World Bank Documentdocuments.worldbank.org/curated/pt/276651468211151369/pdf/multi-page.pdfCNV Comisi6n Nacional de Valores (Stock Exchange Commission) CSU Civil Service Unit DGII

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 16106

IMPLEMENTATION COMPLETION REPORT

BOLIVIA

ECONOMIC MANAGEMENT STRENGTHENING OPERATION

(Cr. 1977-BO)

November 12, 1996

Country Operations Division ICountry Department IIILatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENT

Currency Unit: Boliviano (Bs)Exchange Rate: June 1995

Bs 1.00 = US$ 0.21US$1.00 = Bs 4.78FISCAL YEAR

January I - December 31

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

AEDP Agro-Export Development ProgramCG Consultative GroupCLAD Centro Latinoamericano de Administraci6n para el Desarrollo (Latin America Center for Administrative

DevelopmentCNV Comisi6n Nacional de Valores (Stock Exchange Commission)CSU Civil Service UnitDGII Direcci6n General de Impuestos Internos (National Internal Revenue Directorate)DIP Direcci6n de Inversi6n Pzublica (Public Investment Unit)EIH Encuesta Integrada de Hogares (Integrated Household Survey)EMSO Economic Management Strengthening OperationENHAR Rural Household SurveyFIS Fondo de Inversi6n Social (Social Investment Fund)FNDR Fondo Nacional de Desarrollo Regional (National Fund for Regional Development)GDP Gross Domestic ProductIBTA Agricultural Technology Development ProgramIDA International Development AssociationIDB Inter-American Development BankINE Instituto Nacional de Estadisticas (National Institute of Statistics)LPP Ley de Participacion Popular (Popular Participation Law)LSMS Living Standard Measurement SurveyMACA Ministry of Agriculture and Peasant AffairsMDH Ministry of Human DevelopmentMFED Ministry of Finance and Economic DevelopmentMOF Ministry of FinanceMPC Ministry of Planning and CoordinationMSA Management Service AgreementMSDE Ministry of Sustainable Development and EnvironmentPCU Project Coordinating UnitPFMO Public Financial Management OperationPIP Public Investment ProgramPIU Public Investment UnitPPU Popular Participation UnitPSM Public Sector ManagementRDC Regional Development CorporationSAFCO Sistema de Administracion Financieray Control Gubernamental (Financial Admin. & Control System)SAR Staff Appraisal ReportSDR Special Drawing RightSISIN Sistema de Informacion y Seguimiento de Inversi6n (Investment Information & Monitoring System)SNIP Sistema Nacional de Inversi6n Publica (National System of Public Investment)UDAPE Unidad de Andlisis de Politicas Economicas (Economic Policy Analysis Unit)UDAPSO Unidad de Analisis de Politicas Sociales (Social Policy Analysis Unit)UNDP/OPS United Nations Development Program, Office for Project ServicesUSAID US Agency for International Development

FOR OFFICIAL USE ONLY

TABLE OF CONTENTS

Preface ..............................................................Evaluation Summary ............................................................ iii

Part I. Project Implementation Assessment ............................................................. 1Introduction and Background ............................................................. 1Project Objectives and Description ............................................................ 1lAchievement of Project Objectives ............................................................. 2Implementation Record and Major Factors Affecting the Project ...........................2Association Performance ............................................................ 14Borrower Performance ............................................................ 15Assessment of Outcome and Project Sustainability ............................................... 15Current and Future Operations ............................................................ 16Key Lessons Learned ............................................................ 16

Part II. Statistical AnnexesTable 1. Summary of Assessments ............................................................ 18Table 2. Related Bank Credits ............................................................ 20Table 3. Project Timetable ............................................................ 21Table 4. Staff Resources used in Credit Preparation/Supervision ......................... 22Table 5. Estimated Project Costs ............................................................ 23Table 6. Estimated Component Cost by Year ........................................................ 24Table 7. Use of Credit Funds and Swiss Co-financing by Project Component

and Source of Funds ............................................................ 25Table 8. Disbursements by Fiscal Year by Component ......................................... 26Table 9. Status of Legal Covenants ............................................................ 27

This document has a restricted distribution and may be used by recipients only in the performance of theirofricial duties. Its contents may not other%ise be disclosed %idhout World Bank authorization.l

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BOLIVIA

ECONOMIC MANAGEMENT STRENGTHENING OPERATION (EMSO)

(CREDIT 1977-BO)

PREFACE

This is the Implementation Completion Report (ICR) for the Economic ManagementStrengthening Operation (EMSO) for which Credit 1977-BO in the amount of SDR 7.14 million(at appraisal US$ 9.7 million equivalent) was approved on December 22, 1988 and madeeffective on May 24, 1989. The Credit was closed on June 30, 1995 after three extensions for atotal of three years. The last disbursement of the project was in July 1995. A Swiss Grant in theamount of SwF 4 million (at appraisal US$ 2.5 million) to assist in the financing of the projectwas administered by the Association. IDB also provided cofinancing for certain projectactivities.

The ICR was prepared by the Country Operations Division I, Country Department III,Latin America and the Caribbean Region (LA3C1). The Borrower prepared a separate reportwhich has been made part of the official project files. Preparation of this ICR is based, inter alia,on the Staff Appraisal Report (SAR), the Credit Agreement, supervision reports, correspondencebetween the Association and the Borrower, reports by the Borrower, and internal memorandumof the Association. There has been no special ICR mission. Comments on the draft ICRreceived from the Borrower in correspondence dated September 24, 1996 have been largelyincorporated into this final version.

Acting Vice President Mr. Gobind NankaniDirector Mr. Paul IsenmanDivision Chief Mr. Dan MorrowCountry Officer Ms. Deborah Bateman

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Implementation Completion Report Bolivia EMSO (Cr. 1977-BO)

ECONOMIC MANAGEMENT STRENGTHENING OPERATION(CREDIT 1977-BO)

BOLIVIA

EVALUATION SUMMARY

Project Objectives and Implementation Results

i. Objectives: The central objective of the Economic Management Strengthening Operation(EMSO) was to support institutional development and specific analytical work to facilitate thesustained implementation and consolidation of the medium term macro-economic policyintroduced in August 1985.

ii. Content and Implementation Results: To attain this overall objective, this technicalassistance contained five distinct components each with more specific objectives. The overalloutcome of the project was rated as satisfactory in every major area. The objectives of each ofthe components, along with the implementation results are presented in the following table.

Component Objective | Implementation Results

Strengthen economic policy making and This objective was met to a large extent, although with considerablemanagement in the areas of public investment delays. Current public investment procedures are significantly improvedprogramming, sectoral analysis, links between and considerable efforts have gone toward establishing the norms andinvestment and budgeting, implementation of the providing training, including more recently at the municipal level.investment program, and project monitoring and Substantial pogress has been made in developing and implementingevaluation. technologies for these purposes.Increase tax revenues through the expansion of As tax collections increased from 5% of GDP in 1988 to over 7% of GDPon-going work in tax administration. in 1990, this objective was met to a large extent within the given time

period. Nevertheless, there are additional measures that are now beingundertaken to further strengthen and improve tax administration and taxcollection efforts (including reorganizing the internal revenue office andestablishing a unit to focus on the largest 500 taxpayers).

Assist in the design of a coherent and well- The objectives of this component were partially met, however, withphased strategy for regional planning and significant delays and diversions. The project provided support to themanagement by supporting studies on the successful Popular Participation Program, however, ended before the morefinancial, fiscal, and institutional implications of recently passed Administrative Decentralization Law.decentralization and resources to implement thestrategy.Improve public sector productivity by supporting This objective was met to a limited degree. While considerable progressthe Government's Public Sector Management was made in developing the program, including developing and testing aStrengthening Program, including its efforts to manual outlining procedures for identifying, selecting and evaluatingrationalize salaries and attract and retain skilled candidates, and about 300 positions were incorporated into a formal civilmanpower. service program, before mid-I 995, little progress was made rationalizing

the overall public service salary scale. However, since the closing of theproject, the Government has shown a strong commitment to implementingthe civil service program.

Implement a living standards measurement These objectives were partially met. While work remains to fully achievesurvey and support the expanded responsibilities these, the project contributed significantly to developing tools to monitorof the National Statistics Institute (INE). the impacts of economic policies on the poor and improving national

statistics.

