Document ofThe World Bank

Report No: 15615 JM

STAFF APPRAISAL REPORT

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

August 1, 1996

Jamaica Resident MissionHuman and Social Capital Development GroupCountry Department IIILatin America and the Caribbean Region

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CURRENCY EQUIVALENTS

Currency Unit = Dollar (J$)

US$1 = J$40(as of April, 1996)

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

CBO Community-based OrganizationGDP Gross Domestic ProductGOJ Government of JamaicaICB International Competitive BiddingIDB Inter-American Development BankJSIF Jamaica Social Investment FundMIS Management Information SystemMOE Ministry of Education, Youth and CultureMOH Ministry of HealthMOU Memorandum of UnderstandingNCB National Competitive BiddingNGO Non-governmental OrganizationNPEP National Poverty Eradication ProgramPPMU Project Preparation Management Unit

GOVERNMENT FISCAL YEAR

April I - March 30

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

TABLE OF CONTENTS

LOAN AND PROJECT SUMMARY

1. INTRODUCTION 1

2. ECONOMIC AND SECTORAL CONTEXT

A. Economic Context 1B. Poverty in Jamaica 2C. Social Context 4D. Institutional Setting 5E. Social Expenditure and Financing 8

3. GOVERNMENT'S POVERTY REDUCTION STRATEGY AND RATIONALE FORBANK INVOLVEMENT

A. Government's Poverty Reduction Strategy 9B. Rationale for Bank Involvement 10C. Lessons from Experience 11

4. THE PROJECT

A. Origin of the Project 13B. Institutional and Operational Framework of the Social Investment Fund 14C. Project Objectives 14D. Project Description 15

5. PROJECT IMPLEMENTATION

A. Implementation Arrangements 17B. SIF Organizational Structure and Functions 17C. Subproject Cycle 19D. Monitoring and Evaluation 24E. Reporting and Supervision 25F. Environmental Impact 26

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6. PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENT

A. Project Costs and Financing Plan 27B. Procurement 29C. Disbursements 32D. Accounts and Auditing 33

7. BENEFITS AND RISKS

A. Benefits 34B. Sustainability 35C. Risks 36

8. AGREEMENTS REACHED AND RECOMMENDATION 37

ANNEXES

Annex A: Outline of Operational ManualAnnex B: Eligibility PrinciplesAnnex C: Subproject MenuAnnex D: Technical Assistance and TrainingAnnex E: Draft Memorandum of UnderstandingAnnex F: Organizational Structure and Functions of the JSIFAnnex G: Subproject CycleAnnex H: JSIF Performance IndicatorsAnnex I: Evaluation and Supervision PlanAnnex J: Detailed Project CostsAnnex K: Procurement and Disbursement MethodsAnnex L: Estimated Schedule of Disbursements and Disbursement AllocationsAnnex M: Terms of Reference for External Financial and Management AuditsAnnex N: Documents in Project Files

This report is based on an appraisal of the project conducted in Jamaica from April 9 - May 10, 1996 bySarah Adam (Task Manager) and Van Pulley (Resident Representative) with the assistance of PatriciaShako-Daly (Program Officer, LA3JM) and Robin Hughes (Engineer, LA3JM). Important contributionsto project preparation were made by Scarlette Gillings, Morin Seymour, Eltha Brown, StephenRodrigues, Yvonne McLean and Howard Malcolm of the Project Preparation Management Unit. Othercollaborators included: Margaret Grosh (PRDPH), Caroline Moser and Jeremy Holland (TWURD),Janet Cupidon-Quallo (LA3JM) and peer reviewers Soniya Carvalho (PSP) and Julie Van Domelen(LAIHR). Marie Christine Theodore (Project Assistant, LASHC) provided assistance with reportproduction. The Department Director is Paul Isenman, LASHC Country Sector Leader is JulianSchweitzer and the Project Advisor is Robert Crown.

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JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Basic Social and Economic IndicatorsData Year

GENERAL COUNTRY DATA:Total Area (thousands of square kilometers) 10.99 1994Total Population (millions) 2.5 1994Urban Population as percentage of total population 54 1992Population in Capital City

as a percentage of Urban 52 1990as a percentage of Total 27 1990

GNP per Capita (US$) 1420 1994Average annual rate of inflation (percentage) 1985-1994 27.8

POPULATION DATACrude Birth Rate (per 1,000 population) 23.7 1994Crude Death Rate (per 1,000 population) 5.4 1994Total Fertility Rate (births per woman) 2.9 1994Average population rate of growth 1980-1992 1Age structure of population (percentage)

under 15 31.5 199415 to 59 58.3 1994

HEALTH DATALife expectancy at birth (years) 74 1992

Males 71 1992Females 76 1992

Infant Mortality Rate (per 1,000 live births) 23.8 1994Maternal Mortality (per 100,000 live births) 115 1988Under 5 Mortality Rate (per 1,000 live births)

Female 15 1992Male 19 1992

Population per physician 2117 1993Population per nurse 490 1989Acute hospital beds per 1,000 1.52 1993Babies with low birth weight (percentage) 11 1990Births attended by health staff 88 1993Access to safe water (percentage of population) 71.9 1993

Urban 95 1993Rural 46 1993

Health expenditure as a percentage of total govt expenditure 5 1994

EDUCATION DATATotal adult literacy rate 82 1994Primary school enrollment (gross percentage of age group) 106 1991

of which Female (percentage) 119 1991Primary pupil/teacher ratio 36 1994Secondary school enrollment (gross percentage of age group) 62 1991

of which Female 66 1991Total tertiary education enrollment 9.5 1994Education expenditure as a percentage of total govt expenditure 8.5 1995

Sources: Social Indicators of Development 1995, World Bank 1995; World Development Report 1993, World Bank 1993;Country Economic Memorandum, World Bank 1994; Economic and Social Survey of Jamaica 1994, Planning Institute ofJamaica, 1994; and Statistical Institute of Jamaica.

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JAMAICA

SOCIAL INVESTMENT FUND

LOAN AND PROJECT SUMMARY

Borrower: Government of Jamaica

Implementing Agency: Jamaica Social Investment Fund (JSIF)

Beneficiaries: Low-income urban and rural communities

Poverty: Program of Targeted Interventions

Amount: US$20 million

Terms: Single currency loan denominated in US dollars, repayable over 17years including a five-year grace period, at the standard interestrate for LIBOR-based US dollar single currency loans

Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days aftersigning, less any waiver

Financing Plan: See para. 6.3

Net Present Value: Not applicable

Staff Appraisal Report: 15615 JM

Map: IBRD No. 20846

JAMAICA SOCIAL INVESTMENT FUND

STAFF APPRAISAL REPORT

1. INTRODUCTION

1.1 Despite several years of economic stabilization policies, Jamaica continues to facea challenging economic and social environment characterized by low growth, highinflation and unacceptable levels of poverty. Along with its continuing priority onimproving macroeconomic performance, Government has placed social development andpoverty reduction at the center of its medium-term framework. The Prime Minister hasconsolidated responsibility for the Social Agenda in his office and Cabinet recentlyapproved a National Poverty Eradication Policy and Program. The new policy departsfrom Government's earlier approach by emphasizing community-based interventionsundertaken in partnership with non-governmental (NGOs) and community-basedorganizations (CBOs), the private sector and communities themselves.

1.2 Recognizing the limited capacity of existing government institutions to catalyzesmall-scale projects at the community level, Cabinet in December 1995 approved theestablishment of the Jamaica Social Investment Fund as a key component ofGovernment's National Poverty Eradication Program (NPEP). The Jamaica SocialInvestment Fund (JSIF) is designed as a demand-driven organization to mobilize andchannel additional resources to low-income communities. Drawing on the lessons ofsocial investment funds elsewhere, the JSIF will finance small-scale social and economicinfrastructure, social services and organizational strengthening subprojects sponsored bya range of institutions, including central and local government agencies, NGOs/CBOs,community groups and private sector entities. The proposed project would support theestablishment and operations of the JSIF with a World Bank loan of US$20 million, aspart of the JSIF's US$50 million total four-year program. In addition to financialsupport, the Bank's role is critical in bringing international experience to the design andoperation of the JSIF, in leveraging additional funds from other multilateral and bilateraldonor agencies, and in building linkages among Government, NGOs, community groupsand the private sector.

2. ECONOMIC AND SECTORAL CONTEXT

A. Economic Context

2.1 Jamaica is the largest English-speaking Caribbean country with a population of2.5 million. The economy is highly sensitive to international price and demand changes,primarily due to the nature of its productive base and its dependence upon imported oilfor commercial energy consumption. Jamaica's principal economic activities are tourism,

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manufacturing, bauxite/alumina mining and, in employment terms, agriculture and theinformal trading sector. Like other Caribbean countries, its ecosystems are fragile andvulnerable to natural disasters.

2.2 In the decade following independence in 1962, Jamaica's GDP growth rateaveraged about five percent per annum. From 1973 through the mid- 1980s, however,Jamaica's economy experienced sustained contraction due to the increase in oil prices,unfavorable terms of trade and domestic policies which resulted in large fiscal deficits,overvaluation of the Jamaican dollar, excessive borrowing and high inflation. Disparitiesin income widened. The overall result was an erosion of private sector confidence, areduction in investment and an outflow of capital and human resources.

2.3 In an effort to stem the decline, Government in the latter half of the 1980simplemented stabilization measures and adopted market-oriented policies which resultedin GDP growth averaging 3.9 percent per annum between 1986 and 1991. During thisperiod, however, there was also a reduction in Government expenditure on socialservices, the removal or reduction of subsidies on many goods and services and asignificant deterioration in Government's institutional capacity to deliver essentialservices. Declining living standards affected the poor the most.

2.4 The current government, elected in 1989 and re-elected in 1993, acceleratedreforms including privatization, trade and exchange rate liberalization and enhanced fiscalmanagement aimed at promoting private sector, export-led growth. As of June 1995,Jamaica had achieved most of its policy targets: the budget showed a surplus, centralbank losses had decreased, inflation and lending interest rates had declined and netinternational reserves equaled about four months of import cover. GDP growth, however,remained low (0.8% in 1994 and 0.5% in 1995) and insufficient to raise the livingstandards of the population.

2.5 Jamaica currently faces a resurgence of high inflation (25.6% in CY 1995),exchange rate pressure, widening external imbalances, high interest rates and a fragilefinancial sector. Real public and private sector wages are rising faster than productivitygains fueling a rise in imports, particularly of consumer goods. Private sector confidenceis low. An estimated 28 percent of the population remains below the poverty line and thesocial fabric of the country is under stress.

B. Poverty in Jamaica

2.6 Poverty in Jamaica is not a new phenomenon and income distribution hashistorically been highly skewed. Per capita income is now lower than at the beginning ofthe 1970s. In 1993, the poorest fifth of the population had access to only five percent ofnational consumption expenditure while the wealthiest quintile consumed almost tentimes as much (49%). Trends in poverty mirror the economic phases detailed above.

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From 1962 to the early 1970s, poverty declined because aggregate income was growingstrongly as the bauxite and tourism sectors boomed. Between the early 1 970s and mid-1980s, a decline in aggregate income negated the positive impacts of social safety netsand structural adjustment on the poor. According to the Survey of Living Conditionsconducted annually by Government with Bank support, poverty has increased since 1988,becoming particularly acute in 1991 following the rapid devaluation of the Jamaicandollar.

2.7 As of 1993, using a consumption-based per capita poverty line, 28 percent of thepopulation lives in poverty. Sixty percent of the poor live in rural areas with theremaining distributed evenly between the Kingston Metropolitan Area and other towns.The depth and severity of poverty are also greater in the rural areas where poverty ischaracterized by an under-productive small farm sector, low wage employment or lack ofemployment opportunities, low levels of education and inadequate physical and socialinfrastructure.

2.8 The urban poor, though fewer in number, are arguably more vulnerable to changesin the economic environment as they are more fully integrated into the monetizedeconomy and usually have fewer resources upon which to draw. Well-being is linkedclosely with ownership of assets including labor, human capital, land and housing,household relations and social capital. High levels of violence in urban areas erode theseassets, resulting in lack of work and employment opportunities, disruptions in thedelivery of social services, disincentives to invest in housing and the disintegration offamily and social structures, and thus heighten vulnerability. '

2.9 At a national level, a disproportionate percentage of the poor are youth under theage of 25 and 13 percent are elderly. Women comprise 51 percent of those living belowthe poverty line and poverty is only slightly more prevalent among female-headedhouseholds. In the Kingston Metropolitan Area, however, where there are more femaleheaded-households (65%) than in other towns (47%) or rural areas (45%), the prevalenceof poverty is significantly higher for female headed-households (21 %) than for male( 11%) headed-households.

2.10 The unemployment rate of the poor in 1995 was 15 percent: 70 percent of whomwere below the age of 25 and 65 percent of whom were women. Poverty is largely aphenomena of the working poor as demand for their labor is not strong enough to push upreal earnings and they lack skills and access to higher-paying jobs. The majority of poorare farmers, agricultural laborers, domestic servants, street vendors and craftspersons.There is a clear association between poverty and years of education: nearly 70 percent of

World Bank, 1995. A Participatory Study of Urban Poverty and Violence in Jamaica, TWURD,December 1995.

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the employed poor reported no secondary education compared with 45 percent of theemployed non-poor.2

C. Social Context

2.11 In general, Jamaica's living standard indices are relatively favorable comparedwith other middle-income countries in the region. The educational system's coverage isextensive with net enrollment rates of 84 percent for pre-primary, 98 percent for primary,85 percent for lower secondary and 45 percent for upper secondary. Life expectancy isover 70 years, infant mortality is 24 per 1,000 live births, severe malnutrition is rare andchild immunization almost universal. No significant gender bias exists in the provisionof social services.

2.12 These social indicators, however, mask underlying problems in both the educationand health sectors. The educational system is characterized by deteriorating quality andinequity in the provision of resources and education opportunities particularly acrosssocio-economic groups. Of the 15-19 age group, 13.5 percent are illiterate, rising to 17.3percent for 20-24 year olds. The latest available data on primary school leavers (1988)reveals that over 30 percent were functionally illiterate. Attendance and functionalliteracy vary by gender, school type and location with males, pupils from schools servinglow-income families and rural areas recording the lowest attendance and literacy rates.

2.13 Fiscal stringency needed for macroeconomic stabilization has taken its toll on thesocial sectors over the past ten years. Schools are under-resourced and low educationalquality is in part due to a shortage of educational inputs and inadequate infrastructure.Educational materials are severely limited and reduced levels of maintenanceexpenditures have rendered the physical environments of many schools not conducive tolearning. Furthermore, available resources are not distributed equitably. Schools servingstudents from low-income families areas are relatively poorly equipped, are in worsephysical condition and suffer from overcrowding.

2.14 In the health sector, the disease profile is increasingly "life-style"-relatedresembling that of higher-income, developed countries. Deaths are due less frequently toinfectious and vector-borne diseases than to chronic and degenerative diseases which areinherently more expensive to treat. Injuries, including homicides, are the second leadingcause of healthy life years lost and rank as the main cause of death among males aged15-44. Concern remains, however, about high and preventable perinatal mortality rates.

2.15 As in education, prolonged insufficient public funding for health care has caused aserious deterioration in the quality of care in public health facilities. One result has beena significant shift to private providers for outpatient care, even among poorer groups.

2 World Bank, 1994. Jamaica A Strategy for Growth and Poverty Reduction: Country EconomicMemorandum, LA3C2, April 12, 1994.

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Compared to private facilities, public facilities are in a poor state of repair and lackequipment and basic supplies. The relationship between health and poverty is just asclear as that between poverty and education. The poor are only half as likely to seekmedical care as the non-poor and spend approximately one-third as much treating theirillnesses. Furthermore, the poor remain sick for longer periods and are more restricted incarrying out their daily activities than the non-poor.

2.16 Water and Sanitation statistics show a greater association of the rural areas withinferior living conditions. In 1991, 24 percent of the population lacked access to safedrinking water while in the rural areas the proportion was 40 percent. Access tosanitation facilities is relatively high, but in rural areas three times as many people lackgood sanitation facilities than in the urban areas. There are also considerable deficienciesin the water and sanitation facilities within schools, health centers and other publicinfrastructure, thereby increasing overall health risks. The road and street network isbadly deteriorated due to lack of maintenance expenditure. In some areas, roads arecompletely cut-off, leaving communities isolated and at times causing socialdisturbances. Drainage is inadequate and severe flooding not uncommon.

2.17 The high levels of crime, predominant in poor urban neighborhoods, havedetrimental impacts on all of these sectors. Violence limits access to school, results inhigh costs to the health care system and impedes the delivery of water and sanitation.

D. Institutional Setting

2.18 Social services and infrastructure in Jamaica are provided by central governmentministries and agencies, local government (Parish Councils), non-governmental andcommunity-based organizations and the private sector. The plethora of actors andprograms presents Government with a major coordination challenge.

2.19 Public Sector. The Ministry of Education (MOE) is the principal provider offormal primary and secondary education, with only about five percent of studentsenrolled in private schools. In contrast, 80 percent of children enrolled at the pre-primarylevel attend community-based Basic Schools which raise most of their revenue throughfees and donations. Technical/vocational training is provided through the secondaryschool system, skills-training programs offered by the Human Employment and ResourceTraining/National Training Agency and public and private employers, and traininginstitutions that offer apprenticeships. Most special education is provided in schoolsowned and operated by NGOs which receive limited government subventions. Adulteducation is offered through a government-funded company and over 75 NGOs.

