Colombia - Human Capital Protection Project

Document of The World Bank Report No: 21608-CO PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$150 MILLION TO THE REPUBLIC OF COLOMBIA FOR A HUMAN CAPITAL PROTECTION PROJECT MARCH 1, 2001 Human and Social Development Group Country Managment Unit for Colombia, Mexico and Venezuela Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 19, 2000) Currency Unit = Colombian Pesos (COP) Colombian Peso $2,179.13 = US$1.00 US$0.00045891 = I ColombianPeso FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BR Bank of the Republic/Banco de la Repoblica LACI Loan Administration Change Initiative CAF Andean Development Bank MIS Management Information System CAS Country Assistance Strategy MOE Ministry of Education/Ministerio de Educaci6n CASEN Socioeconomic Characteristics SurveylEncuesta de MOH Ministry of Health/Ministerio de Salud Caracterizacion Socioeconomica DAPR Administrative Department of the President/ Departamento NCU National Coordinating Unit Administralivo de la Presidencia de la Repoblica DGTN National Treasury NGO Non-governmental Organization DNP National Planning DepartmentfDepartamento Nacional de NPV Net present value Planificaci6n ECV Quality of Life Survey/Encuesta Calidad de Vida PETI Child Labor Erradication Program/Programa de Erradicaci6n de Trabajo Infantil. EG Education Grant PMR Project Management Report FIP Investment Fund for Peace/Fondo de Inversi6n para la Paz RAS Colombia's Social Safety NetlRed de Apoyo Social FOREC Regional Reconstruction Fund for earthquake-hit areas/ RCU Regional Coordination Unit Fondo para la Reconstruccion y Desarrollo Social del Eje Cafeter GDP Gross Domestic Product SA Special Account |GOC Government of Colombia SENA National Learning Service/Servicio Nacional de Aprendizaje HN |Health/Nutrition Grant SIIF Integrated Financial Information System IBRD |International Bank for Reconstruction and Development SISBEN Beneficiary Selection System for Soial Programs/Sistema de Seleccion de Beneficiarios de Programas Sociales ICB International Competitive Bidding SOE Statement of Expenditures ICBF Colombian Institue of Family WelfarelInstituto SSAL Social Sector Adjustment Loan Colombiano de Bienestar Familiar ICV Quality of Life Indicator/Indice de Calidad de Vida TOR Terms of Reference 1DB Inter-american Development Bank RAIS Registry of Inidividual Health Care/Registro de Atenci6n ______ _____________________________________ _____Individual en Salud IMF International Monetary Fund Individual_en_Salud Vice President: David de Ferranti Country Manager/Director: Olivier Lafourcade Director: Xavier Coll Task Team Leader/Task Manager: Vicente B. Paqueo  COLOMBIA HUMAN CAPITAL PROTECTION CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 8 C. Project Description Summary 1. Project components 10 2. Key policy and institutional reforms supported by the project 12 3. Benefits and target population 13 4. Institutional and implementation arrangements 14 D. Project Rationale 1. Project alternatives considered and reasons for rejection 20 2. Major related projects financed by the Bank and other development agencies 23 3. Lessons learned and reflected in proposed project design 24 4. Indications of borrower commitment and ownership 26 5. Value added of Bank support in this project 26 E. Summary Project Analysis 1. Economic 27 2. Financial 27 3. Technical 27 4. Institutional 28 5. Environmental 28 6. Social 29 7. Safeguard Policies 29 F. Sustainability and Risks 1. Sustainability 30 2. Critical risks 31 3. Possible controversial aspects 34  G. Main Loan Conditions 1. Effectiveness Condition 34 2. Other 34 H. Readiness for Implementation 35 1. Compliance with Bank Policies 35 Annexes Annex 1: Project Design Summary 36 Annex 2: Detailed Project Description 43 Annex 3: Estimated Project Costs 45 Annex 4: Cost Benefit Analysis Summary 46 Annex 5: Financial Summary 51 Annex 6: Procurement and Disbursement Arrangements 52 Annex 7: Project Processing Schedule 59 Annex 8: Documents in the Project File 60 Annex 9: Statement of Loans and Credits 61 Annex 10: Country at a Glance 63 Annex 11: Financial Management Action Plan 65 Annex 12: Indigenous Peoples Development Plan 66 MAP(S)  COLOMBIA Human Capital Protection Project Appraisal Document Latin America and Caribbean Region LCSHS Date: March 1, 2001 Team Leader: Vicente B. Paqueo Country Manager/Director: Olivier Lafourcade Sector Manager/Director: Xavier E. Coil Project ID: P069964 Sector(s): SA - Social Assistance Lending Instrument: Specific Investment Loan (SIL) Theme(s): Social Protection Poverty Targeted Intervention: Y Project Financing Data [X] Loan [I Credit [ ] Grant [ ] Guarantee [ ] Other: For LoanslCreditslOthers: Amount (US$m): 150.0 Proposed Terms: Fixed-Spread Loan (FSL) Grace period (years): 5 Years to maturity: 17 Commitment fee: 0.85% p.a. first 4 Service charge: 0.00% years; 0.75% p.a. thereafter Front end fee on Bank loan: 1.00% financing Plian: 3 ouc BORROWER 174.84 14.84 189.68 IBRD 136.97 13.03 150.00 INTER-AMERICAN DEVELOPMENT BANK 77.50 6.73 84.23 LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING 31.09 0.00 31.09 COUNTRY Total: 420.40 34.60 455.00 Borrower: GOVERNMENT OF COLOMBIA Responsible agency: DAPRE-FIP, OFFICE OF THE PRESIDENCY Address: BogotA, Colombia Contact Person: Manuel Salazar Tel: (57-1)-334-9763; 334-4405; 334-0031 Fax: (57-1)-334-0221 Email: ml salazargdnp.gov.co Estimated disbursements (Bank FY/US$M): 2001 20021= 2003 004 Annual 16.79 52.76 54.37 26.08 Cumulative 16.79 69.55 123.92 150.00 Project implementation period: 3 years Expected effectiveness date: 07/31/2001 Expected closing date: 12/31/2004 XS P#D h * D  A. Project Development Objective 1. Project development objective: (see Annex I) The goal of the Project is to alleviate the impact of Colombia's current economic crisis on the most vulnerable by protecting and promoting poor children's human capital. This would be accomplished by supporting poor families' investments in their 0-17 year old children's health, nutrition, and education in the face of sharply reduced incomes. To this effect, the Project would support Familias en Acci6n (Families in Action), the family assistance sub-program of the Government of Colombia's (GOC) new Red de Apoyo Social (RAS) safety net strategy. The RAS also includes Empleo en Acci6n (a temporaty employment sub-program) and J6venes en Accion (a youth training program). The three sub-programs in the RAS will be financed for three years and constitute Colombia's principal response to protecting the poor from the worst effects of the economic crisis. The three year limit on Familias en Acci6n and the other RAS sub-programs follows the GOC's strong opposition to the establishment of an entitlement program. In support of Familias en Acci6n, the Project would finance the provision of two kinds of conditional cash transfers to nuclear families in the lowest strata of Colombia's proxy means testing system, SISBEN. Families in SISBEN I belong approximately to the poorest quintile of the income distribution. Through these grants, the Project would allow families to avoid coping mechanisms that are damaging to the future earnings of their children such as reducing the intake of nutritious food and pulling children out of school, two coping mechanisms that have already been documented as crisis response mechanisms. a A health/nutrition (HN) grant would be provided to eligible families with 0-6 year old children who are not benefiting from the community nutrition and pre-school programs run by the Instituto Colombiano de Bienestar Familiar (ICBF, Colombian Institute of Family Welfare). Families would receive the cash transfer as long as they comply with agreed HN requirements. The HN grant would require parents to bring their children aged 0-6 to health clinics for scheduled growth monitoring. In the clinics the children would receive the basic health services provided by the health system, including immunization, as established by the GOC's health regulations and as a condition for municipal participation in the Project. The clinic-based health services would be supported by health and nutrition counseling sessions. The grants would be issued to the mothers of the 0-6 year old children. * An education grant (EG) would be provided to each eligible child aged 7-17 years old who is registered in school, maintains at least an 80 percent attendance rate and does not repeat a grade more than once. The grants would be issued to the mothers of the primary and secondary school students. Over a million poor Colombian children are expected to benefit from the Project. These children belong to families whose income and assets are so low that even during normal economic times they have very little resources to cushion the impact of idiosyncratic shocks. Although social assistance programs exist to help these families, they are poorly targeted and have a limited capacity to flexibly respond to large covariant shocks. Given the depth of the current economic crisis and the inadequacy of the social safety net, the fear is that the crisis could have an irreversible impact on the well-being of those children. Apart from its immediate impact on their present consumption, the crisis threatens to reduce the existing low levels of family investments in their children's human capital. In particular, it threatens to undermine poor families' ability to adequately invest in their children's basic health and education. The consequence is that for many of those children, their future ability to escape the cycle of poverty could become even more difficult, depending on the duration of the crisis and the Government's ability to strengthen its social safety net. In this regard, available evidence indicates that although limited to at most three years during this time of - 2 -  crisis, the temporaty assistance contemplated by Familias en Acci6n could indeed prevent deterioration of (if not improve) the education, health and nutrition of poor children. These human development outcomes are expected in turn to generate "permanent income" effects. 2. Key performance indicators: (see Amnex 1) Project impact and outputs will be assessed by the following measurable impact and outcome indicators. These will be generated by a combination of survey data, monitoring indicators and qualitative assessments described in Annex 1. a) Outcome I lmpact Indicators: Project impact will be assessed through an evaluation comparing a representative sample of Project beneficiaries to a comparison group with similar characteristics, using baseline and follow-up surveys. The comparison group will provide a counterfactual for what would have occurred had the Project not been implemented. The comparison of actual outcomes to the counterfactual outcomes will establish the net Project impact. As mentioned, the Project seeks to prevent deterioration of human capital by focusing on the protection of the health and education status of the beneficiaries and the improvement of participating mothers' lnowledge and application of health and child care practices that lead to household level welfare improvements. Baseline data from the impact evaluation satisfactory to the Bank will be provided by December 31, 2001. The following impact indicators will be measured by comparing the treatment to the control groups, before and after the intervention, to obtain net changes: (i) Health/Nutrition Grants - Net change in the % of children brought to health centers for preventive care (target: > or = 0) - Net change in children age 0-6 with complete immunization scheme (target: > or = 0) - Net change in children age 0-6 complying with regular growth and health monitoring (target: > or = 0) - Net change in nutritional status (as measured through anthropometric indicators) of children age 0-3 (target: > or = 0) (ii) Education Grants - Net change in school attendance (target: > or = 0) - Net change in school dropout (target: < or = 0) - Net change in school enrollment (target: > or = 0) - Net change in transition rate, especially grades 1-2, 5-6 and 9-10 (target: > or = 0) b) Output Indicators: The Project's Management Information System will be used to track actual compared to estimated number of beneficiaries, together with the amount disbursed, overall and between beneficiaries of different types of grants. These estimates will be updated during the Pilot phase based on the actual numbers of eligible beneficiaries, as registered in participating municipalities' SISBEN systems. - Estimated number of eligible families receiving: Primary education grant only (target = 30,700; 8% of beneficiary families) Secondary education grant only (42,400; 11% of beneficiary families) Nutrition grant only (target = 67,500; 17% of beneficiary families) Nutrition and primary education (target = 76,100; 19% of beneficiary families) -3 -  Nutrition and secondary education (target = 38,200; 100/e of beneficiary families) Primary and secondary (target = 57,700; 15% of beneficiary families) All three subsidies (target = 83,700; 21% of beneficiary families) - Average monthly benefit (US$) of families receiving: Primary education grant only ($13) Secondary education grant only ($18) Nutrition grant only ($20) Nutrition and primary education grants ($34) Nutrition and secondary education grants ($38) Primary and secondary education grants ($30) All three grants ($53) - Number of children (as opposed to families above) benefiting from: Nutrition grant (target = 472,500) Primary education grant (target = 378,900) Secondary education grant (target = 339,281) Efficiency Percentage of loan going to education and nutrition grants (target 66%) Percentage of grant recipients in lowest income quintile (target=90%) Compliance rate of participating municipalities with municipal-level immunization coverage targets (target-"90%) B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 17107-CO Date of latest CAS discussIon: 11/18/99 The CAS Progress Report dated November 1, 1999 states that "in order to alleviate the impact of the current economic crisis on the poor, the Government has identified the segments of the population that have been hit the hardest by the crisis, including the unemployed poor, young entrants into the labor market, female heads of households, children, the elderly, and those displaced by the ongoing internal conffict; these people are mostly in the poorest two deciles of the population. In response to the problems of these vulnerable groups, the Government is now designing, together with the Bank and the IDB, programs to provide basic social services targeted to this population." The above CAS report further states that the Bank is "undertaking operational and analytical work to support the Government's effort to ameliorate the social impact of the current economic crisis on the poor... [It] is preparing two lending operations to support immediate strengthening and expansion of the social safety net framework (e.g. protection of the vulnerable by creating jobs and training, low-income housing, and providing safe water and sanitation)." 2. Main sector issues and Government strategy: Colombia is experiencing its worst economic performance in over 60 years, compounded by an ongoing internal conflict. GDP growth has decreased from an average of 3-4 percent during the first half of the 1990s to 0.6 percent in 1998 and - 4.5 percent in 1999. This decline has been accompanied by deterioration in nearly all other areas of the economy: (i) the fiscal accounts of the non-financial public sector, which were roughly balanced in the early 1990s, showed a deficit of 3.7 percent of GDP in 1998, rising to 5.5 percent of GDP in 1999; and (ii) the current account of the balance of payments reached a deficit of 5.7 percent of GDP in 1998, although it fell to 1.1 percent of GDP in 1999 as a result of a sharp -4 -  decline in imports and an increase in oil revenues. The Colombian economy has begun to show signs of recovery, with GDP growing at above 3 percent in 2000. Nevertheless, the increase in unemployment and poverty arising from the economic crisis remains a grave concern and the restoration of a fiscal balance while protecting the welfare of the poor and vulnerable continues to be a serious challenge. These economic difficulties are complicated by costly conflicts with the guerrillas and other violent elements in Colombia. A. Main Sector lssues Effects of the crisis on employment, poverty and income inequality High unemployment. In June 2000, Colombia's unemployment rate reached a historic high of 20.4 percent, almost double its traditional rate of 11 percent. Government data reveal that most of the affected are young workers in urban areas, who are accessing the labor market for the first time. Of the approximately three million unemployed workers, about a third are located in the seven largest cities. Growing poverty and income inequality. Colombia's poor economic performance has resulted in a worsening of most social and economic indicators. Data indicate that the gains made in terms of poverty reduction have been lost as a result of the recession. Poverty and extreme poverty rates had been decreasing almost continuously since the 1970s when the country was growing relatively rapidly. But during the second half of the 1990's, extreme poverty --defined in terms of an individual's inability to meet basic caloric requirements - in the urban areas has increased by more than 4 percentage points. The extreme poverty rate in urban areas was around 10 percent in 1995, and after the crisis it increased to 11.5 in 1998 and 14.5 in 1999. As for the poverty rate, which was around 48 percent in 1995 and 1998 (down from 70 percent in 1978 and 55 percent in 1988), it increased almost 8 percentage points in 1999. T'he crisis has affected both the rural and urban population, but there are indications that urban areas were more heavily affected. Based on the information contained in the last two national surveys (CASEN 1993 and ECV 1997) a striking increase in the incidence of urban poverty is observed, while poverty in rural sectors seems to have decreased. Similar behavior is observed with regards to income inequality: in the urban areas the lowest quintile suffered a 50 percent loss in income participation while it remained approximately constant among the rural population. Other income distribution parameters like the Gini coefficient show an increase in income inequality in urban areas. Although poverty in rral areas is more widespread, it is in urban areas where the situation has deteriorated relatively more. The Gini coefficient increased during the 1990s, but between 1998 and 1999 it increased almost two percentage points, to 0.55. An additional indicator of welfare, the Indice de Calidad de Vida (ICV), shows a negative impact among the poorer groups. The ICV is an index of welfare that incorporates a number of factors like access to public services, present and potential human capital, and variables measuring quality of life. After 1996 the ICV shows a worsening of conditions for the lower deciles of the population. Again this is worse in urban than in rural areas. Inadequate and deteriorating investment in human and social capital Decline in education. Basic education in Colombia is stili far from being universal, especially among the poor many of whom drop out before completing primary education. Moreover children in the poorest quintiles are entering the school system late and falling behind while enrolled; only 17 percent are in the correct grade for their age, compared to the population average of 38 percent. Furthermore, dropout rate - 5 -  remains high and learning achievement among the poor needs improvement. Given these education challenges, any deterioration or threat against the education of the poor should be viewed with grave concem. The National Planning Department (DNP) estimates that enrollment rate among 7-11 year old children from the poorest income decile decreased from 87.3 percent in 1996 to 83.2 percent in 1998. For the second poorest decile, the decline was from 89.7 percent to 85.9 percent. During the same period, the enrollment rates of 12-17 year olds also fell among the poorest quintile from 66.3 to 64.6 percent. The education effect could be greater after 1998. As the crisis continues, poor families are likely to run out of options, pulling children out of school to save money and augment current disposable income. Resorting to this short term coping mechanism, however, has long term consequences on