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Project Sustainability

iii. The prospects for the long-term sustainability of most of the sub-components aregenerally favorable. Despite a high dependence on foreign-financing for consultants operating inGovernment line positions, many of the functions supported by the project-especially, publicinvestment planning, and statistical services-are essential and will have to be continued even inthe absence of project financing. Furthermore, given the current Government's commitment tothe Popular Participation program and the general popular/political support for decentralization,the sustainability of these programs are also generally favorable. In order for the PSMcomponent to be sustainable, a number of important things will be required. Most importantly,future Govermments will need to: (i) continue to provide strong and integrated leadership andcoordination of the implementation of the reform process; (ii) maintain political commitmentacross successive changes in Governments-i.e., the reform supported by the Civil Service andAdministrative Reform (CSAR) will not be completely implemented until 2005; and (iii) ensurethat the program remains fiscally sustainable-i.e., future Governments will be required tocontinue increasing the treasury share of financing for the program. While the currentGovernment strongly supports these principles, they must be carried forward into futureadministrations. The proposed CSAR Project-widely supported by the donor community andcurrently at an advanced stage of preparation-includes measures to help to ensure suchcontinuity. Finally, as currently designed and intended by the Government-to incorporate onlyabout 2,500 public employees-the Civil Service program is fiscally feasible. Nevertheless,there are likely to be pressures to expand the program-including granting significant salaryincreases-to additional groups of public sector employees-for example, at the prefecturaand/or municipal levels. If the program is not contained, the fiscal consequences would likely beunsustainable.

Lessons Learned

iv. The key lessons learned may be summarized as follows:

* It is difficult to implement a complex and comprehensive technical assistance projectthrough more than one change in administration. In addition to shifts in philosophyand basic strategies, each change in administration can bring changes in priorities,personnel, and the roles of different Government agencies. The lack of continuityresulting from these changes results in slow progress.

* Government commitment, general policies, priorities, sectoral objectives andmanpower needs must be clearly defined and monitored for such a program to beimplemented successfully and in a timely manner.

* The success of certain reform programs is dependent on the environment in whichthe reform takes place. As institutional strengthening aims at changing the behaviorof institutions and the personnel in these institutions, introduction of change is oftenin conflict with existing norms and may threaten the informal institutional culture.

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Implementation Completion Report Bolivia EMSO (Cr. 1977-BO)

* Communication and coordination among all entities involved is critical to thesuccess of such a technical assistance project with numerous components, manyagencies and many small contracts. Successful implementation requires closecooperation, clear-cut decisions at the highest levels and clear delineation ofresponsibility.

* To effect capacity building and strengthening activities, an adaptive approach has tobe taken. A great deal of flexibility is required, especially in a politically sensitiveenvironment, and the process is lengthy.

* While the design of a comprehensive and complex technical assistance project maybe cost effective in terms of project preparation, it can be costly to effectivelysupervise and manage, both on the part of the Bank and on the part of theGovernment. In this case, the level of complexity led to many extensions andreduced project effectiveness. The number of objectives/components must beprioritized and limited within any project to ensure achieving those objectives.

* For implementing agencies, institutional strengthening technical assistance projectsare often viewed as "budgetary support". It is essential that such projects do notallow institutions to place greater reliance on external sources to finance day-to-dayactivities of Government.

* Existing institutional capabilities must be factored into project design. If the long-term objectives are to be achieved, then more attention must be paid to the presenceof counterparts, counterpart funds, and the political and institutional environment.

* The developmental impacts of training personnel, providing computers and otherequipment, designing and implementing procedures, regulations, norms and systemsare not short-term. They can only be measured in terms of increased productivity,efficiency and viability of economic institutions over many years.

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BOLIVIA

ECONOMIC MANAGEMENT STRENGTHENING OPERATION

(EMSO; CREDIT 1977-BO)

PART I. PROJECT IMPLEMENTATION ASSESSMENT

Introduction and Background

1. Faced with an economic crisis and hyperinflation in 1984-85, the Government that tookoffice in August 1985 undertook a comprehensive stabilization and adjustment program. Despitethe success of the stabilization efforts, during the late-i 980s GDP growth per capita remainednegative, Bolivia's terms of trade declined, revenue raising efforts were poor, and noticeablepublic sector inefficiencies persisted. Fundamental reasons for the economic crisis were both thesize of and excessive interference by a large public sector and total deterioration of theinstitutions responsible for economic management. Because of the severity of the prolongedeconomic crisis during the 1980s, many Government agencies had suffered substantial declinesin productivity and effectiveness. Poor organization and management, and complicatedprocesses had limited the Government's administrative capacity, especially with regard to projectimplementation. Furthermore, civil service salaries had deteriorated, severely eroding theGovernment's human resource base and limiting its ability to formulate and carry out prudenteconomic management of the country.

Project Objectives and Description

2. Project Objectives: The central objective of the Economic Management StrengtheningOperation (EMSO), appraised in June 1988 and approved by the Board in December 1988, wasto support institutional development and specific analytical work to facilitate the sustainedimplementation and consolidation of the medium term macro-economic policy introduced inAugust 1985.

3. Project Components: In order to attain this overall objective, this technical assistanceproject contained five distinct components each with more specific objectives. The componentsintended to: (i) strengthen economic policy making and management in the areas of publicinvestment programming, sectoral analysis, links between investment and budgeting,implementation of the investment program, and project monitoring and evaluation-supportedby the Public Investment Programming and Implementation Component (US$6.9 million);(ii) increase tax revenues through the expansion of on-going work in tax administration-supported by the Tax Administration Component (US$1.5 million); (iii) assist the Governmentin designing a coherent and well-phased strategy for regional planning and management bysupporting studies on the financial, fiscal and institutional implications of decentralization and

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resources to implement the strategy-supported by the Regional Planning and ManagementComponent (US$2 million); (iv) improve public sector productivity by supporting theGovernment's Public Sector Management (PSM) Strengthening Program, including its efforts torationalize salaries and attract and retain skilled manpower-supported by the PSM Component(US$1.5 million); and (v) implement a living standards measurement survey and support theexpanded responsibilities of the country's National Statistics Institute (INE)-supported by theStrengthening of Statistical Services Component (US$3.1 million).

4. Linkage with Macro Strategy: Included among the key reasons behind the economiccrisis of the mid-1980s were: (i) both the size of and excessive interference by a large publicsector; and (ii) total deterioration of the institutions responsible for economic management.Complementing the IDA-financed Public Financial Management Operation (PFMO I; Cr. 1809-BO) that was intended to improve financial management, this operation was designed to addressother pressing problems facing economic management and was deemed important for achievingIDA's broad country program objectives. Most notably, the country objectives at the timeincluded assisting the Government to implement its medium term economic program andproviding analytical support and helping to maintain an effective policy dialogue on the macro-economic framework.

Achievement of Project Objectives

5. As indicated by Table 1 in the Statistical Annex, the overall outcome of the project wasrated satisfactory. Despite some shortcomings, given the prevailing economic and public sectorconditions, the project was necessary and relevant. However, the number of project components,the complexity of each of the components, the number of implementing agencies, and thenumerous changes in Government led to implementation delays that required extending theclosing date for a period three years past the originally anticipated date. Overall, projectsustainability is deemed likely, however, this will depend to a large extent on implementing theCivil Service Program within the key Governmental units supported by the project. Even now,to a large extent, these units-most notably, the Public Investment Unit (PIU), the secretariatsresponsible for implementing the popular participation and decentralization initiatives, theNational Statistical Institute and the Civil Service Unit-continue to be financed by donors.With the closing of the project, alternative sources of donor funding were secured for all units,but the only sustainable alternative is to incorporate these units into the Civil Service Programand for the treasury to gradually assume responsibility for financing the key personnelresponsible for these functions. Provided that subsequent Governments continue to do this,project sustainability is likely.