3World Bank, 1994. Jamaica Health Sector Review: Present Status and Future Options, LA3HR,December 14, 1994.

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2.20 The public health system is highly centralized. The Ministry of Health (MOH)provides almost all of the inpatient care through a network of 344 health centers and 24hospitals, undertakes health education and environmental health activities, and isresponsible for family planning promotion. In recent years, the private sector's role hasincreased significantly such that it now provides about 75 percent of outpatient services.The NGO community plays an active role in health promotion. In nutrition, the MOHimplements the Supplementary Feeding Program targeted to malnourished children underfive, a Food Stamp Program is administered through the Ministry of Labour, SocialSecurity and Sport and the MOE provides lunch to approximately 280,000 students underthe School Feeding Program.

2.21 In social welfare, the Ministry of Labour, Social Security and Sport administersan array of public assistance programs aimed primarily at the aged, disabled and destitute,in part through grants to twelve private voluntary organizations. Additional povertyreduction programs are being implemented by the Office of the Prime Minister and theSocial Development Commission, the Ministry of Agriculture and the Rural AgriculturalDevelopment Agency, and the Ministry of Public Utilities and Transport and the NationalWater Commission as well as NGOs and the private sector. The new National PovertyEradication Program seeks to streamline and coordinate these varied and at timesduplicative initiatives.

2.22 At the local level, Parish Councils will play an increasingly important role in theprovision of basic infrastructure and services such as water supply, road maintenance andsolid waste management. Responsibilities between the parishes and central ministries arebeing delineated under Government's Local Government Reform Program. Water andsanitation responsibilities will be shared among the parishes, the Ministry of LocalGovernment and Works and the National Water Commission. Responsibility for roadswill be split between the Ministry of Local Government and Works and the parishes. Thenumber of entities currently involved combined with inadequate financial resources haveresulted in slowed expansion of basic infrastructure and significant deterioration ofexisting investments.

2.23 Implementation Capacity. The public sector accounts for eight percent of jobsin Jamaica and expenditure on personnel is Govermnent's largest single recurrent costitem (54% of non-interest expenditures in 1994/95). Despite its numerous agencies andemployees, the general level of efficiency and effectiveness of public entities is low andthe quality of service to the public has declined over the years.

2.24 The major public institutions implementing poverty programs face institutionalconstraints common to the entire public sector. These constraints include: limitedcapacity of the core of ministries to provide strategic leadership, formulate effectivepolicies and monitor operations of line entities; over-centralized authority in financial andpersonnel management decisions; serious human resource deficiencies due to low wages,insufficient training and lack of effective performance evaluation systems; andcumbersome budgetary and procurement regulations. Government recognizes its weak

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administrative capacity in implementing policies and programs and has committed itselfto reforming central and local government in order to boost efficiency. These reforms,however, will take several years to yield results and, in the meantime, the aboveconstraints will continue to pose serious impediments to the reduction of poverty. Failureto tackle poverty effectively in turn poses risks to the sustainability of Govermment'smacroeconomic reform program.

2.25 Non-governmental Organizations. There are a large number and variety ofsocial institutions operating at the community level in Jamaica, ranging from relativelyloosely-organized associations such as sports clubs and Neighborhood Watch committeesto more formal institutions such as schools, churches and NGOs. These institutions areimportant for social cohesion as well as economic development.

2.26 Jamaica has a long history of voluntary service, with churches and otherphilanthropic institutions playing an increasingly important role in the delivery of socialservices after the end of slavery. The 1930s and 1940s saw the establishment of a newtype of organization focusing on the development of community cohesion, communitybuilding and self-reliance. The NGO community continued to flourish afterindependence in 1962 and expanded its programs in response the sharp decline ofGovernment social expenditures in the 1970s and 1980s. The shift from a welfare-basedto a more developmental approach has become more pronounced in the 1990s.

2.27 There are approximately 150 non-governmental organizations promoting socialdevelopment in Jamaica. Rough estimates indicate that their total annual budget exceedsJ$200 million (US$5 million). NGO programs are concentrated in the area of humanservices, including youth and human development, formal and non-formal education,welfare services, disaster relief and rehabilitation and health and counseling. NGOs arealso involved in public education and advocacy, community development, environmentalprotection, services for the disabled, employment creation, housing and sanitation,agriculture and legal assistance. Most NGOs are headquartered in the KingstonMetropolitan Area with programs concentrated in urban areas. Rural areas are servedpredominantly by community-based organizations which are comprised of thebeneficiaries themselves and operate in a specific geographic area. Estimates of thenumbers of CBOs range from 1,200 to 1,500 with almost 70 percent in rural Jamaica.There are also a vast number of citizens organizations, benevolent societies,neighborhood associations, service clubs and the like active across the island.

2.28 Among the large numbers of social institutions at the community level, adistinction can be made between those that are hierarchical versus horizontal in structure.Hierarchical institutions, such as churches and social welfare systems, tend towards top -down delivery of services. Institutions based on horizontal relationships, such as sports

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clubs, homework clubs and parenting groups, facilitate cooperation and collaboration andas such build social capital.

2.29 The implementation capacity of non-governmental and community-basedorganizations varies significantly. In general, strengths include: close relationship withcommunities and involvement of beneficiaries in program implementation; willingness toinnovate in social service provision; flexibility in responding to observed and expressedneeds of target populations; commitment to serving as a channel of communicationbetween the disadvantaged and decision-makers; and an openness to collaborating withother sectors, including government, private sector and donor/lender community.Weaknesses include: limited coverage, weak management structures and financial bases,inadequate record-keeping and information management, lack of collaboration andcoordination within the sector and between other sectors and limited influence on policy.

2.30 Deliberate attempts have been made to strengthen the working relationshipbetween the public and non-governmental sectors. At the urging of the NGO community,Government established an NGO Desk at the Planning Institute of Jamaica to structurethe collaboration between the two sectors. Government now involves NGOs in theplanning and implementation of major policies and programs, most recently in thepreparation of the National Poverty Eradication Program. NGOs have also sought theinput of Government in their own programs and have offered their services toGovernment through contractual and other arrangements.

2.31 Private Sector. The local manufacturing and contracting industries in Jamaicacontribute approximately 18 and 9 percent of GDP respectively. There are a limitednumber of firms considered efficient at undertaking large-scale civil works projects.Small civil works contracting firms are numerous, coverage is island-wide and technicalcapacity is adequate. Contractors have been exposed to competitive bidding procedures.

E. Social Expenditure and Financing

2.32 Although Government has recently reduced its all embracing role as socialprovider and has shifted a part of the responsibility to individuals and the private andvoluntary sectors, it continues to provide a wide range of both education and healthservices. The reduction in Government resources has resulted in declining qualitythroughout the sectors, with the poor having least access to higher quality services.

2.33 The resources for public expenditures in the social sectors are largely channeledthrough the central government budget. During the 1 990s, real public expenditures oneducation and health have fallen as a share of the total government budget. While theMinistry of Education commands the largest share of total government non-debt

4World Bank, 1995. A Participatory Study of Urban Poverty and Violence in Jamaica, TWURD,December 1995.

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expenditures, its share declined from 13 percent in 1989/90 to 8.5 percent in 1995/96. Inreal terms, Government expenditures on education in 1994/95 barely exceeded 1982/83expenditures. Salaries and allowances account for 95 percent of the Ministry's recurrentexpenditures resulting in the severe underfunding of non-wage recurrent and capitalexpenditures. Educational materials are inadequate, equipment is often non-functionaland physical facilities are in poor condition. In 1995/96, 33 percent of Government'srecurrent education expenditures was allocated to primary education, 29 percent tosecondary and 28 percent to tertiary.

2.34 The Ministry of Health's share of public expenditure hovers around six percent,down from a high of eight percent in 1982/83. Between 1982/83 and 1989/90 realresources allocated to the health sector declined by roughly one-third. In 1993/94,salaries and allowances accounted for 79 percent of the recurrent budget. Overall, theshare of health expenditures on other goods and services has declined from 28 percent in1991/92 to 17 percent in 1993/94. Secondary and tertiary care has received 60 to 70percent of the Ministry of Health's recurrent budget over the last decade while primarycare has accounted for 20 percent. The recurrent budget for primary care has remainedconstant in real terms despite the expansion of primary care infrastructure in the late1970s and early 1980s. Maintenance of both physical infrastructure and equipment(medical and non-medical) has been underfunded for years.

2.35 Total spending on roads has averaged only about one percent of GDP over thepast three years. The chronic underfunding of rehabilitation and routine maintenance hasresulted in a badly deteriorated road network.5

3. GOVERNMENT'S POVERTY REDUCTION STRATEGY AND RATIONALEFOR BANK INVOLVEMENT

A. Government's Poverty Reduction Strategy

3.1 Government acknowledges the precarious economic situation and recognizes thatit must continue short-term macroeconomic policies while simultaneously attending tosignificant structural problems. The Government has elevated its commitment towardsocial development and consolidated responsibility for the Social Agenda in the Office ofthe Prime Minister. The Social Agenda is a broad set of social development and welfareprograms with the long-term objectives of eradicating poverty, developing humanresources, promoting social rehabilitation and fostering community development. As amajor component of the Social Agenda, Cabinet recently approved the National PolicyTowards Poverty Eradication and the National Poverty Eradication Program (NPEP)which seek to mobilize all available resources in a streamlined and coordinated actiondesigned to reduce and eventually eradicate poverty.

5World Bank, 1995. Jamaica Public Expenditure Review, LA3C2, April 30, 1996.

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3.2 Government's poverty policy is predicated on the assumption that a successfulpoverty eradication program must incorporate economic growth while recognizing thatsocial development is integral to and essential for such growth. The NPEP has fourmajor sub-programs: (i) community-based activities to create and sustain developmentactivities at the local level; (ii) human resources and social development to provideequitable access of the poor to quality education and health services; (iii) protection ofenvironmental and natural resources; and (iv) building of the enabling environment tostrengthen and promote sound economic policies to achieve growth and to establish aninstitutional framework aimed at more efficient management, coordination and coherencyin program implementation. The poverty program is guided by four principles:integration to optimize resources and amplify impact; partnership to ensure thatGovernment works closely with the private sector, NGOs and CBOs, communities anddonor/lender agencies; community-based participation involving communities inidentifying their needs, designing, implementing and evaluating projects; and targetingto reach the most deprived communities island-wide. As an important new mechanism toachieve its poverty reduction goals, Government decided to establish the Jamaica SocialInvestment Fund to mobilize and channel additional resources to priority projects intargeted communities using an approach consistent with all of these principles.

B. Rationale for Bank Involvement

3.3 The Bank's Country Assistance Strategy for Jamaica focuses on Government'skey development challenges: (a) macroeconomic stability, increased investment andgrowth, (b) poverty reduction, (c) human resource development and (d) public sectormodernization.

3.4 Social Sector Strategy. The primary operational objective of the Bank'sinvolvement in the social sectors is to increase the human capital of Jamaica's citizensand improve the living standards and income-earning potential of the poorest. TheBank's current focus is on strengthening the existing social sector portfolio whichincludes the Social Sector Development and Reform of Secondary Education Projects anddesigning two new projects. The Student Loan Project seeks to redirect resources fromtertiary education to lower levels where social returns are higher. The proposed JSIF isdesigned to assist Government in reducing poverty by reaching the vulnerable groupsunderserved by existing traditional programs. The Urban Poverty and Violence Studyhas been instrumental in designing the menu of subprojects eligible for JSIF funding andits operating procedures, including eligibility of subproject sponsors, the promotions andproject identification strategy, social appraisal criteria and contracting and disbursementarrangements. The Bank's involvement in the JSIF is particularly important to:(i) capitalize on its considerable experience with social investment funds around theworld; (ii) mobilize additional external financing; and (iii) help build linkages amonggovernment agencies, NGOs, community groups and the private sector.

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3.5 Relationship to other Bank-financed Projects. The Bank is currently preparingthree projects which will strengthen and modernize central and local governments andassist in rebalancing the roles of the public and private sectors. The Public SectorModernization Project will support Government's efforts to: (i) continue therationalization of the public sector through privatization; (ii) improve the capability ofministries in policy formulation, coordination and management of policy implementation,and (iii) improve the efficiency of key government departments by converting them into"Executive Agencies" enjoying greater managerial and financial autonomy. '[he projectwill also strengthen GOJ's procurement policies and practices. The ParishInfrastructure Project will extend local government reforms by strengthening thecapacity of parish governments to develop and maintain minor water supply, roads andsolid waste services. The Water and Sewerage Project will rehabilitate andcommercialize the water company alongside Government plans to introduce a privatesector operator. The proposed JSIF Project complements these longer-term institutionalreforms and larger, technically more complicated investments by financing small-scale,community-level social and economic infrastructure and social services interventions intargeted areas using an efficient new delivery mechanism. The structure of the JSIFshares many of the characteristics of the Executive Agencies proposed under the PublicSector Modernization Project, including strong management, greater autonomy infinancial and personnel management in exchange for strict accountability forpredetermined outputs, streamlined operational procedures, and a modem ManagementInformation System to enhance the quality and speed of decision-making and evaluation.Under the Parish Infrastructure Project, Parish Councils would be assisted in preparing,with communities, subproject proposals to be submitted to the JSIF for financing. TheAgricultural Support Services Project being prepared will channel additional resourcesto combat rural poverty by assisting small farmers through improved research andextension.

C. Lessons from Experience

3.6 The design of the proposed project takes into account lessons leamed from theBank's experience with other investment projects in Jamaica, relevant programs andinstitutions currently operating in the country, and the design and implementation of

6social fund projects elsewhere .

6References include the Staff Appraisal Reports for social fund projects in Armenia, Cambodia, Ecuador,Guatemala, Honduras, Nicaragua and Zambia as well as the following documents: Social Funds:Guidelines for Design and Implementation, Human Resources Development and Operations PolicyWorking Paper 34, 1994; Poverty Alleviation and Social Investment Funds: The Latin AmericanExperience, World Bank Discussion Paper No. 261, 1994; Social Funds: Strengths, Weaknessesand Conditions for Success, ESP Discussion Paper Series, 1995; and Social Action Programs andSocial Funds: A Review of Design and Implementation in Sub-Saharan Africa, World BankDiscussion Paper No. 274, 1995.

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3.7 Bank Projects in Jamaica. Implementation of Bank-financed investmentprojects executed by central government ministries has generally been weak. Sluggishimplementation results in cost overruns and delays benefits reaching target groups. Therecord has been particularly weak in civil works carried out by the Ministries of Health,Education and Local Government and Works. A recent Country Portfolio PerformanceReview (CPPR) with Government highlighted implementation constraints including:weak technical capacity of personnel within ministries, insufficient involvement ofGovernment counterparts in project design, lack of counterpart funds due to fiscaladjustment, and cumbersome budgetary and procurement regulations. The procurementof goods and services is not conducted in an effective, cost-efficient or transparentmanner. For example, contracts valued over J$2.5 million (US$62,500) require approvalfrom the Government Contracts' Award Committee, the Ministry of Finance and Cabinet.Serious deficiencies also exist in contract management relating mostly to the supervisionof contractors and in the monitoring and expediting of deliveries. The Public SectorModernization Project seeks to rationalize and strengthen Government procurementprocedures. Additional lessons highlight the importance of local ownership of reforms,beneficiary participation in project design and providing sufficient technical assistanceand training. The design of the JSIF as detailed in Chapter 4 not only takes these intoaccount, but is in part a response to these impediments.

3.8 Government Poverty Reduction Projects. Two recent reviews of Government'spoverty alleviation program and the four main institutions (three Government and oneNGO) which fund social and environmental projects reveal similar constraints andlessons. Most of the poverty projects reported slow implementation due to low cashflow, inadequate staffing and slow decision-making. Social services and employment-generation projects were most successful when community cooperation and privatevoluntary organizations were included in program implementation.7 The institutionalreview highlighted four main issues: (i) lack of formalized procedures for funding orimplementing projects; (ii) inadequate administration and supervision of projects due tolimited financial and weak human resources; (iii) incomplete and imprecise projectproposals and cost estimates, complicated by the consistent overestimation of costsparticularly when resources were considered "free"; and (iv) lack of institutional andfinancial autonomy which resulted in delayed and insufficient disbursements.

3.9 Social Investment Funds. The lessons learned from the Bank's experience infinancing over 30 social fund-type operations have influenced the design and operationsof the proposed project. During preparation, staff of the Project Preparation ManagementUnit and the Chairman of the JSIF Advisory Committee visited two Central Americansocial investment funds. They also received significant technical assistance from socialfund managers and NGO beneficiaries who visited Jamaica and advice from World Bank

7 Planning Institute of Jamaica, 1995, A Preliminary Evaluation of Programs/Projects Aimed atAlleviating the Impact on the Poor of Structural Adjustment, Liberalization andDivestment/Privatization.

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and Inter-American Development Bank staff and consultants experienced in the designand implementation of social fund projects.

3.10 At the conceptual level, three main lessons have emerged. First, a socialinvestment fund should be considered as only one element of a much broader povertyreduction strategy and not as a panacea for eradicating poverty. Second, although theprimary objective of a social fund needs to be clearly articulated, social funds can serve anumber of purposes simultaneously and can generate important ancillary benefits. Forexample, immediate social assistance and temporary employment objectives are notnecessarily inconsistent with investments with a longer-term impact on poverty reduction.Third, the lesson from experience as to whether social funds should be purely temporary,short-term mechanisms is not yet conclusive. In general, flexibility and regard for thecountry context are called for in determining the future direction of a social fund.