the accumulation of human capital and poor children's ability to break out of the intergenerational cycle of poverty. There is also evidence of a decrease in the quality of education received by children. As some middle income families become poor due to the economic crisis, they pull their children from private schools and send them to public schools, a phenomenon observed recently in Colombia. There are other possible educational effects that have not been captured yet by available data. ln this regard, it should be noted that one of the education-related responses to similar crises elsewhere includes a decrease in time children spent doing their homework or studying, as they go into the labor market to help their families. Reduction in the capacity of the health system to subsidize the poor. Colombia has a health insurance system in which the poor are subsidized. Despite the achievements of the country's health reform program, which include rising number of individuals affiliated to the system since 1993 (in both the subsidized and non-subsidized tiers), many of the poor are not enrolled in the system. As a result of the crisis, the number of individuals contributing actively to the health insurance system, dropped significantly. Between 1998 and 1999 the number of active/regular contributors went from 63 to 47 percent. A decrease in the number of active contributors puts additional strain on the finances of the subsidized scheme, as cross subsidy becomes more difficult. Declines In food consumption among the poor. A household survey performed by FEDESARROLLO in Colombia's four largest cities suggests that the consumption of certain food items has decreased significantly during the crisis. Close to 40 percent of sampled households reported a drop in consumption in 1999 relative to the previous year. Food consumption went down 6 percent during the first half of 1999 compared to the first half of 1998. Reversal of gains in social spending. During the 1990s public expenditure on social sectors more than doubled. However in 1999 the amount of social expenditures decreased for the first time in the decade, by approximately 5 percent compared to 1998 levels. The main decrease has been in the education sector, where expenditure levels decreased about 10 percent In 1999 social spending (without pensions) amounted to 11 percent of GDP, including expenditures on health, education, ICBF, SENA, and other sectors. Colombia's health and education expenditures stand at around 2.5 and 4.2 percent of GDP, respectively, relatively low levels by Latin American standards. Inadequate and inefficient social safety net Reliance on strong economic growth rates has historically served as Colombia's principal social safety net The present economic crisis has underscored the absence of an effective social safety net that can respond quickly and efficiently to dramatic declines in income and employment. The crisis has established the urgent need for, first, identifying social assistance mechanisms well-suited to helping the poor cope with the - 6 -  negative effects of the crisis. This is the objective of the Red de Apoyo Social (RAS) programs. Second, the crisis calls for a re-examination of the battery of largely disarticulated safety net programs and the crafting of a social protection strategy that will help Colombia be better prepared to respond to future crises. This is part of the analytical work presently being carried out by the Bank in collaboration with the GOC in preparation for a Social Sector Adjustment operation (SSAL) in FY02. The need for re-examining the social assistance programs and developing more efficient and credible altematives is illustrated by their mixed accomplishments. Some programs like Hogares Comunitarios de Bienestar of ICBF, which aims at improving the nutritional and health status of low income children under seven years of age, seem to be well targeted but produce poor results. A problem seems to be the lack of coordination among programs as well their being supply driven. Some programs have been designed with geographical criteria, others have been targeted to specific groups, but there is no detailed knowledge of the interactions among them, overlapping objectives and target populations. Another example of a program whose effectiveness and efficiency have been seriously questioned, is the Red de Solidaridad Social essentially a social fund (in structure) established in the mid-1990s. From 1994 to 1998 it reached close to four million individuals through different programs, like Revivir, which provides assistance to the vulnerable elderly, or Desplazados, to provide assistance to households that have been displaced by the violence in Colombia. The problem is that it has shown inadequate strategic and programmatic focus, lacked monitoring and evaluation capacity, and failed to retain qualified personnel. The weaknesses were reasons for rejecting the Red as implementing agency of the Community Works and Employment Project. A further example is SENA, a training and information agency that administers about Ill training centers and 29 employment information centers. Various studies have questioned the efficiency with which training funds (financed by a payroll tax) are allocated and used. B. Government Strategy Clearly, the current economic crisis has exposed serious weaknesses in the structure and management of Colombia's economic system and established the need to quickly respond to the immediate impact of the crisis on the poor. This situation has led the GOC to launch on the macroeconomic front a stabilization package with the IMF to address the present fiscal imbalance. The GOC is also identifying needed reforms to structurally underpin the IMF program in the near future. On the microeconomic front, the recent drop in school enroUlment and rise in poverty and instability has compelled the GOC to (i) undertake an immediate response to cushion the poor and vulnerable from the worst effects of the crisis and (ii) find innovative ways to improve the efficiency and effectiveness of Colombia's existing social safety net in order to better prepare for future crises. These steps are being undertaken, while at the same time GOC is pursuing peace initiatives under Plan Colombia to address the above mentioned intemal conflict The situation in Colombia calls for a two-staged approach to be carried out on both the macro and microeconomic fronts: a short-term crisis response action plan and a medium-term reform strategy. As an immediate response to the crisis, GOC has agreed to implement the IMF adjustment program and complementary measures to establish an environment conducive to economic recovery. The GOC has also initiated a review of key sectoral issues affecting the country's macroeconomic stability. Simultaneously, it is launching the Red de Apoyo Social (RAS), a social safety net program composed of three complementary programs aimed at helping the poor cope with unemployment and reduced income. As mentioned, these programs consist of: (i) a community works subprogram called Empleo en Acci6n (Employment in Action), which aims to provide temporary employment to poor, unemployed, unskldled workers; (ii) a family assistance program for poor families called Familias en Acci6n (Families in Action) -7 -  that is designed to give cash assistance to the poor on condition that they keep their children in school and provide them with basic preventive health care; and (iii) a training/apprenticeship program for young adults based on competitive bidding among private firms called Jovenes en Acci6n (Youth in Action). The RAS complements the objectives and social policies established in the National Development Plan 1999-2002, which seeks economic and social changes that would promote the establishment of peace in Colombia. To implement the RAS, GOC is determined to spend an additional 0.3 percent of GDP per year (about US$250-$300 million annually), over and above current public social expenditures, to be targeted to the provision of social safety net programs in 2000-2004. In the medium term, the GOC intends to implement structural reforms to ensure fiscal stability by addressing the underlying causes of Colombia's economic problems. This reform agenda would most likely include adjustments in the pension, territorial transfer, tax, privatization, banking and oil stabilization systems. Simultaneously, the GOC will also seek to reform the social safety net to give it the flexibility needed to deliver rapid assistance to those most affected by future severe economic downturns. The Bank, the IDB, and CAF are supporting the GOC's needs, vision and strategy in both the short and medium term. They have pledged to support the RAS through a series of lending operations and analytical work. The Board approved on May 11, 2000, the Empleo en Acci6n Community Works and Employment Project ($100 million) to support the RAS in establishing its temporary employment subprogram through the financing of small, labor-intensive public works projects. This proposed Project would add another $150 million to financing of the RAS to support the Familias en Acci6n. The Inter-American Development Bank (IBD) has just approved a $270.0 million loan, which is intended to co-finance in paraUel the above-mentioned subprograms and the Jovenes en Acci6n training program for young adults. In support of GOC's medium-term goals, a Social Sector Adjustment Loan (SSAL) is planned for FY 02 to address structural issues relating to social assistance, health, education and employment in an effort to develop a more coherent and multifaceted social protection and poverty alleviation program for the medium to long term. To lay the ground for the SSAL, various studies are now being undertaken, including updating of the Bank's poverty assessment of Colombia and analyses of structural and policy issues regarding social assistance programs, Colombia's decentralized social sector financing system, and the labor market. The preparation of the SSAL is being closely coordinated with preparation of a parallel mnacroeconomic/fiscal adjustment operation, which would complement the IMF program by addressing the structural underpinnings of the fiscal crisis. 3. Sector issues to be addressed by the project and strategic choices: Poverty alleviation and human capital accumulation. It should be clear from the above discussion that although it is part of a broader strategy that seeks to deal with both causes and effects of the crisis, this Project taken by itself aims to address only the impact of the crisis on the poor. Specifically, it aims to mitigate the deleterious effects of the crisis on children's human capital accumulation brought on by poor families' reduced spending on food, health and education as a result of shortfalls in income. It is apparent that the coping strategies of the poor have resulted in socially sub-optimal behavior like pulling children out of schools, reducing children's nutrition and other responses that decrease their future productivity. The Project, which has been inspired by Mexico's PROGRESA and Brazil's Bolsa Escola, is an effective way of providing short term social assistance to poor families, while at the same time producing long lasting benefits in the form of increased future productivity that relatively better child nutrition, health and education bring. -8 -  Other strategic choices considered A variety of choices were considered in the project design phase, but ultimately rejected because of the inadequacies of existing programs and/or the need for an immediate response to the crisis. (a) Flnancing a diverse set of existing programs: It was considered initially to finance a variety of old and new projects, which included public infrastructure projects to generate employment, initiatives for micro, small and medium scale enterprises, micro-credit, soup kitchens, expansion of ICBF program for 0-2 year olds, education loans, and social programs for senior citizens. This proposal was rejected because it was unfocused and was deemed too complicated, risky and time consuming to prepare. Instead, it was agreed to concentrate on temporary employment generation and provision of conditional cash assistance to poor families - initiatives that were found to be cost-effective in Argentina (Trabajar) and Mexico (PROGRESA). (b) Supply-based assistance. Given the issues mentioned above about the inadequacies of existing social assistance programs which are predominantly supply-driven, the strategic choice was made not to finance the expansion of any of them. Specifically, it was decided to use Bank financial support to develop a credible altemative to supply-driven poverty alleviation approaches -- one that is based on household choices and reward the performance of beneficiary families for achieving certain socially desirable accomplishments such as keeping children's health and education. The Bank recognizes, however, that certain localities need to improve their education and health services capacity to meet anticipated increased demand. Consequently, GOC decided to condition program participation of municipalities on their readiness to supply needed health and education services. Municipalities that currently have inadequate supply capacity would have to sign an agreement with the Project to provide necessary improvements. (c) Sequencing: The option was considered to include both the workfare and conditional subsidy to poor families in a single loan operation, in order to assist not only able-bodied poor workers, but also those that could not take advantage of public employment programs (e.g., children, the elderly). This option was rejected on the grounds that Project implementation would be too complicated, which would hinder the ability of GOC to respond quickly to the urgent needs of the unemployed poor. The choice was made instead to proceed first with the employment-generation project, which could be prepared quickly, while concurrently designing a conditional family health and education grant project, which would require more time in preparation. In this regard, GOC sent some staff to Mexico to study PROGRESA while the Community Works and Employment Project was rapidly prepared for Board approval last fiscal year. (d) Geographic focus: Targeting only urban areas was considered as an option, taking into account the disproportionate impact of the present economic crisis in urban areas as well as the problem of implementing direct cash transfers to families in rural areas without a bank. However, it was decided that the Project would include rural communities because of: their high structral levels of poverty which have been exacerbated by the crisis; the concentration of the two other RAS programs in urban areas, and because of the opportunity to test a mechanism for efficiently addressing poverty through demand-side subsidies in both urban and rural areas. The conditional health and education grant program will begin with a pilot in urban and rural communities to minimize risk. From their experience, wider implementation of conditional subsidies would be developed accordingly. (e) Exclusion issues: The model adopted under this project can be implemented relatively rapidly, using available resources including the SISBEN proxy means testing system, the existence of a network of banks in most areas of Colombia and the presence of a national network of ICBF offices. However, the same -9-  features that make the project model implementable over a relatively short time frame also limit its application in certain geographical areas and among certain populations. The project will not reach populations without access to a bank (estimated to be approximately 12% of the Colombian population) or populations that have not been surveyed under SISBEN such as indigenous communities that have not adopted the SISBEN system. In addition, poor families in conflict areas are unlikely to be included in the Project due to security reasons (GOC, however, has other programs for these areas as well as for the displaced population). Needed refinements to allow the project to reach these excluded populations will be studied during project implementation. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The Project consists of six components (see table below). (i) The first component (US$48.86 million) is the Educational Grants (EG). This would finance scholarships for children aged 7-17 years old belonging to families with SISBEN I classification. Beneficiary families would receive the education grant during the duration of the project (three years) for as long as they are enrolled in primary or secondary schools, maintain a class attendance rate of not less than 80 percent, and do not repeat a grade more than once. Each education beneficiary would receive a monthly stipend per eligible child amounting to US$6 per month and US$12 per month for primary (grades 2-5) and secondary (grades 6-11) school students, respectively. These amounts are equivalent to households' average direct education expenditures. This component also includes the direct costs charged by financial institutions in Colombia to deliver the education grants to poor families, amounting to approximately US$ 1.6 million (3% percent of the total amount allocated for the education grants). These direct costs will be financed by the Bank. (u) The second component (US$74.10 million) is the Health/Nutrition Grant (RN). This component would finance direct cash grants to eligible (SISBEN 1) families with 0-6 year old children, who are not in the community nutrition and pre-school program (Hogares Comunitarios de Bienestar) of the Instituto Colombiano de Bienestar Familiar (ICBF, Colombian Institute of Family Welfare). Selected families would receive the grant for as long as they comply with agreed health/nutrition requirements. The HN grant would require parents to bring their children aged 0-6 to health clinics for scheduled growth monitoring. In the clinics the children would receive the basic health services provided by the health system, including imnmunization, as established by the GOC's health regulations and as a condition for municipal participation in the Project. The clinic-based health services would be supported by health and nutrition counseling sessions. The grants would be issued to the mothers of the 0-6 year old children. To avoid incentives to fertility and recognizing the economies of scale in families' food consumption, the HN grant would be set at US$20 per month per eligible family with a 0-6 year old child regardless of the number of children. On average this amount represents about $13 per child aged 0-6 years old per month. The grant of US$20 is more or less equal to the gap between the cost of a basic food basket for determining the poverty line and the average income of indigent families. The amount indicates a conservative estimate of the additional direct food and health expenditures needed by an average indigent family to keep their preschool children well nourished and healthy -- and avoid human capital development failures. This component also includes the direct costs charged by financial institutions in Colombia to deliver the health and nutrition grants to poor families, amounting to approximately US$2.5 million (3% percent of the total amount allocated for the health and nutrition grants). These direct costs will be financed by the Bank. - 1 0 -  The health/nutrition as well as education grant per beneficiary would be given in Colombia pesos, but the amount would be calculated in US dollars to maintain the real value of the peso-denominated grant over the years. The selection of grant beneficiaries and the verification of compliance with requirements of their receipt would be done in accordance with procedures and criteria to be established in the Operations Manual satisfactory to the Bank (condition of effectiveness). (iii) The Project Management component (US$13.78 million) would finance the operational activities of the temporary National Coordinating Unit (NCU). These costs would partly be shared by the Empleo en Acci6n Community Works and Employment project. A breakdown of the services to be shared among programs can be found in the project files. (iv) The Monitoring and Evaluation component (US$1.63 million) would finance the external review and evaluation of the performance and impact of the project. (v) The Promotion and Dissemination component (US$3.32 million) would finance public relation and information campaign activities, which would be carried out through television, radio, and print media (newspapers as well as posters, brochures, billboards, etc.) Consultants would be hired for six months to design and carry out these activities. They would also develop and organize national and local workshops for technical and administrative staff and other program stakeholders (e.g., mayors). (vi) The Health, Education, and Nutrition Services Delivery component (no Bank financing) consists of education, health and nutrition services provided by involved public institutions to eligible Project beneficiaries in the participating municipalities receiving Bank-financed grants. This amount of US$206.25 million is recognized by the Bank as an in-kind contribution from the national and local governments in Colombia. The in-kind contribution includes vaccinations, teacher salaries, and public education campaigns, among other items. A list of the government programs included in this estimate can be found in the project files. There will also be an unallocated amount of US$8.31 million, which is mainly in place to account for the uncertainty in the uptake of health and education grants. The front-end fee of US$1.50 million will be financed separately by the GOC. The Familias en Acci6n conditional subsidy program would have a total loan funding of $234.23 million from the Bank and 1DB. This Project would contribute US$150 million, while IDB's Apoyo Familiar would provide another US$84.2 million. The total Project cost (US$366.92 million), excluding 1DB financing shown below includes a portion of the estimated value of the in-kind contribution of ICBF and the local governments, as well as World Bank financing (the table does not include IDB financing). The EG and HNG components would be financed 100 percent by both Banks. The other components would be wholly or partly funded by counterpart resources. Project management, including monitoring and evaluation as well as promotion and dissemination, would constitute roughly 8 percent of total Project costs. Bank financing of these components constitutes 12.5 percent of the Bank loan. -11 -  (1) Education Grants (EG)* 48.86 13.2 48.86 32.6 (2) Health/Nutrition Grants (HNG)* 74.10 20.0 74.10 49.4 (3) Project Management 26.79 7.2 13.78 9.2 (4) Monitoring and Evaluation 1.63 0.4 1.63 1.1 (5) Promotion and Dissemination 3.32 0.9 3.32 2.2 (6) Health, education, and nutrition 206.25 55.6 0.00 0.0 services delivery** (7) Unallocated 8.31 2.2 8.31 5.5 Total Project Costs 369.26 99.6 150.00 100.0 Front-end fee 1.50 0.4 0.00 0.0 Total Financing Required 370.76 100.0 150.00 100.0 *These two components include the direct costs from fees charged by financial institutions in Colombia to deliver cash subsidies to poor families. *This component represents in-kind contributions from national and local governments. Table does not include IDB financing. 