Implementation Record and Major Factors Affecting the Project

6. Public Investment Programming: The objectives of the public investment programmingand implementation component were to: (i) support efforts within the Public Investment Division(DIP) of the Ministry of Planning and Coordination (MPC) to improve its ability to formulate apublic investment strategy that included carrying out investment analysis, implementation,monitoring and evaluation, as well as overall information management by providing training and


technical assistance; (ii) expand and strengthen the Financing Disbursement Unit of the DIP; (iii)train personnel within DIP, sector ministries, and the Regional Development Corporations(RDCs) in project analysis and evaluation; (iv) manage pre-investmentlfeasibility studies ofRDCs and sector ministries; (v) assist sector ministries, including the Ministry of Agriculture andPeasant Affairs (MACA), to formulate sector strategies and to strengthen their public investmentprogramming and implementation capabilities; (vi) consolidate the operations of the Sistema deInformacion y Seguimiento de la Inversion (SISIN) and the National Public Investment System(SNIP) and expand these systems to the RDCs'; and (vii) acquire and provide training in therelated computer hardware and software.

7. The DIP started to develop the information systems in late-1988, and the preliminarysystems were extended to several regions and some sector ministries in the next few years.Project-financed consultants developed and operated the systems, provided training to four RDCs(Santa Cruz, Tarija, Cochabamba and Beni), and provided computer equipment in a number ofinstitutions. During this time, the project also financed consultants within the DIP, including apre-investment advisor, sector specialists and financing experts.2 However, when attempts weremade to expand the systems to additional institutions, problems were encountered becausecertain sub-systems were not fully developed, others were not being used due to lack ofinformation, and the MPC had no leverage to force other institutions to use the systems.Additional problems developed, and it was determined that the system was flawed in design.Consultants prepared a diagnostic report, developed a plan to redesign the system (includingoverhauling the organization of the database), and as a result, SISIN training to additionalinstitutions was suspended in early- 1991.

8. Nevertheless, during the remainder of 1991, the SISIN and project evaluationmethodologies continued to be introduced into more sectoral ministries, and several of theFondos (FIS and FNDR). During 1991, the development of methodologies for carrying outeconomic and social analysis of projects was also initiated. Prior to the end of 1991, realprogress in implementing this component was slow in part due to financing problems, partiallycaused by disagreements over the design and emphasis of the proposed DIP work program.More specifically, IDB financing lapsed for a significant period of time, resumed only whenthere was agreement on the objectives and work programs (August 1992). At the end of 1992,several key DIP positions remained unfilled, and high turnover had led to additional delays in thedevelopment and implementation of the SISIN/SNIP systems. Specifically, many consultantscontracted for these development activities were required to carry the entire workload of the unitand often carried out the day to day activities of the unit, including developing and monitoringthe three-year Public Investment Program (PIP).

SISIN is the financial information and monitoring system for public investment projects. SNIP is a system fortracking individual projects through their various stages, including identification, appraisal, approval, and postevaluation.

2 A financing unit was created in 1989 to overcoming major disbursement bottlenecks that had resulted in lowdisbursement ratios.


9. Beginning in 1993, implementation improved with the joint IDA/IDB support. Inaddition to the fact that the activities of the DIP were fully financed, the joint IDA/IDB supportsignified full agreement between all parties on the priorities and work program of the unit. Withthe change in Government (August 1993), a new director for the Public Investment Unit (PIU)was appointed, the PIU was restructured, and the central team was substantially reduced (from 35to 19). Despite these changes, the unit's quality of the work improved. However, in the earlydays of the new administration, the Executive Branch was restructured (October 1993) andoverall responsibility for public investment planning became unclear as the MPC was dissolvedand its responsibilities fragmented among three different ministries.3 Furthermore, the passageof the Popular Participation Law (LPP; April 1994) imposed new and additional work on thestaff of the PIU.4 This law imposed a fundamental change in the public investment process andpresented a substantial implementation challenge to the PIU. To transfer investment projects andprepare the municipalities for their new roles, a number of activities were initiated by the PIU,including training, developing manuals with instructions on defining and developing sectoralinvestment projects, and developing the norms and regulations for the new system.

10. As a result of these changes in course, limited progress was made during the year withregard to developing and adapting the technical instruments and methodologies. Nevertheless,the transferring of existing investments and providing training in the investment project cycleproceeded fairly successfully and in a timely manner. In addition, the activities of the unittowards achieving the mandates of popular participation were well-defined and carried out with agreat deal of inter-Governmental coordination, including the Popular Participation Unit (PPU)During 1995, the Govermnent finally made significant progress towards completing developmentof public investment methodologies and systems and establishing the enabling norms andregulations. Within the past six months, norms for many of the systems mandated by theFinancial Administration and Control Law of July 1990 (SAFCO) were issued (including thosefor SNIP and the National Planning System), thus legally establishing the framework that needsto be followed for public investment planning by all public institutions.

11. As part of this component, $0.5 million of the Swiss contribution was allocated tostrengthen the ability of the Ministry of Agriculture and Peasant Affairs (MACA) to plan sectoralinvestments. The project financed studies relating to different aspects of agriculture and theorganization of MACA.5 These studies assisted in providing the basis for some important

Under the new structure, the Ministry of Sustainable Development and Environment (MSDE) assumed theresponsibility for pre-investment studies, the Ministry of Finance and Economic Development (MFED)became responsible for developing the normative framework, aggregating/centralizing the processing of publicinvestment information, and the overall execution of the PIP, including ex-post evaluation, and the Ministry ofHuman Development (MHD) became responsible for formulating social sector public investments using theframework established by the MFED.

4 Through this law, much of the existing social sector infrastructure in health, education, culture, sports, ruralroads and irrigation was to be transferred to the municipalities. They would in tum assume the responsibilityfor maintaining existing investments and planning/executing future investments. The law established 310municipalities in the country, of which 198 were created for the first time.

This work included: (i) an assessment of training needs and development of a training program; (ii)development of guidelines for the preparation of livestock and agricultural projects; (iii) a review of export


programs in the sector, including helping to lay the framework for some future Bank projects,including the Agro-Export Development Program (AEDP), the Agricultural TechnologyDevelopment Project (IBTA), and the National Land Administration Reform.

12. The project also provided a limited amount of funding for pre-investment studies. Giventhe importance of the pre-investment phase in identifying and preparing investments, as acondition for use of the funds allocated for pre-investment studies, the Government revised theguidelines and criteria for selecting studies. It was agreed that the project could finance pre-investment studies for high-priority public sector projects included in the PIP, and that proposalsmeeting the criteria would be submitted and approved by IDA prior to initiation. A large portionof these funds were used to carry out feasibility studies for the proposed multi-purposeMISICUNI dam, a large public investment project which has been the subject of considerablediscussions between IDA and Bolivia for a number of years.

Summary: The objective of the component to strengthen core economic policy makingand management processes, especially the formulation and implementation of the publicinvestment program was met to a large extent, although with considerable delays. Thecurrent public investment procedures are significantly improved and considerable effortshave gone toward establishing the norms and providing training, including more recentlyat the municipal level.

13. Tax Administration Component: Following up on work begun under PFMO, the taxadministration component (cofinanced by IDB) supported four main activities anticipated to becompleted by end-1989. Included were: (i) finalizing development of the tax collection systemand improving the organizational structure of the Direccion de Impuestos Internos (DGII); (ii)developing and establishing a new tax collection and control system for import tariffs; (iii)implementing the new tax collection systems in the regions; and (iv) developing andimplementing a computerized system for registering and controlling tax payments and credits.For these activities, the project financed international technical advisors, incremental localsalaries, equipment, field visits and training.6

14. During the project, there was successful implementation of: (i) a new regional taxadministration; (ii) organizational changes within the DGII; (iii) training of central and regionaltax officials; and (iv) publicity campaigns. As a result of the expansion of regional tax collectionefforts, the performance of tax collection improved significantly, in part due to "EmergencyProgram", introduced in response to the decline in tax collection and the virtual lack of auditing,publicity and tax enforcement measures during the pre-1989 election period. By early-1989, the

incentives; (iv) a legal analysis of MACA's proposed restructuring and responsibilities; (v) research on transferof technology; (vi) development of an evaluation and monitoring system; (vii) a review of public investment inagriculture and an analysis of agricultural aid coordination; (viii) a study of agricultural financing prospects;(ix) analysis of land use and tenure; and (ix) development of an operational strategy, policy framework, andstrengthening plan.

