| * Document of The World Bank FOR OFFICIAL USE ONLY HONDURAS SOCIAL SECTOR PROGRAMS NOVEMBER 1990 (Prepared for Consultation Group Meeting in Paris, December 5, 1990) Buman Resources Operations Division Country Department II Latin AmeUica and the Caribbean Regional Office This document has a restricted distribution and may be u3ed by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Lempiras (L$) US$1.00 = 5.5 Lempiras (November 1990) ACRONYMS ASHONPLAFA Asociaci6n Hondurena de Planificaci6n Familiar; Honduran Association for Family Planning BID IDB Banco Interamericano de Desarrollo; Inter American Development Bank CESAR Centro de Salud Rural; Rural Health Center CESAMO Centro de Salud; Health center IHSS Instituto Hondureflo de Seguro Social; Honduran Institute of Social Security IMR Tasa de Mortalidad Infantil; Infant mortality rate INJUPEMP Instituto de Jubilaciones y Pensiones de los Empleados y Funcionarios del Poder Ejecutivo; Public Employees Pension Fund INPREMA Instituto de Pensiones y Jubilaciones para el Magisterio; Pension and Retirement Fund for Teachers INPREUiAH Instituto de Previsi6n de la Universidad Nacional Aut6noma de Honduras; Insurance Scheme for University Staff IPM Instituto de Previsi6n Militar; Social insurance institute for the military JNBS Junta Nacional de Bienestar Social; National Family Welfare Society Lps Lempiras; The National Currency MOE Ministerio de Educaci6n; Ministry of Education MOH Ministerio de Salud; Ministry of Health NGO Non-governmental organization OPS PAHO Organizaci6n Panamericana de Salud; Pan American Health organization PANI Patronato Nacional de la Infancia; National Infants, Patron PHC Primary Health Care PVO Private and Voluntary Organization SANAA Servicio Nacional de Acueductos y Alcantarillados; National Water and Sewer Service SECPLAN Secretaria de Planificacion; Ministry of Planning -SILOS Sistemas Locales de Salud; Decentralized Model of Basic Health Services Delivery Developed by PAHO FOR OFFICIAL USE ONLY CONFIDENTIA HONDURAS SOCIAL SECTOR PROGPAMS TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY .. ........... ..... .. . .. i I. SOCIAL CONDITIONS 1.... . II. PUBLIC SPENDING ON SOCIAL PROGRAMS ... III. ISSUES IN SOCIAL PROGRAMS . .....1 IV. POPULATION, HEALTH AND NUTRITION ...24 V. EDUCATION ............................ .. . . 38 VI. SOCIAL SECURITY . ................ .53 VII. STRATEGIES FOR RESTRUCTURING THE SOCIAL SECTORS 66 BIBLIOGRAPHY .............. . ....76 This document is based on missions to Honduras in April and June 1990 led by W. McGreevey and includes contributions by Ana- Maria Arriagada and Jean-Jaccues de St. Antoine, LA2HR, Margaret Saunders, EDI, Tarsicio Castaneda, RUTA, Clifton Chadwick, Lauren Crigler, Darren Dorkin, Ralph Franklyn, Donald Kaminsky, Mario Ochoa, Cathryn MacKinnon, M. Scott, and Fernando Vio, Consultants. This docament has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without IFC authorization. HONDURAS SOCIAL SECTOR PROGRAMS LIST OF TABLES AND FIGURES IN TEXT TABLES I-1 Honduras: Principal Social Indicators ca. 1965 and 1989 I-2 Percentage Distribution of Nutrition Status of Children 0-59 Months, 1966 and 1987 I-3 Recent IMR Estimates 1-4 Ten Leading Causes of Death, 1983 I-5 Principal Causes of Morbidity, 1.988 I-6 Student-Teacher Ratios Compared, 1979-1987 I-7 Enrollment Coverage by Age Level, 1988 II-1 Budgeted Social Spending and Employment, Millions of Lempiras, 1990 III-1 Health Spending Compared, Percentage of Governments' Expenditures, 1980-1988 -II-2 Education Spending Compared, Percentage of Governments' Expenditures, 1980-1988 III-3 Social Spending by Component in Latin America, Percentage of GDP III-4 Share of Primary Education in Education Expenditures rII-5 Health Sector Spending Apportioned, Percentages of Total Sector Expenditures IV-1 Ministry of Health Physical Facilities, 1986-1989 IV-2 Human Resources - Ministry of Public Health, 1982-1989 IV-3 Ministry of Health Portion of Public Spending; Sources of Health Program Funds, Millions of Lempiras and Percentage Distribution, 1987-1990 V-1 Primary Enrollment as Percentage of Popu-lation V-2 Participation in Appropriate Grade Level V-3 Primary School Demographics V-4 National Autonomous University Expenditures by Purpose, 1988 V-5 Unit Costs by Education Level FIGURES I-1 Educational Attainment: Total, Urban, and Rural, 1988 IV-1 Population Coverage, Formal Health Sector V-1 Personnel Action Procedure VI-1 Health and Maternity: IHSS, Revenues and Expenditures, Constant 1978 Lempiras, 1985-1989 VI-2 IVM: IHSS, Revenues and Expenditures, Constant 1978 Lempiras, 1985-1989 EXECUTIVE SUMMARY Honduras is one of Latin America's poorest countries, with per capita GNP estimated at US$480 in 1990. It is in the midst of a structural adjustment process that has fundamental implications for social programs. The adjustments will eventually increase growth, employment, and real incomes, but in the near term, belt-tightening and budget-cutting are likely to increase Joblessness, reduce real wages, boost prices for basic consumer goods, and cut into health and education services. These changes will hurt the poor unless some program is developed to ameliorate the impact of adjustment. - The Administration of President Rafael Leonardo Callejas registered concern over these short-term social sector effects when it launched a major economic reform program in March 1990, and tock steps to cushion the blow by creating an emergency social investment fund (FHIS), designed to alleviate poverty by channeling resources, an initial US$6 million during 1990, into quick-disbursing, employment-generating infrastructure projects. The FHIS got under way with labor-intensive projects in 92% of the country's 289 municipalities. The government hopes donors will agree that the effort is essential and will contribute supplementary funding. The World Bank supported this effort by organizing a workshop with donors in June 1990; a possible lending operation, with a mobilization of other external assistance on soft-terms to FHIS is underway, shifting emphasis to social services targeted on groups of the population most affected by the adjustment programs. SOCIAL CONDITIONS IN HONDURAS Social indicators that show poor health, malnutrition, and continuing low levels of literacy are fundamentally related in Honduras to the continuing isolation of poverty groups, especially those in rural areas of the country. Social programs have been effective at improving conditions in the cities and among those in less isolated areas; a challenge for the future will be to extend effective services to groups that are difficult to reach, and to achieve this greater coverage and equity within the tight financial constraints that will face government in the next few years. Population, Health, and Nutrition Population. At the time of the 1988 census, the population of Honduras was 4.4 million and was growing by 2.8% per annum, high compared to the Latin American rate of 2.1%. Nearly half the population, 46.8%, is less than 15 years of age, and 60.6% is rural. Tegucigalpa has 570,000 inhabitants and San Pedro Sula, the northern industrial capital, has 285,000 ii inhabitants, and they are growing at 4.2% and 5.2%, respectively. The fertility rate is high, as a 1987 survey found that women would have an average 5.6 children during their lifetimes (3.85 in urban areas, 6.86 in rural). Al'out half the women surveyed want no more children, but only 41% of married women use any method of family planning, a rate that is low compared to other Central American countries. Contraceptive use is highest in the two major cities (63%) and lowest in the rural areas (30%). Health. Mortality rates, both general and for infants, are today but half the level that prevailed in the early 1970s, thanks to improved water supplies, sanitation, and mass communications that have spread knowledge about healthful behavior. Although infants are 4% of the population, they account for over one third of all deaths; the iinfant mortality rate today is about 60 per thousand live births. Dehydration associated with diarrheal disease, which accounts for a third or more of infant deaths, and respiratory infections, are the two leading causes of infant mortality. Undernutrition is a contributing factor in 60% of infant deaths. Hondurans die most frequently from intestinal infection, cardiovascular disease, injury, and cancer. Over 90% of the c(ount_y is potentially malarious. Nutrition. The incidence of moderate to severe malnutrition in children under age five, as measured by deficient weight for age, has gone down frou 26.2% in 1966 to 18.3% in 1987. Nonetheless, Honduras is among the most extreme cases in the Latin America and Caribbean region, along with Bolivia, Guatemala, and Haiti, of severe malnutrition that needs to be addressed with more effective government social programs. Such programs are now being developed within the Ministry of Health and in certain of the semiautonomous institutes. -Education Consistent with poverty and low levels of past investments in education, few Hondurans have even completed primary school, and in the population as a whole, the average educational attainment is little more than three years. An estimated 42% of the adult population were illiterate in the mid- 1980s. The 1988 census reported that 30% of adults can neither read nor write. Today, most 7 to 13 year-old children attend school, but high repetition and dropout rates yield low effective educational progress. PrimarV education is free and obligatory (from 6 1/2 to 13 years); half the schools need significant rehabilitation and lack potable water and latrines. Repetition and desertion are particularly high in the first three grades; 10.3 years of iii schooling is provided on _verage to sixth-grade graduates. Of the L$278 spent per student, only L$1 is used for materials. Secondary education. Secondary schocls enrolled 42.1% of the 14-19 year-old population, divided into a common cycle, college preparatory, and technical education. There is no national standard evaluation of student learning at the end of the secondary cycle, and qualitv is in question. University enrollment for 1988 was 33,848; 6,425 persons attended other post-secondary institutions. In the Autonomous University, UNAH, each graduate costs the state L$65,200 because of the very low rate of completion of degree work by students. That amount is several times what students ray to study in a private university. Cost per attendee at UNAH was L$2,996 in 1989; half the budget is spent on administration, less than 2% on research. UNAH absorbed over a fifth of public education spending in 1988. SOCIAL PROGRAMS IN HONDURAS The Government of Honduras devoted a quarter to a third of its spending to public education and health each year over the past decade. Over one-third of total government expenditure was for public debt servicing in 1988, but the education sector was second to it in that year and consistently was allocated 15% or more of government expenditure despite the economic crisis of the 1980s. Spending on public education, health, nutrition, water, and sanitation compris->i 10.3% of GDP in 1988. Severa.l semiautonomous institutions of the government also offer social programs. Wage taxes on employers and employees pay for social insurance provided by six institutes, of which the Honduran Institute for Social Security (IHSS) offers both health and pension benefits, for a minority (about 12%) of the population. The Social Welfare Board, or Junta Nacional de Bienestar Social (JNBS), employs about one thousand people and provides some family assistance. The FHIS, which has a very small staff, is combining government and donor funds to provide unemployment relief and may channel funds through the social ministries to support nutrition assistance and essential infrastructure that address the needs of poverty groups. Taken together these ministries and semiautonomous institutes are budgeting to spend 14% of GDP and one-third of total public spending in 1990; actual outlays will probably be somewhat smaller. The ministries of education and health are the largest employers in the country; along with the semiautonomous institutes, public social service delivery employs about 56 thousand persons, 3% of the total Honduran labor force. iv SECTOR ISSUES, A SUMMARY Is aggregate social spending adequate? The answer is that Honduras has not neglected the social sectors. In fact, the social sectors have received a percentage of Government resources that compares favorably to other countries of the region. in the heal-.h sector, Honduras ranks in the middle of five neighboring countries in health expenditures as a percentage of government expenditures and ranks at the top in education spending (see Chapter III). Is the balance between components of social spending appropriate? The answer is that Honduras is within the range of LAC countries, spending less, as a share oE GDP, than some richer neighbors but considerably more than the Dominican Republic. These comparisons aze always difficult to interpret, but they do suggest that Hondurans may overspend on education, because of the earmarked allocation to UNAH; may overspend on curative health services, because of relatively high physician wages; and thus would need to reallocate rather than increace its budgetary support for social programs to basic education and primary health care. Current programs accord few benefits to the poorest groups, with the exception of rural primary education, which does not meet adequate standards of quality in part because education sector resources favor post-secondary schooling. The sectoral balance that currently exists is one of the causes of underserving these poor groups. Are allocations within sectors efficient and equitable? The answer is that within individual social sectors analysts will find evidence of inefficiency and inequity in the delivery of services. Spending per pupil is ten times higher at UNAH, which serves the urban middl*-income groups, than it is .n primary schools, which serve the urban and rural poor, as well as some children from middle-income fanilies. This distribution of education subsidies thus