neighbors on the graph are mostly developed nations. When international comparison is made of the level of public spending on education as a percentage of Gross Domestic Product (GDP), however, the position of Peru changes, as is shown in Figure 2, which is also drawn from the same World Bank database. In the second graph, the neighboring countries include a number of low-income countries. I See World Bank, 1998c, World Development Report, p. 191. 2 See Diaz, Huayte, Farro, and Tavara (1995, p. 22), which cites Instutito Nacional de Estadistica e Informatica (INEI) and Ministry of Education (MED) statistics. 3 The average of 1.9 years of education corresponds to the national census of 1940. The 8.6 years of education is based on the National Survey of Living Standards by INEI (Encuesta Nacional de Niveles de Vida, or ENNIV), 1997. 4 The findings were based on analysis of a household survey conducted by Instituto Cuanto in 1997. The Cuanto dataset was more extensive in its questionnaire about education expenditure than the government's INEI dataset. Therefore, it was used for this study.  Figure 1. International Comparison of Enrollment of Students Between the Ages of 3 and 23 100 Peru (Rank 15) *390 x/ X 80-