6 Project financing ended in June 1990, and afterwards, due to difficulties in securing counterpart financing forthe local consultants, the ability of the DGII to undertake verification, auditing and enforcement was affectedtemporarily.


new tax collection system was extended to the regions, a new system for import tax collectiondeclarations and payments through Customs was implemented, and work had begun ondeveloping the computerized system for registering and controlling tax payments and credits.Starting from a base of 5% of GDP in 1988, tax collections increased to 6% of GDP in 1988, andto over 7% of GDP in 1990. In terms of achieving measurable results, this component was themost successful. Nevertheless, the component did suffer a number of setbacks-including lack ofcounterpart funding for publicity and auditing and delays in developing enforcement programs-which slowed the implementation of tax collection, auditing and control efforts. Furthermore,lack of counterpart funding led to delays in training tax administrators and establishing theoffices for Large Taxpayers in Santa Cruz and Cochabamba. As with other components, therewere problems of high staff turnover, especially in key positions in the regional offices.

Summary: The objective of the component to strengthen the ability to mobilize revenueswas met to a large extent within the time period. Nevertheless, there are additionalmeasures that can and are being undertaken to further strengthen and improve taxadministration and tax collection efforts, including reorganizing the internal revenueoffice and establishing a unit to focus on the largest 500 taxpayers.

15. Regional Planning and Management Component: Activities supported under thiscomponent included: (i) assisting to formulate a coherent decentralization strategy, includinglegal norms for resource allocation and division of responsibility; (ii) designing mechanisms andinstitutional improvements for strengthening coordination between the regions, sectors, and theprivate sector; (iii) strengthening regional planning and coordination at the center; and (iv)strengthening the ability of regional authorities to improve resource management and toformulate regional strategies and investment programs.

16. During the early phases of the project, activities focused on the preparation of numerousdiagnostic studies on the institutional and fiscal/financial status of the: (i) nine RDCs; (ii) mainmunicipalities; and (iii) selected sectors, including health, education, road maintenance, basicsanitation, and agriculture. However, the Government was slow in articulating an overalldecentralization strategy. Drawing upon the diagnostic studies, a draft plan (prepared by MPCand discussed in July 1991) encompassed a broad range of topics, including sectoral concerns aswell as the institutional and financial limitations that existed at the central, regional and locallevels. Simultaneously, in early-1990, the project also assisted the process of draftingdecentralization legislation, but by mid-1991, there were four different draft decentralization lawson the agenda before a special session of Congress.7 Disagreements over the decentralizationconcept in general, and hesitation to raise the issue before a full congressional debate resulted ina lack of action. Following discussions among all the concerned parties, the draft law preparedunder the project was revised, re-submitted, approved "en grande" by the Senate in late-1992, butnever approved by the Congress. A very general law was redrafted (with the intention toincorporate the details in the regulations), but set aside by the new administration in August 1993

These included two Government proposals (one prepared by EMSO consultants), a proposal from the civiccommittees, and a congressional proposal.


to give priority to Popular Participation. Nevertheless, other pressures (primarily from the civilcommittees) led to the eventual passage of a Decentralization Law (July 1995). 8

17. During the early years of the project, the component suffered from weak leadership andfrom a lack of clear institutional structure, as the various consultants were scattered throughout anumber of different institutions. In mid-1992, a Regional Policy Unit was established in theMPC, a coordinator was named, and operational proposals incorporating decentralization into thepublic investment planning process were prepared. This new unit was intended to coordinatewithin the Executive branch all activities related to the decentralization process, and quicklyturned into an appropriate counterpart that was able to coordinate and integrate the works of theproject into the ministries and RDCs. The efforts at coordinating and promoting thedecentralization process were further strengthened through the establishment of an inter-sectoralcommittee (mid-1992), and the design of decentralization pilot programs for the key sectors.

18. As indicated, the 1993 change in administration brought with it a change in strategy or"Popular Participation"-a program intended to decentralize political and economic decisionmaking process by transferring the administration of key public services and investmentresources to the municipalities. With this, responsibility for the component was transferred to thenewly created Popular Participation Unit (PPU) within the Ministry of Sustainable Development

8 The Popular Participation Law (April 20, 1994) "municipalized" the entire country, expanded the functions ofmunicipalities and restricted the role of RDCs. This law transfers to the municipalities the responsibilities to:(i) operate and maintain facilities linked to basic infrastructure and human resources: (ii) deliver and supervisemunicipal services, particularly in health and education; (iii) determine allocation of resources for capitalinvestment; and (iv) manage cadastre and vehicle registries linked to municipal revenues. Certain CentralGovernment assets--in primary and secondary education, primary health care, culture, sports, rural roads, andirrigation--were transferred to the municipalities; however, at that time there was no transfer of costsassociated with personnel to the municipalities. This law (along with Law 1606-Modifications to the TaxLaw): (i) transfers to the municipalities responsibility for administering a number of local taxes-includingurban and rural property tax, municipal transfer taxes, and vehicle registration taxes; and (ii) allocates 20% of"national income"-defined to include collections from the value added tax, the complementary value addedtax, the specific consumption tax, the transactions tax, the estimated corporate profits tax, customs taxes, thetax on foreign travel,and other minor taxes-to the municipal governments. The "co-participation" funds areto be distributed according to the population in each municipal jurisdiction and in each municipality, at least90 percent of co-participation funds must be allocated to public investments. The AdministrativeDecentralization Law (July 28, 1995) established the organizational structure of the Executive Branch at thedepartmental ("prefectura") level, abolished the RDCs, and established an economic and financial regime toimprove and strengthen the efficiency and effectiveness of the public administration. Subject to theestablished Government policies in each sector, responsibility is transferred to the prefectura for the: (i)administration of departmental economic and financial resources; (ii) formulation and execution of regionalpublic investment projects; (iii) administration, supervision and control of the human resources and thenational budget items allocated to the operation of the education, health and social assistance services, subjectto the Government's policies for those sectors; (iv) administration, supervision and control of the operation ofservices related to social assistance, agriculture and livestock and roads, in conformity with CentralGovernment policies; and (v) execution of the departmental budget, subject to the use of the SAFCO normsand regulations. With regard to resources, among others, the prefectura receives: (i) departmental royalties;(ii) resources from the Regional Compensation Fund; (iii) 25% of the collections of the special tax onhydrocarbons; and (iv) resources provided by the National Budget for personnel expenditures in the health,education, and social assistance sectors.


and the Environment (MSDE), and the focus shifted from regional to municipal governments asthe level responsible for implementation. As a consequence, the program as originally envisionedwas radically modified and new work programs and terms of reference were developed tosupport popular participation, for which the enabling law was approved in April 1994. Theproject providing support for four different types of Popular Participation activities: (i) analysisof municipal finances and economies, including development of financial systems; (ii)development of a communication/dissemination program; (iii) definition and documentation ofdistricts responsible for the provision of key services; and (iv) development and implementationof municipal strengthening programs. In addition, substantial progress was made towarddeveloping norms and regulations, designing and providing municipal training, and defining anddocumenting districts. By early-1995, a significant number of municipalities had developedoperating plans and budgets-a notable achievement in that 198 of the 300 municipalities did notexist prior to the passage of the law.

19. As indicated, initially this component received little policy guidance and supervisionfrom the Government with implementation problems stemming from the lack of leadership andcoordination between the EMSO-supported work sectoral ministries, and other projects.Furthermore, while there was somewhat of a general consensus (at the central and regionallevels) that the Central Government should relinquish some of its control, there was littleconsensus regarding how much power should be transferred and to what level (RDC ormunicipal). For any decentralization proposal to proceed beyond the study phase, a clear politicaldefinition of and commitment to the degree of political and financial autonomy ofregional/municipal governments was necessary. The originally proposed legislation simplyexpressed a general political intent to decentralize the public sector, with specifics to be includedin the regulations. The contents of the early decentralization laws posed concerns, as they did notprovide a clear framework for the division of responsibilities and functions between the differentlevels of Government and ignored an evaluation of the potential fiscal and financial implicationsof the proposed scheme. Although many studies of these and other issues related todecentralization were carried out, little of the analysis and few of the proposals were utilized inthe formulating the strategy of drafting the law. This reflecting the Government's lack ofcommitment and involvement at the time.

20. Despite the limited progress towards developing the envisioned-decentralizationlegislation, the project did provide important assistance to allow for the development of keybackground studies and-the development and initial implementation of Popular Participation andmunicipal strengthening. In that there is still limited capacity at the municipal level, more recentBank projects have continued to support the program. More specifically, a Municipal SectorDevelopment Project (FY94) is helping to improve municipal management and providedresources for municipal investments, particularly in the disadvantaged regions, and a RuralCommunities Development Project (FY96), is supporting rural investment identification andformulation and training in the participatory planning methodologies. Nevertheless, the problemof improving Bolivia's limited implementation capacity-at the national, regional and municipallevels-will continue to be a challenge for a number of years.