2. Key policy and institutional reforms supported by the project: The Project seeks to develop the knowledge, experience and institutional capacity necessary to establish a stronger and more responsive social safety net in Colombia -- one that would alleviate the worst effects of current poverty and simultaneously promote the formation of human capital among poor children, even in times of economic crisis. Toward this end, the Project would support the development of appropriate rules and guidelines governing conditional health and education grants targeted to very poor families and their highly vulnerable children. It would also establish a new methodology for geographic targeting that would be used to rank localities by their socioeconomic indicators and as an input for a new system of choosing, evaluating and monitoring social assistance projects for poor communities. The new methodology, the ICV (Indice de Calidad de Vida), is based on census data, which permits its disaggregation to small geographical units, including municipalities and neighborhoods within municipalities. According to the calculations of DNP-Misi6n Social, the ICV is a very good predictor of household consumption, with a correlation of 0.936. The lCV is the index used in the Bank's Empleo en Acci6n Community Works and Employment project. If the idea of conditional grants is proven to be feasible and cost-effective, the Project could lead towards the replacement of redundant, less cost-effective poverty alleviation/social assistance programs as well as to a better balance between supply and demand side interventions to promote human capital formation among poor children. - 12-  3. Benefits and target population: Project Impact and benefits. Over a million children would be benefited (equivalent to roughly 13 percent of the poor aged 0-17). The Project would generate several benefits. It would: (i) increase school enrollment, reduce student absences from school and decrease primary and secondary school dropout rates; (ii) raise the nutrition and health status of vulnerable children during life stages critical for their growth and development; and (iii) improve child care practices among poor families in nutrition, health, early stimulation, and avoidance of intrafamily violence. These improvements would be expected to have an impact on poverty rates among the beneficiary population and eventually contribute to raising beneficiary children's future earnings as a result of better health and education. It should be reiterated that, as mentioned in Section A.2, these improvements and impact should be interpreted in relation to the counterfactual (absence of the program); the severity of the crisis may be such that the anticipated program benefits may not be sufficient to improve the outcome indicators in absolute terms. Benefidarles and targeting mechanism. As mentioned, the Project will target the conditional grants to vulnerable children belonging to families in the first quintile of the income distribution and living in eligible municipalities. The Project follows a two stage targeting methodology. First, the Government selected those municipalities in urban and rural areas that: (i) have a bank through which the grants could be delivered directly to the beneficiaries; (ii) have the capacity to supply basic health services and primary/secondary education that would enable families to comply with the stipulated conditions; and (iii) are not already benefiting from another major national social safety net operation --FOREC and capital cities, metropolitan areas and municipalities with over 100,000 urban population covered by Empleo en Acci6n. In total, there would be an estimated 692 of Colombia's 1029 municipalities eligible for the Program. Departments will be ordered by the total number of eligible persons (i.e. those in SISBEN 1), project resources distributed across departments according to the total number of eligible persons, and departments with higher absolute poverty as determined by the total population of eligible persons would be prioritized for early incorporation into the program, even though all departments would be reached over time. The Operations Manual will describe the final incorporation rules.Second, once a department is incorporated, eligible municipalities (i.e. those not already receiving a major safety net operation, with banks, and meeting the supply side provision requirements) within the selected department will be invited to participate in the program. These municipalities will be ranked according to their relative poverty, allowing for the prioritization of those with the highest percentage of poor. Because of operational considerations mumicipalities wiU be ranked and incorporated as groups defined by the jurisdiction of the Project's zonal offices. Third, having selected the departments and municipalities, families belonging to SISBEN 1 with chiklren in the eligible age categories would be chosen. Since demand is likely to exceed supply in many areas, the Government is exploring three options for rationing excess demand: (i) using a random selection process to choose which SISBEN I families will be eligible to receive the transfer; (ii) selecting the poorer families within SISBEN 1 taking advantage of the SISBEN point-based poverty ranking system; and (iii) selecting the poorest municipalities within each department to receive the Program and giving grants to all qualifying SISBEN 1 families within the selected municipalities. All three options are being explored and evaluated in the pilot test. The potential number of beneficiaries of the education grant component (including Bank and 1DB projects) would be about 380,000 and 340,000 children in primary and secondary education levels respectively. The nutrition grant component could benefit about 265,000 pre-school children. The total number of families that would receive at least one of the grants could total to about 400,000. The actual number of beneficiaries would depend on realized take up and leakage rates. These estimates will be updated during the Pilot Phase of the Project using the actual number of potential beneficiaries registered in participating - 13 -  municipalities' SISBEN system. 4. lItitutional and implementation arrangements: The DAPR-FIP of the Office of the President, which is responsible for the implementation of the RAS, would be in charge of Project execution, while DNP would be responsible for monitoring, evaluating and reviewing the technical aspects of the Project's progress. Within the DAPR-FIP, the National Coordinating Unit (NCU) would be in charge of the day-to-day execution of the Familias en Acci6n and other RAS subprograms. This Project would be implemented by the NCU in cooperation with other organizations. These include the network of ICBF offices, participating municipal governments, the Committee for Social Policy based in each municipality, local schools and health centers, elected leaders of the beneficiary mothers' groups, local citizen watchdog groups Veedurias Ciudadanas) and a financial institution to deliver the grants to beneficiaries. The function and composition of these organizations are described in detail in the Operations Manual. The Manual, which is in an advanced state of preparation will govem Project implementation. It covers operational procedures and guidelines regarding loan administration and staffing, beneficiary selection, grant amounts, verification of compliance with grant conditions, procurement, flow of funds, financial management and control (accounting, auditing, and reporting), coordination, supervision, monitoring and evaluation. Revision of the Manual satisfactory to the Bank wilU be a condition of effectiveness. The institutional arrangements appear appropriate, given the nature of the program and issues of possible inappropriate use of public funds. The Project makes use of an existing network of central govemment, local govenmment, private sector and civil society organizations to establish not only traditional financial management accounting and control mechanisms, but also to promote social control and transparency. The institutional and imnplementation arrangements appear complex, but their complexity is necessary to minimize Project risks and ensure success. The Project's institutional complexity arises for several reasons. First, Project's institutional environment is quite complex. The program involves two highly decentralized sectors (education and health), which are controlled by the departmental and municipal govemments. At the same time, the Ministries of Health and Education, which have legitimate interests and concerns regarding the Project as weil as roles to play in addressing supply-side issues, need to be taken into account. Furthermore, the situation calls for tight coordination with ICBF not only because of ICBF's role as the principal Project administrator, but also because of its national mandate to promote children's welfare, its available resources, and its desire to reform its approach to social assistance. For those reasons, the Project has to take into account and involve numerous central and local stakeholders in project design and implementation. Second, although the main thrust of the Project is to motivate families to invest time and money on their children's human capital even during these difficult times, the Project needs to ensure that the supply of education and health services are available when needed by beneficiaries to comply with their obligations. ft is for this reason that Project implementation design includes assessment of the readiness of municipalities to provide aforementioned services prior to their acceptance into the program. Similarly, the Project has decided to establish rules that encourage compliance with program participation conditions agreed to by the municipalities. (GOC has already developed and in the process of including in the revised Operations Manual the criteria and methods for assessing municipal readiness in providing needed education and health services as weil as for identifying supply-side improvements that need to be made by the municipality as a condition for program participation). - 14 -  Third, given the above-mentioned thrust of the Project, it is necessary to establish a reliable system for verifying families' and municipalities' compliance with the grant conditions. Fourth, sending money to the beneficiary families, accounting for the income transfers, and controlling them so that fraud and leakage are minimized is a huge challenge, particularly considering Colombia's experience. Transparency and social control need to be well established as crucial complements to traditional financial controls. Finally, the complexity arising from these factors is further magnified by the size of the Project, which would cover thousands of families and over a million children in both urban and rural areas throughout the country. a) Organizational structure National management. As DAPR-FIP would be responsible for other programs (unrelated to the RAS), it has been agreed that the RAS would be maintained operationally and financially separate from those programs. To this end, the RAS would have its own bank accounts and accounting system. Moreover, a Steering Committee comprised of high-level representatives from the Departments of Planning, FINDETER, ICBF, the Ministry of Health, the Ministry of Education and SENA, would be established to ensure that RAS operations are sound and well coordinated. The principal responsibilities of the Steering Committee are to provide technical orientation, coordination of the various RAS projects, and supervision of their performance. High level representatives of the Ministries of Education and Health would be included to ensure cooperation on supply side issues. Business and civic organization will also be involved in national management through their participation in the FIP directive council. The National Coordinating Unit (NCU) is responsible for the technical, financial and administrative coordination of the RAS. It will ensure implementation of project activities according to agreed criteria and guidelines. It is also responsible for loan administration, supervision, and control. Some of NCU staff will be shared between this Project, the Empleo en Accion Community Works and Employment Project, and the Jovenes en Accion youth training program financed by IDB. They include staff for finance and administration, legal affairs, communications, the management information system (MIS), and internal control. Other staff involved in training, monitoring and operations will be dedicated exclusively to the Project. Specific functions of the NCU include: (a) preparation of annual operational plan; (b) monitoring and evaluation of the process of departmental and municipal operations; (c) approval of regional budgets and payments of beneficiaries; (d) procurement, including contracting of firms and consultants needed for operations; and (e) the liquidation and transmittal of grant funds to the financial institution serving as a trust company. Subnational management. Project administration at the regional and local level will rely on four foundations: ICBFs national administrative infrastructure, municipal governments, community-based networks, and schools and health centers. These arrangements are governed by a signed accord with ICBF and with the decentralized collaboration established with local govemments and civic institutions. * Project - *CBF national administrative infrastructure. Regional and local Project activities will be carried out primarily through the use of ICBF staff and facilities. The ICBF network includes offices and staff at three levels: (i) the central level in the capital of Bogota; (ii) the regional level with one Regional Coordinating Unit per department (Colombian departments are equivalent to Mexican or U.S. states); and (iii) the local level with a zonal office serving 5-10 municipalities. At full implementation, the Project will rely on the ICBF network through the use of 28 regional offices and 144 zonal offices. - 15 -  The Project's Regional Coordinating Units (UCR) based physically in ICBFs regional offices or those of another supporting entity would be in charge of the implementation of Project activities at the department level. These regional offices will be responsible for the incorporation of participating municipalities, regional implementation of the management infomnation system, and management of the network of zonal offices within the department. The UCRs report directly to the National Coordinating Unit in DAPR-FIP. The Project's zonal offices, again working primarily with the support of ICBF staff and facilities, will be responsible for the project's local administration, including the incorporation of beneficiaries and the delivery and collection of school health center and other project monitoring data. The zonal office will also serve as the Project's liaison with the groups responsible for community-based monitoring (see below). * Municipal governments. The mayor's office in participating municipalities would support Project execution at the municipal level. Among the main functions of participating municipalities are to: (a) ensure local availability of needed education and health services in accordance with the conditions agreed between the municipality and the Project; and (b) charge the Municipal Liaison (Enlace Municipal) office within the municipal government with the authority to carry out Project implementation activities. These activities include: (a) dissemination, programming, and registration activities needed for the incorporation of familes into the Project; (b) intermediation to facilitate sending and collection of registration, compliance information, and other forms; (c) the coordination of the training programs for project beneficiaries and local actors; (d) receipt of information regarding relevant changes in the situation of beneficiary families; and (e) receipt and processing of complaints. The Enlace Municipal, which is headed by a coordinator, is supported by each municipality's administrative structure. * Community networks. The direct involvement of beneficiaries and local actors is critical to successful project implementation. Three local networks will provide the foundation for community-based project monitoring: (i) the mothers receiving the transfers and their elected representatives; (ii) the Municipal Committee for Social Policy Comite Municipal de Politica Social) based in each municipality; and (iii) the citizens' watchdog groups present in many municipalities Veeduria Ciudadana). Mothers receiving transfers will be convened to elect one coordinator per neighborhood, with a coordinator representing no more than 100 mothers. The coordinator will serve as the principal liaison between Project staff and the beneficiaries and will be responsible for providing information on training and program benefits and assisting mothers in resolving questions and problems. The elected coordinators will provide regular community reports and also serve as a liaison with the local Municipal Committee for Social Policy. The content and frequency of reports will be established in the Operations Manual. The Municipal Committee for Social Policy based in each municipality is responsible for meetings and coordination between the health, education, municipal government and national govemment representatives. This group, already established through ICBF, is responsible for channeling demands and recommendations to the Program's zonal and regional