The Worl FOR OMFCIL Reprt No. P-5585-CH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT OF US$ 17.2 MILLION EQUIVALENT TO THE REPUBLIC OF CHILE FOR A SECOND PUBLIC SECTOR MANAGEMENT PROJECT (PSM II) September 11, 1991 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURENCY EOUIVALENTS Currency Unit - Chiteen Peso (Ch*) Current Rate (Off icial): US$1 a ChS305 (Average 1990) USS1 = Ch$342 (May 1991) WEIGHTS AND MEASURES fetric System I meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (km2) a 0.386 square mile (sq mi) I metric ton (M ton) a 1.1 US shvrt ton (sh ton) I titer (t) a 0.264178 US getton (gat) FISCAL YEAR January 1 to December 1 PRINCIPAL ABBREVIATIONS AND ACRONYMS CCU Congressional Coordinating Unit CIEPLAN . Corporacion de Investigaciones Economicas para Latinoemerica CORFO = Corporation de Fomento de to Produccion DIMC a Division of Interministerial Coordination FP a Fondos de Pensiones GDP Gross Domestic Product ICB a International Competitive Bidding ILADES a Instituto Latinowricano de Doctrina y Estudios Sociates INC = Interministerial Coaaittee IRS a Internal Revenue Service LCB a Local Competitive Bidding LOC a Library of Congress MIDEPLAN = Ministerio de Planificacion OED Operations Evaluation Department PCR = Project Completion Report PCU = Project Coordinating Unit PPF Project Preparation Facility PROCHILE a Promotora de Chile PSM I = First Public Sector Management Project PSM II = Second Public Sector Management Project SEGPRES a Secretaria de Presidencia SE a Statements of Expenditures SOFOFA = Socieded de Fomento Fabrit SSI = Social Security Institute TA a Technical Assistance TOR = Terms of Reference UNOP a United Nations Development Program USAID = United States Agency for International Development VAT = Value Added Tax FOR OFFICIAL USE ONLY CHILE SECOND PUBLIC SECTOR FANAGEMENT PROJECT (PSM II) Lo,;i and Project Summary BorroLer: Republic of Chile. Beneficiary: Ministry of Finance, Economy, and Labor; Library of Congress. Amount: US$17.2 million equivalent. Terms: Repayment in 17 years, including a 4-year grace period, with interest at the Bank's standard variable rate. Financing Plan: IBRD: US$17.2 million Government of Chile: US$ 6.8 million Total Financial Plan US$24.0 million Economic Rate of Return: Not applicable. Staff Appraisal Report: Not applicable. Mav: IBRD No. 14306R1. This report is based on the findings of an appraisal mission that visited Chile in May 1991, and refects the agreements reached during negotiations (July 15-19, 1991). The appraisal mission was comprised of Donald R. Winkler (Task Manager), Luis-Jose Mejia and Jaime Vasquez-Caro, LATPS. Michael Stevens (CECPS) and David Steedman (AF1CO) acted as Peer Reviewers. The responsible managers are Shahid A. Chaudhry, Division Chief, LATPS and Ping- Cheung Loh, Director, LA4. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 1 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF CHILE FOR A SECOND PUBLIC SECTOR MANAGEMENT PROJECT 1. The following report on a proposed loan to Chile for US$17.2 millin is submitted for your approval. It would finance technical assistance to improve the economic policy management and decisionmaking capacity of the central government and strengthen the analytical capability of the Congress. 2. Background. Over the past two decades, Chile has undergone profound economic, social, and political change. A broad series of reforms instituted over the 1980s touched virtually every aspect of economic and social development- -from the general policy framework to institutions and financing mechanisms. Not only did these reforms fundamentally redefine the role of the State to a more subsidiary one, consistent with the adoption of an economic policy oriented toward growth led by the private sector, but as an integral part of this process the relative size, and distinct administrative and financial responsibilities assigned to each level of government were altered significantly. Many of the reforms undertaken such as revising the nation's social security system from pay- as-you-go to individual-vested accounts, placed new administrative and fiscal demands on the central government. 3. The current Administration, which assumed office in March 1990, has committed itself to maintaining the overall macroeconomic policy direction in its pursuit of growth with equity. While endorsing the desirability of sustaining key elements of the 1980s reforms (e.g., privatization and decentralization), the administration has acknowledged the need to strengthen the government's institutional capacity to translate such development objectives into reality. Indeed, although Chile has a rich pool of human resources and a long tradition of attracting competent professionals into the civil service, further improving the public sector will be an essential corollary to attaining the desired full transformation of the country into a developed, modern economy. 4. Strengthening the policy formulation and financial management capacity of key public sector entities will be essential to permit the new Administration to share macroeconomic and social policy formulation responsibilities with a newly elected Congress; to define public investment priorities; to coordinate development programs across ministries and agencies; and to ensure responsiveness of economic policy to a highly dynamic economy with still substantial vulnerability to both internal and external shocks. 5. Rationale for Bank Involvement. Consolidating a democratic political system after almost 17 years of military rule is among the major tasks which the current Administration has assumed. The new government is under substantial pressure to demonstrate that desired social welfare improvements can be achieved within a democratic setting without compromising macroeconomic stability and growth. It is both an urgent and challenging task of historic importance. 2 6. Pursuing the development agenda within an interactive, multipartite, consultative decisionmaking process, inherent to a democracy, places special demands on the executive and legislative branches both individually and collectively. This process must be totally transparent, and one in which the public has confidence. It thus necessitates enhanced information systems, and staff skilled in policy analysis, budgetary design and performance monitoring. Moreover, the transition to democracy, cou?led with the many institutional changes effected by the past government, including decentralization of social services and establishment of a fully autonomous Central Bank structure, have created new needs for coordination between distinct levels of government, the Ministry of Finance and the Central Bank, and between the Government and Congress to ensure that national resources are efficiently and effectively managed. 7. Indepth knowledge of internal Government operations is essential to strengthen key economic policy and revenue collection entities (amid growing concern over tax evasion); to ensure that an adequate regulatory framework is in place to oversee natural monopolies; and to create select new mechanisms for governance such as the interministerial Committees. The Government increasingly has looked to the Bank to provide the requisite technical assistance to respond expeditiously and decisively to public sector management needs. It perceives the Bank as a neutral, "honest" independent broker which will assess existing inst._tutional capacity from a purely technical perspective and importantly can help strengthen such capacity, building on knowledge gleaned from extensive public sector reform and management experience in other countries. The Bank's involvement in strengthening public sector management, via this project, thus can play a critical role in the redemocratization of Chile. 8. The proposed project would build on earlier Bank efforts to improve economic and public sector management, including three SALs and the first Public Sector Management Loan (PSM I). Lessons learned from PSM I and incorporated in PSM II include the need for strong commitment by the Borrower to the project components, carefully defined project scope, preparation of detailed terms of reference, minimal unallocated funds, and requirements for periodic project review to permit adjustments in design and implementation arrangements. 9. The design of the proposed project is consistent with country development priorities and the Bank assistance strategy. It supports maintenance of a consistent macroeconomic policy framework, through strengthening interagency coordination and economic policy analysis capability (Ministries of Economy and Finance and Library of Congress). It also responds to the need, as documented in recent ESW, to improve revenue administration, the single largest component of the proposed project. 10. Prolect Objectives. The project aims to .mprove overall central governmental management efficiency and to enhance Chile's policy formulation and implementation capacity. Specifically, it would: (a) improve information systems and management of the principal public financial management agencies; (b) increase the quality and facilitate the use of information and subsequent analysis in legislative economic decisionmaking; (c) con-ribute to strengthening the analytical policy and implementation capacity of the government; and (d) enhance the capacity to assess critically issues that cross specific development sectors. 3 11. Proiect Descriptio. . To achieve these objectives, the proje.t would finance consultant services, equipment, and training to: (a) develop and/or improve existing taxpayer and beneficiary management information systems, to include development of performance indicators in four financial management agencies (Internal Revenue Service, Customs, Treasury, and Social Security)(US$7.6 million); (b) improve the capacity of the Library of Congress to provide economic information and analysis, including strengthening its reference holdings (US$5.3 million); (c) provide improved economic data and information systems and analytic capacity to guide decisionmaking in the key ministries of Finance and Economy (US$2.0 million); (d) strengthen the analytical information base available to the Interministerial Committees (US$0.8 million); and (e) strengthen the Ministry of Finance's capacity to manage the proposed project (US$0.4 million). The Matrix of Key Project Activities (Attachment 1) includes information on objectives, physical outputs, substantive impacts and outcomes, timing targets, and agency counterparts. These constitute estimated indicators for the project and will provide the basis for supervision. 12. The total cost of the project is estimated at US$24.0 million, of which US$17.2 million would be financed by the Bank, including US$11.9 million in foreign exchange. The Government would finance US$6.8 million equivalent, or about 28% of project costs. The detailed cost estimates and methods of procurement and disbursements are provided in Schedules A and B and discussed in Annex 1. The project includes refinancing for a Project Preparation Facility (US$376,000) used to finance consultant services and equipment to assist in the preparation of terms of reference (TOR) and to facilitate project implementation. A timetable of key project processing events and the status of Bank group operations in Chile are given in Schedules C and D, respectively. A map of Chile is attached. The detailed project description, and the project administration and impleientation arrangements are given in Annex I. The TOR for major consultancies were agreed to in principle during appraisal and are available in the Project File. The consultants will be selected and equipment will be procured in accordance with Bank guidelines. 13. Actions Agreed. The following agreements have been reached: (a) an annual work plan satisfactory to the Bank for the first year of the project, including objectives, activities, cost, and expected outcomes; (b) the Project Coordinating Unit (PCU) will be established as a condition of effectiveness and maintained with a full-time coordinator during the life of the project; (c) for supervision purposes, the agencies participating in the project will provide measures of physical progress and project impacts satisfactory to the Bank (Attachment I), and the PCU will semiannually report such measures to the Bank; (d) to facilitate comprehensive two and four year reviews, the participating agencies will carry out the action plan specified in Attachment II; and (e) to facilitate evaluation of overall project performance, the participating agencies will institute the agency-level performance indicators delineated in Attachment III no later than July 1, 1992, with the PCU -o provide status reports relative to those indicators to the Bank at six-month intervals during the life of the project. 