Argentina - Provincial Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 19621 IMPLEMENTATION COMPLETION REPORT ARGENTINA PROVINCIAL DEVELOPMENT PROJECT (Ln. 3280-AR) August 19, 1999 Poverty Reduction and Economic Management Argentina, Chile and Uruguay Country Management Unit Latin America and the Caribbean Regional Office 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 Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Peso (Arg$) EXCHANGE RATE Arg$1 = US$1 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CEU - Central Executing Unit IDB - Inter-American Development Bank ICR - Implementation Completion Report IFI - International Financial Institutions DGI - National Tax Agency (Direcci6n General Impositiva) FAIP - Financial Action and Investment Plan MDP-I - First Municipal Development Project MDP-II - Second Municipal Development Project PDP-I - First Provincial Development Project PDP-II - Second Provincial Development Project PEU - Provincial Executing Unit PRL - Provincial Reform Loan PSRTAL - Public Sector Reform Technical Assistance Loan SAFPA - Ministry of Interior's Secretariat for Financial Assistance to the Provinces (Secretarfa de Asistencia Financiera para las Provincias) SAREP - Ministry of Interior's Secretariat for the Economic Reform of the Provinces (Secretaria de Asistenciapara la Reforma Econ6mica Provincial) SICOM - Sistema de grandes Contribuyentes con Convenio Multilateral Vice President: David de Ferranti Country Director: Myrna Alexander Sector Director: Guillermo Perry Task Manager: Miguel Mercado-Diaz  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT ARGENTINA FIRST PROVINCIAL DEVELOPMENT LOAN (Ln. 3280-AR) Contents Preface ...............i Evaluation Summary .............. ii Part I. Project Implementation Assessment A. Statement of Objectives .1 B Achievement of Objectives .4 C Major Factors Affecting the Project .10 D. Bank Performance .14 E. Borrower Performance .17 F Assessment of Outcome .19 G. Future Operations .20 H. Key Lessons Learned .20 Part II. Statistical Tables Table 1: Summary of Assessmnent .26 Table 2: Related Bank Loans/Credits .28 Table 3: Project Timetable .29 Table 4: Cumulative Loan Disbursements: Estimated and Actual .30 Table 5.a: Project Costs .31 Table 5.b: Project Financing .32 Table 6: Status of Legal Covenants .33 Table 7: Bank Resources: Staff Inputs .38 Table 8: Bank Resources: Missions .39 Table 9: Allocation of Funds Among Participating Provinces: Initial Versus Actual .41 Table 10: Cost of Approved Sub-Portfolios by Province: Overall and IBRD Provincial Portfolios .42 Table 11: Profile of Provincial Portfolios: Physical Investments Versus Institutional Development 43 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.  Table 12: Composition of the Overall and IBRD-Financed Portfolios ............................... 44 Table 13: Type of Physical Investment Sub-Projects: Overall and IBRD-Financed Portfolios ........................ 45 Table 14: Economic Rates of Return for a Sample of Physical Investment Sub-Projects ....................... 46 Table 15: Number of Beneficiaries of Physical Investments in the Health Sector ............ 47 Table 16: Number of Beneficiaries of Physical Investments in Education .48 Table 17.a: Coverage of Cadastre Sub-Projects .49 Table 17.b: Fiscal Impact of Cadastre Sub-Projects .50 Table 18: Strategic Sub-Projects Under Implementation by Province .51 Table 19: Change in Ingresos Brutos: 1994-97 .52 Table 20: Change in Own-Source Revenues: 1994-97 .53 Table 21: Change in Personnel Expenditures: 1995-97 .54 Table 22: Change in Current Account Surplus: 1994-97 . 55 Table 23: Change in Primary Surplus: 1994-97 .56 Figures: Figure 1: Disbursement Profile.30 Figure 2: Ranking of Consequences Associated with Approving or Not Approving the PDP- .57 Appendices: A. Borrower's Contribution to ICR .58 B. Mission's Aide Memoire .66 C. Map ..............................  IMPLEMENTATION COMPLETION REPORT ARGENTINA PROVINCIAL DEVELOPMENT PROJECT (Ln. 3280-AR) Preface This is the Implementation Completion Report (ICR) for the Provincial Development Project in Argentina, for which Loan 3280-AR in the amount of US$200 million equivalent was approved December 18, 1990, and became effective July 5, 1991. The loan closed on December 31, 1998, two years after its original closing date. Final disbursement took place in April 1999. The loan was disbursed in its totality. The ICR was prepared by Cecilia Zanetta (consultant), under the supervision of Miguel Mercado-Diaz, Task Manager (LCSPR), and reviewed by Mark Hagerstrom (LCC7F), David Vetter (LCSPR), David Rosenblatt (LCSPR), and Antonio Martin del Campo (LCSPR). This ICR is based on information in the project files and discussions with government at the national level and in participating provinces, and with technical staff of the project implementation unit. The Borrower contributed to the preparation of the ICR by preparing its own evaluation of the project's initial preparation and execution, and by contributing its views, providing background material, and offering ample support whenever needed.   ii IMPLEMENTATION COMPLETION REPORT ARGENTINA PROVINCIAL DEVELOPMENT PROJECT (Ln. 3280-AR) Executive Summary Introduction 1. In its first steps towards reform, the Menem administration developed an adjustment program aimed at reducing the public sector deficit and addressing the underlying structural problems and sources of instability in the country's economy. The government sought the Bank's financial support and technical assistance to implement reforms targeting the three major sources of public sector deficit: the central government itself (including social security and the official banking and finance entities), the national public enterprises, and the provincial govermments. The Provincial Development Project (PDP-I) was designed to support the government's adjustment program in relation to the provinces. 2. As opportunely pointed out by the Bank's sector work', provincial governments had been responsible for the largest and fastest-growing portion of the public sector deficit, accounting for 1.4 percent of GDP in 1990. In turn, provincial fiscal imbalances were a direct consequence of structural deficiencies in the provincial governments. Provincial taxes were being collected poorly and provincial spending was highly inefficient, mainly as a result of substantial overstaffing, inadequate administrative controls, and weak provincial budgeting mechanisms. Provincial resources were also being drained by highly inefficient public enterprises, insolvent provincial banks, and insufficiently-financed provincial pension funds. Provincial governments were also ill- prepared to fulfill their increased responsibilities as service providers and to rebuild the country's physical infrastructure, greatly deteriorated after decades with no investments. Project Objectives 3. The PDP-I was specifically designed to provide financial support and incentives for provinces to undertake their own adjustment programs that focused mainly on own- source revenue enhancement and expenditure control in a manner consistent with the national adjustment program. The PDP-I's specific objectives, as stated in the Staff Appraisal Report (SAR, November 21, 1990), were: a) implement appropriate financial management reforms that will transform provincial governments from generators of excessive public sector deficits to generators of surpluses that may finance public "Provincial Government Finance Study," Report No. 8176, April 16, 1990.  iii infrastructure and services necessary to promote economic development; b) strengthen provincial governments' capacity to plan, program, finance, execute and monitor expenditure prograrns that are economically efficient, financially sustainable, institutionally manageable, and environmentally sound; and c) provide financing for institutional development and physical investments that are consistent with the national adjustment program and that promoted economic development. 4. The total project costs were estimated at US$575 million equivalent, with the IBRD and the Inter-American Development Bank (IDB) co-financing US$200 million each, or 75 percent of the total costs. The project financed sub-projects under two components: (a) institutional development (expected to amount to about 10 percent of total project costs); and (b) physical investments (expected to account for about 81 percent of the total project costs). The emphasis of the institutional development component was on sub-projects enhancing public sector management and revenue collections, such as cadastres, tax administration, and financial administration systems. The physical investments component included public infrastructure -- such as roads, bridges, water supply and sanitation -- and facilities -- such as schools and health posts -- with an emphasis on maintenance programs, rehabilitation and completion of existing and unfinished works. 5. To accomplish its objectives, the loan was structured as a multi-sectoral investment program which was open to all provinces that met basic fiscal requirements and demonstrated the fiscal benefits of their proposed sub-projects. The program followed the "demand-driven" approach that is characteristic of multi-sectoral loans, as opposed to the "supply-driven" approach of traditional loans in which investments are determined a priori. Each province was responsible for identifying and selecting individual sub-projects according to its own need assessment. With its emphasis on flexibility, the program was highly effective in addressing the wide range of needs and capacities among provinces and the general lack of data on provincial finances at the time. While eligibility criteria ensured that the overall objectives of the program were met, the PDP-I provided a flexible framework that allowed provinces to assess their individual needs over time and to prepare and implement specific sub-projects tailored to these needs. Also, by allocating resources based on performance, the project fostered competition for loan funds among provinces and provided incentives for the agile preparation and presentation of sub-projects. Finally, the creditworthiness criteria introduced through the project provided a good approximation of market conditions, thus serving as an intermediate step toward the long term goal of provincial governments' access to private financial markets. Implementation Experience and Results 6. Achievement of Project Objectives: The PDP-I has been highly successful in introducing the agenda of public sector reform by rewarding prudent fiscal behavior among provincial governments at a time when chronic fiscal imbalances were routinely being financed by ad hoc transfers, fiscal and quasi-fiscal deficits and the inflation tax. The project has also been very successful in building technical and institutional capacity  iv at the provincial level. Through more than 400 sub-projects, the PDP-I has also provided continuous support to the provinces since they took their first steps towards fiscal autonomy, prudent financial management, and efficiency in the delivery of services. As consistently reported by provincial authorities, participating provincial governments are now considerably stronger, and more efficient as the result of the PDP-I. 7. The PDP-I became the cornerstone of the Bank's provincial portfolio, amounting up to US$1.75 billion in 1998. Moreover, the success of other loans, the Provincial Reform Loan (PRL) in particular, is closely related to the PDP-I. Specifically, the PDP-I financed the diagnosis studies assessing the overall situation of the public sector that were carried out in each of the potential participating provinces. The PDP-I served as an immense technical assistance loan that provided ongoing financial and technical support to the PRL-I and PRL-II provinces to implement the tools -- cadastre sub-projects, financial administration systems and tax administration systems -- that ultimately supported the more ambitious reform programs. 8. Major Factors Affecting the Project: Substantial initial delays in implementation were the result of weak institutional and technical capacity in the provinces, complex legislative requirements -- legislative approval of subsidiary agreements -- and the shallow commitment to reform in the provinces before the Convertibility Plan and early years after its passage. Although the project disbursed in its totality, its original closing date had to be extended twice -- from December, 1996 to December, 1997 and later to December, 1998 -- to allow for the completion of important sub-projects. (The second extension was granted to complete flood control sub-projects to ameliorate some of the damage caused by "El Niino" in 1997.) 9. Project Sustainability: Likely. It is evidenced from visits to the provinces, reports from provincial officials, and the concrete actions being taken by provincial governments that today's state of affairs in most provinces is drastically different from ten years ago. At the time the PDP-I was being prepared, provincial governments were generally operated with a total disregard for fiscal responsibility and efficiency. Provincial accounts were a "black box" in which the large operating deficits were disguised by quasi-fiscal financing through provincial banks and the inflation tax. After a slow start, the process of provincial reform eventually took momentum after the Mexican crisis in December 1994 and has continued to deepen since then. Overall, the primary deficit of the provinces has been reduced from 1.6 percent of the GDP in 1990 to 0.1 percent in 1997. 2 The improvements that resulted from the PDP-I and the process of provincial reform in general are likely to be sustained over the long term, assuming the continuation of: a) stable macroeconomic conditions; and b) an adequate system of incentives that is conducive to fiscal responsibility and efficiency in the delivery of public services -- mainly a transparent system of inter-government transfers and the elimination of sources of quasi-deficit financing. Argentina's reform program has passed two difficult tests already by weathering deep financial crises in 1994-95 and 1998-99. The change in the national authorities in December 1999 will be the next challenge. 2 "Argentina Provincial Finances" Update 1998, LCSPR, June 30, 1998.  v 10. Assessment of Bank's and Borrower's Performance: The performance of both the Bank and the Borrower has been highly satisfactory in most stages during the life of the project, especially when considering that, as a multi-sectoral program lending to provincial governments, the PDP-I was a pioneer. Project preparation was done in close collaboration with representatives from the provincial governments, which resulted in a high level of provincial "ownership" of the project. Project supervision was hig;hly satisfactory, with the Bank working closely with the Borrower on the different challenges that had to be faced over the life of the project. By 1996, visits to the provinces became routine during supervision missions. This had a significant impact, as it provided the Bank with the opportunity to develop a better understanding of the progress and challenges being faced in different provinces as well as personal relationships with main actors in the process of reform at the provincial level. The final success of several key sub-projects, such as Cordoba's cadastre, is the direct result of the Bank's strong and consistent supervision of the project. The Borrower's performance during project implementation was also highly satisfactory, both by the national and provincial executing units. Summary of Findings, Future Operations, and Key Lessons Learned 11. The project has been a central element of the national government's strategy towards the provinces, introducing the notion of creditworthiness and rewarding fiscal responsibility, promoting the implementation of the Fiscal Pacts, and introducing wide public sector reforms among participating provinces. The experience of the PDP-I underscores the importance of focusing on sub-national governments to ensure the success of a country's overall reform program. By having the PDP-I in place, the Bank was able to help the national government to capitalize on the unique window of opportunity that opened as a result of the Convertibility Law. 12. The project objectives have also been met satisfactorily. The project widely promoted public sector reform among participating provinces, thus effectively consolidating the sustainability of the country's reform program. The loan's main achievements include building considerable technical and institutional capacity at the provincial level, introducing the notion of creditworthiness and rewarding fiscal responsibility, providing financial and technical assistance to the provinces in sub- projects aimed at rebuilding the deteriorating infrastructure in the provinces and enhancing management practices, and setting the foundations for an information system on provincial finances. Through more than 400 sub-projects in 23 provinces, the PDP-I did much of the groundwork for provincial reform and set the foundations for their enhanced fiscal performance. These sub-projects include eight cadastre systems incorporating more than three-fourths of all parcels in the provinces, the implementation of the important tax monitoring systems, such as the SICOM (Sistema de Grandes Contribuyentes con Convenio Multilateral) and the "Grandes Contribuyentes" at the provincial level, financial administration systems in two provinces, and the rehabilitation of more than 1,200 km of provincial roads, 84 hospitals, and 214 schools.  