offices and for serving as a direct liaison with the beneficiary mothers. It has been recommended that this group also include local civil society representatives and an elected beneficiary mother. Existing Veeduria Ciudadana citizen watchdog groups would be used to oversee Project implementation and provide a vehicle by which citizens can register their complaints against the Project, including issues pertaining to selection of beneficiaries, delivery of grants, and beneficiary - 16 -  compliance with grant conditions. Where these Veedurias Cuidadanas are absent, other participatory watchdog groups would be promoted by the Project. The relationship between the Project and the Veedurias Ciudadanas or alternative watchdog groups will be established in the Operations Manual and closely supervised during the pilot * Schools and health centers. These units are at the core of the Project. They provide not only the services that would allow beneficiaries to comply with the grant conditions, but also certification of their compliance. In the case of education, the school head would: (a) certify enrollment of beneficiary children; and (b) record their absences from class and fill out relevant Project certification forms. With respect to health center chosen by the beneficiary family, the staff assigned by the director would be responsible for: (a) programming the health center visits of the beneficiary children; (b) providing preventive check ups (through growth monitoring), immunizations and other basic health services to participating children; and (c) recording their attendance at the health center according to agreed schedule by filling out the standardized Project certification forms. Financial management. The NCU will be responsible for maintaining project management arrangements acceptable to the Bank. The Project will initially follow SOE procedures until it is ready to apply LACI procedures. The Operations Manual will concretely specify internal controls over project transactions, including control procedures for project flow of funds. In addition, the Manual will include specific administrative and accounting procedures to assure sufficient control and accurate information. The Government has also agreed to a time-bound action plan designed to prepare the NCU for full LACI compliance. The first part of the action plan, which establishes the capacity to ensure that Project funds can be accounted for in a timely manner and that they will be used in accordance with the purposes of the loan, would be completed as a condition of effectiveness. Key elements of the financial management system include: 3 Overallfinancial management. A financial institution serving as a cashier and trust company would be contracted by DAPR-FIP following clear tertns of reference. The main function of the financial institution is to make payments to Project beneficiaries and contractors approved by DAPR-FIP in accordance to its instructions and procedures acceptable to the Bank (the cashier's function). The second function is to provide financial oversight (the trust function). The payment of grants cycle is described in detail in the Operations Manual. * Accounting, financial reporting and auditing arrangements. DAPR-FIP will be responsible for the management of project funds, including national counterpart funds, and for keeping track of local counterpart resources. As mentioned, in order to ensure provision of accurate and timely information about the use of project funds, the NCU would install an integrated financial system acceptable to the Bank. This system would include planning, internal controls, accounting, and financial reporting. The Project Chart of Accounts would be structured accordingly. * Financial monitoring and evaluation. During each year, the NCU shall prepare and submit to the Bank quarterly Project Management Reports (PMRs) linking project expenditures to key monitoring indicators of activities carried out during the quarter. The formats and basis to produce those reports would be in accordance with the Bank's Financial Management Manual and LACI procedures. In addition to PMRs, external audits of project financial statements will be required on an annual basis. An independent private sector firm acceptable to the Bank will carry out the auditing of project accounts. A specific short list of audit firms and Terms of Reference for audits (TOR) would be prepared by the NCU and a no-objection letter would be issued by the Bank. The TOR will be included - 17 -  in the final version of the Operations Manual. * Flow offunds. Under the SOE arrangement, the Bank would deposit loan funds in the Special Account (SA) in Banco de la Republica (BR). BR debits the SA for the amount of payment received using current exchange rate and informs the National Treasury (DGTN) and DAPR-FIP of receipt of funds. DGTN records SA transactions into the Integrated Financial Information (SIIF) system. This information can be accessed immediately by Credito Ptublico which would authorize disbursement DAPR-FIP upon review of beneficiaries' compliance provided by the monitoring system gives instruction to DGTN to make payments to the financial institution contracted to deliver grants to the beneficiaries, using the SIIF system. In turn, the contracted financial institution would make payments to the Project's beneficiaries. DAPR-FIP through the SIIF system will have access to the following data: (i) PAC (Plan Annual de Caja); (ii) balance of the SA; and (iii) Credito Publico approvals. The development of financial management capacity and flow of funds arrangements are well advanced. Nevertheless, further improvements need to be made. A plan of action has been developed with the Bani's financial management specialist and is included in Annex 1 1. Annex 6 also lays out measures for ensuring that the SA arrangements actually functions in a manner satisfactory to the Bank. b) Implementation process The process and measures for initiating, expanding, verifying, documenting and monitoring the Project, including the identification, registration, and selection of beneficiaries is well described in the Operations Manual. Project initiation. The Project will be initiated with an inter-institutional agreement between ICBF and NCU. The agreement commits ICBF to provide the necessary logistical, financial and infrastructure support for the regional and zonal offices to carry out their assigned Project functions. The agreement also commits ICBF to provide to the Project: (a) information about children that attend its various nutrition and preschool programs in communities participating in the Project; and (b) data about new entrants to and withdrawals from said ICBF programs for the above informnation (a) to be updated regularly. This information is important, because the Project would provide the health and nutrition grants only to families that are not benefiting from the aforementioned ICBF programs. Testing and expansion. The Project would be implemented in stages. lmplementation starts with a pilot test and an expansion phase. Pilot Stage. The first stage would pilot the operations of the Project in municipalities within the departments of Boyaca Cundinamarca and Tolima estimated to last about six months. These areas were selected for ease of access and security, the size of their potential beneficiary population, and their poverty rate, which is close to the average. The pilot is intended to generate the experience, capacity, and information necessary to make adjustments on the project design and expansion plan and will be accompanied by an in-depth process evaluation. Since it is anticipated that there will be "excess demand" by SISBEN I families for participating in the project, the pilot is being used to test transparent methods for rationing the limited amount of grants the Project could finance. The pilot also is being used to test the three methods for rationing the "excess demand" described in C.3: poverty ranling of municipalities, poverty ranking of families and random selection among poor eligible families. Project Expansion. The project would be expanded from the 3 departments and 18 municipalities in the pilot test to 28 departments and the approximately 692 municipalities within these departments that meet - 18 -  the eligibility criteria. Approximately 58 percent of these municipalities are located in rural areas. Departments will be ranked according to the total number of SISBEN I families, and those with larger SISBEN 1 populations will be incorporated earlier. Prioritization and incorporation will be by department using the total number of poor. Municipal capacity and willingness to participate in the Project will be confirmed prior to any municipality's incorporation into the Project. Municipal eligibility will include an assurance of municipal capacity to provide complementary supply-side investments in health and education, including the provision of vaccines. The DNP would establish a timeline for the incorporation of departments and municipalities into the Project. While all departments would participate in the program, their inclusion would be prioritized on the basis of their ranking according to the absolute number of SISBEN I population. The annual budget for the program would be distributed in proportion to the department's share in the total number of SISBEN 1 population. This departmental allocation would determine the maximum number of progran beneficiaries. In those cases where this is less than the number of eligible families who want to participate, beneficiaries would be selected, as mentioned, on the basis of a lottery or other methods that are currently being tested in the pilot phase. The Project excludes municipalities that have no local banks or are benefiting from certain national government programs. Those municipalities that pass the exclusion criteria are considered eligible to participate. Inclusion of eligible municipalities would be prioritized in accordance with agreed criteria based on their readiness to provide resources and services needed for successful execution of the Project. Monitoring beneficiaries' compliance and municipalities' supply capacity. The Project will establish various ways for monitoring and supervising the rate and quality of project implementation. Among the issues that the monitoring system will address are beneficiary compliance and supply capacity, particularly in relation to formal municipal government commitments. Beneficiaries' compliance The monitoring of beneficiaries' compliance with program requirements and their obligations in accepting the education and health grants will be based on the combined use of program participation data, community-based monitoring and spot checks. 0 Program participation data on compliance with the education and health requirements will gathered through the use of two forms, one filled out at the school and one at the health center. Mothers will be responsible for working with teachers and health center workers to fill out the forms, a system that places incentive for compliance with the stakeholder, but relies on verification from the providers. The forms will be collected on a bimonthly basis through the Municipal Liaison (Enlace Municipal) and processed by the UCRs. These forms and will serve as the primary inputs to the Program's management information system. * Participatory, community-based monitoring will take place through communication with the network of coordinators elected by participating mothers, regular town hall meetings organized by Project staff in beneficiary communities, and the commuunity-based watchdog system. * Spot checks reviewing Project operations will be conducted on a sample basis in participating municipalities by external firm every three months. These will be used to validate the accuracy of the data being collected for the Project, particularly regarding compliance with participation requirements, and the efficiency of the Project's operational systems. These external spot checks will serve as a check - 19 -  on the monitoring data collected through the Project's management information system. School and health service capacity. Databases maintained by the Ministries of Health and Education in collaboration with municipal governments on health insurance and vaccination coverage and supply capacity in schools and health centers will be monitored to ensure that the system is able to supply needed health and education services and that municipalities are complying with Project participation requirements. Communications Strategy. A communications strategy aimed at providing information to the general population, providers of health and education services, Project administrators, potential beneficiaries and other stakeholders has been developed and is being tested in the pilot municipalities. The effectiveness of this strategy will be reviewed as part of the process evaluation of the pilot prior to moving to full implementation. D. Project Rationale 1. Project alternatives considered and reasons for rejection: In-kind versus cash assistance. There are three main arguments to favor the cash grants program over an in-kind social assistance. First, cash transfers do not distort individual consumption or production choices at the margin. Cash assistance allows families to deploy additional resources in accordance with their varying needs and circumstances. Second, a relatively higher percentage of the benefits is likely to reach the poor due to reduced wastage associated with the high cost of delivering and managing in-kind assistance. Third, cash transfers do not entail large investment costs; hence, it keeps the program flexible and able to adjust to changes in levels and coverage relatively easily. Finally, there is greater transparency. School feeding. A specific example of an in-kind assistance that was considered but rejected for the above reasons is the proposal to devote a substantial percentage of project loan towards financing of a school feeding program. The justification for the rejection was particularly strong because a high percentage of the benefits would have gone to non-poor children as targeting was not contemplated. Conditional vs. unconditional assistance. There are various reasons for conditioning cash assistance to families to desired improvements in the behavior of beneficiaries. The most important reason is that the Project allows the poor to cope with adverse events more efficiently by simultaneously promoting self-protection against future economic risks. With the education and health conditionalities, the Project is expected to improve not only their current welfare but also their children's chances of breaking out of poverty in the long run. This new type of social assistance addresses concems about asistencialismo and the possibility of increasing long termn dependency on Government handouts. Another reasons is that imposing those education and health conditions effectively counters the fear that cash assistance to households will be wasted on things (e.g. alcohol and garnbling) that do not benefit children. The conditionalities create strong incentives for parents to ensure that sufficient resources are allocated to the health and education of children to continue receive Project benefits. Community targeting vs. individual targeting using SISBEN. The use of community targeting only was considered, but rejected given the existence of a widespread and respected proxy means testing system (SISBEN) that provides information on the proposed eligibility criteria using individual and family characteristics. The SISBEN system is considered one of the best in Latin America and is already being widely applied to determine eligibility for the subsidized health insurance program. However, since the application and maintenance of SISBEN is the responsibility of individual municipalities, some SISBEN classifications are out of date and/or inadequate in terms of coverage. To address this problem, - 20 -  municipalities electing to participate in the subsidy program would be required to show that their application of the SISBEN is adequate. Options for rationing excess demand: As mentioned. given the level of available financing, the Project will most likely not be able to reach all eligible populations, introducing a need to develop a mechanism for rationing excess demand. Three options were developed and are being explored and evaluated under the pilot test for meeting this excess demand, with pros and cons to each options grounded in international experience and relevant literature. * Municipal Selection. The first option is to select groups of municipalities with higher poverty rates (% of poor) and incorporate all eligible families. Pros: easy to explain, avoids close juxtaposition of those of similar welfare who do and don't benefit, helps set up control group for evaluation in such a way as to be able to sort out the effect of different qualities of service (supply side factors), lowers administrative costs because it reduces the coverage needed for the administrative apparatus. Cons: program doesn't have as wide a scope and thus may have less political appeal at the regional/national level. * Random Selection among Beneficiary Families. The second option is to hold a lottery among SISBEN 1 families and incorporate all eligible municipalities. Pros: easy to explain, horizontal equity, helps set up control group for evaluation under an experimental design in such as way as to sort out family/individual selection issues. Cons: random assignment may not seem fair to those who don't get benefits, particularly since by definition, they are as needy as those who receive the benefits. * Use point system within SISBEN 1 for Selection among Beneficiary Families. The third option is to use the point system established by the SISBEN proxy means test to select the poorest families within SISBEN 1. Pros: should result in finer targeting/vertical equity. Cons: differences in welfare may be quite small so that households will not perceive the choices as fair; more difficult to administer; makes it difficult to select control group for evaluation. Selection of municipalities to participate in the program. In addition to the practical requirements of having a banking system and the capacity to provide health and education services, eligibility to participate in the conditional cash transfer program is limited to municipalities not benefiting from another major national safety net operation (FOREC and capitals of departments and metropolitan areas, and municipalities over 100,000 inhabitants in urban areas benefiting from Empleo en Acci6n). Although a more widespread application of the program was considered (especially to large municipalities benefiting from Empleo en Acci6n), this consideration was rejected because of the Government's desire to allocate specific social safety net interventions to as broad a population as possible and to tailor the interventions to specific needs in certain areas. Institutional arrangements. The institutional arrangements developed to manage the project take advantage of the existing institutional capacity and widespread presence of ICBF (Instituto Colombiano de Bienestar Familiar) while maintaining the National Coordinating Unit (NC U) for the project under the Investment for Peace Fund (Fondo de Inversi6n para la Paz (FIP), recently established under the Administrative Department of the Office of the President (DAPR) to coordinate the new RAS programs. The use of other organizations for project management was considered, but rejected because of concerns that the Red de Solidaridad Social has shown inadequate strategic and programmatic focus, a lack of capacity to guarantee subproject quality and retain qualified personnel, and a high vulnerability to political pressure. The placement of all management responsibilities in ICBF was also rejected in favor of using DAPR-FIP because of the interest in keeping the management of the three RAS subprograms under a single unit to simplify monitoring and administration. This institutional structure allows the Government to emphasize Plan Colombia's character as an integrated and balanced strategy aimed not only at suppressing - 21 -  drug traffic and reducing related violence, but also at alleviating the negative impact of the economic crisis on the poor and vulnerable population. Additionally, the Government hopes to attract financial and political support for Plan Colombia from donor countries. The above proposal has several advantages. The most important of these is that it would ensure strong support at the highest level of Govermnent. Locating Project management responsibility under DAPR-FIP follows earlier decision to put Empleo en Acci6n under said agency. That decision was taken after thorough discussion with the Government and Bank management of the risks involved (see Section F, Sustainability and Risks). Pilot project vs. Immediate full expansion. Piloting the Project and doing an accompanying in-depth process evaluation was deemed a critical part of the project from its inception because of the program's novelty and dependence on proper technical and administrative design. In particular, the pilot would focus on design elements that are likely to need revisions. These would include: the effective use and updating of SISBEN as a mechanism for selecting beneficiaries; the system and administrative arrangements for monitoring eligibility and compliance with grant conditions; the process for the timely delivery of benefits with minial leakage; and the effectiveness of the information and education campaign to ensure that providers and recipients are well informned and involved in the project -22 -  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planed). 