Summary: The component's objectives to assist the Government to design its programof decentralization and regional economic management and to train regional and localgovernment staff to implement these programs were partially met, however, withsignificant delays and diversions. Although the project has provided support to thesuccessful Popular Participation program, the recently passed Decentralization Lawcontains some previously identified problems, including the lack of a clear framework forthe division of responsibilities and functions between the different levels of Government.Nevertheless, these deficiencies were dealt with in the regulations to the law.

21. Public Sector Management Component: As initially designed, the two major objectives ofthe PSM program were: (i) the immediate need to fill approximately 500 core higher levelpositions (directors to mid-level managers) in the central ministries; and (ii) the longer-termobjective to develop and implement a comprehensive civil service reform. The purpose of thePSM program was to improve the quality and efficiency of the delivery of public services in partby implementing a system to attract, select, hire, retain and develop highly technical andcompetent public servants. To achieve these objectives, the project supported a PSM Secretariat(responsible for administering the program and carrying out policy related work), and a numberof important civil service studies (including analyzing 10 agencies and 3 RDCs) designed toprovide data so that decisions could be made about public employment, including defining thescope and focus of the comprehensive reform. Additional analytical would define pay andemployment conditions, including policies on hiring, firing, salary increases, and evaluations,and help to determine the "critical" Government positions.

22. The first Government proposal for the PSM program was presented at the 1988 meetingof the Consultative Group (CG), and the donors expressed a willingness to support the programas long as steps were taken toward fundamental reform. Over the next few years, there wasconsiderable progress toward developing the program, including developing and testing a manualoutlining procedures for identifying, selecting, and evaluating candidates for key positions.However, there were also disruptions caused by transferring institutional responsibility for theprogram (from the MPC to the Ministry of Finance), and the lack of a director for one year (frommid- 1991 to mid- 1992). In mid- 1992. efforts intensified as a new Director was appointed, thePSM Secretariat was created, and a long-term contract to the Centro Latinoamericano deAdministracion para el Desarrollo (CLAD) was awarded for studies (including estimating thecosts of the reform ), establishing a personnel management system, and preparing a trainingprogram. Also in 1992, a framework for a PSM program was developed, including sectioncriteria and terms of reference for key positions in the pilot agencies (MOF, MACA, and DGII).The studies on the financial aspects of the scheme-pay and employment conditions,management, financial control, and auditing procedures-and on the design and implementationof the comprehensive program, proceeded slower than expected, but progress was made. In closecollaboration with donors (primarily the Dutch and Swiss) the pilot programs were introduced,and through this process the recruitment and selection procedures were developed, tested, andrefined.

23. Through the CLAD contract, a comprehensive organization and human resourcesinformation system (Sistema de Organizaci6n y Recursos Humanos--ORH) was developed and


piloted in the Ministry of Finance. Based on the result of the studies and pilots, in late-1992 theGovernment re-focused its efforts and launched a civil service reform program. This programwas partly designed in response to concerns expressed both by IDA and other donors on the needto: (i) place the program within an overall framework that tackled the central publicadministration and established appropriate institutional structures and staffing; (ii) ensure fiscalfeasibility; and (iii) apply transparent procedures for the selection of public employees. Theprogram targeted the central public administration (about 14,600 employees) and through arealignment of the skills mix, envisioned a reduction to approximately 9,500 employees over a10 year period. The program introduced the use of transparent selection processes (that wereimplemented with donor participation), and established a more favorable compensation scale forselected public employees. The salaries of those incorporated into the program were increasedsignificantly with some financing provided by the treasury, but substantial contributions by thedonors.

24. The new Government (1993) expressed its commitment to civil service reform andestablished a goal of incorporating 460 public servants into the program by end-1994. Despite achange in the program's director, there was a high degree of continuity with respect to technicalpersonnel and program design. However, mainly due to the executive branch reorganization andthe fiscal implications of the Government's ambitious reform program, the scope of the civilservice program was questioned and reassessed. At the 1994 CG Meeting, it was announced thatthe program had been scaled down and would be limited to 1,200 management level positions. Inearly-1995, the scope and coverage of the program was again reassessed and another program(incorporating about 2,500 positions) announced. Additional personnel and institutions continuedto be incorporated into the program during these years, but by end- 1995, the program hadincorporated less than 300 positions.

25. Since the late-1980s, there has been consensus between the Government and the donorsthat the lack of highly qualified public servants has affected the implementation of economic andsocial programs. The low remuneration of civil servants led to a constant exodus of qualifiedstaff, especially at the managerial and technical levels and in turn resulted in the emergence of anad hoc system by which international organizations competed for human resources and financedGovernment line positions as "consultants". For example, all line positions at the middle andupper levels of several key central ministries (including the MPC), were occupied by externally-financed consultants working under different contracts, salary scales, terms of employment andterms of reference. As there was no universal salary structure, many donor-financed consultantsoperating in line positions jumped from one assignment to another in search of higher salaries,and the competition among the donors for the limited supply of well-trained Bolivians increasedthe salaries. In early- 1990, job classifications and a salary scale were established, but the use ofthe scale was not enforced and not adhered to.

26. In some respects, the accomplishments of this component were weak with regard to whatwas accomplished, because of: (i) frequent changes in leadership that contributed to a lack ofcontinuity and momentum; and (ii) numerous changes in the scope/coverage of the program withlittle emphasis on analyzing the aggregate financial effects, including fiscal feasibility. On thepart of the Government, there was also some hesitation in settling the salary issue mainly because

-11-Implementation Completion Report Bolivia EMSO (Cr. 197 7-BO)

of the benefits received by the few well qualified individuals who resigned from the publicservice to become foreign-financed "consultants". In addition, real political commitment to theprogram was sometimes questioned, as public sector jobs in Bolivia had traditionally been usedas rewards for political loyalty. Thus, a change in administration was accompanied not only bychanges in philosophy, but with extensive replacement of personnel at all levels. However,during the 1993 administrative transition, the incoming Government generally respected theformal appointments made in the Civil Service Program. Furthermore, since early-1995, theGovernment has undertaken a number of actions-including reformulating and integrating thecivil service and administrative reform strategy, demonstrating leadership required for theeffective implementation of the program, and establishing the required legal and regulatoryframework-to demonstrate its commitment to implementing a serious civil service reformprogram in conjunction with other administrative reforms to strengthen its ability to deliverservices. This reform continues to receive IDA support from the Civil Service andAdministrative Reform Project (CSAR) currently under preparation.

Summary: The objective to increase civil service productivity through the immediaterationalization of the salary structure, and in the medium term, through the establishmentof a sound public sector management and personnel system in order to attract and keepmotivated civil servants was met to a limited degree. While considerable progress wasmade in developing the program, including developing and testing a manual outliningprocedures for identifying, selecting and evaluating candidates and about 300 positionswere incorporated into a formal civil service program, before mid- 1995, little progresswas made rationalizing the overall public service salary structure (i.e., there was nostandard government or donor pay structure). However, since the closing of the project,the Government has shown a commitment to implementing a civil service reformprogram. The program developed in conjunction with the proposed Civil Service andAdministrative Reform Project (CSAR)-at an advanced stage of preparation-demonstrates the substantial progress that has been made in realizing this reformprogram.

27. Strengthening of Statistical Services: This component was designed to strengthen theability of the National Statistical Institute (INE) to carry out socio-economic survey work andimprove their national income accounting capabilities. Thus, the program supported: (i)improvements in the national accounts, including the development of regional national accounts,an income and expenditure survey, and new consumer price indices9 ; (ii) a number of rounds ofthe Integrated Household Survey (EIH); and (iii) a multipurpose LSMS-style Living StandardMeasurement Survey and a rural household survey. With regard to the latter, it was agreed thatINE would: (i) conduct two surveys each year that would contain the same base questionnaireand a supplementary section; (ii) gradually extend the coverage of the survey, making itnationwide by 1990; and (iii) undertake rural household surveys starting in 1990.