11. To reduce delays in contracting with consultants, the Government has delegated to the Subsecretary of Finance the signature of World Bank financed contracts with consultants and consulting firms less than 90 days in length and for expenditures less than US$4,500 per month. The Government also agreed that 4 if the "delegation decree" were to be modified or abrogated, thereby adversely affecting the execution of any Bank financed project in Chile, such action would constitute an event of default. 15. A condition of disbursement for the Internal Revenue Service and Customs components is the appointment of subproject component coordinators satisfactory to the Bank. A condition of disbursement for the Ministry of Finance component is the appointment of key .:taff in the International Studies Unit and the Macroeconomic Studies Unit. Conditions of disbursement for the Congress component are the appointment of a subproject component coordinator satisfactory to the Bank and an arrangement between the Ministry of Finance and the Congress stipulating their respective responsibilities with respect to this project subcomponent under terms satisfactory to the Bank. 16. A condition of effectiveness is the esLablishment of a Project Coordinating Unit (PCU) in form and substance satisfactory to the Bank. 17. Benefits and Risks. The project would strengthen key government institutions responsible for national policymaking, especially economic management, and increase the effectiveness of financial management institutions. It would also improve the technical basis for economic policymaking and assist in the design of public organizations, thereby affording the potential for increased economic and public sector efficiency. There is some risk of slow implementation of the Congress component because of that institution's inexperience with management of foreign technical assistance. To minimize this risk, the Ministry of Finance and the Congress will sign a detailed agreement setting forth their respective responsibilities with respect to this component (para. 15); moreover, the Congress will establish a coordinating unit for this project component, satisfactory to the Bank. In add- tion, the project could result in some small increase in Government spending (in addition to the estimated additional US$1 million in operating and maintenance ecsts associated with equipment acquired under the project); it is anticipated that any spending increase would be more than offset by project-related efficiency gains, which have been specified (Attachment I) and will be carefully monitored and supervised. 18. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Lewis T. Preston President Attachments Washington, D.C. Date: September 11, 1991 5 Schedule A Page 1 of 2 CHILE - SECOND PUBLIC SECTOR MANAGEMENT PROJECT Estimated Costs (US$ Thousands) Estimated Costs' Local Foreign Total Consultant Services and Training I. Financial Management 5,520 700 6,220 II. Legislative Information and Analysis 2,392 1,230 3,622 III. Economic Policy Formulation 2,561 620 3,181 IV. Policy Coordination 614 150 764 V. Project Coordination 433 0 433 Subtotal 11,520 2,700 14,220 Equipment and Materials I. Financial Management 4,550 4,550 II. Legislative Information and Analysis 3,585 3,585 III. Economic Policy Formulation 155 155 IV. Policy Coordination 0 0 V. Project Coordination 40 40 Subtotal 8,330 8,330 Incramental Salaries 240 0 240 Price Continkencies2 0 834 834 Proiect Preparation Facility 300 76 376 Total Net Project Costs3 12,060 11,940 24,000 1 Excluding taxes and duties on imported equipment. 2 Calculated as 10% of equipment and materials. Net of 18% taxes and duties. 6 Schedule A Page 2 of 2 CHILE - SECOND PUBLIC SECTOR MANAGEMENT PROJECT Financine Plan (US$ Thousands) Local Foreign Total Bank 5,260 11,940 17,200 Government 6,800 0 6,800 TOTAL 12,060 11,940 24,000 7 Schedule B Page 1 of 2 CHILE - SECOND PUBLIC SECTOR MANAGEMNT PROJECT Procurement Arrangements (US$ Thousands) Procurement method Project Element LCB g/ ICB h/ Other N.A. Total Bank S1 Costs 1. Consultant Services & Training 0 0 7,849 0 7,649 (7,849) 0 (7,849) 2. Equipment 6,100 2,273 870 0 9,243 (6,100) (2,273) (870) (9,243) 3. Incremental Salaries 0 0 240 d/ 0 240 (108) (108) 4. Local Input 0 0 0 6,668 e/6,668 Total 6,100 2,273 8,959 6,668 24,000 (6,100) (2,273) (8,827) (17,200) Note: Figures in parentheses are the respective amounts financed by the Bank. S/ Local Competitive Bidding (LCB) if estimated contract value lies between US$25,000 and US$250,000. b/ International Competitive Bidding (ICB) if estimated contract value is for the equivalent of US$250,000 or more. g/ Other methods include local and international shopping and contracting of consultants it. accordance with Bank guidelines. d/ Financed on a declining basis. a/ The Government's contribution of approximately $6.8 million would consist largely of counterpart staff, local consultants, office space, supplies, secretarial services and vehicle operations. 8 Schedule B Page 2 of 2 Disbursements (US$ Millions) Category Amount Percentage 1. Consultant Services & Training 7.9 100% 2. Equipment 9.2 100% foreign expenditures and local expenditures (ex-factory cost), and 78% locally-procured imported items. 3. Incremental Salaries 0.1 100% of expenditures until December 31, 1992, up to US$60,000 total; 50% of expenditures until December 31, 1993, up to US$30,000 total; 25% of expenditures thereafter. Estimated IBRD Disbursements (US$ Millions Equivalent) FY91 FY92 FY93 FY94 FY95 FY96 FY97 Annual 0.5 3.0 4.2 6.5 2.0 0.5 0.5 Cumulative 0.5 3.5 7.7 14.2 16.2 16.7 17.2 9 Schedule C CHILE - SECOND PUBLIC SECTOR HANAGEMENT PROJECT Timetable of Key Processing Events (a) Time taken to prepare Eighteen months (b) Prepared by Government with Bank assistance (c) First Bank mission June 1990 (d) Appraisal mission departure May 1991 (a) Negotiations July 1991 (f) Board Presentation October 1991 (g) Planned date of effectiveness October 1991 (h) List of relevant PCRe and VPARs First Public Factor Management Project (2504-CH) - 10 - Schedule D Page 1 of 2 THE STATUS OF BANK GROUP OPERATIONS IN CH E A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1991) Loan or US$ Million Credit Fiscal Amounts (less cancellations) Numtber Year Borrower Purpose Bank IDA Undisbursed 35 loans and one credit fully disbursed 1,538.9 22.881 0.0 2481 1985 Chile Agri. Serv./Credit 56.0 - 7.5 2504 1985 Chile Technical Assistance 6.5 - 0.1 2606 1986 Chile Ind. Fin. Restructuring 100.0 - 1.2 2613 1986 ..... CORFO Small & Med. Industry 40.0 - 5.8 2651 1986 EMOS Santiago Water Supply 60.0 - 49.5 2832 1987 CORFO Hydroelectric 50.5 - 33.3 2833 1987 ENDESA Power Transmission 21.5 - 5.8 3028 1989 Chile Urban Streets & Maint. 75.0 - 52.8 3030 1989 Chile Housing II 200.0 - 53.5 3053 1989 Chile Industrial Finance II 75.0 - 10.7 3120 1990 Chile Road Sector II 224.0 - 155.1 3143 1990 Chile Financial Markets 130.0 - 74.9 TOTAL 2,577.4 22.9 of which has been repaid 527.4 8.8 TOTAL NOW OUTSTANDING 2,050.0 14.1 AMOUNT SOLD 7.2 of which has been repaid 7.2 TOTAL NOW HELD BY BANK AND IDA 2.Q428 TOTAL UNDISBURSED 4 I/ Includes exchange rate adjustments. The original amount of the credit was US$10.0 million. - 11 - Schedule D Page 2 of 2 B. STATE~M1!N 0? 1FC INVESTMENTS (as of March 3L. 1991) iscul Type of LAunt n USS MAiMio , 1958,1959 Empfsa M nr d . Copper miin 37.30 9.25 46.55 1966, 1984 Manto Bnces 1959 and FIdeo~ Y AUGmen~ Food products 1.50 0.15 1.65 1965 Car S.A. 1960, 1961 C*mento Bio.I S.A. Cement 1.20 0.10 1.30 and 1965 1963 Cia. Manufacenera de puip and paper 3.00 - 3.00 Papeas cartesa (CMPC 1970 lMiners Segasa S.A. Copper mining - 10m5 0.45 10.90 1982 Inverchle Money and capital - 0.20 0.20 markets 1986, 1988 Cape RIom Chemicals h petro- 95.0 5.0 100.0 chemicals 1986 Compan a de Carbones Mining 16.50 2.20 18.70 de Chile (COCAR) 1987, 1988 Arauco Pulp and paper 130.87 130.87 and 1989 1988 Chile Fund (CIC) Money and caphal -. 4.65 4.65 markena 1988 IMCO Mony and capitul - .06 .06 markets 1989 uCC Mony and capitl - 3.75 3.7S atarkeen 1989 Escondida Mining 70.00 15.00 85.00 1990 Ftve Arrow Mony and captal - 4.85 4.85 mark~rs 1990 Celpac pulp and paper 73.00 10.00 83.00 1991 Andino Monsy and capitda 10.00 - 10.00 marken 1991 CTC - UTilky 80.00 19.09 99.09 ToWt gr~s commt nt 528.82 74.75 03.58 issaceflat , t«rMadan~ns, epaymentand sals . .. ' m Tot nmnents now held by IFC .3 40-66 . 50.4 - T~aUd usd 59.97 4.2, 64.09 y In edditnon, 855 mi«n in IMA and quas~-equiy was approved la March 1989 for a pua p and pperprofeeL 12 Annex I CHILE SECOND PUBLIC SECTOR MANAGEMENT PROJECT SECTION A. PROJECT DESCRIPTION 1. Background. Over the past two decades, Chile's public sector has experienced a number of important structural changes. Central government employment and expenditures have been reduced, while important functions (e.g., social security, education) have been partly privatized or decentralized to municipal governments. Government's role in guiding economic activity has been reduced and rationalized, and most public enterprises have been divested. More recently, the Central Bank was given autonomous status, and civil service protection extended to most government employees. These changes have been supported by the Bank, including the First Public Sector Management Project (PSM I). That project increased public sector efficiency through the finance of management improvements in several public agencies. 2. Despite the contribution of the policy reforms of the prior two decades, the new Administration entered office in March 1990 facing a number of potentially serious problems in public sector management. They include (i) risk of fraud and tax evasion and inefficient resource allocation in institutions responsible for tax collection and benefits administration; (ii) insufficient objective and analytic information to inform legislative actions in economic policy; (iii) inadequate analyses of fiscal, trade, and market policies to inform ministerial decisionmaking; and (iv) potential paralysis in decisionmaking on interministerial issues. While each problem has a number of distinct causes, the more important causes ares (i) outdated or obsolete computer and information systems in financial management institutions, combined with reductions in personnel or increases in workload; (ii) lack of investment in and neglect of public institutions responsible for informing legislative decisions on economic policy; (iii) institutional changes that remove Central Brnx analysts from the Ministry of Finance and create privatized natural monopolies requiring government regulation; and (iv) redundant ministerial responsibilities combined with inadequate mechanisms for coordinating policies across ministries. 3. Proiect Components. The Second Public Sector Management Project (PSM II) would finance the services of international and national consultants, both long and short term, staff training, equipment, and studies to (i) increase the efficiency and effectiveness of Government operations to raise revenues and administer benefits; (ii) improve economic policymaking of the legislature through provision of information, analysis, and communication; (iii) improve economic policy analysis and implementation of the Ministries of Finance and Economy; (iv) improve policy coordination and government organization; and (v) ensure sufficient capacity to coordinate and manage the project. A matrix of key project activities and objectives is included as Attachment I to this Technical Annex. 4. The efficiency and effectiveness of Government operations to raise revenues and administer benefits are increased by financing consultants, equipment, and training to four financial management institutions: the Internal Revenue Service (Servicio de Impuestos Internos), the Treasury (Tesoraria), 13 ANNEX 1 Page 13 Customs (Aduanas), and the Social Security Institute (Instituto de Normalizaci6n Provisional). 5. Legislative information, analysis, and communication to improve economic policymaking is enhanced by financing consultants, equipment, training, and studies to: strengthen information and reference services provided by the Library of Congress (LOC); and increase the utilization of information and analysis in policymaking by educating users and improving the communications system between the LOC, the Congress, the Ministries, and other users of Library services. 6. Economic policy analysis and implementation are improved by financing consultants and supporting equipment and studies to the Ministries of Finance and Economy. 7. Policy coordination and government organization are improved by financing studies to examine interministerial problems and issues, including an external evaluation of the INCs leading to recommendations for improvements. 8. Capacity to coordinate and manage the PSM II project are increased by financing consultants to manage consultant contr-%cts and equipment procurement, prepare semiannual and annual project reports, and monitor the progress of all project components. 