violates principles of equal access and targeting on poor and vulnerable groups. Public health spending by MOH and IHSS will have a cost to government of L$500 mnillion, or roughly US$25 per person in 1990, a subsidy spread unequally among regions, families, and persons. Spending per person on IHSS beneficiaries will be several times larger than this average; the rural poor with no access to public health care will receive virtually nothing. Curative care is still emphasized so that hospital patients account for over half of total spending.. The allocation of 36% of health care spending to primary health care is as high as it is because of the emphasis put on that area by some external donor and technical assistance agencies. The allocation of funds entirely under the control of MOH and IHSS is even more inequitably distributed toward urban-baaed curative care than is the externally-financed share. v Does the public-private mix of spending serve the objectives of efficiency and equity? The answer is that Honduran social spending pays for many goods that benefit individuals even more than society as a whole. The Gov.ernment uses its tax resources to finance services that might alternatively be financed by other levels of government or by private households and firms. Some public resources could be saved, with no loss in terms of social services received by households, by encouraging greater direct household purchase or cofinancing of such social services as recirement and dependents' insurance, secondary, technical and higher education, curative health care, and housing. By inducing middle-income families to pay for many of these services, the government would save on subsidies given to them, and could then increase subsidies assigned to education and health care for the poor. In some respects the manner of financina social services causes some of tneir inefficiency and inequity. By providing a fifth of public health services through a social security system financed by a wage tax, the Government of Honduras creates'a dual system and duplication of effort. By earmarking a budget share for higher education, the Government permits inefficiency in university administration. These earmarking practices also lead to inequiity. Few low-income persons benefit from spending on curative hospital care, pension benefits and higher education. A change in financing practices could by itself lead to improvements in both efficiency and equity. Today, benefit programs are not targeted on the poor, the young, the rural, or the needy aged. Reformed social programs, taken together, could constitute a social safety net, a shield for the poor against such key risks as hunger, incapacity and infirm.ity, ill health and disease, poor housing and exploitation stemming from a lack of schooling or literacy. They do not provide such a shield today simply because social spending dissipates its potential impact by serving many middle income groups that do not need public subsidy. Besides the issues common to the social sector just described, some specific problers confront public health care, incl'uding pharmaceutical shortages, high physician salaries, how to institute the integrated local health systems, SILOS, strategy, and how to reallocate resources and effort toward primary health care. Specific issues and possible actions are discussed in greater detail in Chapter IV. Excessive financial and administrative controls at the MOH level inhibit initiatives for improving efficiency and degrade front-line services. MOH is thus considering an increase in authority for local health systems. There is disproportionate concentration of health service resources in cities; two-thirds of MOH personnel work in the major hospitals delivering costly vi higher-level care to a limited, middle-income urban clientele. Cost recovery, now less than 7% in the best of cases, could be increased gradually but significantly. Revolving community drug funds could reduce dependence o. central purchasing; community volunteers L;nd auxiliaries offer an alternative to expansion of the current health care model based on high-salaried physicians. Experimentation in one USAID-financed pilot could be expanded to many more sites. Expansion of the current model is probably unaffordable, whereas community participation, including copayment for curatire services, may be a better basis for the SILOS strategy when extended to the unserved rural population. The rural poor should receive priority attention in provision of food supplementatioii and family planning and nutrition information coordinated through the maternal and child health care program. MOH has appointed a Director General for SILOS and that program could now be expanded and combined with the proposed pilot food stamp program being developed in cooperation with FHIS. Where appropriate, local communities and NGOs can play a role in service delivery, with their own staff and materials financed by MOH resources in combination with user reesj and voluntary contributions. A targeted program could reduce malnutrition to a level comparable to that of such countries as Colombia at a cost of about 0.8% of GDP each year for about f-ve years, according to an analysis prepared by Bank staff in 1989. The study found that the government, various donors and NGOs spend about US$5 million annually on school feeding and maternal and child health nutrition programs. Spending would have to rise to about five times that level and be targeted on groups likely to be malnourished, if the desired impact is to be achieved. A goal set out in that study was to reduce the incidence of malnutrition, as measured in Table I-1 of this report, from a current 18% to under 10%. To achieve such a reduction in malnutrition would be a major success; given the achievements of the past score of years, success is not out of reach, if the Government of Honduras has the will to develop effective programs. A major issue in public education is that the high levels of illiteracy, school desertion, repetition, and undernourishment observed in rural areas are directly linked to the underfinancing of rural schools. Increases in the education budget in recent years went to university and technical schools, higher administrative costs and higher teacher salaries that now consume 9?72 of the MOE budget. Teacher supervision, support and evaluation are weak; tardiness and absence are not punished, nor is good performance rewarded. Teacher training, certification and evaluation are essential ingredients for improved performance. Student testing does not now measure either teacher or student achievement. A better testing system would motivate teachers to try harder and parents to help their children learn. vii Current curriculum is not pertinent to student needs in the workplace and needs to be redesigned to emphasize language as a communications and thinking tool; basic math for everyday problem solving, and social studies and nat;ural science as means to promote better community health and environment. Curriculum and teaching materials developed for urban schools work poorly in rural, multigrade classrooms; elemental and inexpensive teaching materials, and specialized teacher training, could be developed to complement materials now available. The school feeding program, which covers some 600,000 students, needs to be strengthened with a more substantial transfer of food to complement the excellent support already provided by donor- financed NCOs. School corstruction in rural areas is not now scheduled to keep pace with population growth, and over half the rural schools need rehabilitation and repair, so that the relative deprivation of rural poverty groups will grow, unless investment choices are restructured. Rural adult education offers the only hope for a rapid upgrading of skills to improve productivity. A Wcrld Bank-supported rural primary education project, which is about to be reactivated by MOE, could help develop and finance such an effort. The major issues in social security in Honduras today are: the low level of coverage of the population; the inequitable and regressive nature of the system; the lack of investment opportunities for pension funds; the serious financial problems of the main social security institution (IHSS); the efforts to create a national health system through a coordination of the activities of the Ministry of Public Health and IHSS; and efforts to unify the entire social security system. Coordinating provision of health care services between IHSS and Ministry would have several benefits. First, while the two systems are legally separate, the distinction is blurred in actual use. In many areas, people insured under IHSS use Ministry facilities and, through various illegal methods, non- insured gain access to the IHSS facilities -- by borrowing the identification cards of those who are insured, for example. Merging the IHSS and Ministry of Public Health services is a logical action that should be considered. The critical issue of investment portfolio management in periods of high inflation needs to be addressed, but changing pr4sent investment strategies may have a destabilizing effect on Jae banking system in Honduras. The Government might wish to seek and finance technical assistance to the various pension funds to enable them to find investment opportunities that will protect their real value during the present inflationary period. viii STRATEGT FOR THE SOCIAL SECTORS RESTRUCTURING The Government of Honduras could build on past successes, and solve the remaining problems of high infant mortality, malnutrition, and school dropouts, by developing a coordinated program of basic social services that would be extended to the rural poor while still maintaining basic services for middle- income and urban groups. Six steps, which are described in some detail in Chapter VII, need to be considered: Step 1. Prepare an agenda for reform of social programs.1 Step 2. Prepare a plan to verify and document the results of implementing the agenda of reform. The system of documentation could include a strategic social plan, an annual review of the social situation, and a program of analysis and evaluation of thie results and impact of social programs. Step 3. Reduce the earmarking of revenues to specific programs. Step 4. Shift resources to favor more spending on primary and remedial adult education (and less on higher education), primary health care (and less on hospital care), and nutritional improvements for children under five years of age. Increase resources for targeted nutrition programs. Chapters IV and V of this report offer many specific suggestions for such shifts. It may be as important to shift budgets away from salary costs as it is to shift toward primary schools and basic health care. Step 5. Review staffing requirements for teachers and health workers to determine career development, wage setting practices, and means to increase efficiency in delivery of these services. Step 6. Enhance local control over the quality and delivery of social services by giving local committees control over user fees, copayments, and other income generated by the sale of public services. These steps can be effective means to address the issues currently confronting social programs. There remains a wide range of options in the balance selected by the Government in how 1 Under terms of a second structural adjustment loan, SAL II, the Government of Honduras is reviewing its social programs and preparing a preliminary plan for action in 1991. That plan may meet many of the objectives discussed in this section. ix vigorously it may choose to move in one area or another, or how fully it is committed to implementing changes that can improve equity and efficiency. Its action must of course fit within the political limits defined by the interests of consumers, current program beneficiaries and those who deliver social services. A final section of this report describes four phases of preparation and implementation for social program improvement. Choosing Options, Managing Chanqe The options having been identified, the Government of Honduras must next choose among them and, having chosen, must develop a four-phase strategy for managing change. First, the Government needs to establish a firm limit on how much it will spend for social programs, a limit consistent with its macroeconomic framework developed as part of a plan for structural adjustment. That limit could be identified as a share of GDP, or central government revenues, or both. Establishing such a limit is essential because of the constant pressure of special interests to exceed it. The second phase is to seek consensus on a vision of objectives and priorities for the social sectors. That vision needs to be much more client-focused than is the current system of delivery for social services. *At a more general level, the vision would refer to concerns for equity, priority for programs that address the needs of the poor, and assignment of resources to government actions thet cannot be carried out by the private sector. It is essential that the vision be consistant with the budqet constraint. The main instrument needed to achieve consistency is the social budget, as it offers a comprehensive overview of what is to be spent, and for what purposes. Without such a budget it would be very difficult to set relative priorities and make choices between programs. A third phase is to create internal incentives, recognition, and rewards for social sector personnel that contribute to achievement of sector goals. Managers may need to seek creative ways of identifying nonsalary rewards that are important to staff. A fourth phase is individual and group empowerment, or what is often referred to as decentralization, that assur-s that sector staff, and the communities in which they work, have sufficient control of their own work to make it more productive. Winning support of education and health professionals will require an intense effort to build consensus and agreement among all parties. I. SOCIAL CONDITIONS 1. The people of Honduras today experience two, starkly contrasting features of their social situation. There is widespread poverty, malnutrition, ill health, illiteracy and lack of schooling, especially among those three-fifths of the population living in the countryside. On the other hand, each of the most-watched social indicators -- the infant mortality rate, the incidence of second and third degree malnutrition, and primary school attendance -- exhibit gains of 30% to 50% during the past generation (see Table I-1). The improvements in living conditions that caused these positive changes in the indicators continued through the crisis of the 1980s, and there is reason to believe they can continue to the end of the century as well. Table I-1: HONDURAS: PRINCIPAL SOCIAL INDICATORS (ca. 1965 and 1989) SOCLAL INDICATOR MID-1960s LATE 1980s Infant Mortality Rate 127 60 -53 Malnutrition Rate 26.2 18.3 -30 School Attendance Rate 80 106 +33 Source: Tables I-2, I-3 this report; WDR90, Table 32 for school attendance. 