3.11 The main lessons learned in the design and operations of social funds which haveinfluenced the preparation and design of the proposed project include the importance of:(a) institutional autonomy and freedom from political interference; (b) transparency andaccountability, which are furthered by a comprehensive operational manual, effectivemanagement information system, frequent and standardized reporting, contracting ofindependent evaluations and systematic feedback from project beneficiaries; (c) attractinghigh-caliber, motivated staff by running a private sector-like operation and payingcompetitive wages; (d) expedited procurement and disbursement procedures;(e) mechanisms for sector coordination with line ministries to ensure complementaryobjectives that are flexible enough not to compromise the independence and efficiency ofthe social fund; (f) involvement of NGOs and local governments in the project cycle;(g) using some monitorable, albeit simple, forms of targeting and promotional activitiesto reach the poorest regions and targeted beneficiaries; (h) technically simple subprojectdesigns; (i) strong local participation during all phases of the subproject cycle to helpensure sustainability; and (j) strong supervision mechanisms at both the managerial andsubproject levels.

4. THE PROJECT

A. Origin of the Project

4.1 The preparation of the proposed project is an outcome of Government'scommitment to accelerate poverty reduction efforts. Discussions with the Bank wereinitiated in September 1994 regarding the establishment of an efficient mechanism tochannel additional funding to small-scale, community-based projects in targeted areas. AJapan Grant to finance project preparation was signed in March 1995, followed one weeklater by the appointment of a Project Coordinator. Government is executing the JapanGrant for the first time in Jamaica and preparation has been based in the Planning

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Institute of Jamaica to ensure maximum coordination with Government's povertyreduction program and other donor/lender projects. After advertising through a privatesector selection services firm, a Government-appointed Advisory Committee approvedthe hiring of five long-term consultants in September 1995 to prepare the project underthe assumption that, if they performed well, they would form the core staff of the JSIFonce established. A sixth consultant was hired in January 1996. The objective was torecruit staff as early as possible in the project design phase to ensure maximum"ownership", realism in design, and continuity between design and implementation.

B. Institutional and Operational Framework of the Social Investment Fund

4.2 Taking into account lessons from experience with other social funds and after areview of institutional options in the Jamaican context, Cabinet in December 1995approved the establishment of the Jamaica Social Investment Fund as a temporary,autonomous public company incorporated under the Companies Act. The JSIF wasincorporated in February 1996. Memorandum and Articles of Association of thecompany are in the project files.

4.3 As detailed in the Memorandum of Association, the objectives of the companyare: to mobilize and manage a pool of funds to be used in a program of povertyalleviation consistent with the Government of Jamaica's national poverty reductionstrategy; to foster investment at the community level by providing funding for projectsaimed at stimulating integrated and sustainable development of poor communities; toincrease national institutional capacity to design, implement and manage small-scale,community-based poverty alleviation projects; and to stimulate and encourage theinvolvement of public and private organizations in the development of poor communities.

4.4 The Jamaica Social Investment Fund would act as a project financing agency:promoting, appraising, financing and supervising projects in accordance with itsOperational Manual (see Annex A for Table of Contents). Subprojects would besponsored by eligible institutions, including central government ministries and agencies,local governments, NGOs/CBOs, community groups and the private sector. Subprojectsponsors need not be legally registered entities. Subprojects would be executed by acontractor (private sector firm or NGO/CBO) which would perform the works, providethe equipment or carry out services financed under the subproject.

C. Project Objectives

4.5 The primary goal of the proposed project is to contribute to the reduction ofpoverty and help create an environment for sustainable national development. Morespecifically, the JSIF is designed to assist Government in responding to the needs of themost vulnerable groups currently underserved by existing programs and institutional

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mechanisms by: (a) establishing an efficient, demand-driven and complementarymechanism to deliver basic services and infrastructure to the poor; (b) mobilizing andchanneling additional resources to the areas of basic social and economic infrastructureand social services; and (c) increasing national institutional capacity to identify, design,implement, manage and sustain small-scale community-based projects.

D. Project Description

4.6 The project would consist of two components. The first component wouldfinance subprojects approved by the JSIF in the areas of social infrastructure, economicinfrastructure, social services and organizational strengthening as detailed below.The second component would fund institutional support for the JSIF's establishment andoperations, including (i) salaries, vehicles, equipment and operating expenses; and(ii) technical assistance and training to improve the JSIF's operational capacity andprocedures.

4.7 Component I: JSIF Subprojects (US$40.7 million). The JSIF would providegrant financing for small-scale community-based subprojects designed to increase humanand social capital in the following categories: social infrastructure, economicinfrastructure, social services and organizational strengthening. All subprojects mustbenefit poor communities, incorporate beneficiary participation at all stages of design andimplementation, include a contribution from the beneficiary group/subproject sponsor, beconsistent with national sectoral policies and cost a maximum of US$350,000 (see AnnexB for Eligibility Principles). To be eligible for financing, subprojects must be includedon the menu of eligible subprojects (see Annex C for Subproject Menu). Financing ofeligible subprojects would then be subject to technical appraisal by JSIF staff based on aset of criteria developed for each type of subproject and detailed in the OperationalManual (see para. 5.13).

4.8 Social infrastructure (56% of the total number of subprojects), defined asinfrastructure related to the provision of social services, would include the rehabilitation,expansion and construction and the equipping of schools, health centers, day care centers,homes for children, the elderly and the disabled, community centers, training facilitiesand sports facilities; and the construction and rehabilitation of public sanitaryconveniences (latrines, community showers), drains and canals, and community-basedwater systems.

4.9 Economic infrastructure (11%), defined as infrastructure delivering economicbenefits, would include the rehabilitation and upgrading of parochial, feeder and urbanaccess roads and the construction and rehabilitation of community-based agroprocessingfacilities.

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4.10 Social services (20%) would include programs offering services in careerguidance and job placement, counseling (including conflict resolution and drug abuse)and parenting and family life-education; and skills training to the productive sector andthe disabled.

4.11 Organizational strengthening (13%) would include technical assistance andtraining to governmental and non-governmental institutions in participatory projectidentification and prioritization and to subproject sponsors and executing agencies toupgrade skills in preparation, implementation and management of small-scalecommunity-based projects.

4.12 During negotiations, it was agreed that the JSIF would only approve thosesubprojects for which there are appraisal criteria satisfactory to the Bank as outlined inthe Operational Manual (para. 8.2(a)). It was further agreed that no change to thesubproject menu, appraisal criteria or the US$350,000 maximum subproject cost limitwould be made without prior Bank approval (para. 8.2(b)).

4.13 Component II: JSIF Institutional Support (US$9.3 million). This componentwould include the financing of JSIF staff salaries, vehicles, office equipment andoperating expenses. JSIF's remuneration levels and recruitment procedures would besufficient to ensure high caliber staff. Due to the temporary nature of the JSIF and thenon-civil service status of its staff, the JSIF managerial and technical staff are consideredconsultants to Government and are treated as such for purposes of the project. In additionto common categories, operating expenses also includes the development andimplementation of a promotional strategy. JSIF personnel and operating expenditures arefully incremental and declining financing by the Bank is not applicable. Overhead costs(administrative and operating expenses) are estimated to be about 15 percent of the totalprogram over the four-year period. This percentage, although relatively high compared tosome social investment funds, reflects the high costs of personnel, rent and otheroperating costs in Jamaica as well as the relatively small size of the JSIF. To help ensureefficiency, overhead expenditures would be programmed and monitored as one of theJSIF's institutional performance indicators and assessed during the annual managementaudit (para. 6.16).

4.14 This component would also finance technical assistance and training to improveJSIF's operational capacity and internal procedures in the areas of promotions, refinementof the poverty map, poverty targeting, participatory needs assessment/projectidentification, appraisal of social services and organizational strengthening subprojects,gender, environmental procedures, impact monitoring and evaluation and managementinformation systems. A brief description of technical assistance and training activities ispresented in Annex D.

4.15 The proposed project has been scaled according to: (a) the expected operatingcapacity of the JSIF; (b) the total amount of resources which the JSIF expects to disburseover the four-year period; (c) expected demand, as estimated through a needs assessment

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exercise conducted during preparation; (d) the amount of resources available fromexternal donor and lender agencies; and (e) the availability of counterpart resources.

5. PROJECT IMPLEMENTATION

A. Implementation Arrangements

5.1 The proposed project would be implemented over the agreed four-year period.Given the autonomous status of the Jamaica Social Investment Fund, it was agreed duringnegotiations that a separate Subsidiary Agreement, satisfactory to the Bank, would beentered into between the Government of Jamaica and the JSIF (para.8.2(c)). Under thisagreement, the GOJ would make available on a non-reimbursable basis the proceeds ofthe Bank loan to the JSIF which would have overall responsibility for projectimplementation. As a condition of effectiveness, the Subsidiary Agreement, acceptableto the Bank, would have been signed and entered into effect between Government and theJSIF (para. 8.3(a)). A Memorandum of Understanding between the GOJ and the JSIFprovides that: (i) operations of the JSIF would be exempt from the ordinary requirementsof the Government procurement procedures up to a maximum of approximatelyUS$125,000; (ii) the JSIF would not be bound to pay its employees the salaries andwages paid to civil servants by Government; and (iii) the JSIF be a signatory to anyspecial account into which the Bank or other multilateral and bilateral financing anddonor agencies will transfer funds (see Annex E for Memorandum of Understanding).Prior to negotiations, the Memorandum of Understanding was signed and entered intoeffect between Government and the JSIF (para. 8.1 (a)).

5.2 The JSIF would disburse funds on a grant basis for subprojects in the areas ofsocial infrastructure, economic infrastructure, social services and organizationalstrengthening. The JSIF's operating procedures, including criteria and systems forsubproject promotion, appraisal, approval, contracting and monitoring, and theadministrative and financial rules are contained in the Operational Manual. Prior tonegotiations, the JSIF submitted a revised version of its Operational Manual (para.8.1 (c)), which incorporated changes suggested during appraisal. Finalization of theOperational Manual, including detailed eligibility and appraisal criteria for allsubproject types, satisfactory to the Bank, and its approval by JSIF's Board of Directorsis a condition of effectiveness (para. 8. 3(b)). During negotiations, agreement wasreached that no changes would be made to the approved manual without the priorapproval of the Bank (para. 8.2(d)).

B. SIF Organizational Structure and Functions

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5.3 The Board of Directors of the JSIF is comprised of between seven and ninemembers and the Managing Director of the JSIF. If the number of directors is seven, thenat least three would be selected from the private sector, and if there are nine directors thenat least four will be selected from the private sector. In either case, at least two of theprivate sector representatives would be selected from NGOs and at least two of the publicsector representatives would be selected from social sector line ministries. Members ofParliament and elected officials are ineligible for selection as directors. The Board termswould be staggered with each Director having a three-year tenure and one-third of theBoard retiring each year, though eligible for reelection. The composition and staggeringof the Board of Directors is designed to help ensure transparency in the operations of theJSIF, sufficient coordination with line ministries and continuity through political cycles.Initial members of the Board of Directors were appointed by the Minister of Financethrough a consultative process prior to negotiations (para. 8.1 (d)).

5.4 The JSIF Board of Directors would guide and supervise the overall administrationand operations of the Fund and would have specific responsibility for approving itsOperational Manual, the annual budget and workplan, appointing senior management,and approving subprojects unless otherwise delegated to a sub-committee of the Board orJSIF management. The Managing Director would be responsible for the day-to-dayoperations of the JSIF in accordance with its operational policies and procedures.

5.5 The organizational structure, as depicted in Annex F, is based on the experienceof other social investment funds and takes into account Jamaica's institutional context.The Managing Director would be supported by a Deputy Managing Director and twodepartments: Operations and Finance and Administration. The Operations Departmentwould have four divisions mirroring the subproject cycle: Promotions, Appraisal,Contracting and Supervision. The Finance and Administration Department would havetwo divisions: Accounts and Administration and Human Resources. The Board,Managing Director and departments would be supported by three units: Internal Auditand Evaluation, Legal Advisory, and Management Information Systems.

5.6 Given the scale of the proposed operation, it is estimated that at the height of itsoperations the JSIF would be staffed by approximately 45-50 managerial, technical andsupport staff. An Acting Managing Director as well as the heads of the Operations andFinance and Administration Departments, Contracting/Supervision Division and LegalAdvisory and MIS Units have already been hired. Depending on demand and need, smallregional offices may be opened in order to improve promotions and supervision ofsubprojects. In addition to is own staff, the JSIF would sub-contract some supervisiontasks and technical services. During negotiations, agreement was reached that the JSIF'smanagement level positions would be staffed satisfactorily to the Bank (para. 8.2(e)).8 As

8 Positions requiring Bank prior review are: Managing Director; Deputy Managing Director; Manager,Operations Department; Manager, Finance and Administration Department; Head, Internal Audit andEvaluation Unit; Head, Management Information Systems Unit; Head, Legal Advisory Unit; Head,Human Resources Division; and Head, Promotions Division.

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a condition of effectiveness, the JSIF wouldfill specified staff and management positions(para. 8.3(c)).9

C. Subproject Cycle

5.7 The stages of the JSIF subproject cycle are typical of successful social investmentfunds elsewhere and would involve: subproject promotion, identification andpreparation; appraisal and approval; contracting, execution and supervision; andcompletion. A schematic diagram of the subproject cycle is presented in Annex G.

Project Promotion, Identification and Preparation

5.8 The Jamaica Social Investment Fund would undertake promotional strategies,using national media, community meetings and regional workshops, to ensure effectivecoverage across the island. The promotions strategy is designed to increase awarenessamong potential subproject participants of the types of subprojects supported by theFund, the eligibility and selection criteria and the general guidelines and proceduresgoverning access to Fund resources, including the centrality of community participationthroughout the subproject cycle. The promotions strategy would be developed andundertaken by the Promotions Division and would involve:

a) the preparation and wide dissemination of informational materials to line ministries,local governments, NGOs/CBOs and communities and the private sector outliningeligibility principles (Annex B), the subproject menu and eligibility criteria (AnnexC), subproject application forms, and guidelines to facilitate the elaboration ofsubproject ideas into structured proposals;

b) an initial campaign targeted toward organizations with experience and capacity tostimulate quality applications for subprojects which can be quickly financed toproduce a demonstration effect and build JSIF credibility;

c) a series of workshops in priority regions with limited capacity in order to train localinstitutions in the identification and preparation of subproject proposals;

d) site visits of JSIF promotions staff to the poorest and most difficult to accesscommunities to help identify their needs using participatory techniques. The povertymap, described below, combined with information gathered from field organizationsand local research would be used to geographically target the promotions strategy tothe poorest communities.

9JSIF management and staff positions to be filled prior to effectiveness are: Managing Director; Manager,Operations Department; Manager, Finance and Administration Department; Head, ManagementInformation Systems Unit; Head, Legal Advisory Unit; Head, Human Resources Division; and Head,Promotions Division.

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During negotiations, it was agreed that the Bank would review the effectiveness of thedraft promotions strategy six months after effectiveness of the loan (para. 8.2(f)).

5.9 To establish the need for the proposed investment as well as to build communitycohesion and ownership, all subprojects would be identified using participatorytechniques to sharpen the community focus on its needs and priorities. Projectidentification would be undertaken in conjunction with or by line ministries,Government's Social Development Commission, Parish Councils and NGOs/CBOs. TheJSIF would provide technical assistance and training to these organizations in the use ofparticipatory identification techniques and gradually reduce its direct involvement in theprocess. Trained community facilitators would assist in preparation of subprojectproposals.

5.10 Staff of the Promotions Division would undertake the initial screening ofsubproject proposals for consistency with the JSIF's eligibility principles and subprojecteligibility criteria, which have been developed to conform with sector policies and norms.When appropriate, profiles of eligible subprojects would be submitted to the relevant lineministry for its no-objection to further processing of the subproject. If a ministry's no-objection is not received within five working days, the subproject would be consideredcleared for appraisal.

5.11 Targeting. One of the principal objectives of the JSIF is to reach regions andvulnerable groups currently underserved by existing delivery mechanisms. To helpensure that benefits reach the intended population, the JSIF would use various targetingmechanisms within stages of the subproject cycle along with a poverty map to identifyand focus activities in priority areas and prevent leakage of benefits to the wealthierregions. Within the subproject cycle, the types of subprojects eligible for financing bythe JSIF, including primary education and health care facilities, are likely to concentratebenefits among the poor. As described above, project promotion would target the poorestregions with limited capacity in order to train local institutions in subproject preparation.Technical and other appraisal criteria are being designed with a view towards ensuringthe involvement of the targeted population.