9. PSM II will complement technical assistance provided by other international and bilateral agencies. UNDP initially financed key staff positions in several ministries to enable the Government to operate under severe budgetary restrictions during its first year in office. USAID has provided assistance to the Catholic University of Valparaiso to provide training for the new Congress. 10. Past Experience. Past Bank experience with free-standing technical assistance loans provides several lessons that are incorporated in the design of PSM II. These lessons are derived from OED assessment of free-standing technical assistance in Africa and LAC Technical Department evaluations of recently completed public sector management projects in Chile (2504-CH) and Peru (2204-PE). 11. These lessons include: (i) TA projects should be limited in scope to permit adequate preparation, focused implementation, and adequate supervision; (ii) Borrower commitment is essential to develop a sense of ownership of project activities in affected institutions, resulting in effective implementation; (iii) unallocated funding in the project design should be minimized; (iv) there should be continuity in project management; (v) terms of reference for consultants and studies should be spelled out in detail prior to project negotiations; and (vi) there should be periodic evaluation of projects to permit adjustments in design and implementation arrangements. 12. The First Public Sector Management Project (PSM I), which closed on December 31, 1990, demonstrates some of these lessons. As approved by the Board on March 14, 1985, the loan provided US$11.0 million to improve: (i) public sector investment planning; (ii) public enterprise management; (iii) economic statistics; and (iv) export promotion activities. Only those proposed consultancies and studies for which detailed terms of reference were prepared prior to project effectiveness were implemented quickly. Since there were 14 ANNEX 1 Page 14 US$2.0 million in unallocated funding and most consultancies and studies were not well-defined, only 5 percent of the loan was disbursed two and one-half years after the date of effectiveness. A cumbersome arrangement for project administration combined with frequent changes in project coordinators contributed to implementation delays. 13. Slow implementation, changing country conditions and needs, and renewed commitment by the Government to the project led to changes in project priorities, reduction in the loan amount to US$6.5 million, and full specification of all project components in February 1988. The revised project provided financing for: (i) public sector investment and planning (US$2.0 million), including a household survey to assess social program targeting, developing a regional data network to expedite work of the Contraloria, and conducting an organizational study of Fiscalia to recommend improvements in the Government's capacity to identify and prosecute anticompetitive practices; (ii) public enterprise management (US$ 1.7 million), including development of a management information system to facilitate operation of the Santiago subway as an independent enterprise and development of administrative structures and information systems to reorganize the state-owned water company (SENDOS) into regional corporations; (iii) economic statistics (US$ 1.7 million), including a household survey to develop new market basket weights for the CPI; (iv) export promotion (US$0.5 million), including strengthening PROCHILE to provide technical assistance to small and medium-sized exporters through commercial information systems and international marketing; and (v) other technical assistance, including development of a methodology to measure the environmental impact of energy projects, development of consumer standards for electrical applicances, and development of a fis*aries model. 14. Project revision also led to project administration being streamlined, with the project coordinator subsequently given substantial authority and autonomy. Subsequent to this date, there was substantial continuity in project personnel, and project implementation proceeded with few problems, although the long delay in initiating many project components resulted in two extensions to the loan closing date. Information obtained for the purpose of writing the Project Completion Report (PCR) demonstrates that almost all project components attained their stated objectives, and most project results are being sustained through followup and implementing activities on the part of affected Government agencies. PSM I project activities and results are summarized in Attachment 2 to this Technical Annex. 15. The lessons learned from past stand-alone TA loans, and especially the experience with PSM I, have been incorporated into the design of PSM II. The design of the project also has been guided by Bank country strategy aimed at maintaining the policy framework and improving public sector efficiency both in terms of facilitating well-informed policy and budgetary decisions and carrying out those decisions in a dynamic decisionmaking and implementation environment. Thus, the project strengthens the decisionmaking capacity of select Government institutions as well as modernizes and enhances the capacity to implement existing policies. While different from PSM I in terms of specific project components, PSM II and PSM I are similar in terms of broad objectives and sustaining support for country strategy. 16. In addition to being consistent with country strategy and objectives, the scope of PSH II has been guided bys (i) Borrower commitment to project objectives and components; and (ii) requirements for effective project 15 ANNEX 1 Page 15 administration and supervision. The initial impetus for the project and its components came from the Government, which demonstrated its further commitment by requesting a Project Preparation Facility (PPF) to facilitate and expedite project preparation. The Government has consistently reiterated the high priority it attaches to rapid approval and implementation of PSM II, while recognizing the constraints on processing imposed by the limited experience of many Government decisionmakers with project preparation activities. Effective project administration and supervision requires both a limited, well-defined project scope and detailed preparation of all project components. The scope of PSM II has been limited to four well-defined components, with two components representing 80 percent of loan funds. Terms of reference, including quarterly activity and disbursement plans, were prepared for all consultants and studies during appraisal, and draft bidding documents were reviewed during negotiations. To facilitate administration and supervision, indicators of project activities and outputs were agreed to during negotiations, including those indicators to be used for supervision. 17. Environment. The project does not directly address environmental considerations, in large part because other Bank operations will focus solely on technical assistance to improve environmental institutions. PSM II indirectly affects environmental issues, however, through its strengthening of the IMCs, which may discuss environmental issues in the context of infrastructure or business development policy. I. FINANCIAL MANAGEMENT 18. Four Government institutions have principal responsibility for revenue collection (including taxes, social security and social insurance contributions) and benefits administration (including disability, pension, and family benefit payments). These are the Internal Revenue Service (IRS), the General Treasury, the Customs Office, and the Social Security Institute (SSI). The IRS maintains a register of all active taxpayers of the value added tax (VAT), the income and property taxes and audits taxpayer accounts and returns. The General Treasury is responsible for collecting payments due for the VAT, income, and property taxes; it determines tax liability arrears and receives payments of both current tax liabilities and arrears. Customs reviews taxpayer self-assessments of import duties; inspects and analyzes imported goods; and administers the export subsidy program. The SSI collects pension and health contributions; maintains tax payment, pension benefit, and family benefit records; audits taxpayer accounts and determines arrears; determines pension eligibility and makes pension payments; and issues family benefit payments (asignaciones familiares). A. Framework 19. The Chilean tax system is designed to avoid distortions in relative prices and preserve market signals and incentives, although tax loopholes affect this ideal perspective. Unlike most other countries in the region, the Chilean tax administration environment is generally favorable. Taxpayers essentially support compliance enforcement; tax evasion is not socially sanctioned; and the informal economy is relatively small. Inflation has not negatively affected tax administration because tax laws include automatic inflation adjustments. Finally 16 ANNEX 1 Page 16 the legal system is stable, and enforcement rules are adequate to deter noncompliance. 20. Government revenues show a declining trend over the last decade. Revenues dropped almost 4 points of GDP during the 1980s despite the recovery of copper prices in 1988. Tax-revenues remained relatively constant, while user charge revenues increased. Capital revenues derived from the privatization of public enterprised were an important revenue source from 1982 to 1987. In response to lower revenues and increased demand for social sector spending, the Government increased tax rates in 1990. 21. The composition of tax revenues was changed by tax reforms in 1975, 1984 and 1990. In 1975, the value added tax (VAT) was introduced as the main tax revenue source for Chile, and corporate income tax rates were substantially reduced. In 1984 and 1990, the income tax evolved towards an expenditure tax due to the exclusion of savings from its base, and rates were lowered on both the income tax and VAT. The Chilean tqx system currently consists of a few broad based taxes at nearly uniform rates. 22. In contrast to most Latin American countries, this evolution to a large extent reflects a deliberate effort of the government to define simultaneously an efficient tax system and adjust it to reduced public expenditures. Increased evasion and fraud, especially in export tax rebates (VAT and import duties) and export subsidies, have resulted in growing revenue losses to the Government. Increased evasion and fraud in turn may be the result of an increasingly outdated tax administration system. 23. Increased evasion and fraud signals the possibility of future fiscal problems. The windfall of copper revenues may be transitory, and the disappearance of capital revenues from privatization is evident. The VAT rate is sufficiently high to raise questions about the desirability of further increases to compensate for decreases in copper revenues, especially following the 1990 VAT tax rate increase. Hence, further reducing the gap between actual and potential revenue of the existing tax system becomes an attractive option. To do so will require modernization of the tax administration system. 24. The organizational design of Chile's tax administration is unusual. The division of work between tax assessments (IRS and Customs) and tax payments (Treasury) is not common. IRS and Customs are responsible for determining tax liabilities, but the General Treasury has responsibility for actual collections. This division of responsibilities causes some operational redundancies and inconsistencies, but it may also contribute to a solid audit control technology. 25. Chile also differs from most Latin American countries in the effective functioning of its tax administration. While most Latin American countries have unsuccessfully addressed the problem of the current account, Chile's Treasury has achieved a relatively sophisticated integration of tax accounts by taxpayer. In addition, Chile's audit operation is among the best in Latin America. While the overall system currently functions well, further modernization could yield significant revenue gains as well as improvements in tax administration efficiency. 17 ANNX 1 Page 17 B. Internal Revenue Service 26. The IRS is responsible for tax law enforcement, especially as regards the Value-Added Tax (VAT) ard the personal and business income taxes; these taxes represent 79% of total tax revenues and 37% of all government revenues in Chile. Enforcement consists of detecting evasion through inspection of data bases and through audits; enforcement contributes to government reveraes by ensuring tax compliance. 