2. This chapter provides further details on evolving social conditions in Honduras. There is no effort made here to describe poverty as that topic is covered in other reports. The data do permit us to link social conditions described here to public social programs, and government spending decisions on those programs, which are described in an overview (Chapter II) and in more detail by subsector (Chapters IV through VI). Population 3. In 1988, the population of Honduras was 4,443,721, as counted in the census report published in 1989. During the period 1974-1988, population grew at a cumulative annual rate of 2.8% (compared to the world rate of 1.8% and Latin America's rate of 2.1%). Forty-seven percent of Hondurans are under 15 years of age. Urbanization is occurring more slowly than in other Latin American countries, even though the share of population living in rural areas shrank from 68 to 60 percent of total population between 1974 and 1988. Many less-educated youth were among the rural-urban migrants; in 1974, 15% of the illiterate population lived in the urban areas, but by 1988, the figure had risen to more than 20% (Bier Martinez, 1989). The two principal urban 2 centers -- Tegucigalpa (570,000 inhabitants) and Spn Pedro Sula (285,000) -- are growing at 4.2% and 5.2% respectively, although their marginal peri-urban areas may be growing at nearly double those rates. While urban growth mainly occurs in these two cities, medium-sized regional centers are also swelling and are experiencing the same marginal neighborhood phenomenon that places heavy denxands on urban services in the two major popula- tion centers. 4. The government estimates that nearly two-thirds of the population lack adequate housing and sanitary facilities and that needs are increasing by 5% annually. According to a 1987 survey, 44% of houses lack water on their premises and 40.6% have no human waste disposal facilities. Piped water inside the home is available in only one-fifth of households. The urban sector is highly favored: in Tegucigalpa and San Pedro Sula, 48.4% have indoor water and 73.5% have indoor toilets; in rural areas, only 7.5% have indoor water and only 7.8% have indoor toilets, according to a 1987 Ministry of Health survey. 5. Fertility and Family Planning. Before the country's entry into the first stage of demographic transition, the total fertility rate (TFR) hovered around 7.5 children per woman. By 1983-84, TFR had dropped to about 5.3, a decline of about 30%. In 1984, 40% of the women of fertile age interviewed in a survey said they wanted no more children; by 1987, the percentage so responding had risen to 50%. Nevertheless, according to the Epidemiology and Family Health Survey of 1987, the decline in fertility had stopped: TFR for 1987 was 5.6 (3.85 for urban areas and 6.86 for rural). This stall in the demographic transition carries with it adverse consequences ir. terms of excessive demand for education and health services far into the future. The usage rate for contraceptives in Honduras is low, even though it rose from 27% to 41% of women between 1981 and 1987. Contraceptive use is twice as high in the cities as in rural areas. The two most prevalent methods are oral contracep- tives and female sterilization. The Honduran Association for Family Planning (ASHONPLAFA), an NGO affiliated with IPPF, is the source of more than half of oral contraceptives in use; the com- mercial sector provides 21% and the Ministry of Health services only 7%. Private hospitals provided over 70% of sterilizations through agreements with ASHONPLAFA. Nutrition 6. The diet of 80% of Hondurans consists mainly of corn, beans, rice, plantains, and vegetable protein. This diet varied little over the centuries until about ten years ago, when wheat became more readily available as a result of U.S. aid programs (wheat imports have increased 400% since 1975). Despite some improvements in availability of food in the 1980s, the diets of 3 more than 62% of Hondurans fall significantly short of the recommended calorie and protein intakes. Rising food prices and eroding family incomes are causing a shift in consumption patterns as poorer segments of the population buy cheaper foodstuffs (especially corn and wheat) to meet their caloric requirements, bypassing the more expensive animal proteins (beef, poultry, pork) that are favored by the affluent minority. 7. Child nutrition. Between 1966 and 1987 there was a welcome decline in the incidea.ce of moderate and severe malnutrition (see Table I-2) measured either by height for age or weight for age. The incidence of severe malnutrition dropped by 30%. Malnutritior remains a serious problem in rural areas, especially in the west and south of the country, but poverty maps suggest that pockets of malnutrition exist in all regions. UNICEF estizaates that 20% of infants are born with low birth weight. This level, if accurate, is considerably above the rate in countries at a similar level of development and is a consequence of the fact that public maternal and child health services are not reaching rural Honduras. Table I-2: PERCENTAGE DISTRIBUTION OF NUTRITION STATUS OF CHILDREN 0-59 MONTHS (1966 and 1987) WE IGHT/AGE HEIGHT/AGE NUTRITION STATUS 1966 1987 1966 1987 Normal 56.9 62.0 0.0 55.3 Mild Malnutrition 16.9 19.7 15.6 13.1 Moderate Malnutrition 18.9 14.5 21.2 19.3 Severe Malnutrition 7.3 3.8 23.2 12.3 Source: Encuesta Nacional de Nutrici6n. Ministerio de Salud Pablica. Honduras 1987. 8. Proper breastfeeding practices are very important to infant nutrition. They also aid in birth spacing and in reducing diarrhea and respiratory disease. Health experts recommend exclusive breastfeeding for a minimum of six months, followed by use of special weaning foods. The 1987 nutrition survey found that 23% of infants stopped breastfeeding before 3 months of age, and another 18% stopped before the sixth month. Maternal education in breastfeeding and weaning practices, offered through the health system, could have a positive impact on infant health and might even contribute to birth spacing and fertility reduction. 4 Health 9. Mortality. The infant mortality rate (IMR) in Honduras is among the highest in Latin America. Although children under the age of one constitute only 4% of the population, they account for over one-third of total deaths. Nevertheless, IMR has decreased significantly since the first national demographic survey was conducted in 1972 (see Table I-3). At that time the infant mortality rate was 127 infant deaths per thousand live births for the period 1967-68; by 1985, the rate had dropped by 50% to 61/1000. A follow-up survey in 1988 reported an IMR=48 for 1987/88, but most health experts believe that IMR=60 is nearer to the actual 1990 level. Regardless of specifics these trends show remarkable improvements in this key indicator of health status. Table I-3: RECENT IMR ESTIMATES -SOURCE TYPE OF TYPE OF TIME IMR DATA ESTIMATE PERIOD ESTIMATE EDENH I CEB-CS Indirect 1967-68 127 CENSUS 1974 CEB-CS Indirect 1968-70 112 EDENH I Survey Direct 1971-72 117 ENPA 1981 CEB-CS Indirect 1976-78 90 EDENH II CEB-CS Indirect 1987-80 85 MCH/FP 1984 CEB-CS Indirect 1981 71 EFHS Complete Indirect 1985 61 Birth History Direct 1985 47 CEB = Children ever born CS = Children surviving Source: Ministerio de Salud Publica. Asoc. Hondurena de Planificacion Materno Infantil. (ENSMI 1984). Publ. Cientifica No. 0011-02-88 UNICYT. 10. Infectious diseases and respiratory tract infections are the two leading causes of infant deaths. Diarrhea alone- accounts for 30% to 50% of the total. Nutritional deficiencies are a co- ntributing factor in 60% of cases. 11. In 1987, the maternal mortality rate for hospitalized women was 113 per 100,000 live births. Most of these deaths (63.6%) occurred in women 18-35 years of age. Principal cause of death was hemorrhage, followed by infection and hypertension. 5 The data are incomplete since only one-quarter of deliveries occurred in institutions. 12. The general mortality rate has declined from 14.2 per thausand reported in 1972 to 8/1000 in 1987. Hondurans die most frequently from intestinal infection. Cardiovascular disease, accidents, tumors, and violence are other important causes (see Table 1-4). Table I-4: TEN LEADING CAUSES OF DEATH (1983) NO. OF CAUSE DEATHS PCT. Intestinal Infection, unclearly defined 1,370 13.7 (Diarrhea) 662 6.6 Cardiac arrhythmia 514 5.1 Heart diseases, unclearly defined 390 3.9 Pneumonia, causal organism not specified 357 3.6 Other means, not specified 343 3.4 Other accidental and environmental causes not specified 340 3.4 Malignant tumor, non-site specific 278 2.8 Firearms, explosives 270 2.7 other perinatal, unclearly defined 260 2.6 Source: Statistics, Planning Division, MOH. 13. Morbidity. Honduran morbidity statistics are incomplete; Table I-5 details main causes reported for 1988. Intestinal diseases and respiratory infection head the list. Normal child birth is the leading reason for hospital admissions; second is abortion (spontaneous or induced); diarrhea ranks third. Diarrhea and acute respiratory infections constitate 80% of consultations for children in the health centers. The 1987 nutrition survey showed that 30% of children under five years of age had suffered an episode of diarrhea in the 15 days before the survey. A Honduran child has an average of three diarrheal episodes per year. The incidence of diarrhea is highest during the first year of life, underscoring the important relationship among weaning, diarrheal disease, and malnutrition. 14. In 1989, 46,177 cases of vector-borne diseases, primar- ily malaria, were reported. Over 90% of the country is potentially malarious. The number of cases has increased in recent years, and there is concern that insecticide resistance is growing (as it has in neighboring El Salvador). 6 Table I-5: PRINCIPAL CAUSES OF MORBIDITY (1988) ACCUM. CODE C A U S E NUMBER PCT. PCT. 129 Intestinal parasites 10,206 6.20 6.20 009 Int. infection poorly def. 8,646 5.20 11.46 786 Acute respiratory infections 5,288 3.21 14.67 285 Other anemia 5,285 3.21 17.88 463 Acute tonsillitis 5,086 3.09 20.97 460 Common rhinopharyngitis 4,924 2.99 23.97 599 Other urethra disturbances 3,465 2.11 26.07 490 Non-specified bronchitis 9,361 2.04 28.12 493 Asthma 2,828 1.72 29.83 487 Influenza (flu) with other respiratory manifestations 2,733 1.66 31.49 401 Essential hypertension 2,612 1.59 33.08 263 Undernutrition - Grade I 2,523 1.53 34.62 466 Acute bronchitis 2,254 1.37 35.99 462 Acute pharyngitis 2,168 1.32 37.30 465 Other tonsil infections 1,942 1.18 38.48 Other 101,220 61.52 100.00 T 0 T A L 164,541 100.00 Source: MOH. 15. other leading morbidity causes include dengue fever, tuberculosis, AIDS and cervical-uterine cancers. Lack of potable water and human waste disposal facilities contribute heavily to high levels of diarrheal disease, parasitic infection, and malnutrition in rural areas and among the poor. Education 16. Consistent with poverty and low levels of past investments in education, few Hondurans have even completed primary school, and in the population as a whole, the average educational attainment is little more than three years (see Figure I-l). An estimated 32% of the adult population were illiterate in 1988. Today, most 7 to 13-year old children attend school, but high repetition and dropout rates yield low effective educational progress. Interviews for the 1980 census reported that just over 30% of persons over age ten could neither read nor write. 7 Ficure I-1: EDUCATIONAL ATTAINMENT: TOTAL, URBAN, AND RURAL (1988) 40 - 30 gLu ~~~~~~~~~1451 20 -a tue~~~~~L 10 NO SCHOOUNG 1-3 4 - B 7 - 9 10 -12 12 + t z~~~ ~~~~T MU R 17. Primarv Schooling. Primary education is free and obligatory (from 6 1/2 to 13 years); it is offered at 7,318 primary schools, 87.8% in rural areas, under conditions in which there are on average 37 students per teacher (there are 23,528 teachers and a wide variation in class sizes), and half the schools need significant rehabilitation and lack potable water and latrines (see Table 1-6). Repetition and desertion are particularly high in the first three grades, so that only 30% of entrants complete the sixth grade. Only 18% of students go through grades 1 to 6 without repeating any grades; 10.3 years of schooling is provided on average to sixth-grade graduates. Estimated costs of repetition range up to L$50 million per year. A child who spends three years in a multigrade school probably gets first grade three times. Of the L$278 spent per student, only L$1 is used for materials. 8 Table I-6: STUDENT-TEACHER RATIOS COMPARED (1979-1987) 1979 1980 1981 1992 1983 1984 1986 1986 1987 PRIMARY Honduras 37 36 37 37 37 38 37 38 Costa Rica 26.7 27.7 33.0 31.6 31.9 33.8 31.5 32.3 31.6 Dominican Rep. 61.8 46.3 64.4 34.2 33.1 33.7 El Salvador 48.0 40.7 46.4 48.4 41.8 44.6 Jamaica 41.4 41.4 36.9 Source: World Bank, wSocial Spending . . .,w p. 49, and Mission estimates for Honduras. 18. Secondary School. Secondary education is even less efficient and less equitable than primary education. In 1988 there were 474 secondary schools with enrollment of 272,094, 42.1% of 14-19 year population, divided into a common cycle and college preparatory, and technical education. There is no national standard evaluation of student learning at the end of the secondary cycle, but education specialists believe quality is poor. SECPLAN estimates that half a million youth in this age group have dropped out of school and should be brought into the system. 