vi 13. The following lessons, which are relevant for future public sector reform projects for sub-national governments beyond Argentina, can be learned from the implementation of this Provincial Development Loan: 14. Sub-national governments are key' elements within the framework of a country's overall reform program. The medium- and long-term sustainability of a country's reform program depends on having provincial governments that do not generate excessive fiscal deficits and are efficient providers of services. 15. Multi-sectoral loans can be effective tools in doing the groundwork for reform. This project demonstrates that multi-sectoral loans can effectively combine wholesale lending with building technical and institutional assistance at the provincial level and laying foundations for reform. Moreover, multi-sectoral loans can be effective complements of quick-disbursement operations, such as the PRL-I and II, providing the technical assistance and physical investments required to support more ambitious reform programs. 16. No lending operation can provide per se sufficient incentives for reform. An adequate system of incentives, such as a transparent system of intergovemment transfers and the elimination of sources of quasi-deficit financing, are prerequisites for broader provincial reform. 17. Capitalize on potential windows of opportunities. By being willing to take a moderate risk in approving the PDP-I under still unstable macroeconomic conditions, the Bank was able to help Argentina capitalize on the unique window of opportunity that opened after the Convertibility Law. Had the PDP-I not been in place, the Bank might have missed the opportunity to fully support the government in its reform strategy towards the provinces. 18. An important role for sub-national governments is critical to the success of the project. Although the lack of adequate provincial technical and institutional capacity may result in initial project bottlenecks, sub-national governments enhanced responsibilities within the project contribute to strong ownership of the project as well as "hands-on" capacity building. 19. Simplify as much as possible all review, procurement, and disbursement procedures. To effectively conduct a wholesale lending operation, it is critical to rely on agile review, procurement, and implementation procedures. Given the large number of sub-projects -- more than 270 contracts per year in the case of PDP-I -- and the vast number of related documents, such as bidding documents, contracts, and terms of reference, that characterize multi-sectoral projects, simplified procedures are critical to avoid potential administrative bottlenecks and undue burdens on both the Borrower and Bank staff. Bank requirements for procurement and disbursement usually reflect practices that are more appropriate for traditional projects than multi-sectoral loans.  vii 20. Do not expect multi-sectoral projects to disburse quickly and easily at first. Provincial multi-sectoral projects like the PDP-J need to be designed with longer implementation periods to account for the complex institutional framework of sub- national governments and the complexity in implementation characteristic of multi- sectoral loans. At the same time, having a pool of sub-projects ready to go and training PEUs' staff upfront might help reduce start-up times. 21. Develop a portfolio of alternative sources of financing for provincial investment to increase reform leverage. In the case of Argentina, the governmnent was very effective in developing a portfolio of loans designed to support provincial reformn efforts by taking advantage of international lending opportunities. To gain refbrm leverage, it is critical that strict creditworthiness criteria be applied to all lending available to the provinces, including international lenders. 22. In terms of supervision, multi-sectoral projects pose a serious challenge given the large number of sub-borrowers and sub-projects. The experience from PDP-I indicates that at least semi-annual supervision missions that include visits to the provinces are necessary to supervise this type of project. Thus, adequate supervision resources should be made available. 23. Having the provincial Ministers of Finance as counterparts served to keep the focus on reform-oriented sub-projects. Being responsible for balancing the provincial budgets, they were more likely to appreciate the benefits of cadastres, financial management systems, and other tools for fiscal adjustment. 24. There are trade-offs in terms of costs and the level of scrutiny of individual sub-projects in wholesale operations. Although the quality of the individual sub- projects financed under the PDP-I has been generally satisfactory, it is important to note that individual sub-projects in a multi-sectoral project do not receive the same level of attention as in operations with a more limited scope. This is especially relevant given the high cost of some of the sub-projects, such as the cadastre in Santa Fe which amounted to US$30.5 million. To improve quality control of the portfolio in multi-sectoral operations, the subcontracting of supervision activities should be considered as an alternative. 25. Multi-sector projects require strong coordination across sectors to ensure that individual subprojects are consistent with the strategies adopted in each sector. At the country level, it is necessary to ensure the cooperation of the different Ministries, such as Health and Education, with the project executing unit. Within the Bank, it is necessary to develop both formal and informal mechanisms of consultations across divisions. 26. Cadastre, land and property registries and tax administration sub-projects have to be conceived as part of an integrated strategy, as their fiscal impact depends largely on the degree to which these sub-projects are coordinated. Cadastres provide a complete and up-to-date inventory of land and physical structures, land and property registries provide the reliable information on the person responsible for the taxes, and an efficient tax administration ensures the actual tax collection based on information  viii provided by both cadastres and land registries. There is a "domino effect" phenomenon, as the failure of one of the components compromises the success of the other ones in terms of their fiscal impact. 27. Develop a system of indicators to measure the impact of the project as a whole, and of individual sub-projects. For instance, require a short evaluation at the completion of each sub-project comparing the actual impact to the targets that were specified as part of their evaluation. 28. Co-financing lending operations with other international financial institutions, such as the IDB, poses additional challenges during implementation. On the one hand, it makes implementation more difficult for sub-national governments, which have to deal with two sets of contract and bidding documents at the same time. More importantly, it makes it very difficult to coordinate the supervision between the two institutions and to keep a full perspective on the overall program. 29. Need to disseminate results among provinces to capitalize on the potential for horizontal cross-fertilization at the national level. 30. Importance of ensuring the consistency of eligibility conditions among different sectoral loans.   I Part I Project Implementation Assessment A. Statement of Objectives I. Towards the end of the 1980s, Argentina was at the brink of macroeconomic chaos. The heavy state interventionism, inward-looking trade orientation, and disregard for macroeconomic equilibrium that dominated the macroeconomic policies of the previous five decades had taken the country's economy to the verge of collapse. Faced with high inflation, widespread economic stagnation, and massive public sector deficits, the Menem administration was determined to reduce state intervention, tackle chronic fiscal imbalances, and increase efficiency at all levels of government. 2. In its first steps towards reform, the Menem administration developed an adjustment program aimed at reducing the public sector deficit and addressing the underlying structural problems and sources of instability in the country's economy. The government sought the Bank's financial support and technical assistance to implement reforms targeting the three major sources of public sector deficit: the central government itself (including social security and the official banking and finance entities), the national public enterprises, and the provincial governments. The Provincial Development Project (PDP-I) was designed to support the government's adjustment program in relation to the provinces. 3. As opportunely pointed out by the Bank's "Provincial Government Finance Study,"3 provincial governments had been responsible for the largest and fastest-growing portion of the public sector deficit, accounting for 1.4 percent of GDP in 1990. In turn, provincial fiscal imbalances were a direct consequence of structural deficiencies in the provincial governments. Provincial taxes were being collected poorly and provincial spending was highly inefficient, mainly as a result of substantial overstaffing, inadequate administrative controls, and weak provincial budgeting mechanisms. Provincial resources were also being drained by highly inefficient public enterprises, insolvent provincial banks, and insufficiently-financed provincial pension funds. Provincial governments were also ill-prepared to fulfill their increased responsibilities as service providers and to rebuild the country's physical infrastructure, greatly deteriorated after decades with no investments. 4. The Provincial Development Project (PDP-I) was specifically designed to provide financial support and incentives for provinces to undertake their own adjustment programs focussing mainly on own-source revenue enhancement and expenditure control in a manner consistent with the national adjustment program. This operation was conceived as the first stage of a longer term strategy for adjustment in provincial financial management and in the relationships between the central and provincial governments. In the short run, the PDP-I was to serve as a non-inflationary source of financing for 3 "Provincial Government Finance Study," Report No. 8176, April 16, 1990.  2 provincial investments and to introduce management practices aimed at enhancing provincial financial positions. In the medium and long term, the strategy sought to have provincial investments entirely financed with provincial savings and competitive borrowing through the financial sector. 5. The PDP-I's specific objectives, as stated in the Staff Appraisal Report (SAR, November 21, 1990), were: a) implement appropriate financial management reforms that will transform provincial governments from generators of excessive public sector deficits to generators of surpluses that may finance public infrastructure and services necessary to promote economic development; b) strengthen provincial governments' capacity to plan, program, finance, execute and monitor expenditure programs that are economically efficient, financially sustainable, institutionally manageable, and environmentally sound; and c) provide financing for institutional development and physical investments that are consistent with the national adjustment program and that will promote economic development. 6. The project financed sub-projects under two components: (a) institutional development (expected to amount to about 10 percent of total project costs); and (b) physical investments (expected to account for about 81 percent of the total project costs). The institutional development component included technical assistance, training and equipment, with an emphasis on sub-projects aimed to enhance public sector management and revenue collections, such as cadastres, tax administration, and financial administration systems. The physical investments component included public infrastructure (e.g., roads, bridges, drainage, water supply and sanitation) and facilities (e.g., schools, health posts, bus terminals, etc.), with an emphasis on maintenance programs, rehabilitation and completion of existing and unfinished works. Project administration costs, including the recurrent costs of project implementation at the national and provincial levels, were expected to account to about 9 percent of the total project costs. 7. The total project costs were estimated at US$575 million equivalent, with the IBRD and the Inter-American Development Bank (IDB) co-financing US$200 million each, or 75 percent of the total costs. The participating provinces were responsible for co-financing the remaining 25 percent of the total project cost. The national government of Argentina was the borrower and the proceeds of the IBRD and IDB loans were onlent to the provinces participating in the project under the same terms and conditions as the Bank loan. All provinces, as well as the Municipality of Buenos Aires and the Territory of Tierra del Fuego, were potentially eligible to participate in the project. 8. The operation was structured as a multi-sectoral loan that on-lent project funds to provincial governments for sub-projects based on eligibility criteria set for the provinces  3 and the sub-projects themselves. Provincial eligibility was tied to the approval of a "Financial Action and Investment Plan" (FAIPs), which provided the overall conceptual framework for provincial reform and detailed a concrete action plan aimed at achieving or maintaining a current account surplus and improving overall fiscal performance.4 Sub- projects to be financed under the program had to be part of an approved FAIP. They also had to be technically sound, economically efficient, financially sustainable, and environmentally adequate. Only provinces with a current account surplus were eligible for new investments. 9. Each province was assigned an initial allocation of funds for the first two years of the project's implementation (see Table 9). After that period, the provinces lost guaranteed access to their initial allocation and those funds that had not been utilized were reallocated based on performance of the province in project implementation. Provinces not meeting specific creditworthiness conditions were eligible for only half their initial allocation, with the other half going to a "pool" that would be made available to provinces having fully used their initial allocation on a "first come, first served" basis.5 10. The programn followed the "demand-driven" approach that is characteristic of multi-sectoral loans, as opposed to the "supply-driven" approach of traditional loans in which investments are determined a priori. Each province was responsible for identifying and selecting individual sub-projects according to its own need assessment. Thus, the portfolio of specific sub-projects was not defined at appraisal but evolved over time. 11. The project as designed, with its emphasis on flexibility, was highly effective in addressing the wide range of needs and capacities among provinces and the general lack of data on provincial finances at the time. While eligibility criteria ensured that the overall objectives of the program were met, the PDP-I provided a flexible framework that allowed provinces to assess their individual needs over time and to prepare and implement specific sub-projects tailored to these needs. Also, by allocating resources based on performance, the project fostered competition for loan funds among provinces and provided incentives for the agile preparation and presentation of sub-projects. Finally, the creditworthiness criteria introduced through the project provided a good approximation of market conditions, thus serving as an intermediate step toward the long 4 In its FAIP, each province had to describe the rationale for the province's participation in the project, the expected contribution towards the overall provincial strategy of each of the subprojects to be financed under PDP-I, as well as a concrete action plan for: a) maintaining or obtaining a current account surplus; and b) provincial revenue enhancement and/or expenditure reduction. The FAIP was prepared by the province and approved by the central government's Ministry of Interior and the Bank. 5 In particular, a province could only access its entire initial allocation of funds provided that it could demonstrate adequate provincial financial management performance, defined as follows: (a) a current account surplus during the last executed budget period; (b) an acceptable plan to consolidate all extra- budget debt in the formal provincial budget, or subject to the Bank's acceptance, within a maximum of five years; (c) total existing and proposed provincial debt not to result in a total debt service (including amortization, interest and other financing charges) obligation greater than 15% of total provincial current revenues; and (d) negative net variation in short term assets and liabilities not to exceed 20% of total revenues.  