27. The IRS has 2,800 employees at a central office in Santiago, sixteen regional offices, and forty-six provincial or local offices; the decentralized offices process tax return information and transmit that information to Santiago for inclusion in the master file, which includes four years of data on each taxpayer, and subsequent analysis. Treasury complements the data with the centralized inclusion of payments. The regional offices and sixteen of the provincial offices have computer linkages to Santiago, while the remaining thirty local offices process and transmit information by hand. 28. Problems. Tax evasion affects both government revenues (increasing the overall fiscal deficit) and the equity of the tax cystem. While evasion rates in Chile are not high by Latin American standards, there is room for improvement. An IRS study, for example, estimates a VAT evasion rate of 35% on domestic transactions. In addition, the ratio of fiscal debit to fiscal credit, a widely used instrument to detect tax evasion, has declined in the industrial sector over the past decade. Finally, agricultural and other sectors that are exempt from submitting receipts to the IRS can conceal transactions and evade the VAT. 29. Auditing problems contribute to evasion. Under the present system, computer support to audits is centralized and lacks the flexibility and interactive features required for the auditor to build an individual audit strategy. Other problems that contribute to inefficiency include: (a) delays and inaccuracies in entering data in the master file caused by manual processing at the local IRS offices; (b) multiple (nine interactive information systems plus five batch systems) and incompatible data files at the central office due to limited computer capacity and antiquated file management design; and (c) inefficient allocation of IRS audit and enforcement resources. The latter problem is due to the fact the IRS does not collect the information necessary either to assess its own performance in deterring evasion or to allocate optimally its own resources to maximize its effectiveness. 30. Planned Technical Assistance to the IRS (USS2.3 million in Droposed Bank financing). IRS performance could be strengthened through improvements in data collection, processing, and analysis to detect fraud and evasion. The project will consist of expanding and improving the information system to the thirty local offices not yet connected to the computer network; redesign of master file data bases to facilitate data use and analysis; expansion of central computer capacity to support the new data base structure; improvements in other hardware and software to facilitate use of the data bases by auditors; and development of an information system and analytic methods to yield current data on the performance and productivity of tax administration activities. 31. The results of these improvements would be increased individual auditor productivity, improved data quality and access, reduced fraud and evasion, and increased tax revenues. The IRS estimates a minimum 1 percent 18 ANNEX 1 Page 18 reduction in VAT evasion, which would generate almost US$9 million in additional annual revenue. The information and analytic system would also permit quarterly reports on tax performance and efficiency over the life of the project. Another important result would be improved efficiency in IRS resource allocation. 32. During negotiations, agreement was reached that: (i) the IRS will provide semiannual reports to the Project Coordinating Unit (PCU) on indicators of physical progress and project results satisfactory to the Bank (see Attachment I), which, in turn, the PCU will provide to the Bank; (ii) the action plan stated in Attachment II for the IRS will be carried out; (iii) to monitor overall agency performance, the Government would collect data and measure the tax evasion detected and thereafter collected as a percentage of total tax collections and will furnish such measurements to the Bank commencing July 1, 1992, and by January 1 and July 1 of each year thereafter for the life of the project. The IRS will prepare and report such measurements which the PCU will then provide to the Bank. A condition of disbursement for the Internal Revenue Service assistance is the appointment of a subproject component coordinator satisfactory to the Bank. C. Customs 33. During the last few years, trade activity has increased substantially as a consequence of the opening of the economy. Exports have grown dramatically, and tax rebate systems have been established. Though desirable in principle, tax rebates are difficult to administer properly and have a high incidence of fraud. The time required for Customs to control trade transactions to deter fraud conflicts with the Government's policy goal of facilitating trade. 34. The Customs Office in 1989 had a budget of US$6 million and 1100 employees in a central office (Va3paraiso), nine regional offices, and 165 border stations. It is responsible for enforcing trade laws, determining and collecting import duties (US$2.1 billion annually), administering the Government's program of subsidies to nontraditional exports (US$0.8 billion annually), administering the reimbursement of duties paid on inputs used to produce exported goods, administering the reimbursement of value-added taxes paid on exported goods, generating trade statistics, and expeditiously processing documents to facilitate trade. 35. Problems. Customs faces problems of evasion in paying import duties and fraud in programs to subsidize nontraditional exports as well as reimburse payments of import duties and the VAT on exported goods. While there are no reliable estimates of the overall magnitude of these problems, there have been numerous, well-publicized cases of large-scale fraud and evasion; known fraud caused about US$20 million in revenue losses in 1990. These problems are the result of increased workload, outdated computer hardware and software systems, poorly trained agents, antiquated customs laboratory facilities, and agency inefficiency. 36. The workload of Customs has expanded in recent years while its resources have diminished. Total trade (imports plus exports) increased 48% between 1980 and 1989, while the number of customs employees increased by 17%, and the customs budget decreased by 20Z. In this same time period, important new programs administered by customs were introduced, including the subsidy to nontraditional exports introduced in 1985, reimbursement of duties paid on inputs to produce exported gcods introduced in 1988, and reimbursement of VAT levies on 19 ANNEX 1 Page 19 exported goods also introduced in 1988. In addition, in 1989 Chile adopted a new standardized international classification system for goods. 37. The obsolesence of existing computer hardware and software has had a number of negative effects, including: long delays in data entry and computer communications, thus limiting the information available to customs agents for determining values of goods, appropriately classifying goods, and detecting fraud and evasion; and severely reducing complementary linkages to other tax administration agencies (IRS and Treasury). These problems, together with the lack of training for either new or experienced customs agents, serve to limit agent productivity. An outdated customs laboratory restricts the capacity of Customs to analyze traded goods and leads to errors in that analysis; the result is failure to examine and correctly classify goods, which reduces the ability to detect and deter evasion and fraud in tax collection and export subsidy administration. Finally, Customs lacks a management information system that sets targets or monitors quantitative performance of the regional offices and border stations or generates the information required to allocate optimally enforcement and collection resources to areas of high fraud probability. 38. Planned Technical Assistance to Customs (US$1.7 million). The project would finance the development of a modern computer and communication system to improve the auditing function in Customs; development of the capacity for the Agency to provide specialized training to its agents; rehabilitation of the Customs chemical laboratory; and development of an information system to assess and monitor efficiency in budgetary resources. Ths technical assistance will occur in two phases--first, the computer system, training, chemical laboratory, and information system will be designed; second, the computer hardware, software, training, and laboratory improvements will be implemented. The development of agency performance indicators will be included in the design. 39. The project should result in several tangible benefits, including improved product classification and valuation; faster data processing; reduced administrative time required of customs agents, and thus increased agent productivity; more effective training of agents, also resulting in increased productivity; improved and more timely statistical reports on trade to the Ministry of Finance; and information on agency performance. 40. During negotiations, agreement was reached that Customs will provide semiannual reports to the PCU on indicators of physical progress and project impact satisfactory to the Bank (see Attachment 1) which the PCU will then provide to the Bank. During negotiations, agreement was also reached that the action plan stated in Attachment II for Customs will be carried out. To monitor overall agency performance, during negotiations agreement was reached that the Government would collect data and measure: (a) import duties charged as a percentage of the value of total imports; and (b) export subsidies granted as a percentage of the value of total export subsidies, and furnish to the Bank such measurements commencing July 1, 1992, and by December 1 and July 1 of each year thereafter for the life of the project. Customs will prepare and report such measurements for the PCU to provide to the Bank. A condition of disbursement for the Customs component is the appointment of a subproject coordinator satisfactory to the Bank. 20 ANNEX I Page 20 D. Treasury 41. The Treasury has a total of 1,130 employees, including those who work in the General T-easury in Santiago and In the 26 regional and provincial offices. The decentralized offices are connected via a national computer network and are responsible for government revenue collection including taxes (IVA, income, property taxes), debts (e.g., student loans), arrears, fines, and penalties; maintenance of a taxpayer master file (the Cuenta Unicr Tributaria or CUT) that keeps track of payments and outstanding balances; and distribution of revenues. The Treasury contracts with private institutions, principally banks, to collect most revenues. Payments are recorded on sixty different types of forms, with approximately 1.4 million such documents processed each month. The central office receives documentation from regional offices; enters the data (with about 40% of the effort contracted privately); validates it; develops current reports for the Comptroller General, the Ministry of Finance, and the Central Bank; and updates the master file. In addition, the Treasury monitors and enforces the collection of past-due debts; allocates revenues in accordance with the Budget Law or other laws (e.g., distribution of property tax revenues to municipalities); and returns excess tax payments (e.g., the personal income tax). 42. Problems. There are long delays (iix weeks) in recording transactions in the system, and a high error rate (2%) of data entry that threatens the quality of the results; these data problems prevent the early identification and collection of erroneous paynents. The data problem combined with inadequate collection capacity has resulted in accumulated overdue taxes exceeding US$250 million, about 70% of which are collectible. These problems are due to insufficient computational and data processing capacity aggravated by peak workloads when income tax and property tax payments are due; insufficient personnel (especially legal staff), with the total number of Treasury employees having declined by two-thirds over the past three years; and lack of an information system to develop performance indicators and improve management. These problems impair the capacity of the Treasury to respond to taxpayer inquiries; make it difficult to generate timely data for macroeconomic management; and reduce Government revenues through delays in detecting payment arrears. A further problem is approximately US$2 million of annual fraud and forgery of Treasury checks. 