28. Project support to INE, primarily through computers, personnel and vehicles, began inlate- 1988. Following the appointment of a new Director (fall 1989), a priority became updating

The supplements--modules on education, health, expenditures, labor market activities, demographicinformation and housing characteristics--would vary, but each year one survey would contain a supplement oneconomic data and the other contain a supplement on social data.


the national accounts, including changing the methodology/base year (from 1980 to 1988) andstarting to develop regional accounts. Despite numerous significant delays, the 1988-basedRegional National and Sectoral Accounts (1988-92) for five sectors and all regions werecomplete and published in 1994. While there were also delays in carrying out the EIH-theproject provided total or partial support for five different rounds-they were done annually andduring late- 1992, the project supported computer-assisted programs and training that enabledmore rapid collection and processing of information. In summary, the project provided supportfor numerous socioeconomic surveys, including: (i) five rounds of the EIH (to monitor theimpact of economic policies on vulnerable groups); (ii) the Food Consumption MonitoringSurvey, that provided information for standardizing weights and measurements for differentproducts in different regions; (iii) the Consumer Price Index survey, that resulted in an improvedmethodology incorporating price data from more cities; (iv) Regional and Sectoral NationalAccounts that were re-based and used a new methodology; (v) the Geographic System thatallowed for the digitalization of data and maps; and (vi) development of a comprehensiveeconomic and social database (the National System of Statistical Information). The technicalsupport provided by the project was complemented by assistance provided by USAID and the USBureau of the Census.

Summary: The objective of monitoring the impact of economic policies on vulnerablepopulation groups through a living standards measurement survey and generallyimproving the quality and coverage of national statistics was met in p2art While workremains to fully achieve these objectives, the project contributed significantly todeveloping tools to monitor the impact of economic policies on the poor and improvingnational statistics. Nevertheless, the component faced a number of challenges, includingfrequent changes in management and staff. Furthermore, given INE's high dependence onforeign financing, future rounds of surveys developed under the project are in no wayensured.

29. Training. Although not a separate component, the project supported considerable trainingactivities and the maintenance of a project training coordinator (with the responsibility fordeveloping a training plan) was included as a legal covenant. Prior to mid- 1992, training wasvery active, with courses held for the MPC (public investment planning) and INE. The trainingcoordinator was also good in establishing relationships with training institutions in othercountries and in securing additional funds for courses. While the training did contribute toimproving human capital in the supported institutions, the benefits were somewhat limited giventhe high staff turnover. In addition, for a number of years, the implementation of the publicinvestment training program was limited due to a weak overall strategy between the MPC, sectorministries, and RDCs. For this reason and a change in the training coordinator, training activitieswere limited after mid-1992, and the role of the training coordinator was changed to includefollowing up on work programs and evaluating the output of the various components. Morecomprehensive training strategies were developed for each component, and specific trainingactivities were developed by component specific training coordinators (most important for civilservice and public investment). At various times, concerns were expressed about the: (i) highreliance on international consultants to even teach the most basic courses on financial andeconomic analysis; and (ii) length, complexity, and intensity of courses. Finally, administrative


procedures imposed by U`NDP/OPS placed a burden on the training program and on occasion ledto delays in payments to service providers.

30. Furthermore, in the final six months of the project, limited support to strengthen andproduce important studies and/or legislation was provided to three additional key economicinstitutions: (i) the Unidad de Andlisis de Politicas Economicas (UDAPE), the Government'seconomic policy unit; (ii) the Comision Nacional de Valores (CNV), the Stock ExchangeCommission; and (iii) the Unidad de Andlisis de Politicas Sociales (UDAPSO), theGovernment's social policy unit.

31. Project Management: To minimize disruptions from changes in administration, theproject required: (i) establishing a Project Coordinating Unit (PCU) and appointing a projectdirector; and (ii) entering into Management Services Agreement (MSA) with a local procurementagency. The main responsibilities of the PCU were to: (i) ensure coordination among thedifferent implementing agencies, cofinanciers, and IDA; (ii) assist implementing agencies inpreparing annual work plans and budgetsl1 ; (iii) prepare progress reports; and (iv) oversee theprocurement of goods and services. The Government entered into an MSA with UNDP/OPS(April 1988), that was subsequently extended throughout the life of the project.

32. In part due to the two administration changes, there were five different projectcoordinators during the life of the project. Since the day-to-day responsibilities for substantiveproject matters were in the hands of the various implementing agencies and UNDP/OPS wasresponsible for contracting services, project activities continued even during the transitionperiods. While the intention had been to create a PCU with only administrative responsibilities,at times the PCU became rather top-heavy and expensive. Initially, a significant share of fundswent to the PCU, making project management the most costly "component" of the project. Atother times, the large PCU made significant contributions to improving the quality of the work,including maintaining tighter control over the use of project funds. During periods of strongimplementing agencies, the size of the PCU was reduced, but nevertheless, project managementabsorbed more than 10 percent of the credit funds.

33. At times, the use of UNDP/OPS imposed serious impediments to project implementation.Although UNDP/OPS procedures were viewed as overly bureaucratic and inflexible, theycontributed to better control over the use of project funds. However, the most serious problemswith the use of the MSA were caused by a sometimes unclear relationship between theUNDP/OPS operating unit in La Paz and their headquarters. More specifically, mostly theresponsibility of headquarters, there were delays in submitting withdrawal applications,justifying use of funds, and in renewing the MSA. For example, a delay in submitting awithdrawal application to IDA resulted in UNDP being without funds for four months (early-1991), and the MSA lapsing (11/91 to 1/92) meant that no new contracts and other expenditurescould be committed for three months. Starting in mid-1992, a number of steps were taken toalleviate these and the other types of problems. Further MSAs were amended to allow for: (i) the

I0 Annual work programs and budgets for each component were prepared and discussed in November/Decemberof each year.


use of two different types of contracts- "line positions" and lump-sum contracts for specificoutputs-for local consultants; (ii) revised contract clauses that established a closer relationshipbetween the Government and the consultants; (iii) UNDP/OPS management of the Swiss funds;and (iv) inclusion of performance criteria to address processing delays. Audits for the creditwere not carried out by the Government because they were under the umbrella of the MSA withUNDP/OPS. However, copies of the annual audited statements prepared by the designatedauditors of UNDP/OPS were provided.

34. Cofinancing: In April 1989, the Governments of Bolivia and Switzerland signed anagreement for a non-reimbursable contribution of SwF 4 million (US$2.5 million equivalent atthe time of appraisal, however, equivalent to US$2.9 million by the last year of the project) tocofinance the project. The funds were administered by IDA based on a 1987 ProceduralArrangement. The funds contributed to the public investment, regional management and publicsector management components of the project. US$0.5 million of the Swiss fund was earmarkedto assist the MACA to improve its sectoral analysis and public investment programmingcapabilities. The IDB also cofinanced the tax administration component in the amount ofUS$0.8 million, and provided parallel financing to the public investment component. In theSAR, the Government's contribution to the project was estimated at US$1.2 million, but byproject closing, the actual Government contribution was noticeably higher (about US$2.2million). The SAR anticipated financing from the Government of Italy that never materialized.At project closing, undisbursed balances remained-SDR 72,206.11 from the IDA Credit andSwF 397,793.10 from the Swiss cofinancing (a total equivalent of US$0.42 million at currentexchange rates)-that were subsequently canceled.

Association Performance

35. The first identification mission for the project took place in late-1986, the project wasappraised in May 1988, and the project was approved in December 1988. Prior to Boardpresentation, total time allocated to the project was 115 staff weeks during FY88-FY89, or anaverage of about 70 staff weeks per fiscal year. Given the complexity of the project, many of theproject components were supervised independently, adding significantly to the supervision costs.During the supervision period, FY89 to FY95 a total of about 170 staff weeks were spent onsupervision or an average of about 25 staff weeks per fiscal year. On average, one large stand-alone supervision mission was carried out each year, but at least during the latter years of theproject, partial supervision missions were held on average three times a year. The Bank's taskmanager for the project changed in March 1992 and supervision intensified with greatersupervision responsibility also given to the Resident Mission. These actions resulted in a moreclosely supervised project that was also more able to adapt and respond to events occurring inBolivia. However, the considerable resources devoted to preparing and supervising the projectwere unavoidable given the number of components and the complexity of the project.