4 term goal of provincial governments' access to private financial markets. B. Achievement of Overall Project Objectives 12. The PDP-I has been highly successful in introducing the agenda of public sector reform and prudent fiscal behavior among provincial governments at a time when chronic fiscal imbalances were routinely being financed by ad hoc transfers, fiscal and quasi- fiscal deficits and the inflation tax. The project has also been very successful in building technical and institutional capacity at the provincial level. Through the numerous sub- projects in its portfolio, the project has also provided continuous support to the provinces since they took their first steps towards fiscal autonomy, prudent financial management, and efficiency in the delivery of services. Finally, the PDP-I has been the cornerstone of the Bank's provincial portfolio, amounting up to US$1.75 billion in 1998. 13. To better understand the PDP-I, it should be likened to an immense technical assistance loan (TAL). The PDP-I has provided technical and financial support to provincial governments as they implemented the management tools that were necessary to be able to eventually implement more ambitious reforms. The physical investments that were financed under the program were relatively small, thus cannot be expected to have the same impact as the financial incentives attached to a structural adjustment loan (SAL). (The relatively modest magnitude of the financial incentives of the PDP-I is illustrated by the fact that the total cost of physical investments financed under the program amounts to only 7 percent of the consolidated provincial spending in capital expenditures in 1997.)6 14. It is also important to underscore the vital role the PDP-I has played in complementing the other reform loans that carried a much stronger mass of incentives, such as the First and Second Provincial Reform Loans (PRL-I and II). Through the PRL-I and II, the Bank worked closely with the top provincial authorities of a selected group of reform-minded provinces in the design of a strategy for provincial reform and provided them with strong financial incentives for the adoption of an enabling policy framework within a short time frame -- i.e., three years. Concomitantly, the PDP-I worked with provincial functionaries in crafting and adopting the operational tools required to carry out these reforms, a sustained effort which lasted almost ten years. Therefore, in those provinces with the strong vocation for reform, the PDP-1 played a key role in doing the field work that guaranteed the operationalization of the drastic reforms introduced under the PRL-I and II. In those provinces with less vocation for reform, the PDP-1 focused on building the foundations that would eventually enable them to undertake a more drastic adjustment. 15. The PDP-I had an excellent coverage, with only one province not participating in the project (i.e., Santa Cruz, which is now participating in the PDP-II). Most provinces exceeded amply their initial allocation of funds (see Table 9). The few exceptions were 6 The cost of all physical investment sub-projects financed under PDP-I over almost 8 years amounts to US$320 million. The consolidated capital expenditures for the 24 provincial jurisdictions in 1997 amounted to US$4,360 million.  5 Buenos Aires and the Municipality of Buenos Aires which can rely on their sizable own- revenues and direct access to private and IDB lending, La Rioja which has higher levels of discretionary transfers compared to other provinces, and other provinces such as Santiago del Estero and Jujuy which have made more modest progress towards public sector reform. 16. Macroeconomic Policies: Substantial Achievement. The PDP-I has effectively contributed towards the stabilization of Argentina's economy and the sustainability of the overall reform program by promoting reform among provincial governments and supporting the implementation of basic management tools and investments conducive to reorient provincial public spending in ways that increased productivity and efficiency in the delivery of services while strengthening fiscal positions in the provinces. Overall, the primary deficit of the provinces has been reduced from 1.6 percent of the GDP in 1990 to 0.1 percent in 1997. 7 This, in turn, has contributed towards the sustainability of the country's overall reform program. The PDP-I's specific contribution has been to introduce the concepts of creditworthiness and fiscal responsibility at the provincial level, promote the implementation of the Fiscal Pacts, and support the decentralization efforts, mainly education and health, that were key in achieving the adjustment at the federal level. The PDP-I was also responsible for setting the foundations for the country's information system on provincial public accounts and debt stock. 17. Financial Objectives: Partial Achievement. The provincial fiscal situation has improved considerably since the early 1990s. Provincial governments are no longer generators of excessive public sector deficits, with over half of the provinces registering surpluses or minor deficits in 1997 (see Table 22). Own-source revenues for all provinces have increased by 13 percent in real terms between 1994 and 1997, while personnel expenditures have increased by only 2 percent over the same period (see Tables 20 to 21).9 18. The PDP-1 cannot, of course, claim full responsibility for the enhanced provincial performance, as it depends on multiple factors, many of which are macroeconomic. All the sub-projects in the PDP-I portfolio were designed specifically to improve financial provincial management and have a positive impact on provincial finances. For those sub- projects for which there has been a systematic follow-up of the financial impact, results are highly satisfactory from a technical standpoint. For instance, for those provinces that have completed their cadastre sub-projects, the cost of the cadastre sub-projects can be recovered on average in less than 15 months. It is important to note, however, that most of these sub-projects have been completed recently; thus the increased billing has not yet translated in all cases into increased receipts. This, of course, will ultimately depend on the provincial governments' will to implement an aggressive tax enforcement strategy. As of today, only one province has translated the increase in the tax base into actual fiscal 7 "Argentina Provincial Finances" Update 1998, LCSPR, June 30, 1998. s Seven provinces registered a surplus, while six provinces registered a deficit of less than 6 percent of current revenues (Argentina Provincial Finances, Update '98). 9 The evolution of the provincial financial situation is done relative to 1994, as this is the year when the project implementation gained momentum.  6 gains (see Table 17.b). 19. How to assess the impact of the project itself is a challenge posed by multi- sectoral projects in general. Although fiscal performance indicators are generally used to measure the overall impact of this type of project, they lack validity as it is almost impossible to separate the effect of multiple factors, including overall macroeconomic conditions, from the impact of the project itself. Therefore, it would be important to develop a system of indicators to measure the impact of multi-sectoral projects based on the impact of individual sub-projects without creating an excessive burden on the sub- borrowers. 20. Physical Objectives: Substantial Achievement: There were 55 physical investment sub-projects with a weighted IERR of 39 percent financed under the PDP-I, amounting to US$320 million or 56 percent of the overall provincial portfolio (see Tables 12, 13 and 14).10 Maintenance and rehabilitation of existing infrastructure accounted for most of the physical investments -- US$244 million or 76 percent. Under the PDP-I, the provinces started to rebuild their basic infrastructure -- roads, education, and health -- which was highly deteriorated after years of desinvestment. The rehabilitation of roads accounts for 53 percent of all physical investment sub-projects, with the rehabilitation of more than 1,200 km of provincial roads. Health-care facilities follow in terms of their relative importance, accounting for 20 percent of the physical-investments portfolio, with the rehabilitation and maintenance of more than 84 provincial hospitals serving more than 130,00 in-patients per year (see Table 15). Schools accounted for 18 percent of all physical investments, with the rehabilitation and maintenance of more than 214 schools serving more than 80,000 students (see Table 16). Other physical works include water and irrigation, municipal infrastructure, and recreation facilities. In the case of upgrading schools and health care facilities, it was required that the entire network of services be analyzed as a whole in order to establish priorities and action plans on a regional scale. Once financing for specific sectors became available through other Bank projects, those investments were no longer eligible under the PDP-I. 21. The demand for physical investments was less than anticipated (51 percent compared to 80 percent of total project costs; see Table 5.a). There is a wide variation among provinces in terms of the split between institutional development and physical investment sub-projects. Almost half of the provinces chose to limit the use of program funds to institutional development sub-projects exclusively. The decision to stress institutional development was linked to the interlocutors in the provinces, who were mainly Ministers of Finance rather than Ministers of Public Works. Only a third of all provinces chose to emphasize physical investments over institutional development. In particular, physical investment sub-projects accounted for 94 percent of the overall provincial portfolios in La Pampa, and above 75 percent in Catamarca, Chaco, Corrientes, 10 The weighted IERR was calculated for a sample of sub-projects with a total cost of US$50 million, or 15.8 percent of the physical-investment portfolio. The IERRs for the individual sub-projects in the sample were calculated ex-ante, as part of the sub-project estimation. The sectors represented in the sample -- education, health, and roads -- accounted for 91.6 percent of all investments in the investment portfolio.  7 Mendoza, Neuquen, and San Luis (see Table 11). 22. Out of the US$200 million corresponding to the PDP-J, US$34 million were later assigned to emergency works aimed at ameliorating the damage caused by massive floods in 1992 and 1997 ($20 million in amendment of August 1992 and $32 million in amendment of November 1997). Eligibility for physical works under this component was based on the severity of the flood damage in each province rather than on the criteria established under the PDP-I. 23. Public Sector Reform: Substantial Achievement. As consistently reported by provincial authorities, this is the area in which the project has made its central contribution. It has successfully accomplished its original objectives promoting sound management practices, and increasing the efficiency in the delivery of services. As a result, participating provincial governments are now considerably stronger, and more efficient. Moreover, the attitude of government officials and provincial administrators has been drastically transformed, with a new awareness regarding the importance of sound public administration. 24. There have been 318 institutional-development sub-projects financed under the program, amounting to US$195 million or 35 percent of the overall portfolio (see Table 12). There is great diversity in terms of the types of individual sub-projects, as they reflect to a large degree the needs of each province. In general, institutional development sub- projects fall in two categories: technical assistance and "strategic" sub-projects. The first ones are smaller, clearly-defined sub-projects that usually involved contracting an individual consultant to provide expertise on a specific area. This type of sub-projects were very common during early stages of the project to conduct feasibility studies of potential physical investments or even to prepare other institutional development sub- projects requiring a specific know-how. 25. The second type of institutional development sub-projects, so-called "strategic," were considerably larger, more ambitious interventions aiming at providing provinces with the basic tools required to improve their financial management. These sub-projects addressed three main objectives: a) to enhance the quality of the real-estate tax databases (i.e., cadastre sub-projects and land registries); b) to improve tax administration (i.e., revenue mobilization sub-projects); and c) to provide adequate tools for expenditure control (i.e., financial management systems). The Secretaria de Asistencia para la Reforma Econ6mica Provincial (SAREP) was very aggressive promoting these strategic sub-projects, as they were important elements of the national government's strategy towards the provinces. As a result, they constituted a large proportion of the PDP-I portfolio, amounting to US$140 million or almost a fourth of the overall provincial portfolio (see Table 12). The implementation of these sub-projects was also a conditionality under the PRL (see Table 18). 26. It can be noted that the design and evaluation of institutional development sub- projects is more complex than that of physical investment sub-projects. The Central Executing Unit (CEU) followed the Bank's project evaluation guidelines for physical  8 investment projects but had to develop its own guidelines for institutional development ones. (The Bank has no comparable instrument for institutional development projects.) Although adequate, the guidelines were still lacking rigor, especially when taking into consideration that individual sub-projects amounted up to US$30 million. It is important to be aware that there are trade-offs in terms of cost and the level of scrutiny of individual sub-projects associated with wholesale lending. 27. Cadastre Sub-Projects: These sub-projects amounted to US$99 million, or 18 percent of the overall provincial portfolio.. Cadastre sub-projects were part of broader strategy by the national government to create a modem tax system in the provinces by replacing distortive taxes - such as turnover and transfer taxes - with a system based on real estate, final sales, and vehicle taxes. Although the reform of the national tax system has been stalled momentarily, up-to-date cadastres at the provincial level provides a strong institutional foundation to implement a modem provincial tax system. 28. Cadastres were financed in twenty provinces, of which eight have been completed and twelve are still being implemented under the PDP-II or with provincial funds. These eight cadastre subprojects have been highly successful from a technical standpoint, having incorporated more than 85 millions of square feet and more than 78 percent of all parcels in these provinces. At an average cost per parcel of $31.50, these cadastres have numerous geometric, fiscal and legal data for each parcel, thus allowing multiple applications (see Table 17.a). 