43. Planned Technical Assistance to the Treasury (USS1.6 million). Treasury performance could be increased through improvements in data, check, and bill processing timing and quality; improvements in data transmission to and use by regional Treasury offices; and introduction of an information system to permit the monitoring of the agency's performance. The project will consist of the introduction of new technology to handle peak workloads; modifications in existing computer hardware and software, and employee training to increase the processing and use of data in the regional and provincial offices; and design and implementation of a performance information system. The investments to be financed by the Bank would complement Government investments in the Treasury, especially the increase in the number of lawyers (currently twenty-eight) assigned to collect past-due debts. 44. The results of the technical assistance would be increased employee productivity, reduced processing time, reduced response time to taxpayer inquiries, more timely reports on revenue collections, shorter lags in providing information to regional offices on unpaid liabilities and past-due debts, 21 ANNEX 1 Page 21 increased revenues, and improved resource allocation within the Treasury. The Treasury estimates annual additional revenues would increase by US$9 million; an additional US$17 million in debts would be collected as a result of the technical assistance; and check fraud would be substantially reduced. In addition, improvements in the information system would permit assessments of agency performance, which would provide the Government with information regarding the need for and likely results of further budgetary investments to improve Treasury operations. 45. During negotiations agreement was reached that the Treasury will provide semiannual reports to the PCU on indicators of physical progress and project impacts satisfactory to the Bank (see Attachment I) for the PCU to provide to the Bank. During negotiations agreement was also reached that the action plan for the Treasury outlined in Attachment II will be carried out. To monitor overall agency performance, during negotiations agreement was reached that the Government would collect data and measure the recovery of tax arrears as a percentage of total arrears and furnish such measurements to the Bank commencing July 1, 1992, and by January 1 and July 1 of each year thereafter for the life of the project. The Treasury will prepare and report such measurements for the PCU to provide to the Bank. D. Social Security Institute (SSI) 46. Decree Law 3502 of 1980 created the SSI, an agency under the Ministry of Labor and Social Security, for the purpose of managing the unfunded social security system; approximately four million individual accounts remain in that system after the change to funded pension plans. Between 1980 and 1988 twenty- one separate public pension funds with their respective employees, accounting systems, and operating procedures were integrated into the INP. 47. As presently constituted, the SSI has large and complex responsibilities. It makes monthly pension payments to 1,720,000 beneficiaries for a total of US$1.2 billion annually, and collects monthly social security and insurance taxes from 330,000 employers and 2,200,000 workers. In addition, it pays monthly benefits (Asignaciones Familiares) to 1,500,000 families and processes some 60,000 new pensions annually. While most of the routine data processing operations are provided by private sector contractors, the SSI is responsible for management of the system. 48. Problems. The SSI lacks the capacity to fulfill adequately these diverse responsibilities. The results are high tax evasion, tax arrears, fraudulent pension claims, long delays in determining pension benefits and responding to member inquiries, and administrative inefficiency. Accumulated tax arrears are estimated at about US$500 million. In addition, annual tax evasion is estimated at US$15.8 million, and fraudulent pension claims are conservatively estimated at US$16 million annually. Delays in processing and evaluating pension benefit claims are as long as 12 months. Administrative errors are high, with 652 of all pension benefit applications incurring errors at some stage of processing. 49. These problems result from the failure to integrate completely the personnel and administrative systems of the twenty-one pension funds that comprise SSI; lack of control over the pvoduction process; lack of reliable and accessible data bases on tax and insurance payments, employment and salary 22 ANNEX 1 Page 22 histories of individual contributors and beneficiaries; and lack of a modern system to detect tax evasion. 50. Planned Technical Assistance to SSI (US$2.0 million). The Government has initiated efforts, beginning with the FY91 budget, to solve the fraudulent claim problem through investments to permit accurate monitoring of legal actions and to increase the productivity of the INP legal staff. 51. The project would finance investments in revenue collection and pension benefits administration to complement the Government's investment. Revenue collection would be improved through consultancies, equipment, software, and training to reorganize collection and enforcement activities and implement a system of evasion control. The revenue collection component would include a diagnosis of the existing system, construction and cleaning of a taxpayer data base, design of a system to control evasion and improve collections, implementation of the system, and development of performance indicators and the establishment of an information system to measure and monitor performance. The results will include increased employee productivity, improvements in tax collection, reductions in tax evasion, and semiannual performance reports over the life of the project. 52. Pension benefits administration would be improved through consultancies, equipment, software, and training to integrate the twenty-one funds in one data processing system; aystematically determine the legal restrictions and obligations of each fund; clean and construct accurate data bases on individual accounts and current account payments; design and implement an information system that allows employees rapid and accurate access to account information; and development of performance indicators and the establishment of an information system to measure and monitor performance. The results will include increased employee productivity, increased capacity to identify problems in collections and payments, and semiannual performance reports over the life of the project. 53. During negotiations, agreement was reached that the SSI will provide semiannual reports to the PCU on indicators of physical progress and project impacts satisfactory to the Bank (see Attachment I) for the PCU to provide to the Bank. During negotiations, agreement was reached that the action plan stated in Attachment II for the SSI will be carried out. To monitor overall agency performance, during negotiations agreement was reached that the Government will c *lect data and measure: (a) tax evasion detected and thereafter collected as i ?ercentage of total tax collections; and (b) the number of errors, unit costs, and elapsed time in processing pension applications and furnish such measurements to the Bank commencing July 1, 1992, and by January I and July 1 of each year thereafter for the life of the project. The SSI will prepare and report such measurements for the PCU to provide subsequently to the Bank. II. LEGISLATIVE INFORMATION AND ANALYSIS FOR ECONOMIC POLICY 54. With the March 1990 change in government, economic legislation now can originate with either the executive branch or the Congress in Chile, but both branches of government as well as private foundations, universities, and other analysts play a role in designing and approving economic policies. Under the Constitution of 1980, Congress has the authority to approve or modify the 23 ANNE 1 Page 23 proposed budget; to approve or amend legislation introduced by the executive branch; and to introduce legislation. Congress cannot increase expenditure categories in the budget, and it cannot introduce spending legislation, although it can introduce other legislation that affects economic policies. Political experts widely believe the budget role of Congress is likely to increase over time as Congress acquires more budgeting expertise and experience. 55. To carry out effectively its responzibilities in budgetary and economic policy, the legislature and other legislative actors require comprehensive, pertinent information and impartial analysis. Modern legislatures receive such information from diverse sources: universities, political think tanks, interest groups, governmen': agencies, and legislative libraries and research services. In Chile, universities are providing assistance to Congress on an experimental basis. Both ILADES and the Catholic University of Valparaiso have received short-run external funding to provide mainly constitutional and legal analyses to the Congress. Think tanks affiliated with political parties, like CIEPLAN and the Instituto Libertad y Desarrollo, have the reputation for providing high quality, if partisan, analyses. With few exceptions (e.g., SOFOFA) interest groups do not play an organized, important role in informing Congress. Government ministries and the Secretariat of the President provide information to Congress concerning legislation proposed by the executive branch. Finally, the Library of Congress (LOC), authorized by the Constituticnal Law of the Congress (Law 18,918 of February 5, 1990) as part of the administrative offices of the Congress, has the responsibility to provide nonpartisan, objective information to the Congress and other users. The Director of the LOC is appointed by and reports to the Congressional leadership (Presidents of the Senate and the House of Deputies). The LOC and its 24 professional librarians do not typically directly respond to requests from individual legislators; rather, LOC staff usually work closely with the staff of the twelve legislative commissions of both the House of Deputies and the Senate, the professional staff of the Information Centers of the House and Senate, and requests from academic and other users. These staff have the responsibility of assembling information and analyses on current issues before the Congress. 56. Problems. Legislative libraries and research services play a very important role in informing policymakers and legislatures in most advanced democracies. (Germany is an exception with its reliance on government-funded, partisan think tanks.) The LOC has traditionally provided library reference and bill-tracking services to the Congress and other library users; for example, the LOC maintains a computer in Valparaiso to record the country's laws and to track legislation and participates in an on-line bibliographic information exchange with the National Library and university libraries. Both the capacity of the LOC to serve its users and the ability of Congressional staff to use the services of the LOC to inform Congress have deteriorated significantly over the past seventeen years of inactivity. 57. The LOC lacks the capacity to: (i) searh quickly and retrieve information in response to user requests; (ii) provide analyses and summaries of information; and (iii) effectively and quickly communicate with users. These problems are caused by antiquated library technology, insufficient and outdated holdings, inadequately trained reference librarians, and lack of a communications network tying the LOC to users, especially in the Congress. The existing communications network consists of a LOC on-line linkage to the Valparaiso computer. Congressional staff and other users lack the knowledge and experience to use effectively LOC services and lack a communications network to facilitate 24 ANNEX 1 Page 24 such use. The latter is especially important given the current locations of the LOC (Santiago) and the Congress (Valparaiso). The project would improve both the capacity of the LOC to serve Library users and increase their ability to use effectively the LOC, thereby improving legislative information and economic policy formulation. 58. In Chile the Executive branch plays an important legislative role. The President delegates to the Secretariat of the Presidency (SEGPRES) the overall respon,ibility for coordinating legislative initiatives with the Congress, including managing initiatives originating in the diverse ministries and communicating them to Congress. The importance of this role is demonstrated by the fact that in the past year the Executive has originated most (90%) of the bills considered by the Congress including the annual budget bill. The legislative management role of SEGPRES is exercised by the Legislative Division, which communicates texts, summaries, and technical analyses of bills and amendments to the Congress. At present, this management function is impeded by the lack of on-line communications with either the Congress or the LOC. In addition, the quality of technical analyses that precede legislative initiatives could be improved through access to LOC information and Congressional staff analysis. 