5.12 Poverty Map. A poverty map completed in January 1996 by the Social PolicyAnalysis Unit of the Planning Institute of Jamaica with JSIF-financed local technicalassistance would serve as the principal instrument for geographical poverty targeting.The poverty mapping exercise involved three main activities: (i) the identification ofcommunities across Jamaica; (ii) the selection of indicators, by a technical advisorycommittee, to be used to determine the deprivation status of these communities; and (iii)the development of a methodology to measure the relative deprivation status of thesecommunities. The 5,074 Census Enumeration Districts were amalgamated to 506communities. Using the 1991 Population Census which is the only data set providingcomplete coverage of the island, the indicators selected were: percentage of householdswithout piped water into their dwelling; percentage of households without exclusive use

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of toilet facilities; percentage of labor force 15-29 years unemployed; and percentage ofage group 14-29 with primary school education only. The 506 communities were thenranked based on these indicators and divided into quartiles. During negotiations, theJSIF provided the following indicative targets; an estimated 40 percent of the resourceswould go to the poorest quartile (with 18 percent of the population), 30 percent to thesecond quartile (with 30 percent of the population), 20 percent to the third quartile (with28 percent of the population) and 10 percent to the least poor quartile (with 24 of thepopulation) (para. 8.2(g)). Actual distribution of resources will be compared to thesetargets and additional measures taken, if required, to ensure resources reach the intendedbeneficiaries. The proposed project would finance, if necessary, technical assistance torefine the poverty map and JSIF's targeting strategy based on experience.

Appraisal

5.13 Staff of the Appraisal Division would undertake a preliminary desk analysis toconfirm that the subproject is consistent with JSIF eligibility principles, the subprojectmenu and criteria and that required documentation is complete. This analysis would befollowed by a site visit conducted with a representative of the subproject sponsor, as wellas an official of the relevant line ministry or Parish Council. Information contained in theproject proposal and confirmed or supplemented during the site visit would provide thebasis for appraisal according to the following criteria, as specified in the JSIF'sOperational Manual:

a) Technical criteria for subproject appraisal would be developed for each type ofsubproject based on existing technical standards and norms to be provided by therelevant line ministries and other government entities to ensure sectoral coherenceand compatibility. Technical appraisal would confirm that the project design andspecifications conform to these norms. It would also ensure that infrastructure,equipment and other inputs are consistent in scale, quality, cost and content with theproposed activities of the subproject and that implementation is technically feasible.In the case of service projects, the technical criteria will assess the content and therelevance to the community of the service being provided.

b) Financial and economic analysis would assess the estimated cost of each componentof the subproject cost schedule against unit costs developed by the JSIF providingexplanations for any significant variances. Where applicable, economic rates ofreturn would be calculated. For subprojects where quantitative economic analysis isnot applicable, cost-effectiveness of the subproject would be calculated. The sourceof financing for the subproject would be assessed, counterpart contributionsconfirmed and guarantees sought for the financing of recurrent costs. Where lineministries are responsible for recurrent costs, they would be requested to assure fundswould be available.

c) Social analysis would confirm the identity of the potential beneficiaries and assesstheir degree of participation in the identification and preparation of the subproject

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proposal. Confirmation of the willingness and ability of the community and/orsponsor to participate in supervision of subproject implementation and contribute tothe sustainability of the subproject output after implementation would also be sought.Social analysis would also include an assessment of the likely impact of the project,during and after implementation, on the communities with particular reference todifferential impacts by gender. Special emphasis would be placed on the impact ofproposed subprojects on youth and women and on social cohesion, in general.

d) Institutional and sustainability analysis, particularly when the subproject sponsoralso serves as executor, would assess the role of the organization in buildingcommunity cohesion as well as its capacity to implement the project. Sustainabilityanalysis would assess the commitment, in monetary as well as personnel terms, to thesustainability of the project output. In the case of infrastructure projects, essentialmaintenance activities would be identified and assessments conducted to determinethe institutional capabilities to undertake essential maintenance. Where training formaintenance is considered necessary, it will be identified through this assessment.

e) Environmental analysis would be undertaken on subprojects with potentialenvironmental impact although, given the size and nature of subprojects, nosignificant negative environmental impacts are anticipated. The environmentalassessment would identify measures for mitigation of minor adverse environmentalimpacts or critical environmental problems requiring further investigation.

Approval and Bank Review

5.14 An appraisal report would be prepared for each subproject, according to a pre-designed format, and reviewed at different levels in the organization. All subprojectproposals and appraisal reports would be reviewed by the Management Committee of theJSIF for recommendation to the Board of Directors. Authority to approve, reject orrequest revision and resubmission of all subprojects would rest with the Board whichwould meet monthly or more frequently if necessary. The Board may delegate thisauthority to an Executive Committee which would meet at least every two weeks or, inthe case of small contracts, to the JSIF Management Committee. The ExecutiveCommittee would include at least one NGO and one private sector representative. TheJSIF Management Committee is comprised of the Managing Director, the Directors of theOperations and Finance and Administration Departments and the heads of the InternalAudit and Evaluation, Legal Advisory and MIS Units. During negotiations, agreementwas reached that subproject approval thresholds for the Board's Executive Committeeand the JSIF's Management Committee would be established by the Board and includedin the Operational Manual (para. 8.2(h)).

5.15 Once approved, subproject proposals would be submitted for clearance fromexternal financing sources when required. The Bank would review the first fivesubprojects of each subproject category (i.e., social infrastructure, economicinfrastructure, social services and organizational strengthening) prior to contracting to

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ensure adherence to eligibility and appraisal criteria. After that, given the nature, size andestimated number of subprojects and demands on Bank supervision, the followingprocedures would apply to Bank-financed subprojects: (i) for civil works contracts overUS$200,000, equipment contracts over US$100,000, and services and sponsor-executedcontracts over US$25,000, prior review by the Bank would be required; and (ii) forsubprojects under these limits, the Bank would carry out a random ex post review, basedon summary project data sheets acceptable to the Bank and bidding documents andcontracts to be retained by the JSIF. During negotiations, these subproject reviewarrangements were confirmed with Government (para 8.2(i)).

Contracting, Execution and Supervision

5.16 Upon approval of a subproject request, an agreement would be signed between thesubproject sponsor and the JSIF delineating the responsibilities of both parties. Theagreement would authorize the JSIF, on behalf of the subproject sponsor, to proceed withthe selection of an executing agency/contractor in accordance with Bank procedures.Once all pre-contractual conditions are satisfied, the JSIF would enter into a contract withthe executing agency/contractor. The nature of the executing agency/contractor wouldvary by type of subproject. In the case of civil works projects, a local private sectorcontractor would normally be hired to carry out the work. For social services projects,the executing agency/contractor could be an NGO. While in most cases there will bethree different parties involved in a subproject - the JSIF, the sponsor and the executingagency/contractor - in some cases an NGO might act as both the sponsor and theexecuting agency/contractor. Prior to negotiations, the JSIF submitted a draft SponsorAgreement (para. 8.1 (e)). During negotiations, it was agreed that the SponsorAgreement and standard contract would be finalized prior to loan effectiveness andincluded in the Operational Manual (para. 8.2(j)).

5.17 Executing agencies/contractors would present appropriate guarantees, includingperformance bonds in the case of private sector contractors carrying out civil works,under guidelines included in the Operational Manual. Upon presentation of appropriateguarantees, JSIF would disburse directly to the contractor a mobilization advancefollowed by regular disbursements based on work completed and confirmed during JSIFsite supervision visits. To increase controls on subproject execution, contingencies wouldnot be included in the subproject budgets. Although changes in standard subproject costsare not expected given the accuracy and regular updating of the unit cost database, costadjustments would be handled through separate requests for a change in budget.

5.18 Subproject execution would be supervised by staff of the JSIF's SupervisionDivision and, for infrastructure subprojects, by external on-site technical supervisorscontracted by the JSIF and financed as part of the subproject cost. Terms of referenceand standard contracts for external supervisors will be included in the OperationalManual. The beneficiary group or project sponsor would also monitor the quality ofworks, goods or services and general performance of the contractor. Requests fordisbursements would be made upon verification of work completed by both the external

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supervisor and the beneficiary group or project sponsor. JSIF supervisors would visit thesubproject site periodically to inspect the progress of the work, assess general contractorperformance and authorize requested disbursements. In addition, local consultants wouldbe contracted to perform physical audits on a random sample of subprojects to evaluatetheir technical quality and operational and maintenance cost coverage and to evaluate theadequacy of JSIF's appraisal and supervision systems (para. 6.17).

Project Completion

5.19 The project completion stage involves certification and handover of workscompleted, final payments and preparation of a subproject completion report. Thesubproject completion report, to be generated by the Management Information System(para. 5.20), would evaluate contractor performance, subproject processing time and cost.This information would be incorporated in subsequent project planning andimplementation activities.

D. Monitoring and Evaluation

5.20 Management Information System. The Jamaica Social Investment Fund woulddesign and install a computerized Management Information System (MIS) to monitor thesubproject cycle and the performance of the JSIF in relation to programmed targets. TheMIS, which would be developed with software and technical assistance from other socialfunds, would consist of: (i) a subproject database that would enable the management andstaff of the JSIF to monitor and track subprojects through all stages of the subprojectcycle and analyze the portfolio of the JSIF in relation to its objectives and sectoral andpoverty-level allocation targets; (ii) a budgeting and supervision control system tofacilitate the tracking of subproject budgets, resource flows and physical progress ofprojects, and (iii) a geographical information system for database queries and visualgeographical representation of the Fund's investments and activities.

5.21 The MIS would allow management to improve planning and operations of theJSIF; inform interested parties on the progress of subprojects; and report on the numbersand locations of beneficiaries, and the nature and extent of benefits received. As acondition of effectiveness, the Management Information System, acceptable to the Bank,would be operational (para. 8.2(d)).

5.22 Performance Indicators. An important function of the MIS would be to producereports on a comprehensive series of performance indicators designed to measure theperformance of the JSIF. This capability is particularly important given the need tojustify the creation of the JSIF as a new and exceptional institution. Draft indicatorsmeasuring the Fund's capacity, efficiency, quality and impact are detailed in Annex H.During negotiations, it was agreed that a subset of these indicators would be monitoredby the Bank (para. 8.2(k)). As a condition of effectiveness, the JSIF wouldfurnish to the

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Bankperformance targets, satisfactory to the Bank, for the first year ofprojectimplementation (para. 8.3(e)). Annual performance targets would be reviewed andrevised annually as part of JSIF's annual review exercise.

5.23 Impact Evaluation. In order to determine the social and economic impact, assessthe participatory aspects, ensure technical quality and calculate the cost-effectiveness ofJSIF-financed interventions, audits, assessments and evaluations would be contractedexternally for the following activities: (a) physical audits to assess the technical qualityof subprojects (para. 5.18); (b) beneficiary assessments to receive direct, unbiased andconstructive feedback from JSIF's target population; and (c) ex-post evaluations todetermine impact in terms of access to services and improvements in the standard ofliving of JSIF beneficiaries and institution building of other government agencies andproject sponsors. The results of these evaluations would be used by JSIF management toadjust policies and procedures in order to achieve the JSIF's objectives. An evaluationand supervision plan is presented in Annex I.

E. Reporting and Supervision

5.24 The following reporting requirements would apply to the proposed project:

(i) The JSIF would submit to the Bank standard Monthly Progress Reports, according toan agreed format, and based on information from the Management Information System;

(ii) The JSIF would prepare an Annual Report to be approved by its Board of Directorsand submitted to the Bank, no later than August 31 of the following year. AnnualReports would contain key performance indicators of JSIF, a review of technicalassistance and training efforts, the results of any monitoring and impact evaluationstudies, and the implementation of recommendations from the external management,financial and technical audits.

(iii) Upon completing this report, the JSIF, in collaboration with the Bank and other co-financiers, would undertake an Annual Portfolio Review to be held no later thanSeptember 30 of every year (beginning in 1997). This review would include anassessment of performance indicators, subprojects by type and location, completionschedule and costs, cash-flow projections, recurrent and maintenance cost coverage,operational procedures, including environmental assessment procedures, and theavailability of Govermnent counterpart funds. The input of all stakeholders would besought during the review.

(iv) No later than six months after the project closing date, JSIF would submit a finalreport and evaluation of the outcome of the proposed project.

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Attempts would be made to ensure that report formats meet the needs of all JSIF donorsto the maximum extent feasible.

5.25 Mid-Term Review. The Bank, JSIF, relevant Government agencies and otherexternal financing agencies would conduct a joint Mid-Term Review to evaluate theperformance of the JSIF. This exercise would be scheduled to occur promptly afterUS$7.5 million of the Bank loan for the financing of subprojects is disbursed or no laterthan 24 months after the date of effectiveness of the loan. The Mid-Term Review isdesigned to provide an opportunity to evaluate the experience of the JSIF both at anoperational level and in the context of Government's National Poverty Program todetermine its optimal duration and scope beyond the life of the project. At the end of thereview, a Mid-Term Review Report would be submitted to the Bank highlighting anymajor problems, issues and bottlenecks identified during the review process and theproposals for resolving them and fulfilling the project objectives. During negotiations,Government's agreement to these reporting and review requirements was obtained (para.8.2(1) and (m)).

5.26 Bank Supervision. Due to the demand-driven nature of JSIF, the large numberof subprojects to be reviewed, the newness of the institution and the importance oftransparency, intensive supervision is required by the Bank. An estimated 25 staff weekswould be required annually, 20 from the Resident Mission in Kingston and 5 fromHeadquarters, costing a total of approximately US$50,000. Supervision tasks wouldinclude visits to subprojects in execution, ex-ante and ex-post subproject reviews,procurement reviews and monitoring of monthly performance reports. In order to reducethe costs of supervision, joint supervision missions would be conducted with otherexternal co-financiers and the feasibility of contracting local consultants to reviewselected aspects of JSIF's operations would be explored.

F. Environmental Impact

5.27 The proposed project has been assigned a "B" environmental classification.Given the size and nature of subprojects, no significant negative environmental impactsare anticipated and no resettlement is envisioned. Environmental impact assessmentswould be carried out as part of the subproject appraisal process and technical assistancewould be provided to the JSIF to develop environmental assessment policies andprocedures. If adverse impacts are foreseen on a subproject, necessary mitigatingmeasures, if not already outlined, would be incorporated into the subproject design atappraisal. The adequacy of JSIF's environmental procedures would be assessed by theBank as part of the Annual Portfolio Review.

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6. PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENT

A. Project Costs and Financing Plan

6.1 Project Costs. The total project cost, expressed in April 1996 prices, is estimatedat US$50 million, net of taxes and duties. The foreign exchange content amounts to US$18.2 million, representing about 36 percent of total project cost. A summary of projectcosts by component is shown in Table 6.1 with a detailed cost table provided in Annex J.

Table 6.1: Summary Cost Table(US$ OOOs)

Local Foreign I otal

I. JSIF INSTITUTIONAL SUPPORTSalaries 5,678 0 5,678Vehicles and Equipment 103 377 480Operating Expenses 1,587 152 1,738Technical Assistance and Training 660 740 1,400

Sub-total Institutional Support 8,027 1,268 9,295

II. JSIF SUB-PROJECTSSocial Infrastructure 15,736 13,773 29,509Economic Infrastructure 3,808 2,051 5,859Social Services 2,227 557 2,784Organizational Strengthening 2,042 511 2,553

Sub-total Sub-projects 23,814 16,891 40,705

6.2 A total of US$40.7 million, or 81 percent, of the total project cost is allocated tofinance subprojects. The share of funds assigned to each type of subproject is indicative,with revisions possible based on implementation experience. Given the fact that the JSIFis an intermediary and is demand-driven by nature, the actual breakdown will depend ondemand and operational experience. No contingencies have been included forsubprojects as any increase in individual subproject costs would be administered throughchange orders (para. 5.17) and absorbed by the subproject budget, resulting in a reductionof the number of subprojects executed. Institutional support to the JSIF (excludingtechnical assistance and training) accounts for US$7.9 million or 16 percent of totalproject cost. Costs of technical assistance and training for the JSIF are estimated atUS$1.4 million for the project. Since the procurement of most of the vehicles andequipment will take place during the first year of the project, no contingencies have beenprovided for that category.

6.3 Financing Plan. The proposed loan of US$20 million would finance 40 percentof total project cost over the projected four-year implementation period. The financing

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plan is shown in Table 6.2. Government will make available approximately US$2.5million in local currency from counterpart funds generated through the European UnionGeneral Import Program to assist in establishing the JSIF and facilitate rapidconsideration of subprojects. Government would commit an additional US$7.5 millionover the course of the project for a total of US$ 10 million or 20 percent of total projectcost. Subproject beneficiaries and sponsors would provide an estimated 12 percent of thetotal cost of subprojects, although this percentage would vary depending on the type ofsubproject, the resources available from the sponsoring agency and the income-level ofthe beneficiary community. Beneficiaries and sponsors would provide the bulk of theircontribution in the form of donated labor and local materials, and project preparation andsupervision services. During negotiations, Government provided assurances on theprovision of the specified amount of government counterpart financing each year andagreed that beneficiaries/sponsors would be obligated by JSIF to contribute a minimumpercentage of subproject cost (para 8.2(n) and (o)). As a condition of effectiveness,Government willfurnish to the Bank evidence of the availability of the minimumcounterpartfundsfor Fiscal Year 1996/97 (para. 8.3(f)). Additional identified co-financing includes a grant of approximately US$3 million recently approved by theGovernment of the Netherlands to be managed by the World Bank under a Trust Fundarrangement. The Inter-American Development Bank is preparing a US$10 million loanfor approval by December, 1996. The British Development Division in the Caribbeanintends to provide long-term technical assistance to the JSIF, particularly in the areas ofparticipatory community needs assessment/project identification and gender analysis. TheEuropean Union has expressed interest in providing additional grant resources pending aninitial assessment of the Fund's operations. It was agreed with the JSIF and majoridentified co-financiers during appraisal that cross-default clauses between the Bank'slegal documents and cofinancing agreements would not be necessary. Any eventualshortfall in fund-raising would reduce the ultimate number of subprojects to be financedbut would not endanger JSIF's functioning nor the benefits accrued from Bank-fundedJSIF projects. The overall financing share of JSIF's overhead expenses would beapportioned 50:25:25 among the Bank, the IDB and Government.