29. In general, cadastre sub-projects have been very difficult to implement due to their complexity, both in technical and political terms. The Bank has been very persistent in its supervision, ensuring that the cadastre sub-projects were brought to completion while maintaining a focus on the fiscal impact. Such effort has paid off, as the average increase in the real-estate tax base was 33 percent between 1994 and 1997 in those provinces where the sub-projects have been completed (see Tablel7.b). In terms of the fiscal impact of these sub-projects, it is important to note that the increased tax base resulting from the cadastre sub-projects constitutes a necessary but not a sufficient condition for increased revenues. In fact, only in Chaco actual revenues has matched the increase the tax base -- 102 percent and 93 percent respectively between 1994 and 1997. In the remaining provinces, the fiscal impact of the cadastres is still pending and will depend on provincial authorities being willing to undertake aggressive tax administration policies. 30. Tax Administration Sub-Projects: As a result of tightening federal transfers, provinces had to start focusing on increasing the collection of provincial taxes, primarily real state taxes. To this effect, 39 different sub-projects aimed at enhancing institutional capacity of the provinces to collect taxes were implemented. These sub-projects followed different strategies, including the adoption of the National Tax Agency (DGI) program for monitoring, inspecting and auditing the nation's largest VAT taxpayers", the implementation of a control system designed to monitor the largest taxpayers responsible for Ingresos Brutos operating in more than one jurisdiction (Sistema de Grandes 11 The technology developed for DGI was transferred to the provinces with support partly from the Bank-financed Second Tax Administration Loan (Ln. 3460-AR).  9 Contribuyentes con Convenio Multilateral -- SICOM), and improving the overall administration of provincial taxes, as in the case of Entre Rios. As a result of these sub- projects, the number of taxpayers being monitored increased significantly in the most provinces, both for VAT and Ingresos Brutos. In the case of Ingresos Brutos, the revenues from taxpayers administered under SICOM have increased at twice the rate as revenues from Ingresos Brutos as a whole between 1995 and 1998 (60.8 percent compared to 31.8 percent respectively), with saving in financial costs of approximately US$5 million per year. All these actions had a positive effect on increasing own-source revenues and have been one of the factors contributing to the aggregate increase in revenues of 13 percent in all own-source revenues between 1994 and 1997 (see Table 20). 31. Cadastre, land and property registries and tax administration sub-projects are highly interrelated in terms of their fiscal impact. Cadastres provide a complete and up- to-date inventory of land and physical structures, land and property registries provide the reliable information on the person responsible for the taxes, and an efficient tax administration ensures the actual tax collection based on information provided by both cadastres and land registries. There is a "domino effect" phenomenon, as the failure of one of the components compromises the success of the other ones in terms of their fiscal impact. Therefore, the CEU followed an integrated approach and had a special sub-unit dedicated to this type of sub-projects. This interrelation was somehow damaged when the strategic sub-projects in a province were being financed and supervised by different banks.12 32. Strengthening of Financial Management Systems: To improve accountability and mechanisms for expenditure control at the provincial level, the SAREP promoted the transfer to the provinces of financial management and personnel control systems introduced at the federal level under the Bank-financed Public Sector Reforn Loan (PSRL, Ln. 3394-AR) and its companion technical assistance loan (PSRTAL, Ln. 3362- AR). As a result, 14 provinces have developed financial administration sub-projects through the PDP-1 and II, with funds from the National Secretariat of Finance, or with their own resources (see Table 18). The financial management systems in the provinces of Rio Negro and Corrientes have been implemented with PDP-I financing. These two systems are now fully operational. 33. Institutional Development: Substantial Achievement. The PDP-I has also been highly successful in building institutional and technical capacity in the provinces by requiring that sub-projects submitted by the provinces meet specific standards in terms of project evaluation, contracting, etc. Also, it has supported capacity building in the Provincial Executing Units (PEUs) through specific training activities and intemships, mainly in'the area of project preparation, monitoring, and bidding and procurement. According to PEU's coordinators responding to a survey conducted by the CEU in 1996, 90 percent of all PEUs have reportedly experienced significant improvements in their technical capacity and, in all cases, in their basic operating equipment. Although most 12 On the other hand, the strategy of concentrating sub-projects of the same type in one bank was intended to capitalize on economies of scale in terms of technical assistance.  10 capacity building has occurred within the PEUs, it has also trickled down to the other provincial agencies through their involvement in specific sub-projects. As it was a requirement of the program that PEU staff be provincial employees, capacity building will ultimately have a broader impact as PEU staff resume their functions within the provincial administration. Moreover, the great demand for technical training and capacity building that was identified during the PDP-I is being specifically addressed in the PDP-II through a technical training component that provides a set of intensive courses on project evaluation, monitoring, management, and other areas as required by the provinces. 34. Other Project Achievements: The first operation to target provincial governments, the PDP-I laid the foundations for the subsequent development of the Bank's lending portfolio targeted to provincial governments. As the Bank's portfolio developed, the PDP-I was complemented by a series of sector investment operations aimed at improving the efficiency of service delivery. Also, reform operations were put in place to provide the necessary financial support to those provinces willing and able to implement major structural reforms -- the Provincial Reform Loans I and II. In this context, it is important to point out that without the PDP-I, the development of the IBRD provincial portfolio -- amounting to US$1.725 billion in 1998 -- would have been much slower and more difficult. The PDP-I contributed to improving the weak technical and institutional capacity at the provincial level, introducing the concept of rewarding good fiscal performance, and providing administrative support, financing sector studies and project preparation of other programs, including the Caminos Provinciales, Inundaciones, etc. Finally, the PDP-I introduced provincial governments to the bidding, contracting and procurement procedures of international financial institutions (IFIs). 35. It is also important to note that the success of other loans, the Provincial Reform Loan (PRL) in particular, is closely related to the PDP-I. Specifically, the PDP-I financed the diagnostic studies assessing the overall situation of the public sector that were carried out in each of the potential participating provinces. Moreover, the PDP-I served as an immense technical assistance loan that provided ongoing financial and technical support to the PRL-I and PRL-II provinces to implement the tools -- cadastre sub-projects, financial administration systems and tax administration systems -- that ultimately allowed them to improve their fiscal performance. 36. Finally, the PDP-I set the foundations for an information system on provincial finances. Before the PDP-I, there were no data systematically collected on provincial finances at the national level. A Bank's sector study on provincial finances'3 provided one of the first diagnosis of the fiscal situation in the provinces. Building upon this study, the PDP-I set in place a system to systematically collect fiscal data from provincial governments at regular time intervals and in consistent formats. This information system has continued to evolve and is now one of the best in Latin America. It is now regularly used by the national government and the Bank to monitor provincial fiscal performance, as well as by private financial entities to perform credit scoring for sub-national governments seeking to access private financial markets. 13 "Provincial Government Finance Study," Report No. 8176, April 16, 1990.  11 C. Major Factors Affecting the Project 37. The loan was implemented at a much slower pace than anticipated, and its original closing date was extended twice -- from December, 1996 to December, 1997 and later to December, 1998 -- to allow for the completion of important sub-projects. The second extension was granted to complete flood control sub-projects to ameliorate some of the damage caused by "El Nino." The delays in implementation were the result of several factors, including initial, wide spread, weak institutional and technical capacity at the provincial level, complex legislative requirements -- i.e., the necessary legislative approval of subsidiary agreements -- and the shallow commitment to reform in the provinces during the early years of project implementation. Alternatively, other factors contributed towards the effectiveness of the project, such as its consistency with the national government's overall strategy and the Bank's portfolio. 38. Complex institutional framework: Under Argentina's federal system of government, provincial governments are highly autonomous. They are governed by their own constitutions and have their own executive and legislative branches. To participate in the program, each province had to sign an individual subsidiary agreement that needed to be approved by the provincial legislature. This process was very cumbersome and time- consuming, particularly because the PDP-I was one of the first Bank projects of this type in Argentina.14 It took provinces between one and two years to pass legislation ratifying these subsidiary agreements. There is also great diversity among provincial governments in terms of the bidding and procurement procedures that are mandated by each province. In some cases, provincial procedures are incompatible with those required by the Bank, thus adding considerable complexity during the first stages of the program. 39. Complex implementation of multi-sectoral loans: Multi-sectoral projects like PDP-I are significantly more complex to implement than standard investment loans, such as those for roads. This is the result of several factors, including: (i) the large number of potential sub-borrowers -- in this case there was a total of 23 participating provinces; (ii) the great diversity among sub-borrowers in terms of most relevant indicators, especially institutional and technical capacity; (iii) the high number of sub-projects -- approximately 370 sub-projects under PDP-I; (iv) the high diversity across sub-projects, covering many sectors and ranging from roads and hospitals to cadastres and financial management systems; (v) the majority of the sub-projects were selected after appraisal; and (vi) institutional development sub-projects -- which tend to have longer implementation -- constituted a far more important proportion of the portfolio than anticipated -- 31 percent as opposed to 10 percent. The disbursement profile included in the SAR was too optimistic, and later had to be adjusted to better reflect the dynamics of multi-sectoral loans. Also, multi-sectoral projects tend to be more expensive to execute and supervise than traditional loans as a result of their increased complexity and the labor intensity required to support the high level of municipal involvement sought by the project. 14 The only previous experience with subsidiary agreements had been with the Municipal Development Project (Loan No. 2920-AR), and, in the case of some provinces, the approval of the subsidiary agreements for both loans was being sought simultaneously.  12 40. Macroeconomic environment. When the PDP-I was being prepared, Argentina had not yet succeeded in achieving macroeconomic stability. In its early steps towards reform, the Menem administration adopted a stabilization program that relied on a fixed exchange rate and enhanced fiscal performance. Despite the successful passage of important legislation aimed at redefining the role of the state, such as the sale of public enterprises, cuts in subsidies, and limits in the Central Bank's credit to the public sector, the high interest rates required to support the fixed interest exchange rate continued to fuel inflation. Thus, the preparation of the PDP-I was done in an environment of macroeconomic instability, in which the pay-offs from financial "wizardry" and the inflation tax were far more attractive than the prospects of fiscal reform. As a result, only a few reform-minded provincial governments were interested in implementing structural reforms during the early years of the project. 41. Argentina's drastic reform program consolidated with the passage of the Convertibility Law (April, 1991). As a result, the country's economic performance was significantly improved and macroeconomic conditions that induced fiscal responsibility and public management efficiency at all levels of government were finally restored. However, most provincial governments continued to postpone the adoption of adjustment measures until the financial crisis that resulted from the Mexican devaluation in December 1994 and exposed the fragility of the provincial fiscal situation. Under the pressure of the financial crisis caused by the "Tequila effect" and with an adequate system of incentives now in place -- such as a more transparent and predictable revenue- sharing system and the elimination of sources of quasi-deficit financing -- most provinces recognized the need to undertake structural reforms. The PDP-I, which had been already in place for almost four years, received renewed attention from the provinces now seeking financial and technical support to implement reforms. As a result, the disbursement profile of the PDP-I correlated to the pace of the reforms being implemented at the provincial level, which gained momentum only after the Tequila effect hit hard towards the end of 1994 and 1995 (see Table 4 and Figure 1). 42. Internal consistency of the country's strategy and the IBRD portfolio: With the passage of the Convertibility Law in April, 1991, the national government also launched a concerted effort to promote fiscal adjustment in the provinces. Within its own direct jurisdiction, the national government's efforts were aimed at correcting distortions within the revenue-shared system, including the reduction of discretionary transfers, and at eliminating Central Bank rediscounts for provincial banks, a traditional source of provincial deficit financing. To promote reform within the jurisdiction of sub-national governments, the national government sought the Bank's assistance in developing a lending portfolio that provided both technical and financial support to sub-national governments' efforts to stabilize their public finances, reform their administrations, and increase their efficiency as providers of public goods and services. 