19. Higher Education. University enrollment for 1988 was 33,848; 6,425 persons attended other post-secondary institutions. In the Autonomous University, average time to graduate is eleven years, and each graduate costs the state L 65,200, several tlIes what the student pays to study for five years in a private university. The cost per attendee at the Autonomous University was L$2,996 in 1989. With the resources that Honduras currently allocates for each university student, it could hypothetically give full scholarships to all of them in the private universities of the country with the benefit of much higher graduation rates. 20. Education is important to Hondurens, judging by the size of the Ministry of Public Education and the share of public spending dedicated to schooling. From 1981 to 1988, education expenditures averaged about one-quarter of the total government budget. They rose as a proportion of Gross Domestic Product (GDP) during this period, even as GDP per capita was itself declining due to the country's deepening economic crisis. Thanks partly to rising spending levels, schooling reached growing numbers of Hondurans during the 1980s. Almost one-half of the 4- 25 year age group are now in school, and primary education reaches almost 92% of children between the ages of 7 and 13 (see Table I-7). 9 Table I-7: ENROLLMENT COVERAGE BY AGE LEVEL (1988) AGE GROUP POPULATION ENROLLMENT PCT. 4-6 years 470,918 53,085 11.3 7-13 years 946,412 869,557 92.0 14-19 years 646,723 272,094 42.1 20-25 years 534,559 40,880 7.6 TOTAL 2,598,612 1,235,616 47.5 Source: Cifras Estadisticas del M.E.P. Prepared by: Departamento de Educacion, SECPLAN. 21. Yet the payoff is far from satisfactory. At least one- third (perhaps as many as 43%) of Hondurans are still illiterate, and a far larger proportion lack functional literacy for practical use in tha modern workplace. While access to school- ing at the primary level is very good -- Honduras' rate is the best in Central America (excluding Panama) -- students don't remain in class. The average Honduran only completes 3.5 years of schooling. Fifty-four percent drop out before completing sixth grade, the worst national rate in Central America. In rural areas the desertion rate is twice as high. Because of high drop-out and repetition rates, it takes an average of 10.3 years to produce a sixth-grade graduate and costs almost twice what it should. 22. Although significant progress has been made in extending educational opportunities to children in the countryside in recent years, the system remains highly skewed in favor of urban areas. It is also increasingly skewed in favor of secondary and higher education. The share of spending on primary schooling dropped steadily during 1980-87 from 57% of the total education budget to under 45%, while that spent on university education (and administration) increased by more than one-third. 23. Meanwhile the cost of educating each child, adjusted for inflation, rose more than 7% during 1982-88, due mainly to escalating teacher salaries (in most developed countries teacher salaries absorb 80% of total educational expenditures, but in Honduras they consume 97%, with little left over for teaching materials.) Yet the poor auality of instruction is clearly one of the key factors contributing to the high student drop-out rate. 10 Social Security 24. The social insurance offered by six independent institutos in Honduras is similar to the rest of Latin America. The first institute (Instituto Hondureno de Sequridad Social, IHSS) was created in 1962 and the newest formed after 1986. The majority of the expenditures go to health-maternity benefits; contributions and benefits are low (average pensions are approximately US$20 per month for the majority). 25. coverage is low; in 1986, 12.3% of the population were affiliated to one of the five social insurance institutes, and not all of these were covered for health-maternity benefits. There are now six institutes, covering 16% of the population. This low coverage is partly a result of the small size of the formal sector; the social insurance system in Honduras probably has a net regressive impact, because the benefits of these few workers are financed by a wage tax that is passed on to consumers, including the poor. IHSS is studying means to help MOH extend services to the poor under a solidarity program. 26. As currently operated, social security provides no safety net for the poor. Hondurans outside the formal and government employment sectors have no effective risk insurance against the high costs of health care, work disability, unemployment, and aging. Even the low level of pension and survivor benefits no- accorded to pensioners could not affordably be financed out of wage taxes on poverty groups. As a result, most households depend on extended family ties and community voluntary assistance when disaster strikes. The extension of government risk insurance to the rural poor will probably have to await achievement of higher average standards of living. For the time being, a social safety net will have to depend cn publicly- financed transfer programs, especially to high-risk groups, including poor mothers and their preschool children. Studies in other countries show that the elderly are no more likely to live in poverty than middle-aged persons; it is children who, as a group, are most likely to suffer from poverty (McGreevey 1990, 16-17). Their needs can perhaps best be addressed through a strengthened program of public health care with nutrition assistance. II. PUBLIC SPENDING ON SOCIAL PROGRAMS 27. This chapter provides an overview of how public social spending tries to address poverty and the social conditions described in the previous chapter. It describes how public spending is financed; how budgets are formulated, and what issues arise in the execution of programs in the several areas. Key issues include remaining problems of equity and efficiency in service delivery, whether the public sector uses its resources to address the highest priority needs, and how public spending discourages effective private initiatives that could substitute for public effort. 28. Spending on education and health has used a quarter to a third of all public spending over the past decade, a share similar to that of neighboring countries. Education consistently comprised the largest component of social spending, with 15% in 1978, and 17.8% in 1988. Health spending has hovered around 10% of total governmen, expenditures over the same period. Included in the health sector are expenditures on health and nutrition, water and sewage. Spending by the Government of Honduras in these two sectors, when measured as a share of total government spending, is roughly comparable to that of its neighbors, with the exception that Costa Rica has spent far more on health than other countries of the Central America and Caribbean region. (For details of comparisons, see Chapter III, which follows.) Sources of Funds 29. The Government of Honduras finances social spending from general revenues, through external sources, by either donations or loans, and to a lesser extent through special earmarked taxes on individuals, or their wages, businesses, sales, public entertainment, export taxes, and the like. Most revenue is consolidated at the central government level, and the Ministry of Finance allocates directly to line ministries. (The MOH is responsible for transferring funds to SANAA, the Servicio Nacional de Acueductos y Alcantarillados. The MOE transfe-4 funds to INPREMA, the Instituto de Pensiones y Jubilaciones para el Magisterio). 30. For donations or loans to the sector, international and bilateral agencies and the Honduran Government typically sign agreements allowing for funds received by the Ministry of Finance to pass directly to line ministries. In a few atypical cases, agreements allow for direct donations to line ministries. Donations by international Non-government Organizations often bypass the Government structure and are more difficult to calculate. 12 31. Social sectors use earmarked revenues in a few cases, the largest being wage taxes assigned to social security institutes. UNAH is guaranteed a fixed 6% of government revenues. According to interviews with persons in the ministries of finance, health, and planning, the only earmarked funds in the health sector are for PANI, the Patronato Nacional de Infancia, which receives a percentage of funds from the national lottery determined each year by the MOF. In 1990, PANI will transfer L$20 million to MOH. In the education sector, a small proportion of taxes on alcohol and cigarettes is allocated to student sports activities. In 1990, this should amount to L$2 million, but SECPLAN estimates that no transfer will be made due to the austerity program. 32. As a source of financing, user fees have provided only a small amount of funding in the past, but its importance is likely to increase in the future. In a five year plan for financing recurrent costs of the MOH, the Department of Sectoral Planning proposed in 1987 a more concentrated effort at cost recovery as one means of alternative financing for hospitals. Fee collections rose in nominal terms from L$21.8 million to L$22.4 million from 1982-1988; hospitals have actually seen a decrease in real term, of the significance for this funding. In 1987, hospital Gabriela Alvarado brought in 6.8% of its budget through fees, while the Hospital de Occidente brought in only 0.8% of it budget through fees. Hospitals and clinics were recently given the right to retain fee collections and apply them to local costs. 33. Is. the system of financing social spending efficient and equitable? Who pays for the benefits of social programs? other countries have sponsored surveys to see which regional, .income, or ethnic groups pay for and receive the benefits of social expenditures (see Selowsky (1979) on Colombia and Meerman (1978) on Malaysia). No such survey was conducted for this study, but inequity is shown by the lack of access to health care among the rural poor, and the inadequacy of rural primary education. Inefficiency, discussed in specifics in Chapters IV and V, is widely acknowledged. In the health area, inefficiency is manifest in the coexistence of two overlapping public health care programs provided, respectively, by the Ministry if Health and IHSS. There are low hospital occupancy rates and underuse of primary health care facilities as essential complementary inputs, especially pharmaceuticals, are often unavailable. 34. In some respects the manner of financing social services causes some of their inefficiency and inequity. By providing a fifth of public health services through a social security system financed by a wage tax, the Government of Honduras creates a dual system and duplication of effort. By earmarking a budget share for higher education, the Government permits inefficiency in university administration. As shown in Chapter V, half the UNAH budget is allocated to administrative costs, leaving just a tiny 13 percentage for research. These earmarking practices also lead to inequity in that few low-income persons, and none of the rural poor, benefit from the spending of these earmarked funds for curative hospital care, pension benefits and higher education. A change in financina practices could by itself lead to improvements in both efficienicy and equity. 35. In the health sector, 70% of planned spending will come from central Government funds in 1990, while about 30% will derive from external sources, principally loans and donations of international and bilateral agencies. In 1986, central Government funds accounted for 63.7% of funding, while external loans were 22.9%, ar.d external donations were 13.4%. In 1987, central Government funds jumped considerably to 86.6% of total funding; however, since then, central Government funds have decreased as a percentage of funding. The decrease in the percentage of national funding was gradual during 1988 and 1989, before dropping almost 11% between 1989 and 1990. The amount of health financing from external loans has more than doubled during this period. While external loans accounted for only 10% of health financing in 1987, by 1990, the percentage will be 22%. External donations have also doubled as a source of financing, increasing from 3.4% of funds in 1987 to 6.7% in 1990. 36. Executed Budaets. There are substantial differences between programmed budgets and those actually executed. The experience so far in 1990 offers a good illustration of ex ante budget and ex post fulfillment. The approved, modified budget for the Ministry of Health for the year 1990 is L$459 million. As .-f September 30, 1990, actual execution of that budgeted amount was only 50.1%, or L$230 million. A portion of the remaining 49.9% will be absorbed by several large items presently being bid upon, but overall execution is not expected to exceed 80% of the total budget. 37. The Ministry of Education estimates that 95.9% of the approved budget will be executed by December 31, 1990. The total budget is L$532 million; execution is estimated at L$510 million. The budgets for 1990 and ministry staffing, along with estimated totals for other public social institutes, appear in Table II-1. These data show that there are substantial resources for social programs. Budgeted amounts constitute a third of expected government spending and 14.8% of GDP. The 55 thousand public employees delivering social services account for 3.5% of the Honduran labor force. 38. In the health sector, the impact of the economic crisis is particularly notable when construction of health centers and hospitals came to only half of originally programmed during the 1980-88 period. In contrast, hospital medical attention consistently over-ran its programmed budget, averaging 104% execution rate of its budget during 1980-88. One explanation for 14 this is the increase i n Table II-1: BUDGETED SOCIAL SPENDING p h y s i c i a n AND EMPLOYMENT s a 1 a r i e s . (Millions of Lempiras) According to MOH (1990) officials the discrepancies MONETARY PROGRAM BUDGET EMPLOYEES between programmed L$ M (thousands) and expected .