Table 6.2: Financing Plan(US$OOOs)

bUJ 5soneTici IWKU lJUt uOVt Of umner I MSponsor Netherlands Donor Cost

L. JSIF INSTITUTIONAL SUPPORTSalaries 764 0 3,446 1,468 0 0 5,678Vehicles and Equipment 120 0 240 120 0 0 480Openting Expenses 435 0 869 435 0 0 1.738Technical Assistance and Training 119 0 119 213 450 500 1,400

Sub-total Inslitutlonal Support 1,437 0 4,673 2,235 450 500 9,295

II. JSIF SUB-PROJECTS 8,563 5,000 15,327 7,765 2,550 1,500 40,705

TOTAL PROJECT COST 10,000 5,000 20,000 10,000 3,000 2,000 50,000

FINANCING SHARE 20% 10% 40% 20% 6% 4% 100%

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6.4 Project preparation activities have been expedited by a grant from the JapanesePolicy and Human Resources Development Fund of 51.4 million yen (approximatelyUS$485,000) signed in March 1995. This grant money was used to finance theestablishment and operations of the Project Preparation Management Unit (PPMU) andtechnical assistance to the PPMU to design the JSIF. Technical assistance is also beingprovided by the IDB. Out of the proposed loan, up to a maximum of US$1 millionequivalent would be available for retroactive financing to finance pilot subprojects,salaries, administrative overhead and technical assistance between June 1, 1996 and loaneffectiveness. This trial implementation period would allow the JSIF to test and refine itsoperational procedures based on processing and financing a set of pilot subprojects.

B. Procurement

6.5 Procurement of civil works, goods and services financed by the Bank will becarried out in accordance with Bank guidelines (see Annex K for a summary matrix ofprocurement and disbursement methods). The Bank and Government have agreed that allco-financiers should accept the common set of procurement procedures detailed in theOperational Manual.

6.6 Civil Works. No international competitive bidding is expected under theproposed project given the small size of subproject contracts: the maximum subprojectcost is US$350,000 with average subproject cost estimated at about US$50,000. NationalCompetitive Bidding (NCB) procedures, acceptable to the Bank, would apply to civilworks contracts valued between US$100,000 and US$350,000. Approximately US$4million of civil works contracts to be financed by the Bank is expected to be awardedthrough NCB, representing 38 percent of the civil works subproject amount. Minorworks contracts, estimated to cost less than US$100,000, up to an expected totalaggregate amount of US$6 million to be financed by the Bank, will be procured underlumpsum, fixed price contracts awarded on the basis of quotations obtained from threequalified contractors in response to written invitation. A unit cost database maintained bythe JSIF would be used to check the competitiveness of quotes under this procedure. Inexceptional circumstances detailed in the Operational Manual, direct contracting wouldapply to some contracts below US$25,000, with a maximum contract value persubproject of US$25,000. Direct contracting would be allowed up to a total aggregateamount of US$430,000. Packaging groups of subprojects is unlikely to be possibleexcept in circumstances in which a sponsoring agency has applied for a package ofinvestments.

6.7 Equipment and Goods. Goods and equipment to be purchased under theproject's Institutional Support Component include vehicles, computers, office equipmentand furniture. Under the Subproject Component, they include furniture, basic equipmentand supplies for schools, health clinics and other facilities. Packages of goods andequipment above US$150,000, where international competitive bidding procedure wouldapply, are not anticipated. For goods and equipment costing more than US$25,000 and

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less than US$150,000, National Competitive Bidding (NCB) procedures acceptable to theBank would apply. Under the subproject component, an anticipated US$1.6 million ofequipment to be financed by the Bank is expected to be purchased under NCB. Forprocurement of goods and equipment costing US$25,000 or less under both components,international or local shopping procedures would apply, with an estimated aggregateamount of US$40,000 for the institutional support component and US$1.2 million forsubprojects. In exceptional circumstances detailed in the Operational Manual, directcontracting would apply to some contracts below US$2,000, with a maximum contractvalue per subproject of US$2,000. Direct contracting would be allowed up to anaggregate amount of US$90,000. Under the institutional support component, LimitedInternational Bidding acceptable to the Bank would apply to vehicles and computerequipment (with an estimated total value of US$200,000) whereby the JSIF would solicitbids from all international suppliers with service facilities in Jamaica.

6.8 The main control on direct contracting would be JSIF's strict adherence to thecosts provided in the unit cost system. During negotiations, agreement was reached thatthe JSIF would update the unit cost system at least every six months and submit updatedinformation to the Bank for ex post review (para.8.2(p)). All cost estimates forsubprojects would have to fall within the cost limits calculated using the database. Thissystem has proved an effective tool for controlling subproject costs and procurement inother social funds. The JSIF would need to demonstrate that the costs of the subprojectsare competitive with similar projects, particularly those financed under other World Bankoperations. As an additional safeguard, JSIF would keep a database on the number,amount and location of subprojects implemented by individual contractors and wouldlimit the total value of contracts that can be awarded to any one contractor under directcontracting to US$200,000 for civil works projects. These direct contracting guidelineswould be agreed upon and included in the Operational Manual. During negotiations,agreement was reached that no change can be made to: (i) the maximum contract valuesper subproject of US$25,000 for civil works and US$2,000 for goods that can be awardedthrough direct contracting and (ii) the US$200,000 ceiling amount awarded to any onecontractor for civil works projects through direct contracting procedures within the life ofthe project without prior Bank approval (para.8.2(b))

6.9 Consultant Services and Training. A total of approximately US$5.8 million(institutional support and subprojects) to be financed by the Bank (and the NetherlandsGovernment under a Trust Fund arrangement) would be allocated to consultant servicesand training under the project. The selection and appointment of consultants would bedone in accordance with the World Bank Guidelines for the Use of Consultants (1981),including the contracting of JSIF managerial and technical personnel.

6.10 Categories Not Applicable to Procurement Arrangements. Standardprocurement arrangements would not apply to JSIF operating expenses (administrativestaff salaries, rent, utilities, travel and minor office supplies). Social assistancesubprojects sponsored and executed by the same NGO would also not be governed bystandard procurement procedures.

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Table 6.3: Summary of Proposed Procurement Arrangements(US$ million)

Procurement MethodICB NCB Other N.B.F. Total

1. JSIF INSTITUTIONAL SUPPORT

Vehicles and Equipment -.- -.- 0.2 a 0.2 0.5

(0.2) -.- (0.2)

Operating Expenses -.- -.- 1.1 h 1.6 2.7(1.1) - (I 1)

Technical Assistance and Training -.- -.- 3.8 c 2.3 6.1(3.8) . (3.8)

Sub-total Institutional Support -.- 0.0 5.1 4.2 9.3(0.0) (5. 1) - - (5. 1)

II. JSIF SUB-PROJECTS

Civil Works -.- 3.9 6.4 d 17.1 27.5(3.9) (6.4) (10.3)

Equipment and Goods -.- 1.6 1.3e 4.9 7.9(1.6) (1.3) (3.0)

Services (T.A. and Training) -.- -.- 2.0' 3.3 5.3(2.0) (2.0)

Sub-total Sub-projects -.- 5.6 9.7 25.4 40.7(5.6) (9.7) (15.3)

TOTAL PROJECT COST -.- 5.6 14.9 30.0 50.0(5.6) (14.9) (20.0)

Note: Figures in parentheses are the respective amounts to be financed by the Bank. N.B.F.: Not Bank-Financed, including all parallel co-financing and other donor support.a Limited international bidding.b Standard procurement procedures would not be applicable to operating expenses (administrative staffsalaries, rent, travel, utilities and minor office supplies).c Consulting services to be procured in accordance with World Bank, Guidelines: Use of Consultants byWorld Bank Borrowers and by the World Bank as Executing Agency (Washington, D.C., August 1981).dIncludes comparison of three quotations for subprojects valued under US$ 100,000 (aggregate amountUS$6 million) and direct contracting for some subprojects valued under US$25,000 (aggregate amountUS$430,000).

e Includes local shopping for subprojects valued under US$25,000 (aggregate amount US$1.2 million) anddirect contracting for some subproject valued under US$2,000 (aggregate amount US$90,000).fIncludes services subprojects procured following Bank guidelines for consultant services and sponsor-executed subprojects which would not be covered by Bank procurement guidelines (estimated at US$Imillion).

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6.11 Bank Review. Bank review procedures of subproject approvals to ensurecompliance with agreed procurement arrangements are provided in para. 5.15. PriorBank review would also be required for contracts for all vehicles and equipmentpurchased for the JSIF. Prior Bank review would be required for all contracts for theemployment of consultant firms above US$100,000 and for the employment of individualconsultants above US$50,000 under the JSIF Institutional Support Component. Inaddition, prior review would be required for JSIF management-level positions. Thesearrangements would result in prior review by the Bank of an estimated 25 percent of thevalue of all Bank-financed contracts. Measures to ensure effective operations andcompliance with procurement arrangements include: on-site technical supervisorscontracted by the JSIF (para. 5.17); physical technical audits conducted on a randomsample of subprojects (paras. 5.18 and 6.17); annual financial and management audits(para. 6.16) and application of the unit cost system (para. 6.8).

C. Disbursements

6.12 The proposed World Bank loan would be disbursed over a period of five years.Project activities are expected to be completed by September 30, 2000 (completion date)with disbursements completed by March 31, 2001 (closing date). A disbursement profileis provided in Annex L. Although this profile is shorter than for other LAC social sectorprojects, it is in line with the Bank's experience with social funds and is based onanticipated demand and appraised institutional capacity.

Table 6.4: Estimated IBRD Disbursement

FY1997 FY1998 FY1999 FY2000 FY2001Annual 2.5 6.5 6 3.5 1.5Cumulative 2.5 9 15 18.5 20

6.13 Disbursements would be made against the following categories of expenditures:(a) JSIF subproject grants: 100 percent of disbursements on subprojects approvedaccording to SIF subproject eligibility and appraisal criteria; (b) JSIF personnel andoperating costs: 100 percent of eligible expenditures (net of taxes); (c) JSIF vehiclesand equipment: 100 percent of foreign expenditures, 100 percent of local expenditures(ex-factory costs) and 80 percent of local expenditures for other items procured locally;and (d) JSIF technical assistance and training: 100 percent of expenditures (net oftaxes).

6.14 Documentation of Expenditure. For civil works US$200,000 or less, equipmentUS$100,000, services and sponsor-executed subprojects under US$25,000, JSIFadministrative expenditures and contracts for JSIF fixed-term non-managerial staff,withdrawal applications would be supported by Statements of Expenditures (SOEs). Forcivil works over US$200,000, equipment over US$100,000, services and sponsor-

33

executed subprojects US$25,000 or more and JSIF consultant and technical assistancecontracts, withdrawal applications would be supported by full documentation.Supporting documentation for all SOEs would be maintained by the JSIF and madeavailable for review by Bank staff. Payment for expenditures made on subprojects wouldbe requested only for those subprojects approved in accordance with procedures detailedin the Operational Manual and for which the corresponding Sponsor Agreement has beensigned. A Special Account in US Dollars, with an authorized allocation of US$1.0million, equivalent to an estimated four months of average disbursement, will beestablished in a commercial bank acceptable to the Bank. During the start of the projectthe Government may request up to US$500,000 as an initial deposit to the SpecialAccount. After disbursement and commitments from the loan account have reachedUS$2.0 million, the Government may request the balance of the authorized allocation.During negotiations, agreement to these disbursement arrangements was reached withGovernment (para. 8.2(q)). In accordance with the provision for retroactive financing(see para. 6.4), withdrawals, in an aggregate amount not to exceed US$1 million, may bemade on account of payments for expenditures under both components between June 1,1996 and loan effectiveness.

D. Accounts and Auditing

6.15 The JSIF's Finance and Administration Department would be responsible for theoverall financial management of the Fund. It would develop and implement a computer-based management information and accounting system which would enable JSIF toprovide quick and reliable financial information on subprojects and administrativeexpenses, including tracking expenditures by financing source. JSIF would also hire anInternal Auditor who would be responsible for conducting specific operational andadministrative audits for the Board. These audit reports would be used as managementtools to identify and take corrective actions if necessary to ensure the correct uses offunds. The Government's Auditor General would also retain the right to audit the JSIF.

6.16 External financial and management audits would be performed on an annualbasis through the contracting of independent, private auditors acceptable to the Bank.The external audits would cover all project accounts, the Special Account and alldisbursement requests made against Statements of Expenditures. During appraisal, draftterms of reference for the external financial audits was submitted and is attached asAnnex M. During negotiations, assurances were obtained that audits would beconducted by an independent private auditor acceptable to the Bank and would followterms of reference in accordance with appropriate auditing standards, as approved by theBank; and that the JSIF on behalf of Government would send a copy of the external auditreport to the Bank within six months after the close of each fiscal year (para. 8.2(r)). Thereport would certify that the JSIF is using its resources for the purposes for which theywere provided and that disbursements and procurement for all contacts are being carriedout in accordance with the agreed guidelines and Bank procurement regulations. Under

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the JSIF's Articles of Association, auditors would also be required to perforn an annualmanagement audit of the company. During appraisal, draft terms of reference for themanagement audit was submitted is attached as Annex L.

6.17 External technical audits of an agreed upon percentage of subprojects wouldalso be carried out by local consultants to identify implementation constraints and assessthe technical quality of JSIF-financed subprojects. Information would be used bymanagement, in particular the Supervision Department, to remove obstacles and improvethe quality of work being performed. The technical audit would also provide informationon the coverage of operational and maintenance costs. The JSIF would adjust itsprocedures and eligibility priorities based on the audit findings (para. 5.18).

7. BENEFITS AND RISKS

A. Benefits

7.1 The proposed project would finance more than 800 subprojects, expected to costan average of US$50,000 with none exceeding US$350,000, which would provide low-income rural and urban communities with basic social and physical infrastructure, socialservices and organizational strengthening. Based on the experience with socialinvestment funds in other countries, the project is expected to yield tangible, widespreadand sustainable benefits relatively quickly and transparently. Eligibility and appraisalcriteria for subprojects would ensure their efficiency within acceptable ranges of cost perunit, cost per beneficiary and, where, applicable, economic rates of return.

7.2 Given the demand-driven nature of the investments, it is not possible to quantifyex ante the exact numbers of subprojects in each category, the numbers of beneficiaries orthe actual benefits to be delivered. Based on a needs assessment exercise conductedduring preparation, the percentage of subprojects demanded by category, however, isestimated to be: social infrastructure - 56 percent; economic infrastructure - 11 percent;social services - 20 percent and organizational strengthening - 13 percent. Highestpriority would be given to the poorest geographic regions using a poverty map.

7.3 Expected subproject impacts include: (a) for education and training subprojects,increased access to pre-primary and primary education, improved quality of the learningenvironment; expended access to non-formal training and improved employability; (b) forsocial development subprojects, improved quality of care facilities for children and theelderly and increased access to community facilities; (c) for health and sanitationsubprojects, lower infant and maternal mortality and reduced incidence of disease; and (d)for productive sector support subprojects, improved access to markets and increasedproductivity and household income. The impact of subprojects would be monitored

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against key performance indicators and through qualitative beneficiary assessments andex post evaluations.

7.4 The proposed project would also have important institutional effects in:(a) expanding the capacity of NGOs/CBOs and communities to identify, prepare, manageand sustain community-level investments, and thereby increasing stocks of social capital;(b) demonstrating the relevance of beneficiary participation in reducing poverty; and(c) providing an efficient and effective model of public sector implementation capacity.

B. Sustainability

7.5 During appraisal of the subproject, the JSIF would apply sustainability criteria.All subprojects are required to have a high degree of participation by beneficiaries inidentification, preparation, management and maintenance, as evidenced by social analysisand the level of community contribution. Sponsors of all subprojects would present aspecific plan for operations and maintenance. For subprojects generating recurrent costs,coordinating agreements would require line ministries and local governments toguarantee financing before the subproject is approved. For social services subprojects,particular attention would be placed on the institutional analysis of the capacity of thesponsor to sustain services beyond JSIF financing.

7.6 Given its temporary mandate, the sustainability of the JSIF as an institution is notan issue. Based on experience, Government may wish to extend or transform the agencyas it approaches the closing date. The duration and scope of the JSIF after the end of theproposed project would be evaluated with respect to its performance, the status of parallelpublic sector reforms and Government's evolving poverty reduction strategy.

C. Risks

7.7 The proposed project faces several risks that are inherent in a new operation andone in which resources are provided on a grant basis for numerous, widespreadinvestments which are not pre-identified. The principal risk relates to the leakage ofresources to non-target groups and/or areas because of political interference in the JSIF'soperations. The transparent and participatory nature of the project itself combined withthe visible benefits from subprojects, would create strong incentives for variousstakeholders - especially beneficiary communities, NGOs/CBOs, Parish Councils andcentral government - not only to provide required counterpart resources, but to limit thediversion of resources to non-target groups and/or areas. The risk of diversion ofresources is also mitigated by the establishment of the JSIF as an autonomousgovernment company with transparent and efficient operating procedures, clear targetingcriteria and adequate institutional checks and balances.