43. This changed the fate of the PDP-I, which then received renewed attention from the national government. The PDP-I provided a perfect match to the objectives of the national government's strategy in terms of its creditworthiness criteria, its flexibility with regards to the specific sub-projects that could be eligible for financing, and its installed  13 capacity in the provinces through the PEUs (Provincial Executing Units). In this way, rather than constituting an isolated effort, the project became an integral element within the country's strategy to reform the provincial public sector. Moreover, to generate sufficient leverage to induce the provinces to reform, a critical mass of bargaining power was concentrated on the Undersecretary of Provincial Reform. He was responsible for the Fiscal Pact negotiations that were carried out by the government, as well as for the entire package of provincial lending operations with multilateral financing, including the PDP-I. 44. The IBDR portfolio was also highly consistent, both internally and with regard to the country's reform strategy towards provincial governments. Eligibility criteria emphasizing creditworthiness were consistently added to the different loans within the portfolio, ensuring that provincial governments did not have access to alternative sources of financing under "softer" conditions. However, it is also important to point out that the premature approval of the PDP-I follow-up operation -- the PDP-II -- was detrimental to the implementation of the PDP-I. Once the PDP-I started to gain momentum towards the end of 1994, the demand for financing on the part of the provinces was overestimated both by the national government and the Bank. The demand for financing never actually reached the levels that were anticipated, in part due to the fact that alternative sources of financing became available to the provinces through IBRD sector operations, direct lending to some provinces by IDB, and increased access to private markets. As the transfer of sub-projects from the PDP-I to the PDP-II portfolios was done rather freely and sub-projects were not consistently canceled when falling grossly behind schedule, provincial governments were relieved of the need to implement according to schedule or risk losing financing, thus slowing down the implementation of PDP-I. 45. Project Costs: Total project costs amounted to approximately US$629 million, with the IBRD and IDB co-financing US$200 million each as expected (see Tables 5.a and b). In general, costs have been very much as anticipated, with the exception that there was far more emphasis on institutional development than anticipated -- 31 percent compared to 10 percent. The relative low proportion of physical investments in the portfolio might be partly the result of having the PEUs of many provinces housed in the Ministry of Finance as opposed to the Ministry of Public Works. Also, there were some high-cost sub-projects among so-called "strategic sub-projects," such as the cadastre sub- projects -- for instance, the cadastre for Santa Fe alone had a cost of US$30.5 million, or 6 percent of the total portfolio. Project administration and execution costs, including the cost of the central unit, the PEUs and external auditing, accounted for approximately 9 percent of total project costs. A high proportion of these costs was spent on informal technical assistance, from the CEU to the PEUs primarily in sub-project evaluation, and from the PEUs to the different provincial entities. Also, it is important to point out that the preparation of some of the Bank's sectoral loans was done with resources from the PDP-I.  14 46. Project Sustainability: Likely. It is evidenced from visits to the provirces, reports from provincial officials, and the concrete actions being taken by provincial governments that today's idiosyncrasy in most provinces is drastically different from; ten years ago. At the time the PDP-I was being prepared, reforms were just incipient at the national level. At the time, provincial governments were generally operated with a total disregard for fiscal responsibility and efficiency. Provincial accounts were a "black box" in which the large operating deficits were disguised by quasi-fiscal financing through provincial banks and the inflation tax. After a slow start, the process of provincial reform eventually took momentum after the Mexican crisis in December 1994 and has continued to deepen since then. With the support of the Bank's provincial portfolio, sixteen provinces have privatized their banks and the provinces are no longer generators of large public deficits -- the overall primary deficit of the provinces was only 0.1 percent ol the GDP in 1997.15 The PDP-I did much of the groundwork for provincial reform by building technical and institutional capacity at the provincial level and by introducing the concept of creditworthiness and the practice of rewarding fiscal responsibility. It also provided financial and technical assistance to the provinces for sub-projects aimed at rebuilding their deteriorated infrastructure and enhancing management practices. The fact that almost all sub-projects continued to be implemented by the new provincial administrations coming to office indicates the acceptance of the tenets of the PDP-I across different political affiliations. The improvements that resulted from the PDP-I and the process of provincial reform in general are likely to be sustained over the long term, assuming the continuation of: a) stable macroeconomic conditions; and b) an adequate system of incentives that is conducive to fiscal responsibility and efficiency in the delivery of services -- mainly a transparent system of inter-government transfers and the elimination of sources of quasi-deficit financing. Argentina's reform program has passed two difficult tests already by weathering deep financial crises in 1994-95 and 1998-99. The change in the national authorities next October 1999 will be the next challenge. D. Bank Performance 47. Project Identification: Highly Satisfactory. The Bank correctly diagnosed the need to promote public sector reforms among provincial governments. Given that the groundwork for provincial reform was just beginning, the Bank correctly designed the operation as a multi-sectoral loan designed to provide small incentives to those provinces willing to take some steps towards improving their efficiency and fiscal situation. It is also important to note that there were no other lending instruments available at the time. The Bank changed its policy only recently to permit adjustment lending to be directed to sub-national governments. 48. Project Preparation: Satisfactory. The Bank's performance was satisfactory with respect to the sectoral and technical aspects of project, identifying a potential demand for financing at the provincial level and linking it to a system of incentives that 15 "Argentina Provincial Finances" Update 1998, LCSPR, June 30, 1998.  15 rewarded provincial creditworthiness. However, the demand for project funds only materialized after macro-economic stability was achieved in 1993. The Bank also allowed for a high level of flexibility in terms of the specific sub-projects to be financed as a way of maximizing the project's attractiveness to provincial governments, and envisioned an active role for the provinces. Project preparation was done in close collaboration with representatives from the provincial governments, which resulted in a high level of provincial "ownership" of the project. Even today, almost ten years after, those who participated in the preparation of the project remember the experience as a successful team effort between the Bank and provincial staffs. Finally, it is important to point out the difficulty of preparing the first lending operation targeted to provincial governments in Argentina which meant, among other things, having almost no data available on individual provincial accounts. 49. Project Appraisal: Satisfactory. During appraisal, the Bank took into account various risks that could affect the project and set up mechanisms within the project to mitigate them, including spreading risk among different provinces. The Bank also set up agile and innovative mechanisms to facilitate the supervision of the project, relying on private auditing firms and enhancing provincial autonomy and responsibilities. However, the Bank was too optimistic regarding the pace at which the project could be implemented, including the time required to pass the required provincial legislation, build up the capacity of the Provincial Executing Units (PEUs) to the level required to implement such a complex project, and put in place a pipeline of sub-projects. 50. The low demand for project funds during the years prior to the Convertibility Law suggests that the project would not have performed well in the absence of the macroeconomic stability that was later achieved. This raises the question of whether the Bank assessed properly the risk of an unstable macroeconomic environment. To gain additional insights, it is useful to pose this question as a decision analysis problem, in which alternative decisions can be assessed based on the probabilities and outcomes that are associated with each decision (see Figure 2). 51. Given that structural adjustment operations targeted to sub-national governments were not an option at the time, the Bank management was confronted with two alternative courses of actions: approve or not approve the project. For each of the two courses of action, approve or not approve the PDP-I, there were two uncertain events: stable or chaotic macroeconomic conditions prevailing in the short or medium run with a probability of P1 and (1 - PI) respectively. Four alternative outcomes were possible. The best possible outcome was to approve the project and later achieve macroeconomic stability. In this way, once the macroeconomic conditions were conducive to reform, the project would already be in place, providing the support that provinces needed to implement reforms. Alternatively, the worst outcome was for the project not to be approved, and macroeconomic conditions eventually becoming stable. Given the time needed to set up an operation involving numerous sub-borrowers, a unique window of opportunity for reform among provincial governments would have been lost. Finally, the gains and loses from the second- and third-best outcomes are relatively insignificant, as they relate to the opportunity cost of the Bank's resources -- financing and technical  16 assistance -- that would have been wasted had the project not disbursed under macroeconomic chaos. 52. As the Menem administration had already demonstrated its willingness to implement drastic reforms, the probability of eventually achieving macroeconomic stability was greater than zero. Thus, given the high stakes involved in capitalizing or missing out on a rare window of opportunity and the relatively low loses and gains of the second- and third-best alternatives, approving the project was the most rational decision using either a maxi-max and a mini-max decision criterion. 16 53. The conclusion that, by approving the project, the Bank assessed correctly the macroeconomic risk is consistent with the last Argentina's Country Assistance Review (CAR, Report No. 15844, June 28, 1996). Two of the report's main conclusions state that: a) the Bank had been too slow in restoring lending to Argentina in 1990-91; and b) insufficient attention was given to the transfer of responsibilities in the provision of services to provincial governments without an adequate assessment of their financial and institutional capabilities in the early 1990s. The PDP-I loan was the exception by being the first, and until 1994, the only operation directly aimed at enhancing provincial performance. Moreover, the PDP-I was the cornerstone on which the Bank eventually developed its provincial portfolio. 54. Project Supervision: Highly Satisfactory. Bank supervision was reported by the Borrower as being highly satisfactory and described as a team effort between the Bank and the Borrower. The Bank worked closely with the Borrower on the different challenges that had to be faced over the life of the project. At first, emphasis was placed on getting the project in place in each of the provinces, including approving subsidiary agreements and setting up the PEUs. In the next stage, the challenge was to develop a critical mass of sub-projects, for which emphasis had to be placed on sub-project preparation and evaluation. The early stages of project implementation were considerably more complex than anticipated, which resulted in significant delays in disbursements. The project's task managers were strong defenders of the project at headquarters. Since the approach of the PDP-I was highly innovative, there was little understanding at the time of the complexities of multi-sectoral projects lending to multiple sub-national governments relative to the traditional centralized, supply-based physical investment projects. 55. As the demand for project financing consolidated, the next challenge was to manage and monitor the large portfolio of sub-projects. The Bank worked closely with the CEU in developing a reporting and monitoring system that allowed the CEU to keep track of the progress of each provincial portfolio, as well as to identify individual sub- projects that demanded close monitoring.17 The Bank also pressed for the systematic 16 The maxi-max criterion seeks to maximize potential gains, while the mini-max criterion seeks to minimize losses. 17 The portfolio monitoring system was based on the Pareto ABC's concept. Those sub-projects amounting to 70 percent of the overall portfolio were designated as critical, and placed under close monitoring. For instance out of a portfolio of 125 institutional development sub-projects under  17 assessment of the technical capacity of each PEU, which allowed for the correction of serious bottlenecks in several provinces. More importantly, the Bank had a important presence in the provinces themselves. By 1996, visits to the provinces becarne routine during supervision missions. This had a significant impact, as it provided the Bank with the opportunity to develop a better understanding of the progress and challenges being faced in different provinces as well as personal relationships with main actors in the process of reform at the provincial level. The final success of several key sub-projects, such as Cordoba's cadastre, is the direct result of the Bank's strong and consistent supervision of the project. 56. One of the lessons learned from the implementation of the PDP-I is the need to guarantee an adequate level of coordination across sectors to ensure that subprojects financed under a multi-sectoral program are consistent with the strategies adopted in each sector. As sector loans started to become available to provincial governments, it was necessary to set in place mechanisms of consultation involving other Ministries, such as Health and Education, as well as the corresponding divisions responsible for the sector operations within the Bank. The level of cooperation between the CEU and other Ministries varied for each sector, being highly successful for health and roads sub- projects and less successful for education sub-projects. Within the Bank, initial mistrust and sector "turf' were eventually overcome and a good working cooperation was achieved through both formal and informal networks. 57. Finally, it is important to point out some of the consequences of IDB's co- financing of the program in terms of its implementation and supervision. On the one hand, it made implementation more difficult for the provinces, which had to deal with two sets of contract and bidding documents at the same time. More importantly, it was very difficult to coordinate the supervision between the two institutions, although the IBRD's task manager consistently contacted the IDB during supervision missions. As a result, each bank concentrated mainly on the part of the portfolio that it financed, having only a partial perspective of the overall program. It was also difficult to enforce specific strategies, for instance limiting the use of individual consultants, as financing was sought from the bank that provided less resistance at the time. The more damaging impact resulted from having the strategic sub-projects within the same province financed by different banks. For instance, tax administration sub-projects were financed mainly under IDB. As a result, it was very difficult to guarantee an adequate level of interaction with cadastres and property-registers sub-projects that were financed by the IBRD. The approach followed under the Second Municipal Development Project (MDP-II), where each province was designated to work with one of the two banks, appears to have been more effective. implementation in July 1996, 70 percent of the total pending disbursement was concentrated in only eight sub-projects. Similarly, only six sub-projects represented more than 70 percent of all pending disbursements for physical investment sub-projects. In the same way, the system allowed for the identification of stalled sub-projects that were candidates for possible cancellation.  18 E. Borrower Performance 58. Preparation of the Project: Highly Satisfactory. Participating provinces played a very active role in the preparation of the project. A team of top-notch professionals representing different provincial governments was responsible not only for contributing its views to the project design but for drafting its own Project Manual, bidding, and contracting documents. The strong involvement of the provinces at this stage of preparation helped to enhance project design and stakeholders' ownership. 59. Project Implementation: Highly Satisfactory. The project had a Central Executing Unit (CEU) at the central level and a Provincial Executing Unit (PEU) at each of the twenty-three participating provinces. The CEU was established in the Ministrv of Interior under the Secretariat for the Economic Reform of the Provinces (SAREP) which, through its Secretary, was highly successful in using the PDP-I as a cornerstone for its strategy towards the provinces and using it as leverage in the negotiation of the Fiscal Pacts with the provinces. 