59. Planned Technical Assistance to Strenpthen Information and Reference Services (US$ 3.1 million). The capacity of the new Congress to evaluata economic legislation is strongly tied to the quality of information and analyses it receives from the LOC, the Ministries, and Congressional staff. LOC collections need to be expanded and updated, including the addition of international data bases, and the acquisition and cataloging systems should be computerized. Reference librarians need additional specialized training, including in the use of new data bases and new library technology as well as new skills in reporting and analyzing information for users. The project will finance technical assistance to expand and automate collections; train librarians in modern legislative reference techniques, the ise of new technology, and economic and fiscal analysis; and provide the LOC with the computer hardware and software required to relate large data bases. These improvements will benefit Congress as well as the executive branch and other LOC users, including university researchers. The results will include quicker response by the LOC to more user requests for more complete information covering a wider range of issues. 60. Planned Technical Assistance to Facilitate Use of the System (US$ 2.2 million). The LOC requires a modern communications system for effective use of the Library by consumers, including Congressional staff, Government ministries, and university researchers. Given the physical distance between the LOC and the Congress, one important requirement of the system is the ability of users to make requests and receive responses on-line. Proposed counterpart financing by the European Economic Community will further link the LOC to regional offices of the Congress, thereby ensuring national access to the system. 61. The important role of the Executive in initiating and providing technical analyses of legislation requires that it have the capacity to "feed" the LOC and thus provide information to the Congress. The project would finance the design and installation of a communications system between principal LOC users, including Congressional staff, SEGPRES staff, and the Library; this includes hardwiring staff terminals to a "gateway" computer connected to the Library. 25 ANNEX 1 Page 25 62. The effectiveness of Congressional staff in soliciting information from the LOC and generating high-quality, useful evaluations for the Congress depends on the analytic capacity of the staff as well as the quality and quantity of information available from the LOC. The existing Congressional staff lacks analytic skills and knowledge of how the services of the LOC should best be utilized. Hence, the project will finance consultants expert in legislative analysis to train existing staff. 63. A Congressional Coordinating Unit (CCU) in the Congress will be established to execute this project component. The CCU administrator will report to the Congressional leadership (the Presidents of the Senate and the House of Deputies) and the group of Senators and Deputies that comprise the Bilateral Commission and advise the Congressional leadership. For the purposes of project design and implementation, the Director of the LOC will report to the CCU administrator. The CCU will maintain records and accounts for this project component and will submit them to the PCU for auditing with other project component accounts; will, with the Director of the LOC, develop training programs for Library staff and Congress staff; will, with the Director of the LOC and SEGPRES, prepare terms of reference for consultants and prepare bidding documents for equipment; and will contract consultants and studies and equipment purchases. 64. During negotiations, agreement was reached that the Congress through the CCU will provide semiannual reports to the PCU, satisfactory to the Bank, on indicators of physical progress and project results (see Attachment I) for the PZU then to provide to the Bank. During negotiations, agreement was reached that the action plan for the Congress outlined in Attachment II will be carried out. To monitor overall agency performance, during negotiations agreement was reached that the Congress through the CCU will collect data and measure: (i) the number of requests for information and analysis from the Library of Congress, and (ii) the amount of staff time to retrieve infcrmation required for legislative analysis, and will furnish such measurements to the Bank commencing July 1, 1992, and by July 1 and December 31 of each year thereafter for the life of the project. Conditions of disbursement for the Congress component are: (i) the establishment of a Congressional Coordinating Unit (CCU); (ii) the appointment of a sub-project coordinator satisfactory to the Bank and; (iii) the signing of an agreement between the Ministry of Finance and the Congress setting forth their respective responsibilities (described in para. 63 above) with respect to the Congress component under terms satisfactory to the Bank. III. ECONOMIC POLICY FORMULATION AND ANALYSIS 65. The responsibility for economic policy formulation and implementation in the Government is shared by the Central Bank and the Ministries of Finance, Economy, and Planning, with most decisionmaking power centralized in the Ministry of Finance. The Ministry of Finance is responsible for fiscal policy (revenue collection, budgeting, investment priorities, and expenditure authorization); international economic relations (with the participation of the Ministry of Foreign Affairs); and, with the Central Bank, international financial relations (external debt and credit); and shares responsibility with the Ministry of Economy for export and foreign investment policies and approval of public enterprise budgets. In addition, the Ministry of Finance presides over the Macroeconomic Interministerial Committee (IMC) and participates in Central Bank 26 ANNEX I Page 26 decisionmaking, which is consistent with the Organic Law of the Central Bank (October 10, 1990) requiring Bank policymaking to consider the economic views of the Government. That law also granted the Central Bank substantial autonomy, thus removing the large number of Bank economic analysts from the control of the Finance Minister. 66. The Central Bank has principal responsibility for determining the money supply, setting policies, and carrying out internal credit and foreign exchange operations, financing banks and other financial institutions, and participating in framing (with the approval of the Ministry of Finance) and signing accords with international financial institutions. The Central Bank has a decisionmaking Council of five members. The Minister of Finance participates in meetings but has no vote; the Minister can temporarily (for 15 days) suspend non-unanimous actions of the Council. 67. The Ministry of Economy is responsible for commercial and business policy (including ensuring competitive markets), foreign investment policy (shared with the Ministry of Finance), natural monopoly regulation (including pricing policies), export promotion, public enterprise policies (shared with other ministries), technological development, and consumer protection policies. In addition, the Minister presides over the Productive Sectors IMC. The importance of this Ministry has declined over the past two decades as most public enterprises have been privatized and markets have been deregulated. 68. The Ministry of Planning (MIDEPLAN) has the role of evaluating investment projects, maintaining the Project Data Bank (comprising over 40,000 projects), and coordinating bilateral financing of all development and social fund projects. MIDEPLAN does not set priorities or recommend projects; it only approves or disapproves them. The Ministry of Finance makes final decisions regarding investment priorities. 69. Problems--Ministry of Finance. The 1990 law granting the Central Bank autonomy left the Ministry of Finance without the capacity to provide independent analyses and economic projections to the Minister, who plays the lead role in setting fisal and trade policies. For example, the Minister serves as President of the Macroeconomic Interministerial Committee, and the Ministry's sl;aff also has the responsibility to support that Co_mittee. As a result of this lack of analytic capacity, the Minister lacks adequate analyses of critical issues requiring decisions (e.g., free trade arrangements with Mexico and Venezuela; policy options for and consequences of further opening the capital market; evaluation of proposals to permit pension funds to invest abroad) as well as reliable projections of macroeconomic trends and predictions of the effects of policy changes on target variables. The lack of staff and policy analyses can result in erroneous policy decisions, delays in reacting to external shocks, and lags in responding to external requests for information and analysis. 70. Development of improved trade analyses is of particular interest to the Ministry given the open nature of the economy, growing interest in regional free-trade zones, and the fragmented nature of policymaking in this area. Of particular urgency is the analysis of proposed trading agreements, especially in light of Chilean free trade policy, which advocates a minimum of legal and customs barriers to trade. Proposed trading agreements need to be analyzed in terms of areas of interest, preferential tariff mechanisms, legislation, legal facilities for member countries, and timing of the process. The Ministry has satisfied the organizational requirements for providing such analyses by forming 27 ANNEX 1 Page 27 an International Studies Unit and naming a chief of the unit, but the unit is neither fully staffed nor does it have the required expertise in specific analytic areas. 71. Development of econometric models for the projection of macroeconomic trends and the simulation of policy changes is of equally high priority to the Ministry. Since the granting of autonomy to the Central Bank, the Ministry has used econometric models earlier developed by economists at CIEPLAN; these models require improvement and updating. The Ministry has formed a Macroeconomic Studies Unit and named a chief to be responsible for carrying out such analyses, but the unit is neither fully staffed nor does it have the required expertise in specific analytic areas. 72. Planned Technical Assistance to the Ministry of Finance (USSO.9 million). The Ministry of Finance lacks several elements of policy information consistent with its dominant role in macroeconomic policymaking and implementation. The Ministry has identified two high priority areas for further development--analysis of trade issues and development of econometric models for projection and simulation. The project would finance a total of four consultants and supporting equipment to assemble data bases and construct econometric models to be used in the analysis of trade and macroeconomic issues. In addition, the consultants would work with and help train mid-level analysts of the Ministry to develop and institutionalize long-run capacity within the Ministry to undertake future analyses of these issues and to operate and update the econometric models. Finally, the project will finance two studies of high priority to the Ministry, one evaluating specific trade proposals now before the Ministry and another evaluating alternative proposals to open the capital market. The results of this technical assistance should be improved analyses of specific policy issues, institutionalized capacity for trade and macroeconomic analysis, including macroeconomic projections, and policy simulations. Organizationally, the results of this technical assistance should be two study units with the capacity to provide economic reports and analyses to the Minister and to respond quickly to urgent decisionmaking demands of the Ministry. 73. During negotiations, agreement was reached that the Ministry of Finance will provide semiannual reports to the PCU, satisfactory to the Bank, on indicators of physical progress and project results (see Attachment I) that the PCU will then forward to the Bank. During negotiations agreement was reached that the action plan for the Ministry of Finance outlined in Attachment II will be carried out. A condition of disbursement for the Ministry of Finance component is the appointment of a minimum of three economists, of the six specified in the action plan, with the equivalent of a master's degree, to each of the International Studies and Macroeconomic Studies Units. 74. Problems--Ministry of Economy.. The Ministry of Economy has significant responsibilities regarding natural monopoly regulation, market competition, investment, export, technological development, consumer protection, and public enterprise policies. Policies, legislation, and Ministry management are deficient in many of these areas. These responsibilities have gained importance as natural monopolies have been privatized, larger firms have merged, exports have grown to play a significant role in economic growth, and private foreign investment plans have increased. 