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7.8 A second risk is that the decentralized nature of the operation could result in lowquality of subprojects because of non-compliance with established appraisal criteria orinsufficient supervision. To minimize this risk, the types of eligible subprojects and thusthe range of technical expertise the JSIF would need to maintain would be limited. Foreligible subprojects, quality control measures would include on-site supervision to becontracted as part of subproject costs, independent technical reviews of subprojects,impact evaluations with direct input from beneficiaries and intensive oversight byexternal financing agencies.

7.9 A third risk is the lack of coherence and coordination with other sectoral activitieswhich could result in duplication of effort, inconsistency with established norms andstrategies, and a lack of absorption of recurrent costs after the project ends jeopardizingthe sustainability of benefits. To address this risk, the JSIF would incorporated sectornorms and technical specifications, where available, into its appraisal criteria. The JSIFwould also encourage the participation by key sector ministries and local governments inthe appraisal of subprojects and would enter into coordinating agreements specifyingapproval and maintenance procedures and requirements.

7.10 In conclusion, based on strong Government ownership of the project, thesuccessful experiences with social investment funds in other countries and the safeguardsadopted to address specific risks, the overall risk that the project may not achieve itsdevelopment objectives is considered relatively low.

8. AGREEMENTS REACHED AND RECOMMENDATION

8.1 Prior to negotiations, the JSIF submitted to the Bank: (a) a signed Memorandumof Understanding (para. 5.1); (b) a draft Subsidiary Agreement (para. 5.1); (c) a revisedversion of the Operational Manual (para. 5.2); (b) the initial members of the Board ofDirectors (para. 5.3); and (e) a draft Sponsor Agreement (para. 5.16).

8.2 During negotiations, agreement was reached between the Bank and theGovernment that:

a) the JSIF would approve only those subprojects for which there are eligibilityand appraisal criteria in the Operational Manual acceptable to the Bank (para.4.12);

b) no change to: (i) the menu of eligible subprojects, (ii) the appraisal criteria,(iii) the $350,000 maximum subproject limit, (iv) the maximum contractvalues per subproject of US$25,000 for civil works and US$2,000 for goodsthat can be awarded through direct contracting, and (v) the US$200,000ceiling awarded to any one contractor for civil works through direct

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contracting during the life of the project would be made without prior Bankapproval (para. 4.12 and 6.8);

c) Govermnent would make the proceeds of the loan available to the JSIF on anon-reimbursable basis pursuant to a Subsidiary Agreement satisfactory to theBank (para. 5.1);

d) no changes would be made to the approved Operational Manual without theprior approval of the Bank (para. 5.2);

e) the JSIF's management level positions would be staffed satisfactorily to theBank (para. 5.6);

f) the Bank would review the effectiveness of the promotions strategy sixmonths after loan effectiveness (para. 5.8);

g) as initial indicative allocations, 40 percent of the resources would go to thepoorest quartile, 30 percent to the second quartile, 20 percent to the thirdquartile and 10 percent to the least poor quartile (para. 5.12);

h) subproject approval thresholds for the Board's Executive Committee and JSIFManagement Committee would be established by the Board and included inthe Operational Manual (para. 5.14);

i) Bank subproject review arrangements would be carried out as specified,including submission of appropriate documentation (para. 5.15 and 6.11);

j) the Sponsor Agreement and standard contract would be finalized prior to loaneffectiveness and included in the Operational Manual (para. 5.16);

k) the Bank would monitor selected institutional performance indicators (para.5.22);

1) the JSIF fulfill the following reporting requirements: (i) submission ofMonthly Progress Reports from the MIS; (ii) submission of Annual Reportsapproved by JSIF's Board of Directors; and (iii) submission of a Final Reportand evaluation of the outcome of the proposed project no later than six monthsafter the close of the project (para. 5.24 and 5.25);

m) project implementation would include joint Annual Portfolio Reviews and ajoint Mid-Term Review to be conducted promptly after US$7.5 million of theBank loan for the financing of subprojects is disbursed or no later than 24months after date of effectiveness of the loan (para. 5.24 and 5.25);

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n) Government would provide the necessary counterpart funds, includingspecified annual amounts (para. 6.3);

o) Beneficiaries/sponsors would be obligated to contribute a minimumpercentage of subproject cost (para. 6.3);

p) JSIF would update the unit cost system at least every six months and submitupdated information to the Bank for ex post review (para. 6.8);

q) Government would carry out specified disbursement arrangements, includingthe opening of a Special Account managed by the JSIF with an initialauthorized allocation of US$500,000 (para. 6.14); and

r) annual audits would be conducted by an independent private auditoracceptable to the Bank and would follow terms of reference in accordancewith appropriate auditing standards. Audits would be submitted to the Bankwithin six months after the close of each GOJ fiscal year (para. 6.16).

8.3 Conditions of loan effectiveness include:

a) the Subsidiary Agreement, acceptable to the Bank, would have been signedand entered into effect between Government and the JSIF (para. 5.1);

b) JSIF's Operational Manual, satisfactory to the Bank, would have beenapproved by the Board of Directors (para. 5.2);

c) key managers and staff acceptable to the Bank, as agreed during negotiations,would have been hired by the JSIF (para. 5.6);

d) the Management Information System, acceptable to the Bank, would beoperational (para. 5.21);

e) the JSIF would have furnished to the Bank performance targets, satisfactory tothe Bank, for the first year of project implementation (para. 5.22); and

f) Government would have furnished to the Bank evidence of the availability ofthe minimum counterpart funds for Fiscal Year 1996/97 (para. 6.3).

Recommendation. Subject to the above conditions and assurances, the proposedproject constitutes a suitable basis for an IBRD loan of US$20 million equivalent onstandard Bank terms to the Government of Jamaica.

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ANNEX A

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

OPERATIONAL MANUAL

TABLE OF CONTENTS

I ntrodicl ionBackg-roundMission StatementObjectives of the JSIF

PART A: JAMAICA SOCIAL INVESTMENT FUND ORGANIZATION

Chaptcr 1: Organizational Structure and Functions of the JSIFLcr;il and Institutional FrameworkBioard of DirectorsOrganizational Structure

Chapter 2? FinanceAnnual Work Plan and BudgetFinancingA\ccounting System and ProceduresAuIditin g

Chapter 3 l)isbtirsement Procedures

C;ihaptet 4. Procurement Guidelines

C:hapter 5: Acldministration and PersonnelOffice proceduresStaff procedures

Chapter 6: Maanagement Information System

Chapter 7: Reporting Requirements

PART B: JISIF OPERATIONS

Chapter 1: SubprojectsEligibility CriteriaMenu of Eligible SubprojectsT-arg,eting Strategy

Chapter 2- Subproject Promotion, Identification and PreparationProject PromotionProject IdentificationProject Application and RegistrationReview and Screening of Applications

40

Chapter 3: Subproject Appraisal and ApprovalPreliminary Analysis and Site VisitUnit Cost SystemProject AppraisalProject Approval

Chapter 4: Subproject ContractingJSIF-Sponsor AgreementRegistration of Contractors/ConsultantsSelection of Contractors/ConsultantsProcurement Methods and ProceduresAward of ContractMobilization Advance

Chapter 5: SupervisionOrganization of SupervisionSupervision ActivitiesDisbursements

Chapter 6: Project CompletionCertification and HandoverRequest for Final PaymentProject Completion ReportPost Implementation Agreements

Chapter 7: Monitoring and EvaluationManagement Information SystemImplementation Performance IndicatorsImpact Evaluation

Subproject Appraisal Guidelines

AnnexesTerms of Reference External Financial AuditTerms of Reference Management AuditMenu of Eligible SubprojectsPromotion Field Visit Authorization Forn and Field Survey FormProject Application FormGuidelines for Project PreparationTechnical RequirementsProject Appraisal Authorization Form and ReportProcurement Procedures: Bid Advertisement and SelectionResponsibilities of Project SponsorModel Agreement - JSIF and Project SponsorModel Contract - JSIF and Contractor/Executing AgencySupervision Progress ReportWork Progress and Cost EstimateTerms of Reference for External Project SupervisorsProject Supervision ReportCompletion CertificateCompletion ReportPerformance Indicators

41

ANNEX B

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Eligibility Principles

I. Subproject Menu: All projects must be on the menu of eligible subprojects.

2. Poverty Targeting: Projects will benefit the poor. The types of eligible subprojects will help ensure highcoverage of poor people. Projects will also be targeted towards the poorest regions of the country based on apoverty map.

3. Beneficiary Participation: Projects must incorporate beneficiary participation at all stages of projectidentification, design, implementation and operation.

4. Beneficiary Cost-Sharing: The beneficiary group/project sponsor will be required to make a counterpartcontribution, either in cash or kind, towards financing of the project. The exact proportion of beneficiarycontribution will vary by type of project and resources of the beneficiary.

5. Eligible Applicants: The JSIF will consider applications for project financing from project sponsors representingcommunity groups. Project sponsors may be central government ministries, local government authorities, non-government and community-based organizations, community groups and private sector entities. An individualmay not sponsor a project. Subprojects for individual benefit will only be considered if requested by thecommunity.

6. Project Sponsorship: The JSIF will not sponsor projects. It will respond to the demand for project proposed bysponsors. The JSIF, government agencies and other groups will promote, encourage and orient the demand forproject financing.

7. Project Implementation: The JSIF will not execute projects on its own, but will employ the services of localcontractors (civil works and goods projects) or consultants (service projects) to implement approved projects.Contractors and consultants may be private sector companies, non-governmental and community-basedorganizations or individuals which meet JSIF's requirements for implementation of small-scale community-basedprojects. Except for certain types of projects (e.g., some social assistance projects), a sponsor may not serve ascontractor on the project.

8. Recurrent Expenditures: The JSIF will not provide resources to supplement recurrent expenditures.

9. Sustainability: The JSIF will not finance recurrent costs, including maintenance. Fund support will beconditional upon confirmation that resources (private and public) will be made available to meet recurrentexpenditures.

10. Complementarity: The JSIF will collaborate with line ministries to ensure complementarity of objectives.Infrastructure projects must, as far as possible, conform to the norms and standards of line ministries or relevantauthorities.

11. Project Size: The JSIF will finance small-scale community-based projects with a cost not exceedingUS$350,000.

12. Project Costs and Benefits: Projects will employ least-cost designs and deliver maximum benefits for a givencost. Projects will be appraised according to standard methods of measuring costs and benefits.

42

ANNEX C

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Menu of Eligible Subprojects

1. Social Infrastructure

Subproject Type I Special ConditionsEducation

i) Civil Works: Rehabilitation, expansion and Standards to conform to Ministry of Educationconstruction of pre-primary (basic and infant), norms. Support conditional on guarantee of fundsprimary, and all-age schools (including school to meet recurrent costs, including maintenance.libraries).ii) Equipment: Purchase of basic furniture, Equipment to be provided to existing operation orequipment and library books for pre-primary, provision to coincide with opening of new school.primary and all-age schools. Equipment must conform to pre-determined list and

MOE norms.Health

i) Civil Works: Rehabilitation, expansion and Priority on rehabilitation and expansion. Standardsconstruction of health centers. to conform to Ministry of Health norms. Support

conditional on guarantee of funds to meet recurrentcosts, including maintenance.

ii) Equipment: Purchase of furniture and basic To conform to pre-determined list and MOH norms.medical equipment for health centers.

Social Development/Welfarei) Civil Works: Construction and rehabilitation of Support conditional on guarantee of funds to meetday care centers and homes for children, the elderly recurrent costs, including maintenance.and disabled.ii) Equipment: Provision of furniture and basic To conform to pre-determined list.equipment for day care centers and homes forchildren, the elderly and disabled.iii) Civil Works: Rehabilitation of integrated Support conditional on guarantee of funds to meetcommunity spaces (including teen centers, training recurrent costs, including maintenance. Appraisalfacilities, sports facilities) to include type, coverage and profile of

beneficiaries.iv) Equipment: Provision of furniture and basic To conform to pre-determined list.equipment for integrated community spaces.

Sanitationi) Civil Works: Construction and rehabilitation of To conform to public health standards.public sanitary conveniences (latrines, community Construction to be coupled with training program inshowers) and sewage systems. maintenance and use.ii) Civil Works: Construction and rehabilitation of To conformn to national standards.small-scale community-based water systems.iii) Civil Works: Construction and rehabilitation of To conform to public health standards.drains and canals.

43

2. Economic Infrastructure

Subproject Type I Special ConditionsProductive Sector Support

i) Civil Works: Rehabilitation and upgrading of Evidence that road is frequently used by targetparochial, feeder and urban access roads. groups for transport of legitimate goods and

services or personal use to access schools, healthfacilities or workplaces.

ii) Civil Works: Construction and rehabilitation of To conform to standards set by relevantsmall community-based agroprocessing facilities. governmental agencies. Support conditional on

guarantee of availability of funds and/or expertiseto effect regular preventive and comprehensivemaintenance.

iii) Equipment: Provision of equipment for To conform to standards set by relevantagroprocessing facilities. government agencies.

3. Social Services

Subprojeci Type [ Special ConditionsCounseling and Training

i) Services: Provision of assistance to programs Target population to be clearly identified andthat offer services in career guidance and job potential impact of training demonstrated.placement. Subprojects must be executed by NGOs/CBOs.ii) Services: Provision of assistance to programs Target population to be clearly identified andthat offer services in counseling (including conflict potential impact of programs demonstrated.resolution and drug abuse) and parenting and Subprojects must be executed by NGOs/CBOs.family-life education.iii) Services: Skills training to the productive Target population to be clearly identified andsectors. potential impact of programs demonstrated.

l____________________________________________ Subprojects must be executed by NGOs/CBOs.iv) Services: Skills training for the disabled. Target population to be clearly identified and

potential impact of programs demonstrated.Subprojects must be executed by NGOs/CBOs.

4. Organizational Strengthening

Subproject Type Special Conditionsi) Technical assistance and training to government Strong linkage with beneficiary groups must beand non-governmental institutions in participatory demonstrated. Support to be linked to specificproject identification and to subproject sponsors and projects financed by the JSIF.executing agencies to upgrade skills in preparation,implementation and management of small-scalecommunity-based projects.

44

ANNEX D

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Technical Assistance and Training

Objective

The technical assistance and training component is designed to strengthen the operationalcapacity of the JSIF and improve the quality of its subprojects. Technical assistance and trainingactivities can be divided into two main categories: (i) institutional development andmanagement and (ii) subproject development and evaluation.

JSIF Institutional Development and Management

Computer Training: Local courses and expertise will be offered to train all JSIF technical andsupport staff in the use of computers and the management information system used in the JSIF.

Management Information System: Local and international expertise will be hired as necessaryto refine the subproject cycle, unit cost and financial management components of the JSIF'smanagement information system.

Financial and Management Audits: The JSIF will hire independent, private auditorsacceptable to the Bank to produce the annual financial and management audits.

Study Tours: Once JSIF operations are underway, department and unit heads will travel toother social investment funds to learn directly from their on-going experiences.

Subproject Development and Management

Promotions: To improve and increase the JSIF's outreach, local technical assistance will behired to design the promotional campaign, including producing informational materials andorganizing workshops.

Targeting: Technical assistance would be hired to review the poverty map and the JSIF'sdemand management strategies to improve the targeting of JSIF-financed subprojects.

Participatory Needs Assessment/Project Identification: The JSIF will contract a long-ternresident technical advisor to develop participatory techniques for community needs assessmentand project identification and disseminate these techniques to a range of organizations, includingGovernment's Social Development Commission, Parish Councils and NGOs/CBOs.

Social Analysis and Appraisal of Social Services Projects: The long-term resident technicaladvisor will also refine the criteria that measure beneficiary participation and other social criteriafor JSIF's appraisal of subprojects; refine the criteria for appraising social services projects; andtrain JSIF promotions and evaluation staff in techniques to evaluate social services projects.

45

Appraisal of Organizational Strengthening Projects: Local expertise will be hired to studythe organizational strengthening needs of subproject sponsors in identifying, preparing,managing and supervising JSIF-financed subprojects and the resources available to theseorganizations. The technical assistance would also develop criteria for appraising organizationalstrengthening subprojects and train JSIF promotions and evaluation staff in applying thesecriteria.

Gender: Local expertise will be hired to design criteria and strategies to ensure that the JSIFreaches and positively impacts women.

Environmental Assessment Procedures: Local and/or international expertise would be hiredto develop environmental criteria for assessing JSIF-financed subprojects and develop mitigationmeasures for subprojects with negative environmental impacts.

Unit Cost System: Local expertise will be hired to refine and update the unit cost system on aregular basis.

Technical Audits: Local expertise will be hired to carry out annual technical audits of a sampleof subprojects to identify implementation constraints, assess the technical quality of JSIF-financed subprojects, and provide information on the coverage of operational and maintenancecosts. The JSIF will adjust its procedures and eligibility priorities based on the audit findings.

New Subprojects: For each new type of subprojects to be added to the JSIF's Menu of EligibleSubprojects, local or international expertise will be hired to provide assistance in the design ofeligibility and appraisal criteria and supervision procedures.

Beneficiary Assessments: The JSIF will contract local expertise to carry out beneficiaryassessments to receive direct, constructive and unbiased feedback on the impact of thesubprojects on the beneficiaries.