60. In terms of the implementation of the project itself, the CEU has effectively managed the overall program and was highly effective in the negotiation of subsidiary loan agreements with participating provinces. It also provided substantial technical assistance to the provinces in the preparation and evaluation of their FAIPs and the individual sub-projects. The multi-disciplinary group of professionals with expertise in different areas, such as fiscal policies, tax administration and public finances, made it possible to increase the quality of individual sub-projects. The CEU has also adequately monitored the implementation of provincial portfolios and the financial and reporting activities by participating provinces. Finally, the CEU has acted as the liaison between the provinces, the national government, and the Bank, in accordance to the role that originally had been envisaged. Given its excellent record of performance, the CEU was assigned increased responsibilities by the government, including the administration of several other IFI-funded projects. To be able to meet adequately the requirements of its new role and to improve its overall management of the project, the CEU went through two major reorganizations since the beginning of the project. 61. The performance of the PEUs has been critical to the success of the project. They were directly responsible for the management of the project in each province and for supporting the different provincial entities in the design and implementation of individual sub-projects. In general, the PEUs have fulfilled their responsibilities as defined under the project agreement and the project operation manual. They also complied with their reporting requirements. As could be expected, strong support of provincial authorities was critical to the performance of the PEUs, as it influenced both the resources available and their political leverage. However, the PEUs with strong political support were more vulnerable to changes in the political environment, generally experiencing isolation or considerable staff changes under the next administration.  19 62. During project preparation, it was envisioned that the existing Forum of Ministers'8 would serve as a consultative board to promote national and local coordination, the dissemination of innovations and lessons learned in problem solving, and homogeneous procedures in project implementation among the different provinces. This was actually done only during the early and final stages of project implementation. Alternatively, the SAREP took a much stronger role in determining the overall direction of the program in the years that followed the passage of the Convertibility Law. 63. Compliance with Covenants: Satisfactory. Compliance with legal covenants was satisfactory. Over the life of the project, compliance with the stipulated covenants and agreements was generally met. The quality of the reports improved significantly during the last two years of implementation, offering a clear and complete picture of the progress of the program. It is important to point out, however, that the role of the FAIPs as master plans for provincial reform was significantly weaker than anticipated. Although the first FAIPs were the result of rigorous work on the part of the provinces, they quickly became outdated under the unstable macroeconomic conditions prevailing at the time. Despite the Bank's objections, the FAIPs became a mere formality consisting primarily of a list of the sub-projects being financed under the project. This situation was finally reversed in 1997, when the CEU required provinces to develop their overall conceptual framework for reform as part of their FAIPs, as it was originally intended. F. Assessment of Outcome 64. Overall Rating: Satisfactory. The project has been a central element of the national government's strategy towards the provinces, introducing the notion of creditworthiness and the practice of rewarding fiscal responsibility, promoting the implementation of the Fiscal Pacts, and introducing wide public sector reforms among participating provinces. The project's specific objectives have also been met satisfactorily. The loan's main achievements include building considerable technical and institutional capacity at the provincial level, providing financial and technical assistance to the provinces in sub-projects aimed at rebuilding the deteriorating infrastructure in the provinces and enhancing management practices, and building an information system on provincial finance. Through more than 400 sub-projects in 23 provinces, the PDP-I did much of the groundwork for provincial reform and set the foundations for enhanced fiscal performance at the provincial level. These sub-projects include eight cadastre systems incorporating more than three-fourths of all parcels in the provinces, the implementation of the important tax monitoring systems, such as the SICOM and the "Grandes Contribuyentes", financial administration systems in two provinces, and the rehabilitation of more than 1,200 km of provincial roads, 84 hospitals, and 214 schools. 65. With the PDP-I in place, the Bank was able to help the national government to capitalize on the unique window of opportunity that opened as a result of the 18 In 1989, the national Ministry of Economy encouraged the provincial Ministers of Economy to institute a Forum of Ministers in which they would discuss their problems among themselves and the national authorities.  20 Convertibility Law. Moreover, the PDP-I served as the cornerstone of a large provincial portfolio that has had a significant impact on the performance of the provincial public sector. One of the first multi-sectoral operations targeted at provincial governments, the project's innovative design addressed effectively the complexity of Argentina's provincial sector and the high level of uncertainty at preparation of the specific needs of the provinces. Finally, it underscores the importance of sub-national governments for the overall success of a national reform program. It has served as a model for other operations, both in LAC and other regions. G. Future Operations The experience from this project suggests that multi-sectoral operations can be extremely useful in setting up the groundwork for reform among sub-national governments. As the efforts to reform among provincial governments gained momentum after 1994 and the demand for project funds increased drastically, the government requested a follow-up operation. In response, the Second Provincial Development Project (PDP-II, Loan No. 3877-AR) for an amount of $225 million was approved in December 1995. The PDP-II replicated the PDP-I's model, with slightly more emphasis on institutional development. The Bank has subsequently focussed on adjustment lending targeted to selected groups of provinces (PRL-I and PRL-II) with the objective of deepening reforms in those provinces that have demonstrated the strongest willingness and ability to reform. The PDP-I and II have provided strong technical and financial support to these provinces as whey implemented the different actions that were required under the PRLs. 66. The multi-sectoral approach of PDP I has proven to be a flexible mechanism to address emerging subnational public sector needs, assisting the country to develop public policies and strategies in new areas. It allowed the Bank team and the local counterpart executing unit to address a variety of sectoral issues, for which the Bank did not have a specific sectoral operation. The multi-sector approach, nevertheless, and as PDP I has shown, can generate complex administrative procedures and high coordination costs for the Bank and borrower. In order to maximize the benefits, and taking advantage of the knowledge gained from PDP I, PDP-II has focussed on sub-projects that are directly aimed at building the foundations for sound fiscal behavior, both in provinces that are being included in the Bank's adjustment operations or in those carrying out reforms on their own. There is still much work to be done in developing up-to-date and efficient cadastre, tax administration, and financial management systems at the provincial level. The Ministry of Interior, through its Secretariat for Financial Assistance to the Provinces (SAFP), is taking the lead in the efforts to continue to promote reform among sub- national government and, together with the Ministry of Economy, perform an ongoing monitoring of the fiscal situation in the provinces. H. Key Lessons Learned 67. Experience under the PDP I provided operational and technical lessons. When preparing multi-sectoral operations targeted to sub-national governments the following operational lessons from the PDP-I should be taken into consideration:  21 a) Do not underestimate the start-up time required to approve subsidiary agreements and set up adequate PEUs in each of the participating provinces. b) Conduct up-front training for PEUs' staff and have a considerable number of sub-projects ready to go to minimize initial delays. c) Limit the sectors to be financed under the project. Although the flexibility allowed by the PDP-I was justified by the lack of knowledge of the provincial needs at the time of preparation, the wide range of sub-projects financed across several sectors added considerable complexity and was detrimental to ensuring the optimum quality-control of the portfolio. d) Start working early on a portfolio management system, both at the national and provincial levels. e) Develop a system of indicators to measure the impact of the project as a whole, and of individual sub-projects. For instance, require a short evaluation at the completion of each sub-project comparing the actual impact to the targets that were specified as part of their evaluation. f) Never approve a follow-up operation until the ongoing operation has consolidated its implementation and be rigorous in the cancellation of individual sub-projects that fail to be implemented on schedule. 68. There are several strategic lessons that are relevant for future public sector reform projects for sub-national governments beyond Argentina, that can be learned from the implementation of this Provincial Development Loan: 69. Sub-national governments are key elements within the framework of a country's overall reform program. The medium- and long-term sustainability of a country's reform program depends on having provincial governments that do not generate excessive fiscal deficits and are efficient providers of services. 70. Multi-sectoral loans can be effective tools in doing the groundwork for reform. This project demonstrates that multi-sectoral loans can effectively combine wholesale lending with building technical and institutional assistance at the provincial level and laying foundations for reform. Moreover, multi-sectoral loans can be effective complements of quick-disbursement operations, such as the PRL-I and II, providing the technical assistance and physical investments required to support more ambitious reform programs. 71. No lending operation can provide per se sufficient incentives for reform. An adequate system of incentives, such as a transparent system of intergovernment transfers and the elimination of sources of quasi-deficit financing, are prerequisites for broader provincial reform.  22 72. Capitalize on potential windows of opportunities. By being willing to take a moderate risk in approving cne PDP-I under still unstable macroeconomic conditions. the Bank was able +o hel' Argentina capitalize on the unique window of opportunity that opened after the Conve-rt.ibilit-y Law. Had the PDP-I not been in place, the Bank might have missed the opportunity to fully support the government in its reform stra-egy towards the provinces. 73. An important role for sub-national governments is critical to the success of the project. Although the lack of adequate provincial technical and institutional capacity may result in initial project bottlenecks, their enhanced responsibilities within the project contribute to strong ovinership of the project as well as "hands-on" capacity building. 74. Simplifv as m-uch as p,ossible all review, procurement, and disbursement procedures. To effectively concduct a wholesale lending operation, it is critical to rely on agile review, proculrernren. and :.mplementation procedures. Given the large number of sub-projects -- more than 2/0 contracts per year in the case of PDP-I -- and the vast number of related docurnents, such as bidding documents, contracts, and terms of reference, that characterize riulti-sectoral projects, simplified procedures are critical to avoid potential administrative 'bottlenecks and undue burdens on both the Borrower and Bank staff. BanK requirements for procurement and disbursement usually reflect practices that are more appronrniate for traditional projects than multi-sectoral loans. 75. Do not expect muiti-sectoral projects to disburse quickly and easily at first. Provincial multi-sectorall projects like the PDP-I need to be designed with longer implementation periiods to account for the complex institutional framework of sub- national governments and the complexity in implementation characteristic of multi- sectoral loans. At the samrie time, having a pool of sub-projects ready to go and training PEUs' staff upfront might help reduce start-up times. 76. Develop a p ortfoiio of alternative sources of financing for provincial investment to increase re6orrm leverage. In the case of Argentina, the government was very effective in developing a portfolio of loans designed to support provincial reform efforts by taking advantage of international lending opportunities. To gain reform leverage, it is Critical that strict creditworthiness criteria be applied to all lending available to the provinces, -ncluding international lenders. 77. In terms of supervi'ion, multi-sectoral projects pose a serious challenge given the large number of sub-borrowers and sub-projects. The experience from PDP-I indicates that at least semi-annual supervision missions that include visits to the provinces are necessary to supervise this type of project. Thus, adequate supervision resources should be made available. 78. Having the provincial M[inisters of Finance as counterparts served to keep the focus on reform-oriented sub-projects. Being responsible for balancing the provincial budgets, they wvere more likely to appreciate the benefits of cadastres, financial management systems, and other tools for fiscal adjustment.  23 79. There are trade-offs in terms of quality control and the level of scrutiny of individual sub-projects in wholesale operations. Although the quality of the individual sub-projects financed under the PDP-1 has been generally satisfactory, it is important to note that individual sub-projects in a multi-sectoral project do not receive the same level of attention as in operations with a more limited scope. This is especially relevant given the high cost of some of the sub-projects, such as the cadastre in Santa Fe which amounted to US$30.5 million. To improve quality control of the portfolio in multi- sectoral operations, the subcontracting of supervision activities should be considered as an alternative. 80. Multi-sector projects require strong coordination across sectors to ensure that individual subprojects are consistent with the strategies adopted in each sector. At the country level, it is necessary to ensure the cooperation of the different Ministries, such as Health and Education, with the project executing unit. Within the Bank, it is necessary to develop both formal and informal mechanisms of consultations across divisions. 81. Cadastre, land and property registries and tax administration sub-projects have to be conceived as part of an integrated strategy, as their fiscal impact depends largely on the degree to which these sub-projects are coordinated. Cadastres provide a complete and up-to-date inventory of land and physical structures, land and property registries provide the reliable infornation on the person responsible for the taxes, and an efficient tax administration ensures the actual tax collection based on information provided by both cadastres and land registries. There is a "domino effect" phenomenon, as the failure of one of the components compromises the success of the other ones in terms of their fiscal impact. 82. Co-financing lending operations with other international financial institutions, such as the IDB, poses additional challenges during implementation. On the one hand, it makes implementation more difficult for sub-national governments, which have to deal with two sets of contract and bidding documents at the same time. More importantly, it makes it very difficult to coordinate the supervision between the two institutions and to keep a full perspective on the overall program. 