1npem.ntao Denlopnwnt Bank-financed Prgras (IP) Obl-Uv (DO) - Integrated youth development (LIL) Youth Development U U (Ln.2920-CO) - Poverty reduction and peace Magdalena Medio S S (Ln.4371-CO) - Development in areas of conflict, Peasant Enterprises Zones S S particularly in rural areas Development (Ln.4363-CO) - Decentralized education project Antioquia Education S S (Ln.4243-CO) - Municipal managed education project Pasto Education (Ln. 4242-CO) S S - Rural development Rural Development Investment S S Program (Ln.3250-CO) - Reconstruction of social and Earthquake Recovery S S economic infrastructure in rural areas (Ln.7009-CO) - Rural development and education Rural Education (Ln.7012-CO) - Poverty reduction and social Community Works and protection Employment Project (Ln.7017-CO, approved 05/11/2000); effective 01/16/01) - Transfer of resources to decentralized Decentralized Human Capital public entities for investment in human Development (P068762, under development preparation) Other development agencies Inter-American Development Bank - Poverty Social Solidarity Network (889/OC) . . - - Poverty Pacific Coast Sustainable Development (926/SF) - Violence Peaceful Coexistence and Citizens' Security (1085-1088/OC) - Poverty and social protection Social Protection Program . - . . - (CO-0247, under preparation, partly co-financed by the Banik) USAID - ...... - Rul poverty/Drug interdiction A project focused on "displaced - -.i persons" is being considered. -23 -  - Child labor An intemational comparative study on child labor is being considered. IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The choice of project design has benefited from a study of Mexico's conditional cash transfer project, PROGRESA. In fact, GOC sent key staff to Mexico during the identification/preparation stage to learn from the Mexican experience. Other similar experiences with conditional cash transfers to assist the poor in Brazil (Bolsa Escola, PETI) and Bangladesh and Indonesia (scholarships) were also examined. Among the lessons learned from these non-Bank experiences as well as Bank projects that are reflected in the design and preparation of the Project are: (i) Effectiveness and operational feasibility: Providing conditional cash transfers to poor families is a feasible and politically acceptable approach to social assistance. Research has shown that much of the opposition to cash subsidies due to concern of "asistencialismo 'or socially inappropriate use of the subsidy (e.g. drinking and gambling) can be overcome by linking the assistance to desirable behavior such as sending children in school and keeping them healthy and by giving the transfers to mothers whose decisions regarding the intra-household allocation of resources often favor children's nutrition, health and education. This research and the experience of PROGRESA, Bolsa Escola and similar programs influenced the choice of conditional health education cash grant program as a cornerstone of the RAS strategy. (ii) Need to keep an eye on long reform and sustainabiity: The PROGRESA experience points to a interesting approach to reform of the social assistance system. As in Mexico, the GOC through this Project hopes to successfully establish a credible and more efficient alternative to certain existing programs that are supply-driven, untargeted, expensive, and ineffective. For this purpose, the Project ensures that it has a credible monitoring and evaluation component. Moreover, it has been agreed to complement this Project and the Community Works and Employment Project with a Bank study of the social assistance system in Colombia and a subsequent Social Sector Adjustment lending operation in FY02. (iii) The importance of transparency and citizen oversight: Transparency in the rules of the game with citizens acting as watchdogs is a key to minimizing corruption and ensuring that the money reaches the intended beneficiaries with the least leakage. The Project is designed with this lesson in mind. To this effect, the Project will be guided by the principle of keeping the rules simple, the manual of operations clear, and communication with the target population and other stakeholders effective. (iv) Participation of and commitment by all stakeholders: In addition to strong commitment by the Government, the extent to which civil society and stakeholders, including the local schools and health centers, participate and enforce good implementation is crucial for program success. Consultation with beneficiaries also contribute greatly in this regard. The PROGRESA program in Mexico emphasizes active participation and co-responsibility of parents. Local communities are also involved thorough regular meetings to promote transparent project implementation and to monitor the adequate use of subsidies by the beneficiary families. In Brazil, NGOs support the programs through working with families and educators, and providing training for monitors. (v) Effective targeting mechanism: Key to the success of conditional transfer programs has been good targeting. Rates of undercoverage have been high while leakage rates are reported to have been low. In - 24 -  decentralized programs, the issue of nationwide targeting is crucial. The central government needs to make its own calculations to prioritize geographical areas where interventions are needed most, so as to remain consistent with the objective of reaching the most needy in the country. The Project will be relying on the well-regarded SISBEN proxy means testing system and will seek to ensure that it is properly applied within participating municipalities. (vi) Selection criteria for program beneficiaries: Excessively rigorous criteria for selection of beneficiary families can lead to exclusion of the needy. Minimum residency requirement on beneficiaries are introduced to discourage in-migration. This, however, can result in excluding needy groups, which raises concems about equity. For this reason, it is recommended that residency requirement should be kept to a minimum of approximately a year. (vii) Effect on educational attainment: The programs have improved educational indicators and outcomes. Mexico's PROGRESA program has had significant impacts in improving school enrollment, especially at the secondary level where 8.4 percent increase in school attendance was observed from a base of 65 percent. In the Bolsa Escola programs in Brazil, school attendance is higher and dropout rates lower for the beneficiaries compared to non-beneficiaries. Furthermore, more beneficiary children enter school at the right age and exhibit higher promotion rate (80 percent) compared to their non-beneficiary counterparts (72 percent). However, no significant difference was observed in terms of leaming outcomes. The Project will have to study the necessity of investment in school quality when the program is expanded to poorer regions. (viii) Effect on health and nutrition: Data on health indicators are not yet available. However, according to prelimninary evaluation of the PROGRESA program, improvements in access and usage of facilities was observed in areas where programs address health and nutrition. The number of health visits increased by 20 percent in PROGRESA -areas, while only 5 percent in non-PROGRESA areas. Looking at increase by types of beneficiaries, there has been a 30 percent increase for families with children under age 5 and 16 percent for those with pregnant women. On nutrition, it is reported that beneficiary families increased their expenditure on some important food items by one-third more than non-beneficiary families. Furthermore, participation in PROGRESA lowered the probability of illness by 22 percent among children aged 0-2. These results influenced the decision to include nutrition grant in the Project and ensure the avaliability of basic health care services. (ix) Optimal level of cash transfer: First, the level of the subsidy needs to be carefully determined through a clear and systematic method, keeping in mind the priorities of the program; that is, compensating beneficiary families for lost wages, or bringing them up to the poverty line. Making use of a program-by-program approach can perhaps result in the most appropriate subsidy level. Second, since older children are likely to have a higher opportunity cost for their school time, subsidy increase with age seems reasonable. This is the case with PROGRESA where secondary school children receive higher subsidy. Third, some programs give flat rate subsidy per family rather than per child. This may discourage families with many children to participate in the program, and therefore, subsidies determined by number of children in the family is preferable. However, considering the need for institutional capacity and the high administration cost that may incur, governments may decide to keep the scheme simple. During Project preparation the team has assessed the value of the subsidy relative to the poverty line and indigence line, the opportunity cost of school attendance relative to children's' earnings and the cost of the transfers relative to other GOC programs. (x) Combination of supply and demand: Without the availability of adequate and reasonable quality services (schools, healdi clinics etc.), demand side interventions (i.e. conditional cash transfers to the poor) - 25 -  are not likely to succeed. At the same time, however, good quality supply is not sufficient for attaining positive human development outcomes. Thus the capacity to meet the increase in demand from these demand side programs matters. Mexico's PROGRESA program provides additional funding for schools and clinics while the PETI program in Brazil pays a transfer to local schools for every child in the program. On the other hand, most of the Bolsa Escola programs in Brazil do not provide support to schools given that the quality of local schools in urban areas (where these programs operate) is adequate enough to meet the increased demand for schooling that results from the program. For these reasons the Project is (i) providing demand-side subsidies in conjunction with an assessment of municipalities' health and education supply capacity and (ii) coordinating support from other existing programs to support the improvement of health and education services in poorer areas. (xi) The need to establish a solid monitoring and evaluation system: Any new, large-scale social sector projects needs to have a system to monitor project outcomes and evaluate project impact established from the beginning of the project. The Project has established an integrated internal monitoring and evaluation system and included financing for a comprehensive external impact evaluation in recognition of the importance of these activities. (xii) Implementation capacity: Programs of this nature require sophisticated administrative capacity. Countries that consider introducing them should ensure that they build the implementation capacity first. Political and technical support as well as consensus on the need for the program within the country would certainly facilitate project implementation. One way to deal with this issue is to begin the Project, as is contemplated here, with pilot communities and using the experience (through good process evaluation) to make corrections and adjustments. The Project will also work through the national and regional offices of ICBF, relying on their established administrative capacity and their national presence to facilitate project implementation. 4. Indications of borrower commitment and ownership: GOC sent a team to study Mexico's experience with PROGRESA. After intensive discussions among top level GOC officials and President Pastrana, GOC is now convinced that the concept of conditional subsidy could work in Colombia. The President has made a personal commitment to ensure that the Project has the support needed for implementation by placing the Project Coordinator under the Office of the President. The diligence and care shown by GOC in preparing the Project reflects this commitment. 5. Value added of Bank support in this project: Bank support adds value in several areas. First, the GOC values the Bank's analytical capacity and broad international experience with social protection. In this regard, the Bank has contributed significantly to the discussion of the conditional cash grant idea, drawing from its familiarity and review of PROGRESA and other similar programs. This discussion was helpful in the choice of the Project and alternative design features. Second, Bank support for the project during implementation would assist GOC in ensuring that the technical criteria are applied appropriately and that any adjustments made to project design take into account best practices in social protection projects. Finally, in its effort to rationalize its social safety net, GOC could benefit from ongoing and recently completed Bank studies. As mentioned, the Bank is current undertaking various analyses of Colombia's social safety programs, unemployment and the labor market, and poverty issues. Relevant recently published Bank studies include Social Protection Strategy: From Safety Net to Spring Board (2000) and Securing Our Future in a Global Economy (2000)), which lay out analytical frameworks for assessing and developing a coherent social protection reform strategy for Colombia. Bank's expertise in this are is an important consideration for ensuring long lasting Project impact - 26-  E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$ mnillion; ERR = % (see Annex 4) O Cost effectiveness O Other (specify) Although the Project does not need to do a cost-benefit calculation (being a poverty project), the mission has nevertheless undertaken such an analysis. Preliminary results suggest that the benefits from providing conditional cash transfers can be substantial. In terms of the education grant component, it is projected that primary school enrollment rate could increase from 84.5 percent to 90 percent. For secondary education, the rate could go up from 65 percent to 74 percent. The Project could increase the primary and secondary education of children of beneficiary families by about a year. The NPV of this additional year of school appears to be about US$2,360 and US$3,230 for primary and secondary education, respectively. The effect of the health/nutrition subsidy is harder to measure. However, the loss alone in future productivity because of stunting due to malnutrition appears to be roughly US$ 1,000. Summing up, the NPV for the entire program (including both IDB Apoyo Familiar) is about US$390 million, excluding the economic value of reduced mortality and morbidity due to immunization and improved health education of mothers. The probability that the NPV will be negative is about one percent. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Financial Management. The NCU will be responsible for maintaining project management arrangements acceptable to the Bank. The Project will initially follow SOE procedures until it is ready to apply LACI procedures. The Operations Manual concretely specifies intemal controls over project transactions, including control procedures for project flow of funds. Annexes 4 and 5 detail the cost-benefit analysis conducted for the Project and the financial summary. Fiscal Impact: As explained in Section F, the GOC's exit strategy implies that the Project will not commit GOC to additional recurrent expenditures in the future (except for the loan amortization), since the program will be limited to three years only and GOC is strongly opposed to establish an entitlement program. And insofar as the Familias en Acci6n subprogram will prove cost-effective, its financing would come from savings generated by the social sector reform that GOC is interested in pursuing and that would allow it to reallocate existing social sector budgets towards the provision of conditional education and health grants to extremely poor families. 3. Technical: The Project is technically well designed. Some improvements, however, in its implementation design are needed. Consequently, the final version of the Operations Manual to be approved as a condition of effectiveness will include: (i) clarification of the sanctions for failure by the participating municipality to achieve agreed immunization targets; (ii) reference to the establishment of a credible system for measuring compliance during the first year when the MOH's tracking system (RAIS) is not yet functional through the use of a provisional monitoring system. -27 -  4. Institutional: The proposed institutional arrangements appear reasonable. They are complex. But the complexity is called for by the nature of the institutional environment, the novelty of the program and the need to ensure appropriate use of funds (see Section C.4). Although the arrangements appear adequate, there remain significant areas of uncertainty and risks. The pilot test would provide information and experience on the importance of these risks and how they might be minimized. Relevant issues are discussed in Section F. 1. A critical aspect of the institutional arrangements is that they rely heavily on the support of regional and local staff of ICBF, directors and teachers of schools and staff of health services. The issue that needs careful attention during implementation is that the ICBF is undergoing a major restructuring. This could weaken its ability to carry out the regional and local coordination required by the Project. Another issue relates to how teachers and health center staff will respond to the additional work load imposed on them by the Project. These civil servants may not be as motivated and willing to assume the additional work as expected, or they may demand special incentives in exchange for their cooperation. The importance of this concern will be gauged by the pilot experience. 4.1 Executing agencies: DAPR-FIP of the Office of the President, ICBF and municipal governments 4.2 Project management: National Coordinating Unit (NCU) in DAPR-FIP 4.3 Procurement issues: Only a small percentage of the loan would be used for procurement of goods and services. No significant procurement issues are expected. 4.4 Financial management issues: An assessment of the financial management arrangements and flow of funds for the Project has been conducted by Bank specialists, which found them to be well advanced. Agreement has been reached regarding a plan of action for improving the financial management system and the conditions for establishing a flow of funds system for the establishment of the Special Account acceptable to the Bank. Loan conditions on these matters are laid out in Section G. 5. Environmental: Environmental Category: C (Not Required) 5. 