36. The project was implemented on the basis of work programs that were discussed andagreed on annually. While such a system worked well to establish priorities for a given year,actual follow up on fulfillment of work programs was often lacking. Finally, the projectcontributed significantly to the perpetuation of the current system of donor-financed consultants


operating in Government line positions. During project design and implementation, greaterefforts should have been taken to minimize the use of project funds for this purpose.

Borrower Performance

37. New Governments meant shifts in strategy, changes in priorities and in personnel, as wellas changes in the basic philosophy and role played by different Government agencies, especiallythose involved in economic planning and development.- The changes in administration-all ofwhich involved changes in project management and frequently changes in institutionalresponsibility for project components-contributed to a lack of continuity and a decrease inmomentum. The project was appraised and negotiated under one Government, and implementedunder two different Governments. Changes in administration meant uncertainty about thespecific elements of the policy framework and generally resulted in the introduction of a "new"set of priority reforms. Naturally, such changes in administration are inevitable and can bemanaged through well-planned and smooth transition processes that include maintaining keypersonnel. However, the "reforms" and measures supported by the project-primarily civilservice and decentralization-were generally not on the list of new Government's priorities, as aresult, generally for at least six months prior to and six months proceeding an election projectactivities slowed substantially. Furthermore, many components of the project suffered fromfrequent high turnover in personnel, both at the technical and director levels.

38. In addition, the Government institutions that benefited from the project continue to have ahigh reliance on foreign financing, both for personnel and for other current expendituresassociated with carrying out the day-to-day activities of the units. As such a practice is likely notto be sustainable in the longer run, the Government should have made greater efforts to carry outday-to-day activities using Treasury resources and using the foreign technical assistance funds toovercome the identified institutional weaknesses.

Assessment of Outcome and Project Sustainability

39. During the lifetime of the project, the development objectives and implementation statuswere generally rated satisfactory. At times, however, due to changes in key project personnel,lack of counterpart financing and project management problems related to the status of the MSA,ratings in other specific categories suffered.

40. The prospects for the long-term sustainability of most of the sub-components aregenerally favorable. Despite a high dependence on foreign-financing for consultants operating inGovernment line positions, many of the functions supported by the project-especially, publicinvestment planning, and statistical services-are essential and will have to be continued even inthe absence of project financing. Furthermore, given the current Government's commitment tothe Popular Participation program and the general popular/political support for decentralization,the sustainability of these programs are also generally favorable. The component that is mostquestionable in terms of sustainability is the PSM because of a number of factors, includingimplementation risks that: (i) leadership and coordination of the implementation of the reformprocess may not be sufficiently strong and integrated to ensure success; (ii) political commitmentmay not be sustained across successive changes in Governments-i.e., the reform supported by


the CSAR will not be completely implemented until 2005 or after another threecongressional/presidential elections ; and (iii) the program proves to be fiscally unsustainable.As currently designed and intended by the Government-to incorporate only about 2,500 publicemployees-the program is fiscally feasible. However, there are likely to be pressures to expandthe program (i.e., grant significant salary increases) to additional groups of public sectoremployees-for example, at the prefectura and/or municipal levels. If the program is notcontained, the fiscal consequences would likely be unsustainable.

Current and Future Operations

41. The proposed Civil Service and Administrative Reform Project, currently underpreparation, will continue to assist the Government in further strengthening its economicmanagement abilities. Specifically, this credit will support the implementation of a civil servicereform that is linked to implementation of the administrative support systems mandated by theFinancial Administration and Control (SAFCO) Law and the introduction of management reforminitiatives and meeting key performance targets. Related operations currently on-going include:(i) the Municipal Sector Development Project, that is supporting strengthening the economicmanagement capabilities at the municipal level, including development of a municipal civilservice; and (ii) the Rural Communities Development Project, that is helping to operationalizeand institutionalize the participatory planning processes at the municipal and community levels,following the principals laid down in the Popular Participation Law; and (iii) the Second PublicFinancial Management Operation (PFMO II), that supports complementary efforts to strengthenthe Government's financial management ability. The proposed Public FinancialDecentralization and Accountability Project is related to the latter project and will providesupport to strengthening financial management capabilities at the decentralized levels (i.e.,prefecturas and municipalities).

Key Lessons Learned

42. The key lessons leamed may be summarized as follows:

* It is difficult to implement a complex and comprehensive technical assistance projectthrough more than one change in administration. In addition to shifts in philosophyand basic strategies, each change in administration can bring changes in priorities,personnel, and the roles of different Government agencies. The lack of continuityresulting from these changes results in slow progress.

* Government commitment, general policies, priorities, sectoral objectives andmanpower needs must be clearly defined and monitored for such a program to beimplemented successfully and in a timely manner.

These risks and the other identified risks of the CSAR--i.e., management reform risks and financialsustainability risks--are discussed in more detail in the Public Information Document on this project.


* The success of certain reform programs is dependent on the environment in whichthe reform takes place. As institutional strengthening aims at changing the behaviorof institutions and the personnel in these institutions, introduction of change is oftenin conflict with existing norms and may threaten the informal institutional culture.

* Communication and coordination among all entities involved is critical to thesuccess of such a technical assistance project with numerous components, manyagencies and many small contracts. Successful implementation requires closecooperation, clear-cut decisions at the highest levels and clear delineation ofresponsibility.

* To effect capacity building and strengthening activities, an adaptive approach has tobe taken. A great deal of flexibility is required, especially in a politically sensitiveenvironment, and the process is lengthy.

* While the design of a comprehensive and complex technical assistance project maybe cost effective in terms of project preparation, it can be costly to effectivelysupervise and manage, both on the part of the Bank and on the part of theGovernment. In this case, the level of complexity led to many extensions andreduced project effectiveness. The number of objectives/components must beprioritized and limited within any project to ensure achieving those objectives.

- For implementing agencies, institutional strengthening technical assistance projectsare often viewed as "budgetary support". It is essential that such projects do notallow institutions to place greater reliance on external sources to finance day-to-dayactivities of Government.

E Existing institutional capabilities must be factored into project design. If the long-term objectives are to be achieved, then more attention must be paid to the presenceof counterparts, counterpart funds, and the political and institutional environment.

* The developmental impacts of training personnel, providing computers and otherequipment, designing and implementing procedures, regulations, norms and systemsare not short-term. They can only be measured in terms of increased productivity,efficiency and viability of economic institutions over many years.


PART II. STATISTICAL ANNEXES

Table 1: Summary of Assessments

A. Achievement of objectives Substantial Partial Negligible NotApplicable

Macro policies O E3 0 a

Sector policies E 2l O

Financial objectives O E2l O O

Institutional development E 21 O E

Physical objectives a 0 0 El

Poverty reduction [ 21 0 a

Gender issues E El 01

Other social objectives 0 [1 El 0

Environmental objectives E 0 O 21

Public sector management 0 0 0 0

Private sector development 0 El 0 0

Other (specify) El O C1 21


B. Project sustainability Likelv Unlikely Uncertain

0 ~~~~0 El

HighlyC. Bank performance Satisfactorv Satisfactory Deficient

(1) (v") (V)

Identification a El [1

Preparation assistance E El O

Appraisal E 0l E

Supervision El El E

HighlyD. Borrower performance Satisfactoa Satisfactr Deficient

(v') (V) (/)

Identification E El E

Preparation assistance E El E

Appraisal El 0 a

Supervision El 0 0

Highly HighlyE. Assessment of outcome Satisfactor Satisfactr Deficient Unsatisfactory

(1) (V) (V) (V)


Table 2: Related Bank Credits

Year ofCredit Title Purpose Approval StatusOperations Preceding EMSOPublic Financial Management Improve Government's 1987 ClosedCr. 1809-BO Financial Management

Ability, including taxcollection

Operations Following EMSOPublic Financial Management II Continue strengthening 1991 On-goingCr. 2279-BO financial management abilityMunicipal Sector Development Project Improve municipal 1994 On-goingCr. 2560-BO management, including civil

serviceRural Communities Development Project Support to participatory 1995 On-goingCr. 2772-BO planning processCivil Service and Administrative Reform Implementation of civil Expected Proposed

service reform 1997


Table 3: Project Timetable

Measures Planned Date Actual date

Time taken by Country to Prepare Credit 18 monthsIdentification Mission April 1987Initial Preparation Mission December 1987Pre-Appraisal Missions May-June 1988First Presentation to the Bank August 1988Appraisal Mission June 19881'Delivery and Discussion of Project August 1988Negotiations November 10- 11, 1988Approval By Board Directors December 22, 1988Credit Signing January 1, 1989Date of Effectiveness February 1989 May 24, 1989Supervision Missions September 1988(Partial and for Specific Components)