-_._... budget is also closely related Ministry of Education 532 37 to the degree of Ministry of Health 450 12 external funding IHSS Health 40 2 any given year. Junta de Bienestar Social 14 1 Funds from the PANI 20 central government FHIS 24 are completely Pension Payments issued and likely IHSS 60 } over-spent by the INJUPEMP 15 } 3 end of a fiscal INPREMA 32 } year, where international TOTAL 1,187 55 1 o a n s a n d d o n a t i o n s Central Gove-nment programmed for one Expenditures 3,503 year often subject GDP 8,020 to lengthy delays and easily slip Economicall, Active 1,580 from one fiscal Population year to the next. Source: Misc: -On estimates, Ministry 39. The i lew Budgets. Government plars to take fiscal measures tc increase central Government revenue: from 16% to 21% of GDP, and limit current expenditures to 21% cf "DP. They also plan to reeuce the overall public sector def:ict to 6.9% of GDP. Role of the YHIIS 40. To protect the poor from the impact of structural adjustment, the Government began funding the Ho.;duras Social Investment Fund (FHIS) in March 1990. To date, the FHIS has four components: 1) an empioyment generation program (20% of funds); support for productive activities (8% of funds); construction of productive and social infrastructure (60% of funds); and basic needs and subsides (4% of funds). The FHIS began its efforts by implementing projects on employment generation, and by distributing coupons for food to single mothers with school-aged children. 15 41. A recent Bank mission to review the FHlS and provide technical assistance to the Government on its development proposed a series of recommendations. Expenditures for goods, services and investments in primary health care, sanitation and vector control; rehabilitation of primary schools and basic equipment and supplies (especially in rural areas) should be protected from further cuts in real terms. Direct assistance would be provided to pregnant and lactating mothers and children under five through food coupons for maize and beans and a weaning mix. Support should be provided for the "programa de madres empresarias" through day care centers like the Colombian and Venezuelan model. Vouchers for food should be provided for single mothers with children in pre-primary and the first three grades of school. Although the Government has taken an initial step to fund this program, additional funding could be forthcoming soon from multilateral and bilateral organizations (Valenzuela 1990). Role of the JNBS 42. The Junta Nacional de Bienestar Social (JNBS) is by law headed by the First Lady. It enjoys active political support from the senior levels of government and receives bilateral donor assistance to fund some of its most important programs, those providing nutrition assistance. JNBS offers support to the families of some 400,000 persons, nearly 10% of the population, especially those in such departments as Intibuca, Lempira, and El Paraiso, and in selected urban areas. JNBS nutrition programs serve about 70,000 women and children; a women's enterprise programs aims to serve an additional 200,000 women and children. 43. Officials of JNBS have undertaken visits to Colombia and Venezuela, which have developed effective programs, the Hogares de Bienestar Familiar, or Family Well-being Centers, that provide preschool stimulation, nutrition support and other developmental activities through a low-cost network of neighborhood daycare arrangements. After completion of a thorough program review being conducted by management consultants, J.-sS expects to develop an innovative program of support tha, will provide an effective complement to actions by the socia_ ministries of the Government of Honduras. 16 III. Issues for Social Programs 44. This chapter reviews four issues for social programs: Is aggregate social spending adequate? Is the balance between components of social spending appropriate? Are allocations within sectors efficient and equitable? Does the public-private mix of spending serve the objectives of efficiency and equity? The review of these issues requires a general assessment of program objectives; it is aided by some comparisons with social spending in other countries. The chapter will close with certain principles that can guide a more detailed review of the financing and execution of Honduran social programs. Issue: Is aggregate social spending adequate? 45. There is no undisputed way to define how much is enough to spend on social programs. Social programs provide merit goods deemed valuable beyond their market price. They offer public goods and services for which no system of pricing is adequate to assure that a socially optimal quantity is available. The classic resource allocation test is to check whether funds shifted to an alternative purpose would increase or decrease aggregate social welfare. Limitations of available data make this test impractical. A second approach is to compare the Honduran balance of spending with that of other countries, as in Tables III-1 and III-2. Table III-1: HEALTH SPENDING COMPARED Percentage of Governments' Expenditures (1980-1988) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1980-85 Costs Rica 23.5 19.0 16.6 15.6 14.8 16.1 16.1 15.9 16.9 17.4 Hondurs 10.1 10.9 9.6 8.9 8.9 7.1 9.2 8.8 10.3 8.9 El Salvador 10.5 8.5 8.1 8.7 6.7 7.2 6.8 8.6 N.A 8.3 Dominican Rep. 6.8 7.6 8.2 7.6 8.1 8.9 6.7 6.3 8.1 7.6 Jamaica 6.7 7.1 7.8 7.0 6.8 6.9 6.6 N.A N.A 7.0 Sources: 1. World Bank, OSocial Spending in Latin America: The Story of the 1980's," March 13, 1990, Appendix V. 2. Honduras, Ministry of Planning. 46. Honduras has not neglected the social sectors. In fact, the social sectors have received a percentage of Government resources that compares favorably to other countries of the region. For example, in the health sector, Honduras ranks in the middle of five neighboring countries in health expenditures as a percentage of government expenditures, receiving more than half of what the health sector in Costa Rica received, and just 17 slightly under that received by the sector in El Salvador. Both the Dominican Republic and Jamaica allocated a considerably smaller share of government resources to public health care during the same year. Although the trend for the early 1980s was downward, this was a fairly uniform pattern in the LAC region during the recession and economic crises of the period. By 1985, the trend was once again upward. By 1988, 10% of Government of Honduras' expenditures were on health. In the meantime, the Costa Rican percentage had fallen, while the Dominican percentage had increased during that same period. Table III-2: EDUCATION SPENDING COMPARED Percentage of Governments' Expenditures (1980-1988) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1980-85 El Salvador 23.1 19.3 19.6 18.2 13.8 18.0 13.8 16.4 N.A 18.7 Honduras 16.4 21.3 18.6 16.0 12.8 16.6 18.9 19.6 20.0 18.7 Dominican Rep. 12.9 14.7 16.4 14.8 16.8 12.8 12.4 9.8 10.0 14.6 Jamaica 13.7 14.2 14.7 14.6 14.1 12.6 13.3 N.A N.A 14.0 Costa Rica 14.9 15.1 13.6 12.1 12.2 12.7 12.8 13.7 12.9 13.4 Source: 1. World Bank, "Social Spending in Latin America: The Story of tho 1980's,8 March 13, 1990, Appendix V, and for Honduras, Ministry of Planning. 47. Honduras ranks second in education expenditures as a percentage of Government expenditures during the 1980-85 period. In 1980, only El Salvador was devoting more of its government resources to education. The Honduran government allocation was higher than that of Costa Rica, the Dominican Republic, and Jamaica. In 1981, Honduras actually allocated more government resources to education than any of these countries. However, as in health, the sector allocations dropped considerably in all countries through 1984. By 1988, Honduras was allocating a greater percentage of government expenditures to education than in 1980, while the same sectors in Costa Rica and the Dominican Republic still had yet to recover 1980 levels. 48. Resources of the Government of Honduras assigned to the Ministry of Education go almost in their entirety (97% in primary education) to pay the salary bill. Donors, especially USAID, pay for fresh investments and some non-salary costs through specific education projects. Capital expenditures declined in the 1980s, and administration costs have risen rapidly, to 12% of education sector expenditures in 1990. 49. The Ministry of Health budget is financed similarly in that government resources pay mostly for salaries (but also in this case, for pharmaceuticals and supplies), while donor assistance covers investment, maintenance and repair. Administrative expenditures were 6.2% of total Government health 18 expenditures in 1980, 8.3% in 1989. Recent legislation raised physician salaries in the public sector and reduced working time to six hours per day. Almost as a direct result, the percentage of Government health expenditures allocated to hospital operating expenditures rose from 18% in 1980 to 23% in 1989. Tssue: Is the balance between comPonents of social spending appropriate? 50. The search for the answer to this question can take three approaches. The theoretically best approach would be to analyze all social spending to see whether a shift of funds from one use to another would produce greater overall welfare. The balance can be improved whenever a change can make someone better off without making anyone worse off. If comparisons of interpersonal utility are permitted, then a balance would be sought in which no shifts of spending are possible without reducing total benefits. To apply this approach would require extensive information on the costs and benefits of all programs as well as acceptance of some strong assumptions about interpersona' comparisons; that information is not available, and the comparisons may not be warranted. 51. A second approach would compare the major components of Honduran social spending, as a share of GDP, to other countries. A recent work on several Latin American countries (but not Honduras) makes possible a comparison similar to that presented in a preceding table but now with somewhat more detail by sector: I Table III-3: SOCIAL SPENDING BY COMPONENT IN LATIN AMERICA Percentage of GDP COUNTRY EDUCATION HEALTH SOC.SEC. HOUSING WATER TOTAL Argentina 3.3 2.2 6.3 0.7 0.3 12.8 Brazil 4.0 2.2 7.4 2.9 0.4 16.9 Costa Rica 4.8 5.9 4.6 0.5 N.D 15.8 Chile 5.5 2.6 11.9 0.9 0.2 21.1 Dominican Rep. 2.3 1.8 0.9 0.1 0.6 5.7 Uruguay 2.3 1.0 16.1 0.2 0.7 20.3 HONDURAS (1990) 6.3 3.6 2.0 0.2 0.3 12.4 Source: Petrei (1987), 37; except Honduras, mission estimates, and Bank sector studies of Argentina, Brazil and Costa Rica for more recent data. Honduras is within the range of this group of five Latin American countries, spending less, as a share of GDP, than some richer neighbors but considerably more than the Dominican Republic. 19 These comparisons are always difficult to interpret, but they do suggest that Hondurans may overspend on education, because of the earmarked allocation to UNAH; may overspend on curative health services, because of relatively high physician wages; and thus would need to reallocate rather than increase its budgetary support for social programs to basic education and primary health care. 52. A third approach to the question of sectoral balance is to assess whether the distributional results of the current sectoral balance accords with a reasonable estimate of where needs are greatest. Current programs accord few benefits to the poorest groups, with the exception of rural primary education, which does not meet adequate standards of quality in part because education sector resources favor post-secondary schooling, as is shown in more detail in Chapter V. Social security benefits go partly to public sector employees, for whom these benefits constitute an important form of deferred compensation, and modern-sector urban workers, who pay for only part of the benefits they receive, other costs being passed along to consumers, including the poor. The sectoral balance that currently exists is thus one of the causes of underserving these poor groups. Issue: Are allocations within sectors efficient and equitable? 53. Within individual social sectors analysts will find evidence of inefficiency and inequity in the delivery of services. Paragraphs that follow, on inequities in social spending, provide some illustrations. In general, programs too often dissipate their impact by serving clienteles that do not really need public subsidies. Some public programs finance and supply services that individuals could better buy for themselves directly from a supplier. Education Subsidy by Level of Education 54. The Honduran government spends too heavily on higher education and too lightly on primary education (see Table III- 4). Spending per pupil is ten times higher at UNAH than it is in primary schools. This distribution of education subsidies thus violates principles of equal access and targeting on poor and vulnerable groups. 55. Comparing Honduras' expenditures in the social sector to those of other countries in the region permits some preliminary judgments regarding the equity, efficiency, and effectiveness of the Honduran social programs. 56. One way to assess equity in the education sector is to compare the proportions of spending on primary education, as it 20 promotes a more equitable distribution of resources by directly affecting the well-being of a larger number of people (see Table II1-4). 