1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. Not applicable 5.2 What are the main features of the EMP and are they adequate? Not applicable 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: Not applicable 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Not applicable 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? - 28 -  Not applicable 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The Government provided, prior to negotiations, evidence satisfactory to the Bank showing that benefits similar to the cash transfers program are being provided to indigenous groups by other publicly financed programs. This information can be found in the project files. Annex 12 provides a profile of the indigenous groups affected by the project, as well as an Indigenous People's Development Strategy. The strategy, as outlined in the Annex, basically provides that: (i) the Monitoring and Evaluation (M&E) system will provide evidence concerning the project's treatment of indigenous peoples. This evidence will be reviewed at the mid-term review and at the conclusion of the Project; (ii) as part of the strategic review of the Project at the end of the project, the evaluation will report on options for adapting the Project to reach populations not covered by the cash transfers program, including indigenous groups; and (iii) DNP's office responsible for indigenous affairs will monitor indigenous issues related to the cash transfers program. 6.2 Participatory Approach: How are key stakeholders participating in the project? Key stakeholders at the national, regional, municipal, community and beneficiary levels will be participating actively in project implementation, as explained in Section C.4 and provided for the Operations Manual. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The Veedurias Ciudadanas, which are non-governmental community organizations, would act as watchdogs of the Familias en Acci6n. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Given that the primordial aim of the Project is measured in terms of social development outcomes, the institutional arrangements presented in Section C4 to accomplish its objective describes clearly how the Project would ensure attainment of those outcomes. 6.5 How will the project monitor performance in terms of social development outcomes? For similar reason as in 6.4 above, see Annex 1. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) O Yes * No Natural habitats (OP 4.04, BP 4.04, GP 4.04) O Yes * No Forestry (OP 4.36, GP 4.36) O Yes * No Pest Management (OP 4.09) O Yes * No Cultural Property (OPN 11.03) 0 Yes * No Indigenous Peoples (OD 4.20) O Yes * No Involuntary Resettlement (OD 4.30) 0 Yes * No Safety of Dams (OP 4.37, BP 4.37) 0 Yes * No IProjects in International Waters OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No -29-  7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The mission discussed the issue of participation of indigenous population groups in the Project. It has been agreed earlier that the communications program will pay special attention to the needs and circumstances of these groups. GOC also provided the mission with the list of various programs and laws protecting and promoting the interest of indigenous people (see Annex 12). The general conclusion is that GOC has made substantial and conscious efforts to deal with the issue. F. Sustainability and Risks 1. Sustainability: Exit strategy. The mission discussed with GOC the question of exit strategy and sustainability. The GOC clarified that the grants to be given to families would be at most for three years only and that this would be made clear to the selected beneficiaries. GOC emphasized that the overriding purpose of the Project is simply to provide immediate (albeit, temporary) assistance to poor families that would enable and motivate them to protect the human capital formation of vulnerable children against the impact of the current economic crisis. Given the difficult fiscal situation at present and the foreseeable future, it has no plan of undertaking the program beyond 2004. GOC is strongly opposed to establishing an entitlement program, which it cannot afford. What will happen to the Familias en Acci6n beyond that will depend on its results, particularly its cost-effectiveness relative to that of other social assistance programs. It will also depend on the funds available at that time. Sustainability. The question of sustainability involves two issues. The first issue relates to the permanence of the benefits that would be produced by the Project investment The mission's economic analysis indicates that an extra year of schooling arising from the education grant, even though provided only for three years or less, is expected to generate a significant long term increase in the future income of beneficiary children. T'here are other long lasting positive social effects as well. For example, in the case of the grants to secondary school children, one of the social effects could be the reduction in teenage marriage and decreased risk of disorderly conduct. These results are indicated in a study rigorously evaluating Colombia's secondary school voucher experience. This Bank-assisted program shows that provision of secondary education vouchers has increased the number of years of schooling of the beneficiaries as well as reduced the probability of teenage marriage and involvement in violent behavior. In the case of the health/nutrition grant, there is also extensive international evidence that keeping very young children healthy and well nourished could increase their long term productivity through improved cognitive ability and other non-cognitive gains. The second issue relates to the long term operation of the program. As mentioned, GOC has at present no definitive plan about the program's future. It is open, however, to the idea that Familias en Accion could be an altemative approach to existing programs. Whether in fact and to what extent this would happen will depend on two broad factors. The first factor is a clear demonstration of its cost-effectiveness and success in reaching the intended beneficiaries and improving their welfare. The second factor is GOCs ability to reform Colombia's social sector and reallocate resources from cost-ineffective programs. The hope is that by reducing the budget of inefficient social assistance programs, reform would generate enough savings to finance Familias en Acci6n, at least in part. Preliminary findings from the ongoing social sector study strongly suggest that the possibility for such welfare-enhancing reallocation can be substantial relative to Project cost. (The mnission has calculated that the total cost of the Familias en Acci6n, including both Bank and 1DB financing, is roughly 5 percent of non-pension national social spending.) The experience of Mexico in this regard is instructive. Adoption of PROGRESA beyond its experimental period has been - 30 -  accomplished by (i) showing that it is a highly effective social assistance program for the poor, and (ii) reducing some untargeted subsidy (tortilla) to finance a more credible alterative. To conclude, GOC opposes the establishment of an entitlement program and, hence, has no plan of providing health and education grants beyond 2004. Nevertheless, it has unequivocably expressed its great interest in social sector reform, first, to carry out welfare-enhancing budget reallocation towards more effective social programs and, second, to counter the procyclical feature of the current system of social assistance. In this regard, the experience of the Project (including the development of the rules of the game, manual of operations, and trained staff) could be a strong basis for the establishment of a responsive, efficient and countercyclical social assistance system. GOC conmnitment to the reform idea is evidenced by its strong support for the Bank's ongoing Social Sector Study and its desire for a social sector adjustment loan in FY02 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): From Outputs to Objective (1) Minimal build up of human capital M (1) A study of the learning achievement of because of the low quality of schools students of schools in poor communities would beneficiary students go to. be undertaken. Corrective actions would be taken on the basis of the results of the study. (2) Low beneficiary compliance with M (2.1) To continue receiving the grant, the mother grant conditions would have to present a certification: (i) from the school principal about the beneficiary children's school attendance for education grant; and (ii) from designated health center authority about children's immunization and mother's attendance in accredited group discussion on health and child care issues. (2.2) The reliability of the certification system would be assessed from time to time -- and adjustments made accordingly. (2.3) A strong and timely monitoring and evaluation system would be established. - 31 -  (3) insufficient supply of services M (3.1) To be selected into the program, (education/health) to meet increase in municipalities would have to show that adequate demand in some participating rural supply of needed education and health services communities. are available to the beneficiary communities. (3.2) A team (Enlace Municipal) in the Mayor's office would be in charge of coordinating efforts to ensure that needed support health and education services are provided to beneficiary communities. (3.3) The Project will develop a strategy for ensuring strong political and technical support from local officials as well the Ministries of Health and Education. The strategy includes involvement of both Ministries from early stages of Project preparation, inclusion of local officials in its implementation design, and a suitable communications program. From Components to Outputs (1) Low rate of participation by intended M (1.1) The Project would be piloted in a couple of beneficiaries. Grant amount might be too test areas. These issues will be analyzed and low to be sufficiently attractive or it adjustments wilU be made, if called for. might be too high so that relatively fewer people can be included due to Project budget constraint. Moreover, many needy families may be excluded due the residency requirement. - 32 -  (2) Diversion of grant money from M (2.1) Use of Operations Manual acceptable to beneficiaries because of misuse of funds the Bank that clearly sets forth clear as well as leakage due to poor targeting rules/mechanisms regarding eligibility as well as system, inefficient management, weak the flow of funds and financial management delivery system, and political factors. control. The Project benefits and rules of the game would be transparent, made simple and easily understandable. They would be communicated widely to potential beneficiaries and community stakeholders. (2.2) Grants would be directly transferred to selected families through their local Bank. (2.3) Financial management of grant funds would be contracted to a reputable financial institution for the cashier and management/trust functions; external audits would include a sampling of supposed recipients; simplified audit and performance reports would be made public and available to participating communities. (2.4) An adequate MIS system would be installed, including among others data from the financial institution carrying out the cashier and management/trust functions and the "public complaint system" to be electronically established. A regular analysis of the data would be produced and made available to the public. Establishment of a MIS satisfactory to the Bank would be a condition of effectiveness. (2.5) There would be an agreement on independent audit and external performance evaluation. (2.6) The quality of the SISBEN system of classification and its application would be evaluated. (2.7) The Project would be tested in pilot areas initially to evaluate among others the adequacy of the control mechanisms and the clarity and implementability of Project rules and procedures. Adjustments in procedures would be made accordingly to ensure that the risk of diversion of funds is minimized. (2.8) The Project would establish a community- based citizen watchdog through suitable information campaigns, encourage people to voice out complaints regarding project implementation. -33 -  (3) Implementation and supervision could S (3.1) Keeping the operations of the Red de be impeded by violence. Apoyo Social separate financially and administratively from the other programs managed by the FIP, including the establishment of a separate Steering Committee for the RAS. As noted in the Community Works and (3.2) Governmnent assurance to maintain a Employment Project, the decision to put politically neutral public image for the Project, RAS under DAPR-FIP could lead to a ensuring that the Project and RAS are not mistaken perception that RAS is part of associated with narco-guerrilla issues, focusing the Government's strategy to reduce the project's communications strategy narco-traffic and related guerrilla exclusively on its poverty alleviation objective, activities. This perception could create and maintaining a low profile for the Bank and security risks for personnel implementing Project staff. the Project and Bank staff conducting supervision visits. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: Not applicable G. Main Loan Conditions 1. Effectiveness Condition (a) Adoption by DAPR-FIP of an Operations Manual for the Project satisfactory to the Bank, including: (i) the operational procedures for NCU related to project management arrangements, (ii) the criteria and procedures for the regional offices, local governments, zonal offices, community organizations supporting Project implementation; (iii) the criteria for selection and financing of the financial institution contracted to provide the cashier and management/trust functions; (iv) the procedures for the flow of funds and information to and from the beneficiaries; (v) procedures for verification of compliance with Project participation conditions by beneficiaries and municipalities; (vi) internal control over project staffing, transactions, accounting, auditing, reporting, procurement and financial management; (vii) criteria for what will be reviewed in the pilot phase to inform the irnplementation phase; (viii) description of the M&E system; and (ix) description of the communications strategy. (b) Terms of reference, satisfactory to the Bank, for the external Project impact evaluation (c) Establishment and maintenance of a financial management system in the NCU, including records and accounts, and prepare financial statements in a format acceptable to the Bank, adequate to reflect the operations, resources and expenditures of the Borrower related to the Project. 2. Other [classify according to covenant types used in the Legal Agreements.] Financial Convenants - 34 -  The Borrower, through DAPR-FIP, shall carry out a time-bound action plan acceptable to the Bank for the strengthening of the financial management system in order to enable the Borrower, not later than December 31, 2001, or such later date as the Bank shall agree, to prepare quarterly Project management reports, acceptable to the Bank. H. Readiness for Implementation I 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 1 1. b) Not applicable. 1 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. Z 4. The following items are lacking and are discussed under loan conditions (Section G): * Revised Operations Manual satisfactory to the Bank * Financial management system in the NCU satisfactory to the Bank 1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. 3 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. A ---- _ tA .. Vicente B. Paqueo Xavjkr E. Coll Olivier Lafqurcade Team Leader Sector Manager Country Manager - 35 -  Annex 1: Project Design Summary COLOMBUA: Human Capital Protection Sector-relabd CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Milssion) In pursuit of poverty reduction Decrease in poverty - Govermment economic Development of a better social and social developnent, the statistics and reports safety net would allow GOC CAS aims to strengthen (National Household Surveys to alleviate poverty in the Colombia's social safety net to and SISBEN Database) short run while promoting cushion the poor and - Bank analytical work poverty reduction in the long vulnerable fiom the worst run. It is further assumed that: effects of the crisis. 1. Household investment in hunan capital significantly reduces poverty in the long run; 2. Improving the country's safety net supports the implementation of the economic and institutional reforms needed to improve peace, economic growth and income inequality in the long run. 3. The provision of cash grants do not create important negative incentives for adults' participation in the labor market. -36-  ProJect Development Otoe/Impact Project reports:(ro ObJective to Goal) Objective:Idctr To conritbute to the protection For all components: 1.Colombia's socia safety net and promotion of hurnan -Process Evaluation would be more socially capital of poor children - Impact evaluation (external efficient if poor farmilies were through financing of subsidies evaluation based on baseline enabled and given the conditional upon: (a) parents and follow-up household incentive to maintain bringing their 0-6 year old surveys of beneficiaries and investment in their children's children to health clinics for comparison groups) human capital during times of scheduled growth monitoring, - Qualitative evaluation economic crisis (instead of where the clinic would reducing it to cope with short additionally provide basic term shocks); health services; (b) 7-17 year 2. The conditional cash old children's school transfer program is an enrollment and perfornance effective and efficient (primnary grades 2-5 and approach to providing such secondary grades 6-1 1). incentive. 3. The beneficiaries selected by the programn are the truly poor and vulnerable population. The specific objectives are: NET CHANGES as 1. Children age 0-6 with determined in the impact relatively better nutrition and evaluation (difference in health status differences between the treatmnent and control groups before and after the intervention (tl - cl) - (tO - cO): - Net change in the % of children brought to health centers for preventive care (target: >or= 0) - Net change in children age 0-6 with complete imnmunization scheme (target >= 0) - Net change in children age 0-6 complying with regular growth and health monitoring (target > 0) -Net change in nutritional status (as measured through anthropometric indicators) of children age 0-3 (target: > or =0) - 37 -  2. Children and youth agc - Net change in school 7-17 with relatively beter attendance (target > 0) schling outcomes - Net change in school dropout (target <= 0) - Net change in school enrollment (target > = 0) - Net change in tmnsition rate, especially grades 1-2, 5-6 and 9-10 (target >= 0) -38 -  Output from each Output Indicator: Project report.: (from Outputs to Objoctve) Componentk 1. Eligible families with 1. Project Implementation: -Community monitoring/MIS 1. Improving the health and children aged 0-6 receiving actua compared to estimated - Education and health sector nutrition of poor children nutrition grant numbers for all three mnagement infonmation creates additional human components (ntrition grants, system data and reports capital. 2. Beneficiary families education grants, and - Extrnal audit 2. Discussions with participating in training): - Prqect supervision reports beneficiary mothers on bealth healdth/nutrition/child care -Number of beneficiaries - Inpact evaluation and child care issues improves educational activities (fanilies and children) their knowledge and change -Percerae of poor their pratices. 