75. The Ministry of Economy is currently confronted with a number of policy and management issues in natural monopoly regulation and consumer 28 ANNEX 1 Page 28 protection. First, the national water and sewer service (SENDOS) was converted (with important technical assistance provided under PSM 1) into twelve public corporations, the regulation of which is specified in several laws; these laws do not establish adequate mechanisms for the finance of new investments or the recovery by firms of investments in rural water supply. Second, the regulation of telecommunications pricing includes problems in setting the cost of capital, accounting practices allocating costs to regulated and nonregulated activities, analysis of assumptions used by firms in setting prices, and illegal provision of cross-subsidies to high-cost sectors. In addition, the Subsecretariat of Telecommunications has not adequately adapted to its role in a new technological and market environment. Third, the Superintendency of Gas and Electricity has similarly failed to adapt to its new obligations in an environment of privatized natural monopolies, marginal cost pricing, and market determined prices for oil and coal. Fourth, the organizational study of the Ministry's Antitrust Division (Fiscalia) financed under PSM I recommended that its capacity to detect and analyze anticompetitive practices be strengthened; that recommendation remains to be implemented. Fifth, the Consumer Protection Agency of the Ministry lacks the requisite organization to carry out its new responsibilities adequately. 76. Planned Technical Assistance to the Ministry of Economy (USS1.1 million). The Ministry of Economy lacks the analytic and administrative capacity to analyze policy issues, formulate and recommend policies to the Ministry, and provide advice to those agencies responsible for policy implementation in natural monopoly regulation and consumer protection. Hence, the project would finance studies to diagnose management problems and design solutions for the Telecommunications Subsecretariat, the Electricity and Gas Superintendency, and the Consumer Protection Agency, and will finance consultants to analyze investment financing and water pricing for SENDOS, to analyze regulation of telecommunications pricing for the Telecommunications Secretariat, and to improve investigative capacity in Fiscalia. 77. During negotiations, agreement was reached that the Ministry of Economy will provide semiannual reports to the PCU, satisfactory to the Bank, on indicators of physical progress and project results (see Attachment I) that the PCU will then provide to the Bank. During regotiations agreement was reached that the action plan stated in Attachment II for the Ministry of Economy will be carried out. To monitor overall agency performance, during negotiations agreement was reached that the Government would collect data of substantive reorganization carried out in the regulatory agencies under its jurisdiction and furnish to the Bank such data commencing July 1, 1993, and by July 1 and December 31 of each year thereafter for the life of the project. IV. POLICY COORDINATION AND GOVERNMENT ORGANIZATION 78. Governmental functions in Chile are divided among a large number of agencies, sometimes resulting in overlapping responsibilities. As with all governments, activities and policies of one agency often affect another, thereby leading to interagency conflicts that can only be resolved through appeal to a higher authority. That higher authority is frequently the President. The high opportunity cost of the President's time requires that mechanisms be developed to avoid such conflicts. The mechanism adopted by the military government was to create two super-ministries (Finance and Interior) with the power to decide interministerial issues. Democratic governments often adopt less hierarchical 29 ANNEX 1 Page 29 mechanisms, and Chile has opted for Inter-Ministerial Committees (IMCs), established by Presidential decree on May 15, 1990, and coordinated overall by the Division of Interministerial Coordination of the Secretariat of the Presidency. 79. Organization of the IMCs. The five ministerial level IMCa (Policy, Economic, Socio-Economic, Infrastructure, and Productive Sector) established in Chile complement at least thirty-two other interagency committees, including the INC on the Environment, the latter of which will be strengthened under a proposed Bank institutional development loan for the environment now under preparation. Most other interagency committees in the Government have participation below the ministerial level. 80. Each of the five INCa is comprised of 10-12 permanent members, including several ministers. Each IMC has a presiding minister and an executive secretary appointed by that minister; the respective executive secretary and the technical secretary of the Division of Interministerial Coordination (DIMC) also attend all meetings. Currently, the IMCs have no permanent staff support. The presiding ministers for the five IMCs are: Policy (Minister of Interior), Economic (Minister of Finance), Socio-Economic (Minister of Finance), Infrastructure (Minister of Public Works), and Productive Sector (Minister of Economy). Membership on the IMCs is as follows: Policy (Ministers of Interior, Foreign Relations, Defense, Justice, Secretary General of the Government, and Secretariat of the Presidency); Economic (Ministers of Finance, Planning, Economy, Labor, and Director of the Budget); Socio-Economic (Ministers of Finance, Labor, Planning, Education, Health, Housing and Urbanism); Infrastructure (Ministers of Public Works, Planning, Transportation, Housing and Urbanism, and National Assets, and President of National Energy Commission, and Vice-President of CORFO); Productive Sector (Ministers of Economy, Agriculture, and Mining, and Vice President of CORFO). The frequency of meetings varies between weekly and monthly, depending on the INC. The wide membership of the INCa facilitates discussion and agreement on the basis of objective facts and analyses; failure of the IMCs might lead to more personalized and political decisionmaking. 81. Problems. The IMCs are likely to fail if participants find them to be inefficient decisionmaking mechanisms that produce uninformed debate with few tangible outcomes. Periodic attendance by the President and regular attendance by ministers to date has ensured effective functioning of the Committees, but the failure to prepare adequately background documents and to follow up on decisions could jeopardize the long-run success of some INCs. 82. To the extent possible, the INCs depend on the staff of participating ministries to prepare information and analyses for IMC debate and decision. Some issues, however, require specialized expertise or personnel resources not available in any ministry. In this situation, the IMCs, which have no budget and no independent capacity to contract for studies, lack the information required for informed coordination and decisionmaking. The result may be incorrect decisions or failure to decide or coordinate. 83. Planned Technical Assistance (US$0.8 million). The PPF financed administrative assistance to the IMCs to improve IMC functioning during a time of tight budgetary restrictions and to prepare proposals for studies required to inform interministerial decisionmaking. The project would finance several high priority studies required to inform Committee debates; the results of these 30 ANNEX I1 Page 30 studies would result in improved ministerial coordination and improved government performance. The technical assistance to be provided and the responsible IMC and its lead ministry: (a) a study of Government information policy, leading to recommendations for processes and policies to ensure compatible computer systems and to avoid costly duplication (e.g., in establishing regional networks) (Policy IMC, Interior Ministry); (b) studies of poverty and efficiency in targeting social sector services on the poor, using data from the two most recent household surveys conducted by MIDEPLAN (Socioeconomic IMC, Ministry of Finance); (c) studies to modernize public sector management practices in the mining sector and to evaluate the Government's role and alternatives for providing geographic information (Productive Sectors IMC, Ministry of Economy); and (d) a study to evaluate alternative policy proposals to relax restrictions on private pension funds (FPs) investments (Economic IMC, Ministry of Finance). 84. During negotiations agreement was reached that the IMCs will provide semiannual reports to the PCU satisfactory to the Bank on indicators of physical progress and project results (see Attachment I) that the PCU will then provide to the Bank. During negotiations agreement was reached that the action plan for the IMCs outlined in Attachment II will be carried out. V. PROJECT COORDINATING UNIT 85. A PPF Coordinating Unit (CU) was established under the Subsecretary of the Ministry of Finance, with funding under the PPF, and a full-time Project Coordinator was appointed in October 1990. Such CU is responsible for overall project supervision and coordination with participating agencies; approval of terms of reference (TORs) and bidding documents; management of consultant contracts and equipment procurement with the Contraloria; ensuring all Bank Guidelines are followed in consultant contracting and procurement; preparing semiannual and annual project reports for the Bank and facilitating Bank supervision of the project. A Project Coordinating Unit (PCU) will be established to continue to carry out these responsibilities for the life of the project. To carry out these tasks requires a PCU head experienced in project management; long-run consultants to monitor project activities; and short-run consultants for specialized purposes, including development of bidding documents. 86. Planned Technical Assistance to the Project Coordinating Unit (US$0.3 million). Since (i) coordination of PSM II is not a regular staff function in the Ministry of Finance and (ii) adequate coordination and supervision of the project is essential to its success, financing for the PCU (chief, short-run and long-run consultants, office equipment) will be shared by the Government and the Bank. Total PCU costs are expected to be larger in the first and second years of the project than in succeeding years, and the proposed funding varies accordingly. SECTION B. PROJECT ADMINISTRATION AND IMPLEMENTATION 87. Project Organization and Imlementation. The loan would be managed by the Subsecretary of the Ministry of Finance, who would serve as Project Director and be advised by the Subsecretaries of the Secretariat of the President and the Ministry of Economy in those areas relevant to those two ministries 31 ANNEX 1 Page 31 (technical assistance to the IMCs and the Ministry of Economy, -espectively). A Project Coordinating Unit (PCU) reporting to the Subsecretary of Finance will be established to oversee project implementation. The PCU will be staffed by a full-time Project Coordinator with the support of short-run and long-run consultants. The PCU vill have responsibility for overseeing all aspects of the project. The PCU will be responsible for contracting, in consultation with counterparts in the implementing agencies, consultants and studies and equipment purchases provided to the Ministries of Finance, Economy, Labor, and Interior and the Interministerial Committees under the project as well as ensuring that contracting by the Congress Coordinating Unit (CCU) of consultants and studies and equipment purchases for the Congress follow Bank guidelines. The PCU will be responsible for arranging all disbursements through the Ministry of Finance; all contracting will follow Bank Guidelines. The PCU will be responsible for clearing all terms of reference, bidding documents, and consultant selections with the Bank and will be directly responsible for supervising the implementation of the Financial Management, Economic Policy Formulation and Analysis, and Policy Coordination and Government Organization components. The CCU will be responsible for maintaining the accounts and supervising the implementation of the Legislative Information and Analysis for Economic Policy component. The PCU will maintain project accounts and arrange for their annual audit in accordance with Bank guidelines, prepare an annual work program, prepare a semiannual progress report incorporating work programs and reports from all PSM II implementing agencies, and prepare all documentation required for midterm reviews of the project to occur by December 31, 1993, and December 31, 1995. Progress reports, including documentation for midterm reviews, would indicate the degree of success each project component has made in attaining measures of physical progress and agency performance. 