57. Among the Table III-4: SHARE OF PRIMARY EDUCATION four countries com- IN EDUCATION EXPENDITURES pared in Table III- 4, Honduras most 1980 or '81 1986 or '87 heavily favored primary education ten years ago. Costa Rica 62.7 52.9 Honduras allocated Dominican Rep. 43.4 53.6 57% of education Honduras 57.0 44.8 expenditures to the Jamaica 38.0 35.0 primary level in 1980; the share was Sources: World Bank, 'Social Spending in Latin America: The 45% in 1986. More Story of the 1980's,; March 13, 1990, Appendix VI. recently, the trend Honduras: Allen Associates, 1988. in Honduras -- as well as in Costa Rica and Jamaica -- has been to shift resources in favor of secondary education, although Honduras still devotes a larger part of its resources than the other two to the primary level. Among the comparison group, only the Dominican Republic has actually increased the share allocated to primary education. Unequal Availability of Health Services 58. Public health spending by MOH and IHSS will have a cost to government of L$500 million, or roughly Us$25 per person in 1990, a subsidy spread unequally among regions, families, and persons. spending per person on IHSS beneficiaries will be several times larger than this average; the rural poor with no access to public health care will receive virtually nothing. Curative care is still emphasized so that hospital patients account for over half of total spending (see Table III-5). The allocation of 36% of health care spending to primary health care is as high as it is because of the emphasis put on that area by external donor and technical assistance agencies. The allocation of funds entirely under the control of MOH and IHSS is even more inequitably distributed toward urban-based curative care than is the externally-financed share. In that regard, however, Honduras does not differ much from most other countries of the region. 59. Because public funds are used to finance some services that confer most of their benefits on individual recipients rather than on society as a whole, skilled individuals are the ones best able to capture these advantages: by knowing how to solve the administrative problems of receiving retirement benefits, by knowing the physicians who can arrange for quality treatment at public expense, and by paying for quality secondary 21 Table III-5: HEALTH SECTOR SPENDING APPORTIONED Percentages of Total Sector Expenditures 1980 1981 1982 1983 1984 1985 1986 1980-86 HONDURAS Hospitals 59.5 62.9 59.6 48.6 43.1 56.0 50.4 54.3 Administration 6.2 8.0 7.8 7.2 6.4 6.1 13.4 7.9 PHC & Other 34.3 29.1 32.7 44.2 50.5 37.9 36.3 37.9 EL SALVADOR Hospitals 37 40 38 38 34 41 43 38.7 Administration 22 22 20 17 15 16 18 18.6 PHC & Other 41 38 42 45 51 43 39 42.7 JAMAICA Hospitals 46 N.A 63 N.A 69 N.A 66 61.0 Administration 28 N.A 15 N.A 7 N.A 5 13.7 PHC & Other 26 N.A 22 N.A 24 N.A 29 25.3 Sources: World Bank, "Social Spending . . ., p. 43; Allen Associates, 1988. schooling that opens the door to free public education at the university level. For all these benefits, the urban middle class has a big advantage over the poor. If public funds were not used to finance these personal benefits, middle income groups would have to pay for them. Issue: Does the public-private mix of spending serve the obiectives of efficiency and equity? 60. Economists make the somewhat artificial distinction between public goods and private goods. Public goods are those that in being consumed offer advantages to others not consuming them directly. Your vaccination benefits me as it reduces the chance of communicable disease spreading through the community. Because you cannot capture all the benefits of being vaccinated, you, and the community as a whole, will underspend on vaccinations. Government can help correct by free provision of the service. Private goods, like curative health care and housing, benefit their consumers principally. There is no need for government to provide private aoods, with the important exception of the special needs of the poor. Low income groups may not be able to acquire the basic private good they need to guarantee a minimum level of living and, especially, development for their children. 22 61. Honduran social spending pays for many privato goods. Basic health care and sanitation makes a healthy environment for everyone; your heart bypass operation is good for you, but it raises my tax rates if government pays for it. Basic education raises everybody's standard of living as we all talk in increasingly sensible language. Your medical school degree may help me if there are not enough physicians, but will it help enough to justify my paying for part of it with tax mor.ey? This last example illustrates the fact that whether goods are public or private is a matter of degree, affect6d by specific time and place. There will be no simple guides to what is public and what is private in many cases. What can be said is that governments will best serve if they give greatest emphasis to public goods. 62. The Government of Honduras uses its tax resources to finance services that migh- alternatively be financed by other levels of government or by private households and firms. Some public resources could be savied, with no loss in terms of social services received by households, by encouraging greater direct household purchase or cofinancing of such social services as retirement and dependents, insurance, secondary, technical and higher education, curative health care, and housing. Because public spending may "crowd out" or substitute for private spending for the same services, interrelations between public and private spending cannot be ignored. 63. Households may reduce their spending on education when public funds pay for secondary and university education. Households receiving nutrition aid do reduce their own nutrient purchases and hence partially offset the food subsidy paid for with public funds. Public housing subsidies and tax breaks can also distort the urban housing market by subsidizing mortgages, inducing excessive purchase of housing services, particularly by middle-income households. All these programs need to be examined to see whether the distortions they cause are excessive since the effects of government spending depend on how households change their behavior in response to that spending. A Functioning Safety Net 64. Social programs exist for defined purposes; because they have evolved independently, sometimes over many years, they do not coalesce in Honduras into a coherent whole. Some people who need public health services receive them; many others do not. Urban households benefit from the general food subsidy; the rural poor who need it most receive no nutrition assistance. Many among the aged and infirm are social security beneficiaries, but other needy elderly are excluded. Education subsidies fall unevenly across both the needy and the more comfortable. 23 65. Hondurans want many of the benefits provided by government social programs. Many households, and not only the richer households, gladly pay for some of the same benefits others receive through governments. A fair system requires that governments provide only benefits that are equally available to all eligible Hondurans. Many good programs would, under current practice, fail the test of equal access. 66. Today, benefit programs are not targeted on the poor, the young, the rural, or the needy aged. Reformed social programs, taken together, could constitute a social safety net, a shield for the poor against such key risks as hunger, incapacity and infirmity, ill health and disease, poor housing and exploitation stemming from a lack of schooling or literacy. They do not provide such a shield today simply because social spending dissipates its potential impact by serving many middle income groups that do not need public subsidy. 67. Respect for certain principles in the planning and management of social programs could contribute to achievement of the aims of greater efficiency, equity, and effectiveness: o All persons entitled to a specific program or benefit should have equal access to it. o Benefit programs should offer as m'uch choice to potential beneficiaries as is practically possible and should defer to private initiatives in service delivery. O Public resources should be assigned preferentially to finance the provision of public goods. O Benefits should be targeted preferentially on low- income groups. These principles are already widely espoused and, in practice, often ignored. They provide a part of the basis for the review and critique of current and proposed social spending in Honduras in the following chapters. 24 IV. HEALTH AND RELATED SERVICES 68. The Ministry of Health and the Social Security Institute, IHSS, both offer some public health services. These service delivery systems in turn provide for family planning and related programs, as well as some nutrition assistance. A program of targeted food distribution for poverty groups currently under review would offer food assistance as a complement to maternal and child health services of the Ministry of Health. This chapter reviews the programs of the Ministry of Health and identifies some issues that need to be resolved to improve equity and efficiency of service delivery. A. Health Services and Coverage 69. The major provider of health services in the country is the Ministry of Public Health (MOH), whose delivery system is available to 60% of the population. The Honduran Institute of Social Security (IHSS) covers approximately 7% and the formal private sector another 3% of the Honduran population. The extent of care provided by traditional practice is unknown but is believed to be significant (see Figure IV-1). Most poor rural Hondurans have no access to basic, modern health services. Figure IV-1: POPULATION COVERAGE FORMAL HEALTH SECTOR MOH IHSS 1 IHwNO~~~~~~~~~NNE 3 FIoutz In Pm*nt"a 25 Ministry of Public Health 70. The Minister and Vice Minister of Public Health are responsible for developing national health policy, establishing service norms, and planning, financing, and controlling the country's principal health service delivery system. Under the Minister's supervision, the Director Goneral of Health and four deputies oversee all MOH operations: two deputies have regional responsibilities; a third oversees hospitals; and the fourth directs local health systems (SILOS). 71. Until recently, planning, budget control, and decision- making within the Ministry were highly centralized. The Director General, assisted by a single deputy, was the key operations figure and primary link between the Minister's office and all central and regional line activities. Over-centralization was blamed for implementation problems and operational weaknesses at the regional levels. 72. To correct this situation, the new Administration substantially reorganized responsibilities at the level of the Director General. Its new organizational scheme aims at overcoming span-of-control problems by dividing many of the Director General's duties among his four deputies. 73. The Ministry's service system is composed of eight health regions and 37 administrative areas. The Regional Director is an important decision-maker and manager. Area offices are usually headed by a chief (a physician) who reports to the Regional Director, a graduate nurse, auxiliary nurses, technicians, and personnel who serve as links to the community. 74. Services are delivered according to a hierarchical plan composed of six levels of attention: * The community level, where volunteers trained by MOH provide primary health care services. They include the traditional midwife, the health guardian, the health representative, and the malaria control worker. * CESAR. The entry-level health facility is the Rural Health Center, or CESAR, staffed by an auxiliary nurse, health promoter, and malaria control worker. * CESAMO. The next higher level of attention is the Health Center, called a CESAMO, headed by a physician (usually a young person serving obligatory social service). CESAMO staff include a professional nurse, nurse auxiliaries, health promoters, malaria control worker, basic administrative personnel, and sometimes a dentist and laboratory technician (size, service 26 structure, and number of staff vary according to the location of the CESAMO and the population it serves). * Area Hospitals. There are ten, with a norm of 50 beds. * Regional Hospitals. Six, of various bed capacities. The area and regional hospitals offer services in surgery, internal medicine, pediatrics, and obstetrics/gynecology. * National Referral Hospitals, all in Tegucigalpa. These include one mothers' and children's hospital, a pulmonary disease hospital, two psychiatric facilities, and two general hospitals. 75. Physical Facilities. As of 1989, there were a total of 706 MOH facilities (see Table IV-1). In 1989 these facilities provided 0.7 beds per 1000 population. The bed occupancy rate was 73% and the average length of hospital stay was 6.5 days. There is a disproportionate concentration of hospital resources in cities, especially Tegucigalpa, at the expense of small towns and villages. Among the 288 municipalities around the country, only 75 (26%) have a CESAR or CESAMO located in a community of fewer than 3,000 persons. Two-thirds of the Ministry's service personnel work in the system's 22 area, regional, or national hospitals. Table IV-l: MINISTRY OF HEALTH PHYSICAL FACILITIES (1986-1989) ATTENTION LEVEL 1986 1987 1988 1989 CESAR 519 536 524 528 CESAMO 1/ 115 115 156 156 AREA HOSPITAL 2/ 9 9 9 10 REGIONAL HOSPITAL 3/ 6 6 6 6 NATIONAL HOSPITAL 6 6 6 6 TOTAL 658 672 701 706 1/ Although the number of CESAMOS increased by 41 during 1987-88, a similar number are reportedly not operating in 1990. 2/ Three area-level hospitals will shortly be completed and equipped under th- PRONASA project, an Interamerican Development Bank effort begun in 1978. 3/ A major new regional hospital will open this year In San Pedro Sul*. 76. Although the government's established policy assigns priority to primary health services over hospital care, curative requirements in crisis situations and the general demand for curative care from an "unhealthy population" frequently reverse 27 policy priorities. Many laudable Ministry initiatives falter or fail as a result; examples include its continuing education program via independent modules for local-level personnel, administrative training, improved information systems, and tightened standards for supervision. 77. Human Resources. The humax resource pattern of the Ministry of Health employs about twelve thousand people, a quarter more than in the mid-1980s (see Table IV-2). In 1989, among medically qualified personnel, 24.3% were physicians, 8.2% were nurses, and 67.5% were auxiliary nurses. Table IV-2: HUMAN RESOURCES - MINISTRY OF PUBLIC HEALTH (1982-1989) CATECORY 1982. 