Impact Evaluations: The JSIF will hire local and/or international consultants to undertakeevaluations of the social and economic impact of specific subproject types.

MEMORANDUM OF UNDERSTANDING ANNEX E

TIJIS MEMORANDUM OF UNDERSTANDING is made the4day ofd v, 1996 between the Government of Jamaica (hereinafter referred to as "the

Government") and the Jamaica Social Investment Fund (hereinafter referred to as "theFund").

WHEREAS the Government as part of its national poverty alleviation strategy hasestablished the Fund as a short term intervention;

WHEREAS the Government acknowledging that the Fund's efricacy and success aredependent to a large extent on its ability to operate in a manner that allows it to actquickly, Intends to grant the Fund special exemptions from a number of existingGovernment policies and modalities.

WHEREAS an Operations Manual and a Financial and Administration Manual havebeen created to govern the Fund and it is the intentiosa of the Fund to act in strictcompliance with these manuals.

The Parties therefore agree as follows:

1. The Government will, so long as the Fund renmins a Government company withinthe meaning of the Financial Administration and Audit Act

(a) exempt the Fund from the requirements of the Government'sProcurement and Contracts procedures, in particular from therequirement to seek certain specific authorizations from theGovernment Contracts Conunittee and the Cabinet forexpenditures up to a maximum of $5,000,000.00.

(b) not bind the JSIF to pay its employees the salaries and wagespaid to civil servants by the Government of Jamaica

Provided that these obligations shall cease to be binding ir the Contractor General or theAuditor General advises the Ministry of Finance that the Fund has repeatedly been inbreach of the applicable provisions of its Operations Manual.

2. Fund expenditures above J$ $5,000,000.00. shall be subject to approval of the Cabinetand the Government shall ensure that the cabinet responds to the request expeditiously.

3. The exemption limit of J$ $5,000,000.00. referred to in paragraph I shall be subject tomodification agreed in writing by both parties.

4. The Government shall, if it establishes any Special Account(s) into which the WorldBank, the Inter-American Development Bank, or any other multilateral and bilateralrinancing agencies and donors transfer monies for the financing of the Fund's objects,specify appropriate oMcers as signatories to such Special Account(s).

5. The Fund shall ensure that the Special Account(s) operate as follows:

(a) no withdrawal is made for any expenditure or any portion thereofwhich is ineligible under the terms of any relevant agreement betweenthe Government and any multilateral and bilateral financingagencies and donors;

(b) where any withdrawal is made to cover the eligible portion of anexpenditure for which the ineligible portion is to be paid from fundsprovided as part of the Government's contribution, the Fund shall notpay either portion unless it can also pay the other portion;

(c) whenever the Fund makes a withdrawal, the Managing Director ofthe Fund shall immediately advise the Ministry of Finance in writingof such withdrawal;

(d) whenever the Fund needs to replenish the Special Account(s) it shallrequest approval for replenishment for the Ministry of Finance; and

(e) withdrawals shall not be made during any period In respect of whichthe Fund has received written Instructions from the Ministry ofFinance prohibiting withdrawals.

IN WITNESS WHEREOF the parties have executed this Agreement as of the date first setabove written.

SIGNED for and on behalf of the

GOVERNMENT OF JAMAICA ) <9_

by the Financial Secretary ) FINANCIAL SECRETARY

In the presence of

WITNESS

SIGNED for and on behalf of the

JAMAICA SOCIAL )

INVESTMENT FUND ) , Dl CTOR

by Director, )

in the presence of

WITNESS

46

ANNEX F

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Organizational Structure and Functions

Board of Direcors

Intemal tAucardEvaluation Lit

Managing Drector

Managing Director

Legal Advisory Urit MIS Unit

Operations Depatnt Finance andAdrniristratiun Departrnent

Promotions Appraisal Cortrading Supervision Amxo ts Admin and FRDivision Division lvison Divisioio Division Division

49

Board of Directors* Guide and supervise the JSIF's overall administration and operations* Approve the JSIF's operating policies and procedures as detailed in the Operational Manual,

and any revisions to the Manual* Approve the annual budget and workplan* Approve the Annual Report and Financial Statements* Appoint senior management* Approve pay scales and remuneration packages for staff* Approve applications for subproject financing

Managing Director* Direct and administer the day-to-day operations* Recruit, employ and administer staff* Effect expenditures in accordance with Operational Manual and the approved budget* Prepare annual work programs* Report to the Board on activities of the JSIF* Represent the JSIF in discussions with secured and potential financing sources

Internal Audit and Evaluation Unit* Monitor financial, managerial and technical performance* Report to Board on extent to which project is achieving objectives- Monitor and report on performance indicators- Coordinate external financial audit- Conduct/oversee technical, impact and other evaluations

Legal Advisory Unit* Oversee all legal aspects and procedures* Provide legal advice to JSIF Departments throughout project cycle- Prepare and revise contracts, agreements, etc.* Advise on contract changes and cancellations

MIS UnitDevelop, maintain and update the Management Information System

* Determine technical specifications of computer equipment* Manage internal and external information flows* Train JSIF staff in use of the MIS

Operations Department ManagerOversee the activities of the Promotions, Appraisal, Contracting and Supervision DivisionsAssist Managing Director in developing annual work programsEnsure project processing procedures are consistent with Operational Manual

* Monitor the performance of the divisions against programmed targets

Promotions Division* Design, implement and update targeting strategies and maintain poverty targeting systems* Conduct outreach and promotional activities

Provide or oversee provision of technical assistance in project preparationDesign and implement participatory project identification strategies and provide training torelevant agencies

* Undertake project identification missions* Register projects and screen project applications* Submit projects to Appraisal Division

50

Appraisal Division* Establish priority ranking of projects* Conduct site appraisal visits* Carry out social, technical, financial, economic, environmental appraisal of projects* Design and maintain standard unit cost system* Cost projects* Prepare appraisal reports for submission to Management Committee and Board of Directors* Inform project sponsors of Board or Management Committee decision* Update project appraisal criteria

Contracting Division* With Appraisal and Supervision Divisions, prepare bidding documents* Select executing agency/contractor* With Legal Advisory Unit, prepare standard contracts and agreements between JSIF, project

sponsor and contractor* Maintain contractor and consultant registers* Track performance guarantees

Supervision Division* Appoint and supervis external supervisors* Oversee technical quality of works* Conduct supervision site visits* Revise project implementation schedules* Prepare supervision progress reports* Monitor counterpart contributions of project sponsors/beneficiaries* Authorize disbursements* Coordinate with Legal Advisory Unit on contract changes and cancellations* Prepare and authorize handover agreements

Finance and Administration Department Manager* Oversee the activities of the Accounts and Human Resources Divisions* Ensure finance and accounting procedures are consistent with Operational Manual* Operate JSIF's bank accounts with the Managing Director* Prepare all financial reports to local and international financing agencies

Accounts Division* Maintain accounting system* Prepare accounting and financing statements and reports* Formulate budgets* Control flow of funds, bank accounts, deposits and disbursements* Process payroll* Request funds* Respond to recommendations of internal and external audits

Administration and Human Resources Division* Procure office equipment, vehicles and supplies* Oversee maintenance of building, equipment and vehicles* Draft position descriptions* Prepare TORs for consultants* Coordinate technical assistance* Recruit and employ personnel* Manage performance evaluation process

ANNEX G

JAMAICASOCIAL INVESTMENT FUND

DRAFT SUB-PROJECT CYCLE

Targebg Sat

Promoton atJ5lFActvbvim

|Partiaipator PrvIw Prepare ProjectIdentfcUAplati=on -Applicantw

I ~~~~~~~~ApplicantPROMOTIONS ISponsorPROMOTIONS r ~~~~Registration of | Submit Project LDIVISION | Appicabn Applicabon

A Screenkg fA sl Rejectoel_ E jll Reformulation

_As t

Submi tPretec

Sectoraoad oa Direcjor - -o ----------- Line Ministry

… - I

I Ranking d t

Appcaonso

Prepintnw Deso

ProR A Site A al reject

CANTRACTSA | VIOuta

DIVISION Vion

AppraLqW Report

Board of Directoirs or P>rtectDesignated Comnmittee .~Appl

Clearance 1rom Ex |n|Fu-4M Agency

Nqolfcbon do|Sponsor

Preparation afProctrement Do rts

CONTRACTS | id/QuotaimDIVISION Evatuation

|PreparabOn ofContrsac

Legai ana zupervibiu.iDepartments Documents and Contra

. . . . . . . . .

Management Committee - | Award of Conact

Disbursement ot | Imptementation ContractorFunds of Project - Consultant

Technical SupeNsvion On Site External Projectof Projects Supervision Supervisor

SUPERVISION Request Progress Sponsor andDIVISION Payments ------- ---- Extemal Supervisc-

Authonsaton ofProgress Payments

Completion and I Project SponsorHandover - - Contractor

I

eneficiary AssessmentINTERNAL AUDIT Impact Evaluabon

53

ANNEX HJAMAICA

SOCIAL INVESTMENT FUND PROJECT

Performance Indicators

NO. INDICATOR TARGET PERIOD

1 Amount of financing committed2 Number of subproject requests (urban/rural)3 Number of subproject requests that meet JSIF eligibility criteria (urban/rural)4 Total number of promoters5 Total number of projects appraised6 Total number of appraisers7 Number of subprojects appraised per appraiser per month8 Timespan between subproject registration and appraisal9 Number of subprojects reappraised10 Number of subprojects approved (urban/rural)

Social infrastructure subprojectsEconomic infrastructure subprojectsSocial services subprojectsOrganizations Strengthening subprojects

11 Timespan between appraisal and approval12 2 Number of contracting officers13 3 Number of subprojects with contracts/Number of approved subprojects14 4 Timespan between contract signing and first disbursement15 |Number of subprojects under supervision1 6 Number of internal supervisors1 7 Number of subprojects under supervision/Number of internal supervisors1 |Number of external supervisors19 9 Number of subprojects under supervision/Number of external supervisors20 Percentage of subproject contracts modified due to cost overruns21 Percentage of subprojects suspended/canceled due to poor performance _

22 Number of subprojects completed23 Number of subprojects completed on-time24 Cost of subprojects completed25 Timespan between approval and first disbursement26 Timespan between first disbursement and subproject completion27 Ratio of disbursements to commitments

28 Number and Cost of contracts awarded through national competitive bidding29 Number and Cost of contracts awarded through local shopping30 Number and Cost of contracts awarded through direct shopping31 Number of contracts with World Bank prior review32 Total cost of contracts with World Bank prior review

33 Total cost of subprojects approved (urban/rural)34 Total number of subproject approved/Total cost of subproject approved

Social infrastructure subprojectsEconomic infrastructure subprojectsSocial services subprojectsOrganizational strengthening subprojects

35 Value of cost overruns36 Value of cost overruns/Total value of approved costs37 Total overhead costs/Total project cost

54

NO. INDICATOR | TARGET r PERIOD

38 Total disbursementsGovernment of Jamaica1World Bank .Inter-American Development Bank

39 Sponsor/beneficiary contribution as percentage of total project cost40 Value of subprojects suspended/canceled due to poor performance

___ UWT~~PARTh~ ~~flQN.A.~$U$TAW14A. ..Y. . ........ .. tUt.PwIg.A. ON R A.S INt-.. -W ---E-itt-E-.;

41 Proportion of all subprojects sponsored: -

community associations iNGOsParish CouncilsCentral Government -

42 Number of community associations sponsoring more than one subproject43 Proportion of subprojects with in-kind community contribution44 Proportion of subproject requiring ministry no-objection

l 4 N t t . # M - --:lN 1B t - - $--; i :~.. i--E! ....... . ....-E iE .:E; ........-- ..... --0 .- . .. - ..;:-.-0 ..:E: i; .g:: : l.....

45 Percentage of resources invested by type of subproject I

Social infrastructure subprojectsEconomic infrastructure subprojects -

Social services subprojectsOrganizational strengthening subprojects I

46 Percentage of resources invested by sectorEducationHealthWater and SanitationFeeder RoadsTrainingCounseling

47 Number of structures constructed, refurbished or equipped by type48 Number of training and counseling courses completed l

49 Number of organizations strengthened through assistance in:project identification (rural/urban)project preparation {rural/urban)project implementation (rural/urban)

50 Percentage of resources invested by poverty quartile _.

51 Percentage of resources invested in urban (rural) areas52 Number of direct beneficiaries by agegroup (<_25/>_25)r-57 Number of direct beneficiaries (completed projects) I _

Social infrastructure subprojects gEconomic infrastructure subprojects |_DSocial services subprojects .___COrganizatonal strengthenng subprojects

54 Number of direct beneficiaries by poverty quartile __55 Number of direct beneficiaries in urban (rural) areas56 Number of direct beneficiaries by gender57 Average cost per beneficiary by type of subproject 58 Number of person-months employment generated by gender!

Approved subprojects _.Disbursing subprojectsI Completed subprojectsI

59 Percentage of labour costs spent on local labouri

55

ANNEX I

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Evaluation and Supervision Plan

Approximate Activity Responsible Institution(s)Date

April 1997 Technical Audit JSIF-contracted consultants

September 1997 Annual Portfolio Review JSIF, World Bank IDB

December 1997 Beneficiary Assessment JSIF-contracted consultants

April 1998 Technical Audit JSIF-contracted consultants

June 1998 Impact Evaluation JSIF-contracted consultants

September 1998 Mid-Term Review World Bank, IDB, donors and JSIF

December 1998 Beneficiary Assessment JSIF-contracted consultants

June 1999 Impact Evaluation JSIF-contracted consultants

September 1999 Annual Portfolio Review JSIF, World Bank and IDB

September 2000 Final Portfolio Review JSIF, World Bank, IDB and donors

AWIE J1

SOCAL IrVET FUND PROJECT

D1LW1 - Come(uss Owne)

YEAR 1: 1997 YEAR 2: 19979 YEAR 3: 199199 YEAR 4: 199W0 TOTALLocal Foen Total Local Forailp TOtal Local Fmor Total Local Forsn TotW Local Forn Totl

L JSIF IUTIONDL SUPPOtTSsi wid Fee 1.257 0 1.257 1.483 0 1,483 1,28 0 1,528 1,410 0 1,410 5,678 0 5,678Vedbe mNd Equptr 83 273 356 20 104 124 0 0 0 0 0 0 103 377 480np " l E Nxper 395 35 431 395 39 434 395 39 434 400 39 440 1.587 152 1,738Ted lAsmlar" eW Tanng 301 349 650 121 324 445 125 s5 180 113 12 125 660 740 1.400

S bahwhumbe Support 2,037 656 2,693 2.020 466 2,406 2,048 94 2,142 1.923 52 1,974 8.027 1,268 9,295

IL F S aROJECTSsocias k*mlruckw 1,931 1,816 3.747 4,766 4,123 8,889 4,766 4,123 8.889 4.273 3,710 7.963 15,736 13,773 29,509Ecaomnc k*W nvucwm 454 245 699 1,237 ses 1.902 1,244 670 1,915 873 470 1,343 3,606 2,051 5,9Socd Sevice 258 64 322 a66 167 833 666 167 833 637 159 798 2,227 557 2,764Ofg0tlone Sbungied*g 292 73 365 583 146 729 583 146 729 583 146 729 2,042 511 2,553

SubEowSub.wojeck 2.934 2,198 5,133 7,252 5,101 12,354 7,260 5,106 12.366 6,367 4,485 10,852 23,814 16,891 40.706

TOTALPROJECTCOST 4,972 2,855 7,826 9,212 5,s6 14,840 9,306 5,2w0 14,507 8,289 4,S37 12,827 31.641 18,159 50,oo

Pag 56

57

ANNEX KJAMAICA

SOCIAL INVESTMENT FUND PROJECT

Procurement and Disbursement Methods

Categories of JSIF JSIF World Bank World BankExpenditure Procurement Disbursement Review Disbursement

Method Method Requirement DocumentationCivil Works<$25,000' Direct contracting tranches based ex-post review SOEs

on physical of subprojectprogress summaries

<$ 100,000 Three quotations tranches based ex-post review SOEson physical of sampleprogress

>$100,000 NCB advance plus prior review SOEs/fullreimbursement over $200,000 documentationof expenditures over $200,000

Equipment and Goods<$2,000' Direct contracting reimbursement ex-post review SOEs

of expenditures<$25,000 Local shopping reimbursement ex-post review SOEs

of expenditures$25,000<x<$ 150,000 NCB reimbursement prior review SOEs/full

of expenditures over $100,000 documentationover $100,000

>$ 150,000 ICB reimbursement prior review full documentationof expenditures

Services (TA and WB guidelines on tranches prior review > SOEs/fulltraining) consultants $25,000 documentation

over $25,000NGO-sponsored and Other advance plus prior review SOEs/fullexecuted subprojects reimbursement over $25,000 documentation

of expenditures over $25,000Consultant Services andTrainingFirms WB guidelines on tranches prior review > SOEs/full

consultants $100,000 documentationover $ 100,000

Individuals WB guidelines on tranches prior review > SOEs/fullconsultants $50,000 documentation

over $50,000JSIF Vehicles and LIB reimbursement prior review full documentationComputers of expendituresJSIF Operating Guidelines not reimbursement audit SOEsExpenses applicable of expenditures

IDirect contracting would only apply in exceptional circumstances as outlined in the Operational Manualand not to all subprojects under these thresholds.