88. During negotiations, agreement was reached that: (i) the PCU will provide semiannual reports to the Bank on indicators of physical progress and project impacts satisfactory to the Bank (see Attachment I); (ii) the action plans stated In Attachment II for participating agencies will be carried out; and (iii) for the purposes of monitoring and evaluating overall performance of the program, the Government would collect data and furnish measurements of agency- level performance indicators (outlined in Attachment III) commencing July 1, 1992, and every six months thereafter for the life of the project. A condition of project effectiveness is the eatablishment of a PCU in form and substance satisfactory to the Bank. 89. Procurement. The goods and services to be financed under the project would be procured in accordance with procedures consistent with Bank guidelines for procurement. Procurement arrangements are summarized in Schedule B of the Memorandum of the President. Purchases of equipment, supplies, and maintenance items the equivalent of US$25,000 or less up to a maximum of US$500,000 and bibliographic collections for the Congress component would be made through shopping under procedures acceptable to the Bank; above US$25,000 but less than US$250,000 up to a maximum of US$6,100,000 they would be made through Local Competitive Bidding (LCB) procedures satisfactory to the Bank; above US$250,000 they would be made through International Competitive Bidding (ICB). All ICB and the flt-st two LCB contracts would be subject prior review by the Bank. Most of the equipment to be purchased is computer hardware and software; a small portion would be used for other office equipment. In the evaluation of all contracts for goods procured under ICB procedures, local suppliers would be granted a margin of preference in accordance with Bank procurement guidelines (as stated in Appendix 2 of the May 1985 Bank Guidelines). All procurement will be coordinated 32 ANNEX I Page 32 through the PCU with the project participating/beneficiary entities responsible for preparing bidding documents and participating in bid evaluations. 90. Consultant services would be procured in accordsnce with Bank Guidelines. To reduce delays in contracting with consultants, the Government has issued a Presidential decree delegating to the Subsecretary of Finance the signing of World Bank financed consultant and consultant firm contracts of less than 90 days with expenditures less than US$4,500 per month. 91. Disbursements and Refinancing. The loan will refinance a PPF granted August 1990 in the amount of US$376,000 for expenditures incurred under the PPF prior to loan signing, expected by October 1991. This amount is to finance project preparation and initial implementation activities and the start of PCU activities. The proceeds of the loan would be disbursed against: 100% of expenditures for foreign and local consultants, training, foreign expenditures on equipment, ex-factory local expenditures on equipment; and 78% of expenditures on locally purchased imported equipment. The salary of the coordinator of the Congress component will be financed on a declining basis consisting of 100% of expenditures until December 31, 1992; 50% of expenditures until December 31, 1993; and 25% of expenditures until December 31, 1994. A condition of disbursement for the Internal Revenue Service and Customs components is the appointment of subproject component coordinators satisfactory to the Bank. A condition of disbursement for the Ministry of Finance component is the appointment of key staff in the International Studies Unit and the Macroeconomic Studies Unit. Conditions of disbursement for the Congress component are the appointment of a subproject component coordinator satisfactory to the Bank and an agreement between the Ministry of Finance and the Congress setting forth their respective responsibilities in this project component under terms satisfactory to the Bank. Except for contracts requiring prior review, disbursement would be made against statements of expenditure (SOE), for which detailed documentation evilencing expenditures would be reviewed by the PCU and made available for the required audit and also for review by the Bank supervizion missions. To expedite disbursements, a Special Account would be opened in the Central Bank, or in a commercial bank satisfactory to the Bank, with an initial deposit of up to US$750,000 to cover three months of average disbursements. The project completion date is December 31, 1997, and the project closing date is June 30, 1998. 92. The Government's contribution of approximately US$6.8 million equivalent would consist of counterpart staff, local consultants, office space, supplies, secretarial services, and vehicle operation. 93. Accounts and Audits. Separate accounts would be kept for all expenditures made under the project. The PCU would maintain records and accounts for all project activities excepting the Legislative Information and Analysis for Economic Policy component, for which the CCU would maintain records and accounts. The project accounts and SOEs would be audited each year by auditors acceptable to the Bank in accordance with the Bank's Auditing Guidelines. The audit reports would be submitted to the Bank no later than six months after the close of the financial year. - 33 - Attachent I Pae I b bi ii tb - a { Ii~II * ~~~III ii 34 -Attachment I Page 2 < 2 Aprasät Statuh Project Besutta 8utaibitity 1. Ativitas Agred at the lime of tean Effeactiveneus: 1. eAulA Study rtruary 1986 U l 39.8 Aayilng cost of prodc~ticn ad Copt ated Stty recmndd severåt IMA privattred ten yers fter Augst 196 tuprovents requlred in each of Gaesures for eving ~s*epeten et the 9tdy. the f tv* B&MA plants perationfi prformnce of 8Ana -planti, incle , Iloyent eary 199 esating ~ ont progree in changs, fnctuding oasing out of progr have been hased out. ~Ir,ui. Studly term of their chjectives and spclat loynt progrm. covradge ind m-uuleng solutjons fot pro* dettetad In this regard. catE PItIC SECIOR MANAGEIET TtIcUXICAL ASSISTANCE PROJECT LOA 2504 -C" SAUS 01 SitES 5tartise & Cust Purpose m defined at Deseripten of Project §apeti At¥tlitos tepits. oseg (USl 000m) Apprølets Stø.ta Prolect Ieautte Suæstnebility 6. Im= wd §*~er 19? 1114 871.5 Anelyting nationft income and Crpteted Reptacement of the 1978 merket The new CPI Inds, starting Aprit tapndture A~ugwt 1969 *xpenditure dletributlon for basket uith a new one uhich 1989, seg apendinø Melghts of 81wnheid Survey devetoping a ne market basket and Includet inforet lø n Mpending, the new beket. weighte for the CP. Incone and living conditlons for 6500 households. 7. CA6 It Augst 1968 UmI 200.0 taprovinh torgettlng of government Cæpleted - 1ousehold Survey (1987) . Survey data being tued by WIIMM,A StUVe lerch 1990 program by cnduting analysis of copeted and dIstributed.. end independent roseerchers to the distributtmn of varlous . Torgeting anelysit repart further study targetting issues. government swiet expenditura prepared by University of Chilo. .Survey rot^ to used In uorld Sn I program and studying the cf fect poverty study ~nd by NIME . . on femity InGeas. reginal office* for in#estm nt - planning pap~ses. • Ftt~-up Sv (CAn6 110) ptanned for 1991. I. PgSCUIE Febt~ry 1966 IMB 178.1 liproving packeging end quality C~qpleted laproved product Image reaulting finncing for the us dvertitel* iatn lerketing ue r 1n9e8 centretl of satsns for export in &q export gromth by nearly ca~pign le being centinued wit 8ta* .arkett. seveh timeø sinte ceatn of the 0 etms raers AsAcletim study. Addittonet revugu uttum 4fud efter temintten of TIAL fran export expected during 1990 #Inening, elose to US$5 million. lMerket thare for fres% satm n incret~d to 20M of the total aarket In the US oM to 10= in Japan. 9. Srorentest 19 8 US 101.2 Oekoping a standard Co~pleted CeWehenolvo anu~t developed and - formatlan of an EnvIronmontet I~t of Agst 19N envIronaentat Ispet report "ldety disseminted. Cmleoslen (CO~nu) in the I4int;ry Ietrle det tinne res to be onalyaed in of Pbtie Vlorke in April 1999. ftjøto numt the construction of future power - Translation o proposed og # ptents in Chile. formet sovernas~ Inetructitn currently ~aner reviev by COMU. 0 n lo. selt and SepteffAr 198 UlS 229.0 Oeveloping o tandard mnuaQ for Ccupleted Kaual developed and wdeky Several møtt and medium ffi he mnitoring p le enterprise. to Cmfo. 81. fImsette Mete19t9 UUI t79.2 Strethenlng Muieella's oblitty Compteted • Comptetten of study and - finemIe of b cen,ultmnt to Study Mfteber 190 to nvetigete snd prosecute tptementation of recom.edtion emnt#e iolpmentten of entlcupetitlve practices through for reorganitteng l scailas rInng resamidatluns to be ClittE PIMILIC SECIG AAG 111I VCiUCAL ASSISTANc POJC LOA1 Ms04 -C11 STALIS 111 StUIES starting a Cost Purpos sa de Ined at Deseripten of Project 1pct Ativities Citn. Dates (US #00e Apprasat Stetui Projoet gesutts outalilllity Ieprove~nts In orgent lot lan, functln.. provided imer the prpsed MIg i; inforætton system ~# trefning. - ce sterisat len of inforontfon projact. systee resutIng in increased Prpost for retralning Fisc4;1o cpacIty and reduction in tie for staff to Inereste their fmetitet data procassIng uner re~sets. capeelty for antvaing antic ~ ttive practe*s in diff erent mrkett. l2. Controterie I=ar 1918 UB3 66.y *evuloping a peroee dat* C~pleted - Developnent of a c ~1shenive • Syntei otbliehed suder the • Clvil Service Aprit 1990 nagement ystem for the ptblc date bene covering 240,00 activo prjct le being te ted reugrty. øegletry Date secter beed en a survey of user c1vi service p*rsonnet in plate • Orgnle Lam ef Centrilaori It gae neds. of a =uei register. being mdilfled to legtly penrit - RectIon In time t~ken for distriution of Informtlon en procassing user requeste en ctvit service perannet to decleløn peronnet. kers. - flexibillty in dapting • pinne ere in progrose to entmnd atatletlcat Information to er system to all the tøelve regts"i requests. off icea. - siseable increrta in Contrøkorlaes cpcIty to provide detallod data en civil service personnal to dectolen aers. 8. Cntrekerte septir t9M8 M53 340.2 Doveløping dtbse en Creted - Estabismnt of a cauterixed - Estebilmlnt of regional atuerþ steamt kletc 1990 teiøletten, pualic accounting and date base ýi6lch permite quIcker ulti permt data to be ac6ee4 by eturk personnet and l nking thse accesc of legst data bases by Conge~e for deciion-skig. ølectronketty utth Regionet Controkoria' twelve regionel - Legal data base Is beine Cntralorte off les. offices. reguIetty qted qun lemus ef - ge~ction in time teken by new teum nd regulatlne. Contratorie to furnish inforætion en am and direcliv»e to Its regionet off ices fron 15 days to I bour. - improvemente in Contratoria's copeclty to etear pdtic contracts. 2M. ES g~pt IIMe 1988 U N2.2 teveeping infornetton system arl C~peted - L=v granting corporate status • Proposed atruttumres uner Ø ~eeg unitatlen iea 190 sdinistrative structures for t1-nina åtm* rec .tten fqwoved emprt patoenfet for wder ovrsnt review. thiteeun aw tee. 1. j~eerfem June 1969 uss 216.9 ComntuctIff md Ifptemmtnm a corpIcted Deve~kurrt of the andel - Meuty deotoped m bdet beir idul Scter 1990 blotegleet.ecmneec dt of c:oetd. furthe refied for cptieu fieeIes stech and explottation. empoftation of flsheries renourse. • Poreomt trand In ocentry for on-gon aplefticn and reftmnt* en the andel. eea"*"9ugmu.uuua.fOOOuUmamUa.UuUguuUsUSU8UUUuBU8UUflUUU580USaaUU3S88S8AC3UmRUSSBUmnU2fd rD E 00-4 IBRD 20805 P E R U Parmascota REGrla.7N 8 REGIONON AnoALAA COQuIMBO S t h VALP'ARALSO Jtf ~Arica -,----- ~ Ase uaSEE INSETD 3 t~ 2a COALA',' A- . C0IHAI0QUE REGION oqueS- ANTIAG9 0V.e I REGION AISENf REIO REIO AISLN 0 M. DE V ALPARAISO GENERAL CARLOS TARAPACA I, IBANEZ DEL GAMPL) p34i20,. 3TIAGO e'l I -34. MROPO,,TANA D) . AN fiAG(O, - I2&Codena ' 72 Caro ^Cp3, - C -- -- MAIN ROADS REGION DEL LIBERTADOR .- *- AILWAYS G CONTOURS(10mil~5 T&copåI GENERAL BERNARO O'HIGGINS 48' CO (IOn0 inteOals 2c? CurO• Capt' P- a RVERs I a caREGION Cý'o o SAUNE LAKES REGION ( MAULL 1 ICE FIELDS DE E/ Lo cn M]NES A T 36- INTERNATIONAL AIRPORTS A A'n C PORTS, THROUGH-PUT EXCEEDING 300,000 TONS -NO 5SA REGION DEL TolcohuonoPER YEAR ANTOFAGASTA. I RIORIO COncOpció h CONCEPIO 0NATIONAL CAPITAL 24* 24 ~- REGION CAPITALS - Anofa--- PROVINCE BOUNDARIES Arau?co '"- REGION BOUNDARIES ArUalt Esperanwa INTERNATIONAL BOUNDARIES c e 38* Toho 26' 26 LA ARAUCANIA- d oMsgan-ses ARENAS 40* 40' REGION plapó j R NJ DE IaA.E I - T erra ATACAMA LAFuegAN 'ChaG,CN C 28EGI28*OD REGION DE MAGAI LANES Y DE LO.A~C~ '. ~' ErrDE LOS LAGOS P'a va DE LA ANTARTICA CHILENA PUE.RT u ejr Ao ld! 4j*·-Antdrtica Chilena -30 IASREA E1qu 0 50 100 150 200 REGION - KILOMETERS COQUEMBO .. SEPTEMBER 1987