83. Need to disseminate results among provinces to capitalize on the potential for horizontal cross-fertilization at the national level. The experience of the wide variety of subprojects financed under PDP I, especially best practice cases, can and should be analyzed and made available to other potential program clients. This can be accomplished through promotion at the central level of such experiences, as well as through seminars, workshops among the provincial representatives, and through publications about sub- project experiences.  24 84. Importance of ensuring the consistency of eligibility conditions among different sectoral loans. The uniformity of Bank policy throughout sectors and between loans is crucial in order to generate a transparent, uniform, and effective lending mechanism. The experience of PDP I shows that when Bank loans do not have uniform lending conditions (terms, lengths, percentage financed etc.) the clients will essentially gravitate to the loans that offer the best terms and conditions, and not necessarily to the most appropriate lending instrument.  25 Part II Statistical Tables Table 1: Summary of Assessment ................................ 26 Table 2: Related Bank Loans/Credits ................................ 28 Table 3: Project Timetable ......... ....................... 29 Table 4: Cumulative Loan Disbursements: Estimated and Actual ................... 30 Table 5.a: Project Costs ................... 31 Table 5.b: Project Financing ................... 32 Table 6: Status of Legal Covenants ...... ............. 33 Table 7: Bank Resources: Staff Inputs ................... 38 Table 8: Bank Resources: Missions ................... 39 Table 9: Allocation of Funds Among Participating Provinces: Initial Versus Actual .41 Table 10: Cost of Approved Sub-Portfolios by Province: Overall and IBRD Provincial Portfolios .42 Table 11: Profile of Provincial Portfolios: Physical Investments Versus Institutional Development 43 Table 12: Composition of the Overall and IBRD-Financed Portfolios .44 Table 13: Type of Physical Investment Sub-Projects: Overall and IBRD-Financed Portfolios .45 Table 14: Economic Rates of Return for a Sample of Physical Investment Sub-Projects .46 Table 15: Number of Beneficiaries of Physical Investments in the Health Sector .47 Table 16: Number of Beneficiaries of Physical Investments in Education ................................ 48 Table 17.a: Coverage of Cadastre Sub-Projects .............................. 49 Table 17.b: Fiscal Impact of Cadastre Sub-Projects ........................ 50 Table 18: Strategic Sub-Projects Under Implementation ............. 51 Table 19: Change in Ingresos Brutos: 1994-97 ............................ 52 Table 20: Change in Own-Source Revenues: 1994-97 ................ 53 Table 21: Change in Personnel Expenditures: 1995-97 ............... 54 Table 22: Change in Current Account Surplus: 1994-97 ............. 55 Table 23: Change in Primary Surplus: 1994-97 ........................... 56  26 Table 1 Summary of Assessments A. Achievement of Objectives Achievement of Objectives Substantial Partial Negligible Not Applicable Macro Policies / Sector Policies _ Financial Objectives / Institutional Development / Physical Objectives / Poverty Reduction / Gender Issues __ Other Social Objectives / Environmental Objectives / Public Sector Management I Private Sector Development I Other / B. Project Sustainability Project Sustainability Likely Unlikely Uncertain C. Bank Performance Bank Performance Highly Satisfactory Deficient Satisfactory Identification / Preparation Assistance I Appraisal / Supervision /  27 D. Borrower Performance Borrower Performance Highly Satisfactory Deficient Satisfactory Preparation Implementation _ Covenant Compliance V Operation i E. Assessment of Outcome Assessment of Highly Satisfactory Unsatisfactory Highly Outcome Satisfactory Unsatisfactory if  28 Table 2 Related Bank Loans/Credits Loan Title Purpose Year of Status Approval Preceding operations 1. Municipal Development I Municipal reform 1988 Closed (Ln2920-AR) Following operations 1. Public Enterprise Reform Loan Public enterprise reform 1993 Closed (Ln3556-AR) 2. Debt and Debt Service Reduction Debt reduction 1993 Closed (Ln3555-AR) 3. Financial Sector Adjustment Loan Financial adjustment 1993 Closed (Ln3558-AR) _ _____ 4. Provincial Development Loan Provincial PS and 1991 Closed (Ln3280-AR) reforms 5. Provincial Development Loan II Provincial PS and 1995 Ongoing (Ln3877-AR) reforns 6. Municipal Development II Municipal reform 1995 Ongoing (Ln3860-AR) 7. Provincial Reform (Rio Negro) Provincial reformn 1997 Ongoing (Ln4218-AR) 8. Provincial Reform (Salta) Provincial reform 1997 Ongoing (Ln4219-AR) 9. Provincial Reform (San Juan) Provincial reform 1997 Ongoing (Ln4220-AR) 10. Provincial Reform (Tucuman) Provincial reform 1997 Ongoing (Ln4221-AR)  29 Table 3 Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification (Executive Project Summary) June 23, 1988 Preparation 1989-90 Appraisal November 21, 1990 Negotiations November 12,1990 Board Presentation December 18, 1990 Signing February 15, 1991 Effectiveness July 5, 1991 Project Completion December31, 1996 December31, 1998 December 31, 1997 (revised) Loan Closing December 31, 1996 December 31, 1998 December 31, 1997 (revised)  30 Table 4 Cumulative Loan Disbursements: Estimated and Actual (US$ Million) 1991 1992 1993 1994 1995 1996 1997 1998 1999 Estimated 12.0 40.0 96.0 150.0 183.0 197.0 200.0 200.0 200.0 Actual 0.0 4.5 20.1 38.2 74.5 114.3 152.7 182.1 200.0 Actual as % 0% 11% 21% 25% 41% 58% 76% 91% 100% of Estimated Date of Final Disbursement: April, 1999. Figure 1 Annual Loan Disbursements: Estimated and Actual (US$ Million) 60.0 50.0 _ 40,0~~~~~t, -S 400- .00 30.0 20.0 10.0 0.0 , 1991 1992 1993 1994 1995 1996 1997 1998 1999 a E stim ated EActual  31 Table 5.a Project Costs: Estimated Versus Actual (S$ Million) Estimated Costs Actual Costs Total Cost Total Cost Project Component Local Foreign US$ Million % Local Foreign US$ Million % I. Institutional Development 36.7 23.3 60.0 10.4 119.3 75.7 195 31.0 A. Central Government 4.2 1.8 6.0 1.0 n.a. n.a. n.a. n.a. 1. Consultants 4.0 1.0 5.0 0.9 n.a. n.a. n.a. n.a. 2. Goods 0.2 0.8 1.0 0.2 n.a. n.a. n.a. n.a. B. Provinces 32.5 21.5 54.0 9.4 n.a. n.a. n.a. n.a. 1. Consultants 27.9 3.1 31.0 5.4 n.a. n.a. n.a. n.a. 2. Goods 4.6 18.4 23.0 4.0 n.a. n.a. n.a. n.a. II. Physical Investments 242.8 222.2 465.0 80.9 94.5 87.1 319.9 50.8 A. Infrastructure 181.5 166.2 347.7 60.5 58.2 53.6 196.9 31.3 1. Maintenance 28.6 28.6 57.2 9.9 42.6 42.6 85.3 13.6 2. Rehabilitation 107.2 107.1 214.3 37.3 1.7 1.7 3.4 0.5 3. Completion 14.3 9.5 23.8 4.1 11.1 7.4 18.5 2.9 4. New Works 31.4 21.0 52.4 9.1 2.8 1.8 4.6 0.7 B. Facilities 61.3 56.0 117.3 20.4 36.3 33.6 123.1 19.6 1. Maintenance 9.5 9.6 19.1 3.3 26.5 26.8 53.3 8.5 2. Rehabilitation 35.7 35.8 71.5 12.4 1.1 1.1 2.1 0.3 3. Completion 4.6 3.0 7.6 1.3 7.0 4.6 11.6 1.8 4. New Works 11.5 7.6 19.1 3.3 1.7 1.1 2.9 0.5 III. Emergency Flood Works 0.0 0.0 0.0 0.0 25.4 23.2 48.6 7.7 IV. Project Administration(*) 50.0 0.0 50.0 8.7 75.8 0.0 55.8 8.9 Total Project Costs 329.5 245.5 575.0 100.0 269.6 162.8 629.4 100.0 (*) This includes US$40.8 million that have been estimated for the operation of the 23 PEUs with an average of 8 people (as in 2/28/97) over the seven-and- a half years of project implementation. Source: Ministry of Interior, SAFPA, as of March 15, 1999.  32 Table 5.b Project Financing: Estimated Versus Actual (US$ Million) Expected Actual Source Amount Amount % IBRD 200.0 34.8 200.0 31.8 IDB 200.0 34.8 203.6 32.3 Provinces 175.0 30.4 225.8 35.9 Total 575.0 100.0 629.4 100.0 Source: Ministry of Interior, SAFPA, as of March 15, 1999.  33 Table 6 Status of Legal Covenants Section Covenant Present Original Revised Description of Comments Type Statns Date Date Covenant 2.02(a) 05 C The arnount of the Loan may be In compliance. withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. 2.02(b) 05 C The amount of the Loan may be In compliance. withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. 2.02(c) 05 C 05/29/1991 The amount of the Loan may be In compliance. withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. 2.03 05 NYD 12/31/1997 The closing date shall be Loan Closing date was extended December 31, 1996. until June 1998. The closing date will be extended until December 31, 1998 for the emergency component only. 2.04 05 C Borrower shall pay to the Bank a In compliance. commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum. 2.07 05 C 4115/1996 Borrower shall repay the principal In compliance. amount of the Loan in accordance with the amortization schedule set fourth in Schedule 3 to this Agreement 3.01(a)(i) 05 C Borrower declares its commitment In compliance. to the objectives of the Project (i) carry out Part B of the Project, through CEU, with due diligence and efficiency; 3.01(a)(ii) 05 C Under the respective Subsidiary In compliance. Loan Agreements, cause the Provinces to perform with due diligence and efficiency all the obligations therein set forth, including the execution of the FAIPs and eligible Sub-projects. 3.01 (a)(iii) 05 C Shall take all action necessary to In compliance, however, all carry out Part B of the Project, to provinces have been asked to prepare coordinate and manage the FAIPs following definition of Loan execution of Part A of the Project Agreement. and to enable the Provinces to perform their obligations in respect of the Project. 3.01(b) 03 C Borrower shall allocate the amount In compliance. of the Loan, not allocated to Part B of the Project, among the Provinces for a two-year period from the date of this Agreement according to criteria satisfactory to the Bank.  34 Status of Legal Covenants (cont.) Section Covenant Present Original Revised Description of Comments Type Status Date Date Covenant 3.01(c) 05 C Borrower shall relend the proceeds In compliance. of the Loan so allocated and any remaining unallocated amounts to the PTovinces under subsidiary loan agreements, under terms and conditions which shall have been approved by the Bank. 3.01(d) 05 C Borrower shall exercise its rights In compliance. under the Subsidiary Loan Agreements in such manner as to protect the interest of Borrower and the Bank. 3.01(e) 05 C Borrower shall carry out, and In compliance. cause the Provinces and Eligible Provincial Entities to carry out, the Project in accordance with the provisions of the Manual. 3.02 05 C Procurement of the goods, works In compliance. Ex-post reviews have and consultants' services are been performed periodically and no required for the Project and to be major problems have been identified. financed out of the proceeds of the Loan shall be govemed by the provisions of Schedule 6. 3.03(a) 05 C Maintain a Central Execution Unit Central Executing Unit going (CEU) in the Under Sec. Of Adm. through a major reorganization. The And Tech. Coordination of the second one since the project Min. of Econ., or any successor, implementation began. with staffing, responsibilities and functions satisfactory to the Bank, carry out Part B of project and coordinate project. 3.03(b) 05 C Provide all the funds, facilities, In compliance. staff and resources required by the CEU to carry out its functions and responsibilities in an efficient and timely manner. 3.04 05 C 03/31/1996 Not later than March 31 and In compliance. September 30 of each year, Borrower, through the CEU, shall prepare and fumish to the Bank a report on the execution of the Project. 3.05(a) 05 C Not abrogate, amend or fail to In compliance. apply the Manual or any provision thereof 3.05(b) 05 C Cause the Provinces, under the In compliance. Subsidiary Loan Agreements, not to fail to apply the Manual or any provision thereof 3.05(b) 05 C Cause the Provinces, under the In compliance. Subsidiary Loan Agreements, not to fail to apply the Manual or any provision thereof  35 Status of Legal Covenants (cont.) Section Covenant Present Original Revised Description of Comments Type Status Date Date Covenanit 3.06(a) 05 C 03/08/1996 Borrower shall, not later than In compiiance. March 31 each year starting not L Last review took place during later than March 31, 1992, September 1997 mission. exchange views with the Bank on: I (a) the progress of Loan disbursements and IDB Loan disbursements. 3.06(b) 05 C Borrower to exchange views with In compliance. the Bank on the performance of Review took place during the CEU and the PEUs in the m ession on February 17-26, 1997. implementation of the Project and the procedures set forth or referred ; to in the Loan Agreement and the i Manual 3.07 05 C When presenting a Subsidiary In coinpliance. Loan to the Bank for approval, Borrower, through CEU, shall fumish to the Bank an application. in form satisfactory to the Bank. 4.01(a) 01 C Borrower shall maintain separate iIn compliance. records and accounts in accordance with sound accounting I practices on the operations. resources and expenditures of the Project of the Provinces, the Eligible Provincial Entities and Borrower. _ 4.01(b)(i) 01 C Borrower shall have the records in co,pliance. and accounts referred to in tle paragraph (a) of this SectionI including those for the Specrai Account for each fiscal vea- audited. 4.01(b)(ii) 01 C 04/30/1996 04/30/1998 Fumish to the Bank not less than Report sent to the Bank in April four months after the end of such 1999. year, the audit report. 4.01(b)(iii) 01 C Furnish to the Bank such other In compliance. information as the Bank shail reasonablv request. 4.01(b)(iv) 01 C Reports of auditors shall include | compliance. separate opinions on the compliance by Borrower, the Provinces and the Eligible Provincial Entities with the i obligations set forth in this Agreement, the Manual, the Subsidiary Agreement and the Sub-Loan Agreements. 4.01(c)(i) 01 C Maintain records and accounts In compliaince. reflecting statement of expenditures.  36 Status of Legal Covenants (cont.) Section Covenant Present Original Revised Description of Comments Type Status Date Date Covenant 4.01(c)(ii) 01 C Enable the Bank's representatives In compliance. to examine such records. 4.01(c)(iii) 01 C Ensure that records and accounts In compliance. are included in the annual audit referred to in paragraph (b) of this Section and that the audit report contains an opinion by the auditors as to whether the statements of expenditures can be relied upon. 6.01(a) 05 C The Borrower has entered into In compliance. Subsidiary Loan Agreements with at least three Provinces representing not less than the equivalent of at least 25% of the Initial Allocation. 6.01(b) 05 C The Borrower to (i) exempt all In compliance. contracts for goods, works and services from all legal and regulatory provisions; establish, provide funds and other resources for the PEU. 6.01(c) 05 C The CEU shall have been The CEU went through two major established and staffed in terms reorganization since the project satisfactory to the Bank. began execution. 6.01(d) 05 C The Borrower has entered into the In compliance. Financial Agency Agreement. 6.01(e) 05 C The Manual has been approved by In compliance. the Borrower in terms satisfactory to the Bank. 6.02(a) 05 C The Subsidiary Loan Agreements In compliance. have been duly authorized or ratified by the Borrower and the Provinces referred to in paragraph (a) of Section 6.01 of this Agreement, respectively, and are legally binding upon the Borrower and such Provinces, respectively, in accordance with their terms. 6.01(b) 05 C The exemption referred to in In compliance. paragraph (b)(i) of Section 6.01 of this Agreement has been duly granted and no other action on behalf of the Borrower, or Provinces referred to in paragraph (a) of Section 6.01 of this Agreement is required for the procurement of goods, works and services in accordance with the provisions of this Agreement ant the Subsidiary Loan Agreement entered into by such Provinces. 6.02(c) 05 C The Provincial Executing Units In compliance. have been legally established in the Provinces referred to in paragraph (a) of Section 6.01 of this Agreement.  37 Status of Legal Covenants (cont.) Section Covenant PEresent | Original Revised Description of Comments Type Status Date Date Covenant 6.02(d) 05 C The CEU has been legally In compliance. _ established by the Borrower. 6.02(e) 05 C The Financial Agency In compliance. - Agreement has been duly authorized or ratified by the Borrower and the Financial Intennediary and is legally binding upon the Borrower and the Financial Intermediary, in accordance with its terms. 