3. Children and youth aged beneficiaries 3. The schools that 7-17 from eligible families -Amount disbursed by project beneficiary children go to receiving education grant and received by beneficiaries provide an effective learning cnvironment that raises student achievement and human capital. Project Efficiency: 4. Compliance rate with grant -Percentage of loan going to conditions is high. education and nutrition gants Compliance with -Percentage of grant conditionalities is stridctly recipients in lowest income enforced and monitored in a quintile timely manner. -Rate of growth of 5. Supply of needed participating municipalities education and health services are sufficient to meet increased demand in each participating municipality. - 39 -  ProJect C'omponents / Inputs: (budget for each Poetrp (from Components to Sub-components: component) Outputs) - MaaBeentinformation (I)The subsidies are set at (1) Education Grants US$48.86 sytmappropriate levels to baance -Project supervision reports program coverage and -External audit compliance. (If too low, few (2) Health/Nutrition Grants US$74.10 would be motivated to participate in the program and comply with requirements. If too high, compliance would be higher but coverage would be reduced.) (2) The grants would actually reach eligible beneficiaries with little leakage, delay, and corruption. (3) SISBEN provides an adequate targeting system. (4) A well functioning grant distribution/payment mechanism would be established. (5) Adequate outreach campaigns would be undertaken. (3)Project Management US$26.79 million (6) There is capacity to establish an adequate management information system (7) ICBF and municipalities have adequate management capacity. (4) Monitoring and US$1.63 million Evaluation (5) Promotion and US$3.32 million Dissemination (8) Project implementation and supervision is not seriously hampered by the political instability and violence in the country. (9) There is strong political and technical support by local officials, the communities, and the Ministries of Health and Education (6) Health, education, and US$206.25 million nutrition services delivery The above budgets include counterpart financing -40 -  Monitoring and Evaluation System A Monitoring and Evaluation (M&E) system will be implemented to assess the Project's success in achieving the desired outcomes and impacts. The M&E system will produce the indicators specified in logical framework through the implementation of five principal components: (i) a process evaluation of the conditional cash transfers pilot; (ii) a management information system; (iii) a community monitoring and social control system; (iv) spot checks; and (v) an external impact evaluation. In addition to these, there will be a random sample-based external audits. Process Evaluation of Pilot. The pilot being carried out in the Departments of Cundinamarca, Boyaca and Tolima will be evaluated through a process evaluation in order to make recommendations conceming needed adjustments to the project design. The process evaluation will include a consideration of each of the Project's main components, including: subsidy levels and target populations; the poverty targeting mechanisms (especially SISBEN for the selection of households); arrangements with central and local government agencies and civil society for project implementation and options for addressing excess demand. Management Information System. A management information system (MlS) will be developed to track the Project's physical and financial progress during implementation. The MIS will collect data on compliance and delivery of the nutrition and education grants directly from schools and health centers which will be used to track the targets set for the estimated number of beneficiaries established in Section A.2, overall and by type of grant. These targets will be updated during the Pilot phase based on the actual number of eligible beneficiaries, as registered in participating municipalities' SISBEN systems. Financial data will be provided by the financial institution. These data will be consolidated in the MIS and reviewed on a bimonthly basis by the NCU. Community Monitoring and Social Control System. Participatory monitoring by beneficiary communities will form an integral part of the M&E system. This system will allow for complaints, suggestions, and assessments to be received from beneficiary communities and addressed in a timely manner. The M&E system will collect infonnation by (i) working through the municipal representative (Enlace Municipal) responsible for liaising with the group of citizens elected in each beneficiary community (veeduria ciudadana or equivalent) and the beneficiary mothers; and (ii) holding periodic town halt meetings with beneficiaries. These data will be consolidated and reviewed on a regular basis by the NCU. Spot Checks. Reviews of Project operations will be conducted on a sample basis in participating municipalities by an external firm every three months. These will be used to validate the accuracy of data being collected for the Project, regarding compliance with participation requirements and the efficiency of the Project's operational systems. These external spot checks will serve as a check on the monitoring data collected through the Project's management information system. External Impact Evaluation. An external impact evaluation will be conducted to assess the effect of the program on household welfare, particularly children's health and education. The impact evaluation will be based primarily on the use of household surveys of treatment and comparison groups to collect baseline and follow-up data on the Project's targeting and impact, using as a reference the outcome measures listed in the Log*fame. The evaluation will harmonize its data collection efforts with the existing system of household surveys and the established poverty measures in Colombia in order to evaluate the Project's success in poverty targeting, provide comparability with the impact evaluation of the other two RAS projects, and to support and improve upon the existing system of household surveys. The evaluation witl also include a - 41 -  qualitative assessment of Project impact in a sample of communities to complement the findings produced by the household survey data. Two committees will be established to support the quality of the M&E system, ensure its relevance in providing inputs for policy decisions in Colombia, and build M&E capacity. First, a Technical Committee will be established in the DNP to work directly with the staff contracted for the various components of the M&E system and with the NCU to ensure the relevant and timely production of needed information and its relevance to overall policy decisions. In addition, a Steering Committee consisting of evaluation specialists, academics and policymakers will be convened to liaise with the Technical Committee to guide the design, analysis and use of the M&E system, particularly the external impact evaluation. -42-  Annex 2: Detailed Project Description COLOMBIA: Human Capital Protection The dollar amount after each component refers to Bank financing. By Component: Project Component I - US$48.86 million Educational Grants (EG). This component would finance scholarships for children aged 7-17 years old belonging to families with SISBEN I classification. Beneficiary families would receive the education grant during the duration of the project for as long as they are enrolled in primary (grades 2-5) or secondary schools, maintain a class attendance rate of not less than 80 percent, and do not repeat grades more than once. Each education beneficiary would receive a monthly stipend per eligible child amount to US$6 per month and US$12 for primary and secondary school students, respectively. These amounts are about equal on average to the direct expenditures of households on education. This component also includes the direct costs charged by financial institutions in Colombia to deliver the education grants to poor families, amounting to approximately US$1.6 million (3% percent of the total amount allocated for the education grants). These direct costs will be financed by the Bank. Project Component 2 - US$74.10 million Health/nutrition grant (HN). This second component would finance direct cash grants to eligible (SISBEN 1) families with 0-6 year old children. Selected families would receive the grant for as long as they comply with agreed health/nutrition requirements. The HN grants would be given to families with 0-6 year old children who are not in the community nutrition and pre-school program (Hogares Comunitarios de Bienestar) of the ICBF. The family would receive the grant in cash for as long as it complies with agreed HN requirement. Parents are required to bring their children aged 0-6 to health clinics for scheduled monitoring of weight gain against agreed standards. At the clinics children will receive basic services such as immunization that municipalities would be pledged to provide as a condition for participation in the Project. The basic services to which children are entitled are governed by norms established by the Ministry of Health. This grant would enable and motivate beneficiary mothers of 0-6 year old children to give them the nutrition and health care they need during this critical period of growth and development. The HN grant is set at US$20 per month per eligible family with a 0-6 year old child regardless of the number of children. On average this amount represents about $13 per child aged 0-6 years old per month. The grant of US$20 is more or less equal to the gap between the cost of a basic food basket for determining the poverty line and the average income of indigent families. The amount indicates a conservative estimate of the additional direct food and health expenditures needed by an average indigent family to keep their preschool children well nourished and healthy -- and avoid human capital development failures. This component also includes the direct costs charged by financial institutions in Colombia to deliver the health and nutrition grants to poor families, amounting to approximately US$2.5 million (3% percent of the total amount allocated for the health and nutrition grants). These direct costs will be financed by the Bank. Project Component 3 - US$ 13.78 million Project Management. The program would be administered by the NCU, the RCU, and the Municipal Networks (Enlace Municipal or EM) at the national, regional and municipal levels respectively. The NCU personnel dedicated to this program consists of 25 staff, including a director and four chiefs of planning and evaluation, information systems, operations, and training. Each chief would have four technical and -43 -  administrative staff. Each of the 28 RCU would be staffed by approximately 12 professionals, depending on the department characteristics (number of beneficiaries, number of municipalities, within others). Approximately one third of them would be technical and administrative staff (including one coordinator) to be financed by the World Bank and IDB, while the rest would come from existing ICBF personnel (5 technical staff). At the local level, there would be one EM for each municipality participating in the program (operating in municipal offices). Each EM is staffed by two professionals (1 technical, 1 administrative). The above budget of $13.78 million for this component consists of: staff salries, office materials, training/guidelines, and equipment and transportation. The last category includes expenditures for computers, printers, copiers, faxes, telephones, office furniture, rent, paper, utilities, and transportation. Project Component 4 - US$1.63 million Monitoring and evaluation. In addition to the monitoring and evaluation activities described in detail in Annex 1, this component includes monthly supervision by the above mentioned entities responsible for project implementation. Supervision includes a review of the process of registration and selection of beneficiaries, payments of grants, and training activities. A firm will be hired to supervise, analyze and produce monthly reports. The budget for this component would also be used to finance extemal evaluation and audit. Project Component 5 - US$3.32 million Promotion and Dissemination. This component would finance public relation and information campaign activities, which would be carried out through television, radio, and print media (newspapers as well as posters, brochures, billboards, etc. Consultants would be hired for six months to design and carry out these activities. They would also develop and organize national and local workshops for technical and administrative staff and other program stakeholders (e.g. mayors). Project Component 6 - US$0.00 million Health, education, and nutrition services delivery. This component consists of education, health and nutrition services provided by involved public institutions to eligible Project beneficiaries in the participating municipalities receiving Bank-financed grants. The amount of US$206.25 million for this component is recognized by the Bank as an in-kind contribution from the national and local governments in Colombia. The in-kind contribution includes vaccinations, teacher salaries, and public education campaigns, among other items. A list of the government programs included in this estimate can be found in the project files. Project Component 7 - US$8.31 million In addition, there will be an unallocated amount of US$8.31 million; this unallocated portion of the loan is principally intended to meet the need for flexibility due to the uncertainty regarding take-up rates for education versus health, although it could also be used to a limited extent for meeting unexpected needs of the other components. The front-end fee of US$1.5 million will be financed separately by the Government of Colombia. -44 -  Annex 3: Estimated Project Costs COLOMBIA: Human Capital Protection Education Grants 48.86 0.00 48.86 Health/Nutrition Grants 74.10 0.00 74.10 Project Management 15.54 11.25 26.79 Monitoring and Evaluation 0.46 1.17 1.63 Promotion and Dissemination 1.99 1.33 3.32 Unallocated 8.31 0.00 8.31 Health, education and nutrition services delivery* 206.25 0.00 206.25 Total Baseline Cost 355.51 13.75 369.26 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 355.51 13.75 369.26 Front-end fee _ 1.50 1.50 Total Financing Required 355.51 15.25 370.76 *This component represents in-kind contributions from the national and local govemments. (Given the nature of the project (the bulk of which is cash transfers), there are no contingencies. Numbers may not add exactly due to rounding. Table does not include IDB financing. Identifiable taxes and duties are O (USSm) and the total project cost, net of taxes, is 455 (USSm). Therefore, the project cost sharing ratio is 32.97% of total project cost net of taxes. -45-  Annex 4: Cost Beneflit Analysis Summary COLOMBIA: Human Capital Protection Summary of Benefits and Costs: As an investment, the Project is expected to raise the future productivity and, hence, earnings of beneficiary children due to increased years of education and improved health and nutrition status at a critical stage of their development Two behavioral mechanisms are assumed to generate the positive impact of the grants on the children's education and health/nutrition status. The first relate to the income effect of the cash grant. This is expected to be positive. Available evidence from a recent study in Colombia, for examnple, reveals that families experiencing a fall in family income holding other things constant had a higher probability of children dropping out of school. The second mechanism relates to the expected "price or incentive effect" that would be generated by conditioning continued receipt of the grants on school attendance, health center visit and other requirements. The education grant is expected to affect the following intermediate variables: school enrollment and class attendance as well as reduced dropout and repetition rates. Estimates of project impact on these variables are presented in Table A4. 1 below. The improvements in these variables shown in this table would likely lead to about 0.3 and .35 additional years of educational attainment for primary and secondary school beneficiary children, respectively. It is further estimated that a year of completed schooling would have a net present value of $2,360 and $3,230 for primary and secondary education levels. These benefit estimates do not include external benefits that would accrue to society from improved citizenship, enrichment of national culture, lower govemance costs, better control of public health problems, and more efficient diffusion of knowledge and technology. The effect of the health/nutrition grant is hard to measure, as many of the spillovers of better nutrition are difficult to capture. Moreover, due to lack of relevant information, it is difficult to estimate and value the expected effect of the grant on child mortality, morbidity and cognitive ability. For these reasons, the economic analysis concentrates on the benefits of decreasing the rate of malnutrition on stunting, recognizing that as in education this will only provide at lower bound of the benefits of the program and that the other aforementioned beneficial effects are not being captured. The net present value of reducing stunting for an child that would have suffered this problem is about $1,187. Using the total number of Program beneficiaries (including both the Bank and 1DB components) presented in Table A4.3, the expected aggregate net present value of the benefits would then amount to about $390 million (Table A4.2). This calculation assumes a total program cost of about $325 million, including the cost of managing and transferring the grants to beneficiaries as well as the additional costs of materials and staff time dedicated to meet expected additional demands for health and education services. As mentioned, these figures are conservative estimates. They do not include certain productivity effects (private and external). They also exclude the direct consumption benefits that would be derived by poor families from the grants. -46-  Table A4.1: Target Values and Assumptions Regarding the Effect of the Program on Education for the target population Old New Old New Enrollment rate 84_5 90 65 74 Dropout rate 9_ 6 8_72 8 72 Avg. increase in attendance 10 percent 10 perent rate Avg. decrease in repetition rate 5 percent 5 percent _ Response of grade attainment to Enrollment 0 1 0 1 Dropouts 0 5 0_5 Attendance 0_1 0_1 Repetition 0 5 0_5 Table A4.2: Cost-Benefit Analysis, Assumptions and Results Number beneficiaries p_imary school (j~er year) 126,000 Number beneficiaries primary school (per year) 126,000 Nwnber beneficiaries secondary school (per year) 113,000 Number beneficiaries from reduced stunting (per year) 14,575 Number of periods program in operation 3 Total cost of program ($ million) 325.36 Pre-project average primary school grade attainment (grades) 4.17 Pre-project average secondary school grade attainment 3.48 Work lifespan (in years) 40 Discount rate 0.07 Private NPV additional year primary $ 2,360 Private NPV additional year secondary ($) 3,230 Private NPV reduced stunting 1,187 Post-program average primary school grade attainment 4.53 Post-progratn secondary school grade attainment 3.79 Mean NPV of project ($ million) 390 Probability of negative NPV 0.011 N.B.: Infonnation on beneficiaries, grade attainment and incidence of shmting, fomn DNP (2000) -47 -  Table A4.3: Number of Beneficiaries and Average Benefit by type of beneficiary Nutrition grant only 67,471 1.84 Primary education grant only 30,709 1.43 Secondary education grant only 42,387 1.47 Nutrition and primary education grants 76,078 1.82 (0-6 yrs. old) and 1.60 (7-11 yrs. old) Nutrition and secondary education 38,239 1.68 (0-6) and 1.52 (12-17) grants l_ _ _l Primary and secondary education grants 57,697 1.38 (7-11) and 1.46 (12-17) All three grants 83,685 1.74 (0-6), 1.59 (7-11) and 1.61 l _______________ _ |(12-17) Total number of nutritional grants 265,473 N.A Children reached by nutritional grants 472,462 Total number of primary educ. grants 378,935 NA. (number of children) Total number of secondary educ. grants 339,281 N.A. (number of chOdren) lIl_I Table A4.4: Project Costs, by Category | Eduatio grats r88.11l | llalt/Nuttiogrants |82.59l Project management and operations 114.26 Marginal cost of education, health and 40 nutrition service delivery Total 325.36 Main Assumptions: The assumptions used for the economic analysis are shown in the above tables. The estimation of the present value of the additional earnings from a year of education gained uses standard methodology. In regard to the estimation of the benefits from preventing stunting due to improved nutrition of preschool children, the following assumptions were made. (i) Use a standardized measure of the effect of stunting (chronic malnutrition) on productivity in manual/agricultural jobs and the average wage of rural workers in Colombia (about $600 per year). -48 -  (ii) Predict the wage profile of stunted individuals, using the following standard measures: the elasticity of productivity in rural jobs w.r.t. height is approximately 1.38; the adult height deficit from child stunting is 3.125, 4.375, and 6.25 percent for mild to severe cases respectively. The analysis chose to use 5 percent as an average, implying a 6.9 percent decrease in productivity due to stunting. The NPV of lost wages due to stunting over working life is approximately equal to $41 per year per person. (iii) Multiply $41 by the number of beneficiaries. There are about 265,000 expected beneficiary families with children between 0 and 6 years of age. On average there are 1.1 children per family, i.e. 291,500 children. As a result of Familias en Acci6n, the rate of malnutrition is expected to be 5 percent below that of the control group (children in the Hogares Comunitarios program, as suggested by knowledgeable Colombia authorities). The rate of malnutrition for this group is about 20 percent Using this figure and the expected beneficiaries, the total number of stunting prevented would be about 15,000 children. Additionally it was assumed that the government will have to incur some additional cost in order to meet the increase in demand for education and health. The amount of $40) million was used in the base simulation. This constitutes about a fifth of the education, health and nutrition services GOC would provide eligible grant beneficiaries and that the Bank recognizes as GOC's counterpart contribution. In general, the analysis assumed that GOC would largely finance those supply-side services anyway even without the Project and that the opportunity cost of using them to support the Project would be minimal. Sensitivity analysis / Switching values of critical items: Sensitivity analysis was undertaken to examine the effects of random variations in a number of variables. The results are presented in the charts below. The main finding is that there is a negligible probability (less than 2 percent) that the NPV would be negative. Similar analysis further indicates that this probability is not very sensitive to the cost of program management, transfer of grants, and other expenditures for ensuring compliance with grant conditions and availability of needed additional health and education services. Details of the economic analysis are on file. -49-  -~~ ~ - =lurn_t I-~~~~~~~~~~~~~~~~~~~~~~~i in ~~~~~~~~~~~~~~~~~~~~~~~I EU 0 ~~~~~~~ 530 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~.............. ............................ ............. ......................;o L( L(~~~~~~~~~~~~~~( Aoueno e 0XX 0) 0 0 O O O O On O O - 0 Abuenb.i  Annex 5: Financial Summary COLOMBIA: Human Capital Protection Years Ending I Year1 I Year 2 I Year 3 I Year 4 | Year5 Year6 5 Year 7 Total Financing Required Project Costs Investment Costs 17.9 75.6 105.6 23.9 0.0 0.0 0.0 Recurrent Costs 17.3 42.5 57.5 28.9 0.0 0.0 0.0 Total ProjectCosts 35.2 118.1 163.1 52.8 0.0 0.0 0.0 Front-end fee 1.5 0.0 0.0 0.0 Total Financing 36.7 118.1 163.1 52.8 0.0 0.0 0.0 Financing IBRDfiDA 16.8 52.8 54.4 26.0 0.0 0.0 Govemment 37.6 59.2 70.6 53.4 0.0 0.0 0.0 Central 33.6 50.0 60.6 45.5 0.0 0.0 0.0 Provincial 4.0 9.2 10.0 7.9 0.0 0.0 0.0 Co-financiers 12.7 28.3 27.8 15.4 0.0 0.0 0.0 User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 67.1 140.3 152.8 94.8 0.0 0.0 0.0 Main assumptions: Time period spans July 2001 - July 2004. Numbers may not add exactly due to rounding. - 51 -  Annex 6: Procurement and Disbursement Arrangements COLOMBIA: Human Capital Protection Procurement Procurement Arrangements Procurement for the proposed project would be carried out in accordance with World Bank "Guidelines: Procurement Under IBRD Loans and IDA Credits", published in January 1995 (revised January/August 1996, September 1997 and January 1999); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published in January 1997 (revised in September 1999 and January 1999), and the provisions stipulated in the Loan Agreement. Procurement methods: The methods to be used for the procurement described below, and the estimated amnounts for each method, are summarized in Table A. The threshold contract values for the use of each method are fixed in Table B. Procurement of Works. This project will not finance any civil works. Procurement of Goods. Goods procured under this project would include office equipment and supplies for the national and regional coordinating units and the municipal liaise offices totaling US$9.77 million equivalent To the extent possible, contracts for these goods will be grouped into bidding packages of more than $250,000 equivalent and procured following lnternational Competitive Bidding (ICB) procedures, using Bank-issued Standard Bidding Documents (SBDs). Contracts with estimated values below this threshold per contract and up to an aggregate amount of US$4.8 million may be procured using National Competitive Bidding (NCB) procedures and standard bidding documents agreed with the Bank. Contracts for goods which cannot be grouped into larger bidding packages and estimated to cost less than US$50,000 per contract, up to an aggregate amount of US$2.0 million, may be procured using shopping (National /lnternational) procedures based on a model request for quotations satisfactory to the Bank. Assessment of the agency's capacity to implement procurement The DAPR-FIP is responsible for all procurement processes with the support of an Administrative/Financial Office, a Communications Offtce, a Legal Office through a Technical Committee. Even though RAS will be the National Coordinating Unit for the three social subprograms under FIP--Youth Training, Human Capital Protection, and Labor Generation--each subprogram will have a Subcoordinator (Jefe) and their activities, accounts and reporting will be independent from each other. The Operations Manual already include, in addition to the procurement procedures, the Standard Bidding Documents to be used for each procurement method, as weli as model contracts for works and goods procured on the basis of three quotations or shopping.. An assessment of the capacity of the NCU to implement procurement actions for the project has been carried out and was approved by the Regional Procurement Advisor on February 12, 2001. The assessment reviewed the organizational structure of the proposed NCU and the interaction between the project's Procurement Officer and the DAPR-FIP Central Unit for Administration and Finance. Most of the issues concerning the NCU have been or are being addressed, and corrective measures are being implemented under another Bank-supported project that is also managed by this Unit. The risks identified in the assessment include: (i) lack of procurement manuals; and (ii) lack of a monitoring system - 52 -  to control procurement actions. The NCU has already presented a detailed plan to address these risks. It involves: (i) preparation of a Procurement Manual; (ii) promoting a training program for the less experienced staff; (iii) creating a monitoring system and maintaining control of the procurement actions by using such monitoring system; and (iv) hiring one consultant to design and help implement the new filing system. Monitoring of procurement actions and evaluation of contracts awarded under this project are key activities envisaged in the action plan, with a specific allocation of human and financial resources. Document filing is to improve after the new system is implemented and is expected to comply with the Bank's requirements. The new system will specify the procurement documents to be filed, the NCU staff who would have access to the files, and the internal security measures for record-keeping. The overall project risk for procurement is AVERAGE Although the overall risk assessment resulting from the NCU's capacity assessment is AVERAGE, the unit has not yet in place a satisfactory system for filing, monitoring, and reporting procurement actions. Consequently the NCU is INELIGIBLE for PMR-based disbursements on procurement reporting grounds. Procurement Plan The Borrower submitted a procurement plan for project implementation which provided the basis for the aggregate amounts for the procurement methods (per Table A). This plan has been approved by the RPA and will be filed in the project files. At the beginning of each calendar year, the Borrower will update the Procurement Plan with a detailed procurement schedule for the coming year. -53-  Procurement methods (Table A) Table A: Project Costs by Procurenent Arrangernents (US$ million equivalent) 1. Works 0.00 0.00 0.00 ~~~~ ~ ~~~~~~~~0.00 0.00 (0.00) (0.00) (0.00) ~~~(0.00) (0.00)1 2. Goods 2.96 4.81 2.00 0.00 9.77 (2.25) (3.66) (1.52) (0.00) (7.43) 3. Services 0.00 0.00 12.40 10.68 23.08 (0.00) (0.00 (12.40) (0.00) (12.40) 4. Operational Costs 0.00 0.00 0.00 206.25 206.25 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Front-end fee 0.00 0.00 0.00 1.50 1.50 (0.00) (0.00) (0.00) (0.00) (.) 6. Grants 31 0.00 0.00 51.65 0.00 51.65 a. Education Grants (0.00) (0.00) (51.65) (0.00) (51.65) b. Health/Nutrition Grants 0.00 0.00 78.52 0.00 78.52 (0.00) (0.00) (78.52) (0.00) (78.52) Total 2.96 4.81 144.57 218.43 370.77 (2.25) (3.66) (144.09) (0.00) (150.00) Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies ' a/ Goods: Includes equipment and supplies for the NCU and RCUs. Figures for goods include taxes. b/ Shopping (National and International) c/ Consultants Services. Details provided in Table A-1 d/ Operational costs financed by in-kind contributions. No procurement is required for this category e/ Grants. No procurement is required for this category 3/ Amounts for grants include US$4.36 total for transaction services - 54 -  Selection of Consultants Consulting services will be contracted under this project for the evaluation and monitoring of the project, promotion campaign, expansion and maintenance of information monitoring and systems external financial audit, managerial NGO services for UCRs, and management and implementation of the Project. These services, including among others the cost of leasing vehicles and equipment, as well as perdiem and tickets, are estimated to cost US$23.08 million equivalent. Firmns All contracts for firms would be procured using QCBS except for small and simple contracts estimated to cost US$100,000 equivalent or less which would be procured using selection based on consultants qualifications up to an aggregate amount of US$2.2 miflion equivalent and would be procured using Bank Standard Request for Proposals. Individuals Specialized advisory services would be provided by individual consultants in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines, up to an aggregate amount of US$5.8 million equivalent Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) A. Firmns 2.48 0.00 0.00 0.00 2.20 1.92 0.00 6.60 (2.48) (0.00) (0.00) (0.00) (2.20) (1.92) (0.00) (6.60) B. Individuals 0.00 0.00 0.00 0.00 0.00 5.80 10.68 16.48 (0.00) (0.00) (0.00) (0.00) (0.00) (5.80) (0.00) (5.80) Total 2.48 0.00 0.00 0.00 2.20 7.72 10.68 23.08 (2.48) (0.00) (0.00) (0.00) (2.20) (7.72) (0.00) (12.40) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Loan. - 55 -  Prior review thresholds (Table B) Prior review thresholds: The proposed thresholds for prior review are based on the procurement capacity assessment of the project implementing unit and are summarized in Table B. Table B: Thresholds for Procurement Methods and Prior Review' 1. Works No works will be financed by this project 2. Goods >250 1CB All 50 - 250 NCB First 2 processes <50 National or Intemational Post Review Shopping 3. Services Consultant Firms >100 QCBS All documents plus Technical Report <100 CQ Post Review >50 Section V Guidelines All (TOR CV, Contract) Consultant 20 - 50 Section V Guidelines TOR only Individuals <20 Section V Guidelines Post Review Total value of contracts subject to prior review: 8.40 m Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 12 months (includes special procurement supervision for post-review/audits) In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the PCU has recommended one full supervision mission to visit the field to carry out post review of procurement actions. Based on the overall risk assessment (AVERAGE) the post-review field analysis should cover a sample of not less than I in 5 contracts signed. Thresholds generally differ by country and project. Consult OD 11.04 'Review of Procurement Documentation' and contact the Regional Procurement Adviser for guidance. -56-  Disbursement Allocation of loan proceeds (Table C) Table C: Allocation of Loan Proceeds 1. Grants a/ 122.96 100 2. Consultant Services 11.69 100 3. Goods 7.04 .76 4. Unallocated 8.31 Total Project Costs 150.00 Front-end fee 0.00 Total 150.00 a/ The term Grants includes direct financial costs; specifically, they are the fees charged by financial institutions in Colombia for delivering cash subsidies to poor families. Use of statements of expenditures (SOEs): In respect of disbursements for this Project, it was agreed that the Project will use the traditional disbursement on the basis of SOE, following standard Bank disbursement procedures. Full documentation for expenditures under contracts requiring the Bank's prior review will be submitted with the corresponding application. Disbursement for goods contracts below US250,000, for services contracts below US$ 100,000 for consulting firms and US$50,000 for individual consultants, and for expenditures under Grants would be made on the basis of SOEs. Documentation to support these expenditures would be maintained by the NCU and made available for review by the Bank supervision missions and project auditors. Documentation relating to SOEs would be retained for up to one year after the final withdrawal from the loan. These will be phased out when the project is converted to PMR-based disbursement, as per action plan. Special account: A Special Account (SA) shall be established at the Banco de la Republica in accordance with Bank policies and procedures. The amount of the initial deposit shall be determined by the disbursement mechanisms agreed with the Bank. In its letter of application for the establishment of a special account, GOC will confirm that: (i) the NCU has direct and immediate access to the SA through the SIIF to pay Project eligible expenditures; (ii) through the SIIF, the NCU will authorize payment directly to the financial institution responsible for delivering the grants to eligible families, and other contractors; (iii) relevant Project staff has been trained on the proper use of the SIIF; and (iv) given the nature of the project, the Bank agrees with the Borrower that advances can be used from the special account for the financing of the cash transfer to the families. Each advance should be documented to the NCU within 30 days from the date the special account is debited. To conserve the value of the funds, the GOC agreed to advance the funds to the financial institution as close as feasible to the date the financial institution will need to pay out these funds. Any estimated advance that will - 57 -  not be documented within 30-day period should be advanced from the counterpart funds of the project. The NCU will use the pilot phase to refine their systems of advance and documentation. Six months after the SA has been established, a review will be completed to determine whether the SA is in fact functioning in accordance with conditions (i)-(iv) above. If the Review finds that the SA is not functioning in accordance with aforementioned conditions, alternative SA arrangements will be established. Retroactive Financing: Payments made for expenditures prior to the date of the Loan Agreement in an aggregate amount not exceeding the amount of US$15,000,000 would be made on account of payments made for expenditures incurred within twelve months prior to the date of the Loan Agreement, but in no case earlier than July 31, 2000. - 58 -  Annex 7: Project Processing Schedule COLOMBIA: Human Capital Protection Time taken to prepare the project (months) g 8 Firt Bank mission (identification) 10/17/2000 06/02/2000 Appraisal mission departure 01/29/2001 11/06/2000 Negotiations 02/19/2001 02/15/2001 Planned Date of Effectiveness 07/31/2001 Prepared by: Vicente Paqueo and Laura Rawlings, Co-Task Managers Preparation assistance: Margarita Lannon, Language Program Assistant Bank staff who worked on the project included: Vicente Paqueo Team Leader Laura Rawlings Co-Team Leader/Evaluation Specialist Marta Ospina Procurement Specialist Karla McEvoy Operations Analyst Daniel Dulitzky Economist/Project Economic Analyst Luis Schwarz Financial Management Specialist Luis Carlos Guerrero Financial Management Specialist Luiz Gazoni Procurement Specialist Carlos Eduardo Velez Economist Jairo Arboleda Social Assessment/Participation Specialist Martha Laverde Education Specialist Ana-Maria Arriagada Social Protection Sector Manager Anna Sant'anna Institutional Assessment Specialist Gladys Acevedo-Lopez Economist Eduardo Velez Country Sector Leader Jose Augusto Carvalho Lawyer Zeinab Partow Country Economist lssam Abousleiman Disbursements Specialist Margarita Lannon Language Program Assistant David Varela Lawyer Marie Khoury Disbursements Specialist Cecilia Balchun Disbursements Specialist Maria Lucy Giraldo Procurement Specialist - 59-  Annex 8: Documents In the Project File* COLOMBIA: Human Capital Protection A. Project Implementation Plan * Draft Operations Manual B. Bank Staff Assessments * Project Economic Analysis C. Other * Terms of Reference for Process Evaluation of Pilot Project * Draft Terms of Reference for Impact Evaluation * Draft Operations Manual * List of Programs and Legislation for Indigenous Groups * Procurement Implementation Plan * Estimates of the Cost of Public Education, Health and Nutrition Services To Be Delivered to Project Beneficiaries *Including electronic files - 60 -  Annex 9: Statement of Loans and Credits COLOMBIA: Human Capital Protection Jar-2001 Difference between expeded and adtual Original Amount In USS Mion disburseffents Proed ID FY Purpoee I8RD IDA CanoeL. Undiab. Ona Ffn Reid P057328 2000 SIERRA NEVADA SUSTAINABLE DEVELOPMENT 5.00 0.00 0.00 4.77 -023 0.00 P0067s 2000 co0 RURAL EDUCATION 20.00 0.00 0.00 20.00 1.70 0.00 POU1140 2C00 CARTAGENA WATER SUPPLY& SEWERAGE 85.00 0.00 0.00 75.75 10.06 0.00 P083643 2000 ENVIRO 506.00 0.00 0.00 21299 0.00 000 PO2 2000 CO-FSAL 25.00 0.00 0.00 108J6 -6.14 0.00 P06712 2000 EARTHQUACE RECCOVERY 100.00 0.00 0 00 10O000 1000 0.00 P050676 1999 CO- COMuINITY WORKS ANOs A LA OBRA) 500 0.00 000 379 2.79 0.00 P039082 1999 CO- YOUTH DEVELOPMENT 137.00 0.00 000 10000 100.00 000 P046112 198 TOLL ROAD CONCESSION 7.20 0.00 000 437 257 0.00 P001111 198 CO. PASTO EDUCATION 75.00 0.00 0.00 57.32 1282 0.00 P05243 IW8 URBAN INFRASTRULCTURE 5.00 0.00 0o00 3.83 1.83 0.00 Po0o061 1W08 PEASANT ENTERPRISE Z 4000 000 000 33a05 1760 0.00 P040102 1997 co0 ANTIOQUIA EDUCATION 12 50 000 000 7.78 5.28 0.00 PO0O684 1997 REGJEF.TA 15.00 0.00 0.00 11.03 9.95 0.00 P039291 1996 FINANCLAL MARKETS DEVELOPMENT 20.00 0.00 0.00 3.90 3.90 -0.94 P006U94 196 URBAN ENVIRONMENT TA 145.00 0.00 0.00 84.87 82.49 0.00 P006172 1996 SANTAFE I WadSuppM) 86.00 0.00 0.00 6.42 4.92 1.42 P006887 1996 URBAN TRNSPRT 249.30 0.00 0.00 1900 14.00 1.54 POO689o 1995 POWER MARKET DEVELOPMENT & ENERGY (TA) 36.00 0.00 000 1595 12.85 -5.15 PO693 1996 AGRICULTURE TECHNOLO 11.00 0.00 0.00 1.10 1.10 0.00 POO6 1994 ENERGY TECHNICALASSISTANCE 9000 00o 0.12 006 0 18 43.76 Po0666 19W4 C0- SECONDARY EDUCATION 3900 000 0.00 15.40 14.24 16.40 POO 1994 NATURAL RESOURCE MAN 3000 0.00 0.00 1.94 1.94 0.00 POO0s62 1991 CO PUSUC FINANCIAL MAN e0.00 0.00 0.00 1.87 1.87 0.00 MUNIC DEVT Total: '193.00 0.00 0.12 874.04 285.70 8.50 -61 -  COLOMBIA STATEMENT OF IFC's Held and Disbursed Portfolio Jan-2001 In Millions US Dollars Commifted Disbursed IFC IFC FY Appoval Cmnpany Lon Equity Quasi Partic Loan Equity Quasi Pailic 1969/85/88/93/95 CF del Valle 0.00 0.00 0.00 0.00 0.00 0.00 00 00 1963/90 Coltejer 6.02 0.00 0.00 0.00 6.02 0.00 0.00 0.00 1999 Harken 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1987 PRODESAL 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 1977189/92/94/96 Promigas 7.50 0.00 0.00 16.67 7.50 0.00 0.00 16.67 1994/95 Promisan 0.00 0.23 0.00 0.00 0.00 0.23 0.00 0.00 1996 Proyectos 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1997 Sukasing 24.82 0.00 0.00 0.00 2.25 0.00 0.00 0.00 1999 Surenting 0.00 5.10 0,00 0.00 0.00 2.50 0.00 0.00 1995/99 Corfinsura 25.00 0.00 25.00 0.00 0.00 0.00 25.00 0.00 Total Portfolio: 83.34 10.92 25.00 16.67 15.77 8.32 25.00 16.67 Approvals Pending Comnitment FY Approval Company LOa Equity Quasi Partic 2001 Tolcemento 3333.33 0.00 0.00 10666.67 2001 Cementos Caribe 4047.62 0.00 10000.00 12952.38 1999 Harken 0.00 10000.00 0.00 0.00 Total Pending Commitment: 7380.95 10000.00 10000.00 23619.05 -62-  Annex 10: Country at a Glance COLOMBIA: Human Capital Protection Latin Lower- POVERTY and SOCIAL America widdle- Colombia