1983 1984 1986 1986 1987 1988 1989 Doctors 904 904 904 928 891 1249 1244 1261 Dentist. 78 78 46 76 73 112 116 109 Nurses 421 421 421 433 398 468 468 622 Aux. nurses 3117 3119 3119 3219 3202 3176 3181 3498 Technicolans 870 1655 1558 1694 N.A 1700 394 220 Administrative 731 731 724 763 N.A 1001 1280 3029 Service posr. 1894 1898 1903 1976 N.A 4003 2068 420 Others --- 139 139 142 N.A 168 982 2715 TOTAL 8013 8842 8842 9131 --- 11868 9681 11872 * POA-SIlud 1982. 78. The auxiliary nurse (usually a woman) in charge of a CESAR is the principal Ministry staff person at the community level, with multiple preventive and curative tasks. She must administer vaccinations (during campaigns and during routine service days), dispense oral rehydration salts, manage pre-natal and well-baby clinics, treat acute respiratory tract infections, and treat other common medical problems. She must also collect health statist;.cs, recruit and supervise community volunteers, and maintain ccntact with area-level officials. Although she is supposed to make home and community inspection visits as well, the demand for curative services seldom allows this. When she is away from her post for illness, annual or pregnancy leave, there is rarely a replacement to continue CESAR operations. 79. The health promoter, another employee at the community level, is responsible for placement of potable water and latrines. Through a process of community education, the health promoter assists in designing, building, and maintaining community water or sanitation facilities. 80. To extend coverage at the community level, the Ministry also recruits volunteers including traditional midwives, hea'lth 28 guardian, health representative, and malaria inspectors. It trains midwives to assist during labor, to refer high-risk cases, and to engage their female clients in other health activities such as the use of oral rehydration salts. Health guardians are trained to provide initial treatment and referrals for children under five. Health representatives (few in number compared to the other categories) are trained to organize community efforts to improve environmental sanitation. 81. Unfortunately, these volunteers are offered little incentive to perform their tasks effectively. They receive only sporadic supervision, little ongoing training, and weak logistical support from the Ministry. Indeed, lack of supervision has been a major problem at all levels of the system. Frequently, this occurs not because of a shortage of personnel but because of logistical support problems: inadequate vehicle maintenance, lack of spare parts, low per diem funds, etc. The government hopes to address these flaws in part by strengthening community participation in health sector affairs and by decentralizing Health Ministry activities. Other Health Service Providers 82. The Honduran Institute for Social Security (IHSS) has provided illness and maternity benefits since 1962 for some 603,000 persons, including covered workers, their wives or pregnant companions, and children until the age of five. (The new Administration plans to include retired workers as benefi- ciaries.) Health care facilities built and run by IHSS include a general hospital and maternal-infant hospital in Tegucigalpa and a general hospital in San Pedro Sula. Facilities in Tegucigalpa and in San Pedro Sula provide ambulatory services which are also available in the system operated jointly with the Ministry of Health in its CESAMO at Villanueva. In Juticalpa, the IHSS will offer unified care to its members through similar cooperative arrangements at the Ministry's new hospital. 83. The National Autonomous Water and Sewage Service (SANAA) helps develop potable water sources and sewage systems for the nation. SANAA covers population groups over 200 persons (the Ministry of Health is responsible for smaller communities). Fiscal transfers from the Ministry finance SANAA activities. 84. The National Infant's Patron (PANI) is an autonomous institution financed mainly through the national lottery. Re- sources from the lottery are allocated via the Ministry of Health and used to provide rural maternal and child health services. In the past, PANI produced basic medications, but now its production unit is not in operation. I 29 85. The National Family Welfare Societv (JNBS), headed traditionally by the wife of the President, conducts feeding programs, runs rehabilitation centers for children and adolescents nationwide, and provides various other services for mothers and children. The commission has ambitious plans for extending its services to women for offering preventive and rehabilitative services for children in irregular situations. 86. Private sector medical facilities are mostly limited to the two largest urban areas. Private voluntary oraanizations (PVOs) play a small but growing role: most PVOs have concentrated their activities on maternal and child health care with preventive interventions, but a growing num)er operate small private clinics offering curative services in peri-urban marginal areas and rural communities. Although traditional medicine is practiced throughout the country, no definitive study has been conducted to assess its extent, impact or coverage patterns. Patients use services of the traditional and formal sectors interchangeably, depending on the type of problem they have and the satisfaction they receive from care providers. B. Formal Health Sector Training 87. One state-supported medical school, one dental school, and three nursing schools provide most professional health sector training in Honduras. The Department of Microbiology and the School of Pharmacy of the National Autonomous University also train some personnel. Auxiliary nurses receive a one year course operated by the Ministry in Tegucigalpa, San Pedro Sula, and Choluteca. 88. Training opportunities at the technical level are minimal. Preparation is available mainly for x-ray, laboratory, anesthesia, and medical record technicians. However, these training courses are not operated on a continuous basis. Although these training facilities continue to educate personnel at an increasing rate, there are not enough health sector jobs, either public or private, to employ all the new professionals. The Honduran Medical Association estimates there are 600 to 700 unemployed physicians. C. Government Policy and Strategies Public ExPenditures 89. Despite sharp cuts in overall government spending, the Ministry of Health received an increasing percentage of public funds in recent years (see Table IV-3). The Government hopes to receive a far larger share of sector requirements from external 30 sources in 1990, nearly a third of the total, than it had in previous years (less than one-fifth). TABLE IV-3: Ministry of Health Portion of Public Spending; Sources of Health Program Funds (Millions of Lempiras and Percentage Distribution) (1987-1990) 1987 1988 1989 1990 Ministry of Health. 202.2 222.0 253.5 Total, Public Sector 2,306.3 2,101.5 2,173.9 Proportion MOH/P.S. 8.8 10.6 11.7 (Percentage Distribution by Source) National 86.6 82.3 81.4 70.7 Loans 10.0 16.7 12.6 22.6 Donations 3.4 1.0 6.0 6.7 TOTAL 100.0 100.0 100.0 100.0 Source: SECPLAN; Planning Division, MOH Health Sector Policies 90. When it took office in February of this year, the governing National Party brought with it a broad health plan that promised to restructure and expand services and laid heavy em- phasis on community involvement. Its special targets were to be rural and marginal urban areas, and priority attention was to go to children under five years of age, pregnant and fertile-age women, workers, and the elderly. The plan's objective was to achieve "Health for All in the Year 2000" by accomplishing the following: * Reducing mortality in general and among mothers, infants, and children 1-4 years old specifically. Reducing the incidence of poliomyelitis to zero. * Eliminating mortality and reducing morbidity caused by immuno-preventable diseases. Reducing mortality and morbidity from chronic degenerative diseases. 31 * Reducing incidence and prevalence of infectious diseases. Expanding potable water and sanitation services. * Reducing the risks of food and environmental contamination. Proirmoting and improving occupational health services. * Promoting preventive actions and developing treatment programs for drug addiction and dependence. e Stimulating and participating in activities that improve mental health, nutrition, and oral health. Implementation Strateaies 91. The health services plank in the National Party's campaign platform represents an ambitious program for a government that must now simultaneously undertake major restructuring of the economy. Understandably, the government's strategy for implementing the program emphasizes cost recovery and volunteerism as prerequisites for expanding services. The Ministry of Health hopes to carry out the party's campaign promises by taking the following steps: a. Adapt a version of the PAHO-recommended Integrated Local Health Systems (SILOS) strategy, in hopes of improving the efficiency and operating capacity of its delivery system. b. Emphasize integrating prevention, nutrition, and sanitation activities in primary health care. c. Reinvigorate the essential referral role of hospitals within the basic health care strategy by refurbishing neglected hospitals. d. Target food assistance toward the most vulnerable groups and integrate it better with health and nutrition services. e. Improve environmental sanitation conditions. 92. The government's new health authorities have begun to carry out this strategy. By establishing a new deputy Director General for Local Health Systems, they reaffirmed their commitment to primary health care and community participation as priority concerns of the Ministry. Similarly, by pressing ahead with plans for a new hospital in Juticalpa (which also will offer joint services with IHSS) and opening CESAMOS in two impoverished communities of Tegucigalpa (Los Pinos and Colonia Kennedy), they 32 demonstrated their concern for meeting the needs disadvantaged segments of the population at all levels of service. 93. The Ministry also hopes to free resources by putting its own house in better order. It proposes to decentralize management authority to the maximum extent possible; strengthen technical, administrative and logistical capabilities at lower levels; simplify administrative procedures, especially in budget preparation and content; train regional personnel in modern administrative processes and assist them in gradually computerizing the data base; and provide a vehicle to each area office to help improve supervision. D. Sector Issues 1. Pharmaceutical Shortages 94. Due to devaluation of the lempira, there is a critical shortage of medicines throughout Honduras, and costs are rising rapidly. Private sector pharmacies are operating with only 15% of their normal stock. Some critical drugs are completely unavailable. Some are not on the shelves because new prices, adjusted for devaluation, have not been authorized by the government. 95. Imports of drugs have halted because Honduras owes US$47 million to international pharmaceutical suppliers, who have balked at making further shipments until at least part of the debt is paid. The Central Bank has L$100 million in payments from local pharmacies on hand, deposits made at the exchange rate of 2:1 but now worth only half as much in dollar terms. The Central Bank announced in late May that it will begin paying the pharmaceutical debt in March 1991, over a three year period. 96. As private pharmacies' stocks run dry, patients will probably turn increasingly to public facilities (Hospital Escuela prescriptions already increased by one-third daily). Although there are acute shortages at government hospitals, the Ministry of Health is still able to meet 80% of CESAMO and CESAR drug requirements. Yet there are clearly shortages at these levels as well, possibly due to supply and distribution problems as much as to foreign exchange difficulties. There is rising concern that prolonged drug shortages may derail the Ministry's entire health sector reform program. 2. Physician Salaries 97. The growing proportion of health sector funds allocated to paying professional salaries is remarkable: between 1986 and 33 1989, funds designated for personnel services rose from L$70.5 million to L$128.4 million, as a result of legislation passed in 1985 by the National Congress guaranteeing all employed physicians a minimum monthly salary (L$2,500 for a generalist and L$3000 for a specialist). At the time the law was passed, health sector salaries were unregulated and many physicians received one-half the legislated amounts. Others were holding more than one position and collecting double pay for working hours that overlapped in many instances. mhe new law prescribed a six-hour work day and prohibited anyone .;om holding more than two full- time-equivalent positions in a day. Nevertheless, the financial costs of the new salary scales outweigh the savings from efficiencies the new law introduced. 3. Decentralization: The SILOS Strateqy 98. The Honduran government has been studying a PAHO- sponsored plan for decentralizing management and administration of its health delivery systems since 1987. The new administration has adopted the plan as a key element in its strategy for achieving -Health for All by the Year 2000," placing special emphasis on its community participation and cost recovery features as means of addressing the critical resource constraints it faces. 99. The "Integrated Local Health Systems" (SILOS) model favored by PAHO incorporates local health officials, municipal authorities, school representatives, organized community service groups, and private profit and nonprofit health institutions into an integrated effort to resolve local health problems. The Ministry of Health retains its central policy-making, normative, supervisory, monitoring, and evaluation functions. But its service production units (particularly hospitals and CESAMOS) have a better defined geographic population to serve and more significant input into program/budget planning and administra- tion. The local community is involved in all phases of the service unit's activity, including diagnosing the community's problems and finding resources to solve them. Hospitals and regional CESAR and CESAMO offices determine and collect user fees, and most funds collected remain at the local level. Central administration and intermediate officials are expected to ensure support for local efforts; international technical assistance will be available to improve management and administrative capacity (IDB is already working at the hospital level, and PAHO and USAID at the regional and CESAMO levels). 