6.02(f) 05 C The Manual has been duly In compliance. _ f _ ~~~~~~~approved bv the Borrower. Covenant Types- I =Accounts/Audits 8 = Indigenous people 2 = Financial performance/generate revenue from 9 = Monitoring, review and reporting beneficiaries 10 = Project implementation not 3 = Flow and utilization of Project funds covered by categories 1-9 4 = Counterpart funding I I = Sectoral or cross sectoral 5 = Management aspects of the project budgetary or other resource or executing agency allocation 6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/ 7 = Involuntary resettlement regulatory/institutional action 13 = Other Present Status: C = covenant complied CD = complied with after delay CP = complied with partially NC = Not complied with  38 Table 7 Bank Resources: Staff Inputs Planned Revised Actual Stage of Project Cycle . Weeks US$ Weeks USS Weeks US$ Preparation to Appraisal 0 0 0 52.8 119.4 Appraisal-Board 0 0 0 13.5 34.8 Negotiations through Board Approval 0 0 0 6.4 18.5 Supervision 114 423.8 156.3 362.5 974 Completion 13.5 5.9 4 0 .1 TOTAL 127.5 429.7 160.3 435.2 1,146.8 I It includes Bank-financed and trust fund consultants. Dollars are direct costs only.  39 Table 8 Bank Resources: Missions Stage of Monthl Number Days in Specialized Implementation Development Projcct.Cycle Year of Field Staff Skills Status Objectives Project Cycle Year Persons Represented Through Appraisal N/A N/A N/A N/A N/A N/A Appraisal through N/A N/A N/A N/A N/A N/A Board Approval Supervision l 3/91 3 Mun.icipal & S HS Provincial Dev. Spec., Eng. Instit. Dev., Urban Spec. n 1/92 2 Public Finance, S HS Urban Spec. 111 5/92 2 Public Finance, S HS Inst. Dev., Sr. Urban Spec. IV 8/92 2 Sr. Urban Dev. S HS Spec. V 11/92 2 Urban Dev. S HS Spec. VI 4/93 2 Urban Dev. S HS Spec. VII 3/94 6 Public Finance, S HS Proj. Manag., Inst. Dev., Urban Dev., Operations Spec., Proc. Spec. VYI 3/95 2 Public Finance, S HS Operaction Spec. LX 10/95 3 Operations S HS Spec., Cadastre, Proc. Spec. X 3/96 4 TM, Urban S HS Spec., Cadastre Xi 7/96 4 Operations S HS Analyst, Urban Spec., Cadastre, Inst. Dev. xn 2/97 2 11 TM, Inst. Dev. S S XIII 9/97 5 17 TM, Urban S S Spec., Instit. Dev., GIS Spec., Engineer  40 Bank Resources: Missions (cont.) Stage of Month/ Number Days in Specialized Implementation Development Project Cycle Year of Field Staff Skills Status Objectives Project Cycle Year Persons Represented XIV 5/98 4 17 TM, Fin. Spec., S S I I I ~~~~~~GIS, Completion 12/98 1 5 TM S S 1/ Mission leader. 2/ Key to specialization: A. Sr. Public Enterprise Specialist B. Legal Counsel C. Sr. Country Economist D. Principal Financial Management Specialist E. Consultant F. Sr. Country Officer Cx Tax Administration Specialist H. Task Manager  41 Table 9 Allocation of Funds Among Participating Provinces: Initial Versus Actual (US$ Million) Initial Allocation (*) Actual Use of Funds Provinces Amount % of Amount % of Initial Total Allocation Buenos Aires 41.86 14.9% 12.04 28.8% Catamarca 5.25 1.9% 28.28 538.6% Chaco 19.02 6.8% 33.49 176.1% Chubut 3.01 1.1% 7.48 248.3% Cordoba 33.82 12.1% 76.47 226.1% Corrientes 7.09 2.5% 34.79 490.6% Entre Rios 18.63 6.6% 49.90 267.8% Formosa 6.95 2.5% 11.53 166.0% Jujuy 5.43 1.9% 0.77 14.2% LaPampa 7.15 2.6% 14.29 199.8% La Rioja 3.94 1.4% 1.56 39.5% M.C.B.A. 9.10 3.2% 1.45 16.0% Mendoza 15.89 5.7% 56.31 354.4% Misiones 12.61 4.5% 12.80 101.5% Neuquen 6.64 2.4% 27.06 407.6% Rio Negro 9.65 3.4% 15.67 162.4% Salta 7.30 2.6% 3.32 45.5% San Juan 12.85 4.6% 20.08 156.3% San Luis 8.71 3.1% 8.63 99.1% Santa Cruz(**) 3.01 1.1% 0.00 0.0% Santa Fe 17.03 6.1% 83.69 491.4% Stgo. del Estero 15.74 5.6% 2.79 17.7% Tierra del Fuego 0.41 0.1% 1.94 473.9% Tucuman 9.08 3.2% 10.47 115.3% Common Pool 244.83 46.6% 0.00 0.0% Total 525.00 100.0% 514.80 98% (') Allocations reflect 50 percent reduction for those provinces without a current account surplus. (**) Santa Cruz did not participated in the program. Source: Ministry of Interior, SAFPA, as of March 15, 1999.  42 Table 10 Cost of Approved Subprojects by Province: Overall and IBRD Provincial Portfolios (US$ Million) Overall Portfolio IBRD Portfolio Provinces Amount % Amount % Buenos Aires 12.04 2.1% 3.09 25.7% Catamarca 28.28 5.0% 2.57 9.1% Chaco 33.49 5.9% 8.02 23.9% Chubut 7.48 1.3% 1.85 24.7% Cordoba 76.47 13.6% 29.54 38.6% Corrientes 34.79 6.2% 15.69 45.1% Entre Rios 49.90 8.9% 4.59 9.2% Formosa 11.53 2.0% 7.31 63.4% Jujuy 0.77 0.1% 0.09 11.6% LaPampa 14.29 2.5% 6.24 43.7% La Rioja 1.56 0.3% 0.44 28.2% M.C.B.A. 1.45 0.3% 0.30 20.7% Mendoza 56.31 10.0% 20.43 36.3% Misiones 12.80 2.3% 4.23 33.0% Neuquen 27.06 4.8% 7.58 28.0% Rio Negro 15.67 2.8% 9.06 57.8% Salta 3.32 0.6% 0.32 9.6% San Juan 20.08 3.6% 4.85 24.1% San Luis 8.63 1.5% 0.56 6.5% Santa Fe 83.69 14.8% 28.06 33.5% Stgo. del Estero 2.79 0.5% 0.27 9.7% Tierra del Fuego 1.94 0.3% 1.07 55.1% Tucuman 10.47 1.9% 1.17 11.2% Emergency Flood 48.62 8.6% 37.47 77.1% Control Total 563.55 100% 194.80 34.6% Source: Ministry of Interior, SAFPA, as of March 15, 1999.  43 Table 11 Profile of Provincial Portfolios: Physical Investments and Institutional Development Components (US$ Million) Physical Investments Institutional Total Development Provinces US$ % US$ % US$ % Million Million million Buenos Aires 0.00 0.0% 12.04 100.0% 12.04 2.1% Catamarca 23.08 81.6% 5.20 18.4% 28.28 5.0% Chaco 26.59 79.4% 6.90 20.6% 33.49 5.9% Chubut 1.92 25.7% 5.56 74.4% 7.48 1.3% Cordoba 49.73 65.0% 26.74 35.0% 76.47 13.6% Corrientes 26.92 77.4% 7.87 22.6% 34.79 6.2% Entre Rios 30.33 60.8% 19.56 39.2% 49.90 8.9% Formosa 4.46 38.7% 7.08 61.4% 11.53 2.0% Jujuy 0.00 0.0% 0.77 99.6% 0.77 0.1% LaPampa 13.41 93.9% 0.88 6.2% 14.29 2.5% La Rioja 0.00 0.0% 1.56 100.1% 1.56 0.3% MCBA 0.00 0.0% 1.53 99.7% 1.45 0.3% Mendoza 48.89 86.8% 7.42 13.2% 56.31 10.0% Misiones 1.53 12.0% 11.27 88.1% 12.80 2.3% Neuquen 23.33 86.2% 3.74 13.8% 27.06 4.8% Rio Negro 4.77 30.4% 10.90 69.6% 15.67 2.8% Salta 0.00 0.0% 3.32 100.0% 3.32 0.6% San Juan 10.91 54.3% 9.17 45.7% 20.08 3.6% San Luis 7.07 81.9% 1.57 18.2% 8.63 1.5% Santa Fe 47.00 56.2% 36.69 43.8% 83.69 14.8% Stgo. del Estero 0.00 0.0% 2.79 99.9% 2.79 0.5% Tierra del Fuego 0.00 0.0% 1.94 99.8% 1.94 0.3% Tucuman 0.00 0.0% 10.47 100.0% 10.47 1.9% Emergency Control 48.62 100.0% 0.0 0.0% 48.62 8.6% Total 368.58 65.40% 194.97 34.60% 563.55 100% Source: Ministry of Interior, SAFPA, as of March 15, 1999.  44 Table 12 Composition for the Overall and IBRD-Financed Portfolios (US$ Million) Overall Program IBRD-Financed Portfolio Type of Subprojects # of Subprojects Total Cost % of Total Cost # of Subprojects Total Cost % of Total Cost I. Institutional Development 318 194.99 34.6% 132 88.74 45.7% a. Cadastres 20 98.58 17.5% 17 62.32 32.1% b. Tax Administration 39 24.80 4.4% 28 2.51 1.3% c. Financial Administration Systems 8 15.08 2.7% 3 7.39 3.8% d. Institutional Strengthening i. PEUs 63 14.53 2.6% 32 6.01 3.1% ii. Other organisms 188 42.00 7.5% 52 10.51 5.4% II. Physical Investments 55 319.93 56.8% 23 68.69 35.4% a. Maintenance and Rehabilitation 39 244.13 43.3% 12 36.54 18.8% b. Completion 2 9.71 1.7% 2 6.79 3.5% c. New Works 11 52.94 9.4% 6 16.54 8.5% d. Others 3 13.15 2.3% 3 8.82 4.5% III. Emergency Flood Works 49 48.62 8.6% 49 36.81 19.0% Grand Total 422 563.54 100.0% 204 194.24 100.0% Source: Ministry of Interior, SAFPA, as of March 15, 1999.  45 Table 13 Type of Physical Investments Subprojects: Overall Program and IBRD-Financed Portfolios (US$ Million) Overall Program IBRD-Financed Portfolio Type of Physical Investments # of Subprojects Total Cost % of Total # of Subprojects Total Cost % of Total Cost Cost Provincial Subprojects 55 319.93 86.8% 23 68.69 65.1% a. Education 9 57.92 18.1% (*) 5 23.30 33.9%(*) b. Environment and Recreation 1 0.52 0.2% (*) 1 0.37 0.5%(*) c. Health 10 65.15 20.4% (*) 1 2.16 3.1%(*) d. Municipal (water and sewerage) 1 1.53 0.5% (*) 1 1.07 1.6%(*) e. Roads 27 169.92 53.1% (*) 9 25.15 36.6%(*) f. WaterandIrrigation 2 4.88 1.5% (*) 2 3.69 5.4%(*) g. Other 5 20.01 6.3% (*) 4 12.95 18.9%(*) Emergency Flood Works 49 48.62 13.2% 49 36.81 34.9% Total Physical Investments 104 368.55 100.0% 72 105.50 100.0% (*) Relative to the Subtotal for Provincial Subprojects Source: Ministiy of Interior, SAFPA, as of March 15, 1999.  46 Table 14 Economic Rates of Return for a Sample of Physical Investment Sub-Projects Average Rate of Return Weighted by Investment Cost 39.1% Sectors in the Sample as % of All Investment Portfolio = 91.6% % of the Sample Relative to All Investment Subprojects 15.8% Type of Sub-Project Province Cost IERR (*) Weighted Sector as % IERR of All Works (US$s000) (%) (%) (%) Education 14,759 26.4 18.1 Rehabilitation and maintenance of schools Catamarca 2,336 29.0 4.6 Rehabilitation and maintenance of schools Santa Fe 12,423 25.9 21.8 Health 12,079 23.7 20.4 Rehabilitation and maintenance of hospitals Santa Fe 12,079 23.7 23.7 Roads 23,623 54.9 53.1 Repaving of provincial route No. 51 Buenos Aires 7,493 78.1 24.8 Repaving of provincial route No. 12 Cordoba 3,867 60.2 9.9 Replacement of road maintenance equipment La Pampa 4,719 18.0 3.6 Repaving and maintenance of provincial routes La Pampa 2,659 28.9 3.3 Repaving of provincial route No. 6 Santa Fe 2,473 91.8 9.6 Repaving of provincial route No. 10 Santa Fe 782 31.7 1.0 Repaving of provincial route No. 91 Santa Fe 946 53.4 2.1 Repaving of provincial routeNo. 26 Santa Fe 683 21.7 0.6 All Physical Investments Sampled 50,460 39.1 91.6 (*) All IERR were calulated ex- ante. Source: SAFPA  47 Tablc 15 Number of Beneficiaries of Physical Investments in the Health Sector |Province Subproject Description Total Cost Financing Rehab. Expansion New Hospitals Beds Annual Services (US$ million) (US$ Million) (Sq. Meters) (Sq. Meters) (Sq. Meters) In-Patients Consultations Santa Fe Rehab. and maintenance of provincial hospital 12.2 8.2 28,393 837 3 682 22,664 418,057 Mendoza Rehab. Central Hospital (*) 15 8.7 24,940 1 791 n.a. n.a. Mendoza Rehab. and maintenance of provincial hospitals 0.8 0.6 n.a. 21 n.a. n.a. n.a. Catamarca Rehab. and maintenance of provincial 8.3 4.6 18,000 3,000 34 666 254,427 1,933 hospitals (*) San Luis Decentralization provincial health network 7.1 4.9 8,199 1,343 4 616 17,279 301,524 LaPampa Modernization provincial health network 3.5 2.1 4,810 1,040 9 511 15,345 394,753 LaPampa Rehab. and maitenance Gob. Centeno 1.3 7.9 n.a. I n.a. n.a. n.a. . Cordoba Rehab. and maintenance of provincial hospitals 13.9 9.7 19,800 3,000 3 329 10,094 147,948 Neuquen Rehab. and maintenance of provincial 3.1 2.2 1,285 292 8 50 n.a. n.a. hospitals (*) Total 65.2 48.9 105,427 6,512 3,000 84 3,645 319,809 1,264,215 (*) The number of beds was estimated based on the average of 31.5 sq. meters per bed for the other provinces. Source: SAFPA  48 Table 16 Number of Beneficiaries of Physical Investments in the Education Sector Province Total Cost Financing Rehab. Expansion New Schools Students (US$ million) (US$ Million) (Sq. Meters) (Sq. Meters) (Sq. Meters) Buildings Santa Fe 8.9 6.3 67,502 2,499 2,725 40 33,000 Mendoza 14.8 8.3 9 18 39 8,575 Catamarca 2.3 1.5 17,054 62 10,700 Stgo. del Estero 6.5 4.6 47,594 48 17,233 Cordoba(**) 12.7 8.6 25,978 11 9,200 Neuquen(*) 1.2 0.8 3,176 14 5,516 Other Subprojects 11.52 Total 57.92 30.1 158,128 5,684 2,743 214 84,224 (*) Number of students based on an average of 394 students per building in remaining provinces. (**) It includes 11 schools and 7 hospitals. Source: SAFPA.  49 Table 17.a Coverage of Cadastre Subprojects Parcels Avg. Cost Province All Cadastre Coverage Sq. Meters Per Parcel Catamarca 371429 130,000 35% 1,343,503 33.4 Chaco (rural) 42317 42,317 100% 7,843 22.68 Cordoba 1866593 1,679,934 90% 43,545,936 16.67 Formosa 131950 131,950 100% 1,357,481 37.17 Misiones 734843 257,195 35% 2,953,050 36.76 SanJuan 211857 148,300 70% 12,214,116 33.7 Santa Fe 1367525 1,271,798 93% 22,733,120 27.11 Tierra del Fuego 23607 23,607 100% 1,477,576 44 Total 4750121 3,685,101 78% 85,632,625 31.43625 Source: SAFPA. 4  50 Table 17.b Fiscal Impact of Completed Cadastre Subprojects (US$ Million) Real Estate Tax Total Cost Project Life Assessment (USS Million) Actual Revenues (US$ Million) Province (US$ Million) Start End 1994 1997 % Change 1994 1997 % Change Catamarca 1.5 6/6/93 12/1/97 3.5 10.07 187.70% 2.93 3.51 19.80% Chaco 1.4 1/2/94 6/1/98 5.17 9.98 93.00% 2.09 4.23 102.40% Cordoba 26.05 8/1/93 6/1/98 322.45 448.23 39.00% 247.19 251.37 1.70% Formosa 4.29 1/17/94 6/1/98 7.2 13.74 90.80% 0.94 0.64 -31.90% Misiones 3.77 2/1/93 12/1/97 16.61 20.19 21.60% 11.79 12.5 6.00% San Juan 5.36 9/22/93 12/1/97 21.76 27.8 27.80% 7.12 5.84 -18.00% Santa Fe 30.55 7/1/93 6/1/98 201.8 229.61 13.80% 171.79 188.43 9.70% TierradelFuego 1.43 10/1/93 12/1/97 6.7 17.16 156.10% 0.24 0.14 -41.70% Total Eight 74.35 (*) 585.19 776.78 32.70% 444.09 466.66 5.10% Avg. Eight 9.29 73.15 97.1 32.70% 55.51 58.33 5.10% Avg. Other Provinces 75.02 86.45 15.20% (*) The cost of all cadastre subprojects financed under PDP-I amounts to US$98.58 million, including those that have ot been completed. Source: SAFPA, Ministry of Interior.  51 Table 18 Strategic Projects by Province Tax Financial Property Province Cadastre Administration Administration Registry Corrientes Yes Yes Yes Yes La Rioja Yes Yes Yes Yes Misiones Yes Yes Yes (2) Yes Buenos Aires Yes Yes Yes Catamarca Yes Yes Yes (1) Chaco Yes Yes Yes (1) Chubut Yes Yes Yes (1) Entre Rios Yes Yes Yes (1) (2) Rio Negro Yes Yes Yes Salta Yes Yes (2) Yes San Juan Yes Yes Yes Santa Fe Yes Yes Yes Stgo. del Estero Yes Yes Yes Tierra del Fuego Yes Yes Yes Tucuman Yes Yes Yes Cordoba Yes Yes Formosa Yes Yes Jujuy Yes Yes Mendoza Yes Yes Neuquen Yes Yes San Luis Yes Yes La Pampa Yes G.C.B.A. (3) Yes Santa Cruz Number of Subprojects 20 23 14 5 Note: All these subprojects are being financed under PDP-1 and II, unless it is indicated differently. (1) Financed by the Secretaria de Hacienda de la Nacion. (2) Financed with provincial resources. (3) G.C.B.A. stands for the Government of City of Buenos Aires. Source: Ministry of Interior, SAFPA, as of March 15, 1999.  52 Table 19 Change in Ingresos Brutos Among Provinces 1994-97 g?,reso5 Brutos (US$ '000) i '3rovilerce 1994 1997 1994-97 % Change 1994-97 acamarca 16,914.27 28,922.00 12,007.73 70.99% ,hla^o 54,934.83 80,050.00 25,1 15.17 45.72% 8 an v: laan 29,166.59 41,200.00 12,03 .4 i 41.26% .N-uquen 78,753.01 103,785.00 25,031.99 31.79% S'go. dle' Estero 36,082.89 44,300.00 8,217.11 22.77% Buenos Aires 1,788,784.51 2,130,500.00 341,715.49 19.10% Szata 78,636.69 93,200.00 14,/5-63.31 18.52% ,Sana Cruz 41,691.03 49,243.57 7,552.54 18.12% a Rioja 14,822.52 17,408.17 2,585.65 17.44% ,_ lj Iiy -31,341.99 34,900.00 3,558.01 11.35% Entre R-os 128,928.31 142,862.00 13,933.69 10.81% ntcut 38,834.86 42,940.00 4,105.14 10.57% a Pampa 38,792.00 42,340.00 3,548.00 9.15% ,v>lisiones 57,277.79 61,700.00 4,422.21 7.72% 'Rio- Negro 67,526.89 71,530.00 4,003.11 5.93% SS E SA. (i) 1,425,748.37 1,509,900.00 84,151.63 5.90% !Correntes 47,845.03 50,500.00 2,654.97 5.55% , TUmura 86,389.87 89,462.00 3,072.13 3.56% i8anta Fe Q50,758.90 492,000.00 -8,758.90 -1.75% Cordoba 503,118.20 459,800.00 -43,318.20 -8.61% Tierra del Fuego 41,424.46 36,960.00 -4,464.46 -10.78% >'ormosa 20,419.71 18,200.00 -2,219.71 -10.87% 5derldoza 233,650.13 201,000.00 -32,650.13 -13.97% Lois 46,740.43 35,394.32 -11,346.11 -24.27% I i edxEa n9.86% iteatn 8.68% The median has been used instead of the mean because it is a more stable measure of centrality. G.C.B.A. stands for Government of the City of Buenos Aires. :S -ce. SAFPA, Ministry of Interior (based on data from the national and provincial Ministries of -Conomy3.  53 Table 20 Change in Own-Source Revenues Among Provinces 1994-97 Own-Source Revenues (US$ '000) Province 1994 1997 1994-97 % Change 1994-97 Catamarca 26,312.44 39,871.00 13,558.56 51.53% Santiago del Estero 62,787.64 84,110.00 21,322.36 33.96% Chaco 81,400.64 108,503.00 27,102.36 33.30% La Rioja 22,668.77 29,642.00 6,973.23 30.76% Buenos Aires 3,432,923.86 4,327,876.00 894,952.14 26.07% Salta 103,311.53 125,300.00 21,988.47 21.28% San Juan 69,015.66 83,430.00 14,414.34 20.89% Neuquen 113,599.59 136,095.00 22,495.41 19.80% Jujuy 52,545.79 61,859.00 9,313.21 17.72% LaPampa 82,839.00 94,861.00 12,022.00 14.51% SantaCruz 55,112.11 61,467.66 6,355.55 11.53% Entre Rios 267,569.58 292,846.27 25,276.69 9.45% G.C.B.A. (1) 2,315,638.28 2,524,750.00 209,111.72 9.03% Chubut 52,142.69 55,562.00 3,419.31 6.56% Misiones 82,181.08 87,546.00 5,364.92 6.53% Tucuman 156,672.73 159,815.00 3,142.27 2.01% Corrientes 71,975.49 71,700.00 -275.49 -0.38% Santa Fe 977,052.90 967,800.00 -9,252.90 -0.95% Rio Negro 126,603.26 123,539.00 -3,064.26 -2.42% Cordoba 881,566.62 856,166.00 -25,400.62 -2.88% Mendoza 415,656.31 392,200.00 -23,456.31 -5.64% San Luis 79,749.24 73,637.62 -6,111.62 -7.66% Formosa 27,275.96 24,557.00 -2,718.96 -9.97% Tierra del Fuego 54,497.24 43,581.00 -10,916.24 -20.03% Median 9.24% Mean 12.65%