58

ANNEX L

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Estimated Schedule of Disbursements

IBRD Fiscal Year and Semester Disbursements (USS million)Semester Cumulative Percentage a/

FY1997Jul- Dec 96 1.5 1.5 8%Jan-Jun 97 1.0 2.5 13%

FY1998Jul- Dec 97 3.0 5.5 28%Jan - Jun 98 3.5 9.0 45%

FY1999Jul- Dec 98 3.0 12.0 60%Jan -Jun 99 3.0 15.0 75%

FY2000Jul- Dec 99 2.0 17.0 85%Jan-Jun 00 1.5 18.5 93%

FY2001Jul- Dec 00 1.5 20.0 100%

a/ Disbursement project for the Guatemala Social Investment Fund Project used as amodel as no standard disbursement profile is available for social fimd projects.

59

ANNEX L

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Disbursement Allocations(US$)

Category Amount Percentage

1. JSIF Subprojects (Grants) 15,330,000 100% of disbursements by JSIFfor eligible subprojects

2. JSIF Institutional Support

a) Operating Expenses 1/ 1,080,000 100% of eligible expendituresb) Consultant Services and Training 2/ 3,350,000 100% of eligible expenditures

for consultant services, travelexpense, per diem

c) Goods 240,000 100% of foreign expenditures,100% of ex-factory localexpenditures and 80% of localexpenditures for other itemsprocured locally

TOTAL 20,000,000

1/ Operating expenses include administrative staff salaries, rent, travel, utilities and minor officesupplies.2/ Consultant services and training includes JSIF technical staff shared, on a parallel not jointbasis, between the Bank and IDB in proportion to their overall financing (67:33); and externaltechnical assistance and training for JSIF staff.

60

ANNEX M

JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Terms of Reference - External Financial Audit

Background

The Jamaica Social Investment Fund (JSIF) is a temporary, autonomous Government-sponsoredinstitution incorporated under the Companies Act designed to finance small-scale, community-based socialand economic infrastructure and social services projects in poor urban and rural areas. A detailedOperational Manual governs the activities and procedures of the JSIF. The JSIF is financed by theGovernment of Jamaica, loans provided by the World Bank and the Inter-American Development Bankand a grant from the Government of the Netherlands.

The JSIF is located in Kingston and is headed by a Managing Director who is in charge of day-to-day activities and is accountable to a Board of Directors appointed by the Minister of Finance. TheFinance and Administration Department, headed by the Director of Finance and Administration, isresponsible for proper accounting of funds received by the JSIF.

Objective

The objective of the financial audit is to enable the auditor to express a professional opinion onthe financial position of the JSIF at the end of each fiscal year and of the funds received and expendituresfor the accounting period ending on that date, as presented by the financial statements of the project, and aswell as an opinion on the Special Accounts and the Statements of Expenditures.

The project accounts, which provide the basis for the preparation of financial statements, are thoseestablished to reflect the financial transactions in respect of the project, as maintained by the JSIF. TheSpecial Accounts are special bank accounts set up by the JSIF to facilitate the speedy disbursement of theWorld Bank's and other donors/lenders' portions of the project expenditures.

Scope

The audit will be carried out in accordance with the International Standards of Auditing and willinclude such tests and controls as the auditor considers necessary. The auditor should indicate any materialdifferences from international accounting standards, where relevant, and their effect on the annual financialstatements. In conducting the audit, special attention should be paid to the following:

a) All external funds have been used in accordance with the conditions of the relevant financingagreements, with due attention to economy and efficiency, and only for the purposes forwhich the financing was provided. Relevant financing agreements are [insert name of loanagreements];

b) Counterpart funds have been provided and used in accordance with the relevant financingagreements, with due attention to economy and efficiency, and only for the purposes forwhich they were provided;

61

c) Works, goods and services financed have been procured in accordance with the relevantfinancing agreements;

d) All necessary supporting documents, records and accounts have been kept in respect of allproject expenditures, including expenditures reported via Special Accounts (SAs) orStatements of Expenditure (SOEs). Clear linkages should exist between the books of accountand reports presented to the World Bank and other donors/lenders;

e) Special Account(s) have been maintained in accordance with the provisions of the relevantfinancing agreements; and

f) Financial statements have been prepared in accordance with consistent applied InternationalAccounting Standards and give a true and fair view of the financial situation of the project atmm/dd/yy and of resources and expenditures for the year ended on that date.

Project Financial Statements

The Project Financial Statements should include:

a) a Summary of Funds received, showing the World Bank, project funds from otherdonors/lenders and counterpart funds separately;

b) a Summary of Expenditures shown under the main project headings and by main categoriesof expenditures, both for the current fiscal year and accumulated to date; and

c) a Balance Sheet showing Accumulated Funds of the Project, bank balances, other assets ofthe project and project liabilities, if any.

As an annex to the Project Financial Statements, the auditor should prepare a reconciliationbetween the amounts shown as "received by the project from the World Bank" and that shown as beingdisbursed by the World Bank. As part of that reconciliation, the auditor should indicate the mechanism forthe disbursement, i.e. Special Accounts, Statements of Expenditure or direct disbursement.

Statements of Expenditure

In addition to the audit of the Project Financial Statements, the auditor is required to audit allSOEs used as the basis for the submission of withdrawal applications. The auditor should apply such testsand controls as the auditor considers necessary under the circumstances. These expenditures should becarefully compared for project eligibility with the relevant financing agreement(s) and with reference to theStaff Appraisal Report for guidance when considered necessary. Where ineligible expenditures areidentified as having been included in withdrawal applications and reimbursed against, these should benoted separately by the auditor. Annexed to the Project Financial Statements should be a schedule listingindividual SOE withdrawal applications by special reference number and amount. The total withdrawalsunder the SOE procedure should be part of the overall reconciliation of World Bank disbursementsdescribed above.

Special Accounts

In conjunction with the audit of the Project Financial Statements, the auditor is also required toaudit the activities of the Special Account(s) associated with the Project. Special Accounts usuallycomprise:

* deposits and replenishments received from the World Bank;* payments substantiated by withdrawal applications;

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* interest that my be earned from the balances and which belong to the borrower; and* the remaining balances at the end of each fiscal year.

The auditor must form an opinion as to the degree of compliance with the World Bank'sprocedures and the balance of the Special Account as year-end. The audit should examine the eligibilityand correctness of the financial transactions during the period under review and fund balances at the end ofsuch a period, the operation and use of the SA in accordance with the financing agreement, and theadequacy of internal controls for this type of disbursement mechanism. The Special Account(s) arereferred to in [cite Schedule] of the relevant financing agreements.

Audit Opinion

Besides a primary opinion of the Project Financial Statements, the annual audit report of theProject Accounts should include a separate paragraph commenting on the accuracy and propriety ofexpenditures withdrawn under SOE procedures and the extent to which the Bank can rely on SOEs as abasis for loan disbursement. The financial statements, including the audit report, should be received by theWorld Bank no later than four months after the end of the auditing period to which the audit refers. Theauditor should submit the report to the borrower's designated agent rather than to any staff member of theproject entity. The agent should then promptly forward two copies of the audited accounts and report tothe World Bank.

Management Letter

In addition to the audit reports, the auditor will prepare a "management letter", in which theauditor will:

a) comment on the accounting records, systems and controls that were examined during thecourse of the audit;

b) identify specific deficiencies and areas of weakness in systems and controls and makerecommendation for their improvement;

c) report on the degree of compliance of each of the financial covenants on the financingagreement and give comments, if any, on intern and external matters affecting suchcompliance;

d) communicate matters that have come to attention during the audit which might have asignificant impact on the implementation of the project; and

e) bring to the borrower's attention any other matters that the auditors consider pertinent.

General

The auditor should be given access to all legal documents, correspondence and any otherinformation associated with the project and deemed necessary by the auditor. Confirmation should also beobtained of amounts disbursed and outstanding at the World Bank and of amounts disbursed under (specialother donor, loan or grant). The World Bank Task Manager can assist in obtaining these confirmations.

It is highly desirable that the auditor become familiar wit the Bank's Guidelines on FinancialReporting andAuditing of Projects Financed by the World Bank, which summarizes the Bank's financialreporting and auditing requirements. The auditor should also be familiar with the Bank's DisbursementHandbool Both documents will be provided by the World Bank Task Manager.

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Terms of Reference - External Management Audit

BackgroundThe Jamaica Social Investment Fund (JSIF) is a temporary, autonomous Government-sponsoredinstitution incorporated under the Companies Act designed to finance small-scale, communitybased social and economic infrastructure and social services projects in poor urban and ruralareas. A detailed Operational Manual governs the activities and procedures of the JSIF. TheJSIF is financed by the Government of Jamaica, loans provided by the World Bank and the Inter-American Development Bank and a grant from the Government of the Netherlands.

ObjectiveA management audit is a systematic procedure for analyzing and appraising the overallperformance of the management of a business or organization. It involves a critical appraisal ofall managerial operations, policies, procedures, and the quality of management. Its objective isto ascertain whether the resources of an organization are used by its management in the mosteconomic way to produce the maximum possible result in the shortest possible time inaccordance with its goals.

The Management Audit is a helpful extension to the financial audit, and deals with thefollowing:* efficiency and effectiveness of management in achievement of company objectives;* budgetary control systems;* performance of the management of the finance, accounting, marketing, and production

functions.

The management audit must determine if the project is being executed in accordance with the"three Es" - economy (doing things cheap), efficiency (doing things right), and effectiveness(doing the right things).

ScopeThe management audit will examine the internal control system. Internal control may be definedas the whole system of controls, financial and otherwise, established by the management in orderto carry on the business of the company in an orderly manner, safeguard its assets and secure, asfar as possible, the accuracy and reliability of its records. It will be observed that the concept ofinternal control goes beyond financial and accounting matters and the custody of company assetsto include controls designed to improve operational efficiency and adherence to companypolicies.

The management audit will focus on the operational controls versus the internal accountingcontrols (i.e. those that are relevant to the expression of an audit opinion on the financialaccounts). In conducting the management audit, special attention should be paid to the following:

Organization and Human ResourcesOrganization - The overall management and departmental structure should be clearly defined,preferably by organizational charts and written job descriptions, showing authorities, duties, andlines of responsibility. Care should be taken to ensure that the analysis articulates what actuallyexists, and what is actually being achieved. The aim of this aspect of the examination is to form

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an opinion of the effectiveness, efficiency and appropriateness of the structure, functions, span ofcontrol and responsibilities as a means of achieving the company's objectives.

Authority levels - Adequate authority levels should be established and set out for the initiation orapproval of transactions. Watch for the danger of breakdown in acceptance of authority at anylevel.

Competence of staff - Personal appraisals of the staff should be made with a view to forming anopinion of aptitude, ability, industry and integrity. Do staff understand, and are they competentto carry out the work entrusted to them. The extent of co-ordination of executives and the degreeof harmony among them as a team is also to be considered. The quality of each director must beassessed and the value of his contribution to the board be evaluated, bearing in mind the needs ofthe company within specified areas. Also, the effectiveness of the directors working together asa team should be considered.

Financial accounting and reportingTo have assurance that accounting records properly reflect what they are designed to record, themanagement audit needs to assess the adequacy of the systems of internal control goveming thefinancial management system, with particular reference to the structure of the financialaccounting and reporting system.

The audit shall also assess if the objectives of internal controls are being met, that is that thesystem not only maintains an adequate method of processing accounting data, but alsosafeguards the JSIF against possible financial loss due to fraud or error. The audit should forman opinion on whether:* the JSIF receives and enters in its accounting records, all the income or revenue to which it is

entitled;- all expenditure is properly authorized;* all assets are properly recorded and safeguarded;* all liabilities are properly recorded and provision is made for known or expected losses;* the accounting records provide a reliable basis for the preparation of accounts.

Operations Management PracticesAs a follow up to the financial accounting and reporting system, the management audit shouldalso give an opinion on whether the principles of internal accounting controls are in place -specifically (a) basic controls and (b) the disciplines over basic controls.

(a) Basic Controls - should be designed to ensure that the JSIF's transactions are valid (i.e.proper, bona fide and authorized) and that they are recorded completely and accurately in thebooks.

(b) Disciplines over Basic Controls - the management audit should examine:

(i) Supervisory controls;(ii) Separation of duties; and(iii) Custodial controls.

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(I) Supervisory Controls

The auditor will provide an opinion on the following:

(a) Final approval of documents after they have been subjected to the relevant basic controlsbut before further processing takes place (e.g. final approval of payroll before the amounts aredistributed).

(b) Review by a responsible official of the operation of basic control techniques (e.g. theinspection of reconciliations etc.)

Supervisory controls should only be regarded by the auditor as effective where the signature ofthe supervising official exists to evidence the control function.

(II) Separation of Duties

The auditor should ensure that:

(a) there is a well defined division of responsibilities between departments, sections andindividuals, so that no one person handles a transaction from beginning to end. In particular,there should be a division of responsibilities in respect of each transaction for::

(i) authorizing or initiating the transaction;(ii) the physical custody and control of assets related to the transactions;(iii) recording the transaction in the accounting records.

The duties of the individuals exercising these different functions should be clearly defined andwhere practicable, set out in writing, together with the extent of there respect of their respectiveauthorities.

(b) Rotation of duties - where practical, arrangements should be made for the duties of staffto be rotated so that no one person deals with one aspect of the company's accounting procedureson a continuous basis.

(III) Custodial Controls

The auditor should give an opinion regarding the controls designed to ensure that assets(including significant documents such as contracts and cheques) are maintained securely. Thesecontrols include physical arrangements such as the use of safes, use of locked fencing forvaluable items of stock and safe custody procedures for title deeds and investment.

GeneralThe objective of the management audit is to enable the auditor to express a professional opinionon the financial viability, financial condition, stewardship and accountability, expenditureallocations, balancing of inflows and outflows and financial compliance with budgets of theJSIF. The auditor should be given access to all legal documents, correspondence and any otherinformation associated with the project deemed necessary by the auditor.

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ANNEX N

GOVERNMENT OF JAMAICA

SOCIAL INVESTMENT FUND PROJECT

Documents in Project Files

Armenia Social Investment Fund, 1995. Operational Manual (Final Draft).

Carvalho, S. 1994. Social Funds: Guidelinesfor Design and Implementation, HumanResources Development and Operations Policy Working Paper 34.

Cummins and Sinyangwe, 1994. Regional Officers Manualfor the Microprojects Unit inZambia.

Cummins and Sinyangwe, 1994. Administration Manualfor the Microprojects Unit in Zambia.

Ethiopian Social Rehabilitation and Development Fund, 1994. Operational Manual (draft).

Ghopal, G. and A. Marc, 1994. World Bank-Financed Projects with Community Participation:Procurement and Disbursement Issues, World Bank Discussion Paper No. 265.

Glaessner, P. et al 1994. Poverty Alleviation and Social Investment Funds: The Latin AmericanExperience, World Bank Discussion Paper No. 261.

Government of Jamaica, 1995. National Policy Towards Poverty Eradication.

Government of Jamaica, 1995. National Poverty Eradication Program: A Community-BasedPartnership Approach.

Grosh, M. 1990. What Should Social Funds Finance? Portfolio Mix, Targeting and EfficiencyCriteria, Human Resources Division, Technical Department, Latin America and the Caribbean.

JSIF, 1996. Articles and Memorandum of Association (draft).

JSIF (McFarlane, D.), 1996. Assessment of the NGO/CBO Community.

JSIF (Prescod, M.), 1995. Institutional Options for the Jamaica Social Investment Fund

JSIF (Rodrigues, S.), 1995. Review of Organizations: Environmental Foundation of Jamaica,Social and Economic Support Program, Kingston Restoration Company and Social DevelopmentCommission.

Khadiagala, L. 1995. Social Funds: Strengths, Weaknesses, and Conditions for Success, ESPDiscussion Paper Series.

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MacDonald, C. and P. Sollis. 1995. Analysis Issues in Social Investment Funds, consultantsreport prepared for IDB.

Marc, A., C. Graham and M. Schacter. 1995. Social Action Programs and Social Funds: AReview of Design and Implementation in Sub-Saharan Africa, World Bank Discussion Paper No.274.

Moser, C. and J. Holland, 1995. A Participatory Study of Urban Poverty and Violence inJamaica.

Planning Institute of Jamaica, 1996. Poverty Mapping: A Report on the Spatial Representationof Deprivation in Jamaica.

Planning Institute of Jamaica, 1995. A Preliminary Evaluation of the Programs/Projects Aimedat Alleviating the Impact on the Poor of Structural Adjustment, Liberalization andDivestment/Privatization.

Schmidt, M. and A. Marc. 1995. Participation in Social Funds, Environment Department PaperNo. 004.

SIMAP, 1992. Operations Manual.

Siri, G. 1992. The Social Investment Funds in Latin America: A Critical Appraisal, consultantreport prepared for the Swedish International Development Authority.

Social Fund of the Kingdom of Cambodia, 1995. Finance, Administration and PersonnelManual (draft).

Social Fund of the Kingdom of Cambodia, 1995. Project Guidelines (draft).

Vivian, J. 1994. Social Safety Nets and Adjustment in Developing Countries, Occasional PaperNo. 1, World Summit for Social Development, UNRISD.

Webb, A., K.W. Lee and A. Sant'Anna. 1995. The Participation of NongovernmentalOrganizations in Poverty Alleviation, World Bank Discussion Paper No. 295.

Workshop on Social Investment Funds and NGO Participation, December 4-6, 1995. WorkshopProceedings.

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