March 1989September 1989March/April 1990October 1990January 1991July 1991September 1991March 1992December 1992February 1993April 1993November 1993March 1994June 1994November 1994March 1995

Closing date EMSO and Swiss Grant Agreement June 30, 1992 June 30, 1995LNotes:1. After approving the report from the pre-appraisal mission, Regional Management decided to consider that

mission the appraisal mission.2. Closing date was extended three times: (i) December 31, 1993; (ii) December 31, 1994; and (iii) June 30,

1995


Table 4: Staff Resources used in Credit Preparation/Supervision(Staff Weeks)

Stage/Fiscal Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 TotalPre-appraisal 97.5 97.5Appraisal 17.6 17.6 35.2Negotiations 6.6 6.6Supervision 18.9 33.3 20.4 33.4 33.6 19.4 13.1 172.1Completion Report 4.0 4.0

Total 115.1 43.1 33.3 20.4 33.4 33.6 19.4 13.1 4.0 315.4


Table 5: Estimated Project Costs(US$ Thousands)

Estimated Costs Local Foreign Total % of ForeignExchange

Economic ManagementPIP Fonnulation & Implementation 3,030 2,772 5,802 69Tax Administration 412 926 1,338 48Regional Planning and Management 899 828 1,727 48Public Sector ManagementPSM Strengthening 397 498 895 56Civil Service Studies 175 273 448 61Support to Statistical Services 1,800 778 2,578 30Project Management 979 221 1,200 18Total Base Costs 7,692 6,296 13,988 45Physical Contingencies 327 127 454 28Price Contingencies 1,686 461 2,147 21Total Project Costs 9,705 6,884 16,589 41


Table 6: Estimated Cost by Component by Year(US$ Thousands)

1988 1989 1990 1991 TotalEconomic Management

PIP Formulation & Implementation 610.2 2,556.3 3,052. 693.1 6,911.8Tax Administration 280.3 1,242.0 - - 1,522.3

Sub-Total Economic Management 890.5 3,798.4 3,052. 693.1 8,434.1Regional Planning and Management 310.0 684.4 604. 430.4 2,028.9Public Sector Management

PSM Strengthening 59.6 362.1 382. 232.1 1,036.1Civil Service Studies 159.6 361.3 - - 520.9

Sub-Total Public Sector Management 219.1 723.4 382. 232.1 1,557.0Support to Statistical Services 1,070 1,183.8 518. 365.5 3,128.9Project Management 198.6 516.0 377. 348.1 1,440.6Total Project Costs 2,688.5 6,906.0 4,934. 2,060.1 16,589.5


Table 7: Use of Credit Funds and Swiss Co-financingby Project Component and Source of Funds

(US$ Thousands)

Component/Source IDA Swiss TotalPublic Investment 2,092.74 2,092.74MACA 504.50 34.37 538.87Tax Administration 738.00 738.00Regional 869.56 683.47 1,553.03Civil Service 841.83 1,417.21 2,259.04INE 2,232.74 154.81 2,387.55Coordinating Unit 851.02 851.02Administration1 500.81 135.95 636.76PPF2 959.10 294.19 1,253.29Total 9,590.29 2720.00 12,310.30Notes: I Administration Costs primarily include the fee for the MSA.

2 PPF funds supported: (i) preparation of the Public Investment Component;(ii) expansion of the SISIN; (iii) expanding the financing unit in the DIP;(iv) initial studies for the Regional and PSM components; (v) preliminarysurvey work for the INE household surveys; and (vi) consultants to preparedetailed project action plans.


Table 8: Disbursements by Fiscal Year(l)(US$ Millions)

Source FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 TOTALIDA Planned 1.0 4.3 2.3 2.1 9.7IDA Actual 1.76 1.01 1.00 2.62 3.00 0.05 0.15 9.59Swiss Actual 0.33 1.39 1.00 2.72Total Actual 2.09 1.01 1.00 2.62 3.00 1.42 1.12 12.31

Note: (1) As the majority of project and Swiss funds were included in the Management ServiceAgreement with UNDP/OPS, the majority of disbursements reflect replenishments offunds with UNDP/OPS and not actual project expenditures.

Table 9: Status of Legal CovenantsOriginal Revised

Covenant Fulfillment FulfillmentSection type Status date date Description of covenant Comnments2.01 C Credit Amount:

SDR 7.2 million

2.03 C 06/30/92 12/31/92 Closing Date12/31/9406/30/95

2.04 NYD 04/14 and Payment dates (commitment charges and10/15 each services charges)year

3.01 (a) 3/4 C Government shall carry out the project throughthe Project Implementing Agencies, and shallprovide the funds, facilities, services and otherresources required for the Project.

3.03 (a) 3 C The borrower shall: (i) enter into an agreement Effectiveness condition(b) (MSA) satisfactory to IDA with a procurement

agency for the purposes of providingadministrative services for the Project on behalfof the Government; and (ii) exercise its rightsunder the MSA.

3.04 (a) 5 C The borrower shall maintain a project Effectiveness condition,coordinating unit. along with appointment of

Project Director3.04 (b) 5 CD 01/15/89 The borrower shall establish and maintain a

working group who shall be responsible for theformulation and review of proposals under partsB.2, B.3, and B.4 (decentralization).

3.04 (c) 5 C Issue the necessary supreme decree for theimplementation of the decentralization strategy.

Origia R..... ievised.....Covenxant 0 0gwOnFCRVe ulf.lle ulllmt. ::Section type Status date daeDsipino covenatCmet

3.04 (d) 5 C Issue the necessary executive decree andimplementing regulations establishing andmaintaining the PSM program.

3.05 (a) 9 C not later The borrower and association, shall exchangethan 11/30 views on the progress achieved in carry out theof each Project and the working program for theyear following year.

3.05 (b) 9 C 4 wks prior The borrower shall furnish to IDA a report thatto exchange includes: (i) evaluation of programs and (ii) aof views draft work program for each projecteach year implementing agency for the following year.

3.05 (c) 9 C not later The borrower shall furnish a finalized workthan 12/31 program.of eachyear

3.06 9 CD 03/15/89 The borrower shall submit proposals(satisfactory to IDA) in respect of the criteriaand procedures governing the use of funds forthe pre-investment studies.

3.07 9 CD 06/15/89 The borrower shall submit a training plan(satisfactory to IDA) for carrying out theprovision of training and TA.

3.08 5 CD 03/15/89 09/15/89 The borrower shall appoint, both the director forthe PSM program and the project trainingcoordinator.

Original RevisedCovenant Fulfillment Fulfillment

Section type Status date date Description of covenant Comments3.09 5 C The borrower shall ensure at all times that the

director for the PSM program and both projectdirector and project training coordinator is eacha person whose qualifications, experience, etc. isacceptable to IDA.

4.01 (a), 9 C At all times Maintain separate records and accounts, have Official records maintained(b), (c) the records and accounts audited, retain records by UNDP/OPS

until at least one year after IDA has receivedaudit.

4.01 (b) 9 CD by 6/30 Furnish to IDA certified copies of audit reports. Given that the MSA was with(ii) each year UNDP/OPS, in the early

years there were problemsobtaining audit reports fromUNDP/OPS

6.03 10 C 04/07/89 07/18/89 Deadline for effectiveness

Key:Covenant types: Status:1. Accounts/audit C Complied with2. Financial performance/revenue generation from beneficiaries CD = Complied with delay3. Flow and utilization of project funds CP = Complied with partially4. Counterpart funding NC = Not yet complied with5. Management aspects of the project or executing agency NYD = Not yet due6. Environmental covenants7. Involuntary resettlement8. Indigenous people9. Monitoring, review, and reporting10. Project implementation not covered by categories 1-911. Sectoral or cross-sectoral budgetary or other resource allocation12. Sectoral or cross-sectoral policy/regulatory/institutional action13. Other

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Documents

World Bank Documentdocuments.worldbank.org/curated/pt/276651468211151369/pdf/multi-page.pdfCNV Comisi6n Nacional de Valores (Stock Exchange Commission) CSU Civil Service Unit DGII