100. Several major questions about decentralization need further study. First, the Honduran version of SILOS lays heavy stress on improving administration at the hospital, central, and regional levels so they will respond to community needs. But there is a possibility that this focus may result in merely 34 perpetuating an inefficient and inequitable curative system. If primary health care is truly the government's priority service intervention, PHC production units and outreach should have at least-equal access to help in improving their administration at the local level. Second, SILOS' capacity to foster greater income generation at the community level in Honduras is untested. Payment of fees has been part of the Honduras public health system for nearly forty years, suggesting that the community is willing to pay some amount for curative services and medications when they are available. But in the wake of painful structural readjustment measures it remains to be seen whether people are prepared to spend additional money on health care. Third, are there alternative means of generating revenues for the health sector? For example, the Ministry of Health intends to contract certain services from the private sector in hopes of improving efficiency, and it might sell the excess capacity of these services to generate additional revenues. Whether this innovative approach is viable will depend in part on the reaction of employee groups and contractors' capacities. 101. The Ministry conducted a study of "Alternatives for Financing Health Services" in 1983; over half of those surveyed called for more readily available medicines. Most purchased their medications at the local pharmacy or grocery store, at high prices (medicines accounted for more than half the costs for a given illness), and said they would rather buy medications from the health center if the money remained in the community to help improve health services. 4. Primary Health Care Strategy 102. The Honduran government has ratified the 1978 Alma Alta strategy for primary health care (PHC) and made it a key element of its health program. Its basic package includes: maternal and child health services; nutrition education and targeted feeding programs; diarrheal disease control emphasizing oral rehydration; expanded immunization activity through both integrated services and periodic national campaigns; acute respiratory disease control; malaria control; and rural water and sanitation improvements. In tandem with a SILOS strategy emphasizing community participation, the government's PHC program reflects a political commitment to social justice goals that go beyond mere technical interventions in favor of child survival. 103. There have been significant improvements in the infant mortality rate and other PHC indicators in recent years as a result of this program. But regional averages are deceiving, and significant pockets of poverty and under-served areas in all regions of the country. For instance, despite a well-conceived growth and development examination program, over 87% of children under five around the country fail to receive these exams. 35 Detailed poverty mapping and more intensive resource targeting of under-served areas are imperative. 104. These are some concerns that need addressina as the new government begins implementing its PHC strategy. Some of these were brought into focus by a 1988 UNICEF study. Present usage rates for CESAMOS and CESARES are low. Most Hondurans seek medical attention from other sources, including private physicians, social security, public hospitals, and traditional healers. Lack of medications and deficient attention were the major reasons given surveyors for respondents' failure to use a health center. Major reasons for not seeking help from a com- munity volunteer were that no volunteer existed or their services were unknown. Since each CESAR has only one auxiliary nurse, it sometimes closes for weeks at a time while the nurse takes maternity leave. Outreach visits to high riak populations are frequently impossible because of the pressure of attending curative problems. Supervisory tasks are badly neglected at most health centers. Nutritional resources are not sharply enough targeted toward high risk and malnourished children and pregnant and lactating mothers. In general, services are not sufficiently integrated. Family planning promotion and services, for example, should be an integral part of the maternal and child health program. Supplemental feeding programs should be closely linked with growth and development activities. E. Summary 105. The new Administration has adopted the PAHO-sponsored SILOS strateqy as its primary approach to improving basic health care, emphasizing its community participation and cost-recovery features as means of addressing critical resource constraints. However, it faces serious implementation problems and political and budgetary obstacles. 106. The proportion of health sector funds allocated to paying professional salaries is excessive and cannot be sustained without seriously damaging overall health sector objectives. In particular, the financial costs of the new physician salary scales outweigh the savings from efficiencies intended by the new salary law. 107. Excessive fi.nancial and administrative controls at the Ministry level inhibit initiatives for improving efficiency and degrade front-line support services. The system should be decentralized to allow budgetary flexibility at the municipal (or at least regional) level. User fees could be collected for pharmaceuticals and CESAMO visits and retained at the local level. There is disproportionate concentration of health service resources in cities, especially Tegucigalpa, at the expense of small towns and villages. Two thirds of the Ministry's service 36 personnel work in the system's major hospitals. Any new construction should aim at meeting the needs of communities with fewer than 3,000 persons. Personnel should be shifted from major hospitals to local health centers. There is also a disproportionate emphasis within the health delivery system on costly higher-level care (usually in metropolitan areas) at the expense of preventive health care, sanitation, and health education. In future budgets, an increasing share of health sector spending should be directed toward improving and extending basic health care services, especially in rural areas. 108. Due to devaluation of the lempira, medicines are critically scarce throughout Honduras, and costs are rising rapidly. Some essential drugs are completely unavailable. Some are not on the shelves because new prices, adjusted for devaluation, have not been authorized by the government. A list of 20-25 essential phatmaceuticals should be identified in discussions with local pharmaceutical industry representatives to make sure life-saving and critical drugs are available through both public and private outlets, especially in rural areas. Means should be explored for promoting direct purchase of drugs by communities, such as a revolving community drug fund, so as to reduce dependence on central purchasing and supply offices. 109. With Honduras' population qrowth rate still among the world's highest, the decline in its fertility rate has stopped. Demand for family planning services is rising but is not being adequately met, especially by official services. Meanwhile, diets of 62% of Hondurans fall significantly short of recommended calorie and protein levels, while more than three-fourths of children suffer from some degree of undernutrition. Contraceptive devices and family planning information should be made available at all health care centers. Social marketing techniques for promoting family planning should be developed and employed. Food supplement programs should be more sharply targeted toward the most vulnerable groups (children under five, pregnant and lactating mothers) and toward all communities nationwide where malnutrition indicators are high. Auxiliary nurses and midwives should provide family planning and nutrition information as part of the basic health care services and during outreach visits. They should also promote cultivation of traditional foods in household gardens. 110. The health delivery system cannot support the much higher recurrent costs (and probably higher salaries) that are implied in the Government's CESAR/CESAMO building plan for 1991. Alternative methods for expanding coverage should be considered, such as assigning unemployed doctors to work in mobile outreach units, and doubling the number of auxiliaries in clinics caring for populations over 3,000, or in areas geographically too difficult to manage. 37 111. Among health center professionals, the supervisinq' nurse is the relatively least paid, receives little training and benefits, and yet is the chief link between rural posts and the central system. The MOH needs a system to train, equip, and support nursing staff responsible for supervising rural health centers. Performance incentives, in-service training, and promotional opportunities should be elements in this project. Keeping health centers in operating condition has become a major challenge throughout the country and a drain on limited resources available for administrative purposes. In other countries, under-utilized personnel (such as drivers) have been trained to perform these maintenance functions in addition to their regular tasks. Vehicle drivers could be trained and equipped to maintain health center buildings and repair and care for equipment. 112. Health center volunteers are offered little incentive to perform their tasks effectively. In many cases, volunteers are the sole representatives of the health delivery system in the community. Yet they receive only sporadic supervision from professional staff, little ongoing training, and inadequate supplies from the Ministry. A program for training and supporting volunteers should be included as a part of the SILOS decentralization strategy. 38 V. EDUCATION 113. This chapter describes education services being provided by government in Honduras. As noted in Chapter I above, primary schools reach most of the Honduran poptilation today; a major challenge then is to increase the quality of rural schooling available to the poorest groups. Since the government already allocates an ample share of GDP and public revenues to this sector, that challenge will have to be met, in the main, by means of greater efficiency in the delivery of education and in the operations of the Ministry of Education. The following review of current programs will suggest some opportunities to achieve the quality and efficiency objectives by means of some effective sector restructuring described at the close of the chapter. Preschool and Primary Education 114. The educational process consists of optional preschool, six years of primary school, five to six years of secondary school, and two to five years of higher education. Designed for children from 4-6 years of age, pre-primary schooling reached only 11.6% of the age cohort in 1988, up only slightly from 9.3% in 1980. It is mainly available in urban areas (82% of enrollments). Almost one-quarter is privately operated. There are 1,672 pre-primary teachers, or one for each 33 students. Most are normal school graduates; 18% have specialized training. Although studies have shown the usefulness of pre-primary education in Honduras, it has enjoyed little support up to now (Flores Arriaza n.d.). 115. Primary education is free and obligatory (from 64 to 13 years), as stipulated in the Honduran Constitution and laws. The Constitution also states that parents may choose the type of education their children receive, and that anyone may establish an educational activity as long as it conforms to the relevant laws. Nonetheless, tAe role of the state in primary education is preeminent, probably because the Constitution obliges the state to pay all costs at this level. 116. National enrollment has grown at an average rate of 5% in the past 15 years, slightly faster in the rural areas than in the cities (and significantly faster than the rate of school construction). By 1989, over 893,000 were enrolled, or about 92% of primary school age children (see Table V-1). One study suggests that primary enrollments will reach 1.2 million by the year 2000 (AED, 1990). The number of rural vs. urban students closely approximates national population distribution. 39 Table V-1: PRIMARY ENROLLMENT AS PERCENTAGE OF POPULATION (1980-1989) YEAR 7-13 YEAR ENROLLMENT PCT. POPULATION COVERAGE 1980 703,423 601,337 85.5 1981 723,938 613,633 89.7 1982 749,833 671,780 89.6 1983 802,915 703,608 88.0 1984 830,333 739,902 88.7 1985 858,061 770,201 89.7 1986 886,793 798,308 90.7 1987 916,584 840,390 91.7 1988 946,412 869,557 92.0 1989 971,965 893,904 92.0 Source: Anuario. Estadisticoo del Winisterio do Educacion Publica. Prepared by: Dopartamento de Educacion, SECPLAN. 117. Participation rates are high if seen as an aggregate, but the percentage of children who are in the appropriate grade is much lower, a reflection of system inefficiency (see Table V-2). About one-third of students are two or more years overage for their grade level (Honduras, SEP, 1989). Many children, especially in cities, enter before the official starting age of seven (recently lowered to 64 because of social pressure). Table V-2: PARTICIPATION IN APPROPRIATE GRADE LEVEL AGE PCT. PARTI- APPROPRIATE PERCENT PARTICIPATION GRADE IN GRADE 6 Years 34.7 7 Years 88.9 1st Grade 35.8 8 Years 93.3 2nd Grade 29.2 9 Years 100.3 3rd Grade 26.3 10 Years 97.1 4th Grade 25.9 11 Years 92.2 5th Grade 25.6 12 Years 77.7 6th Grade 27.3 13 Years 60.4 40 118. The total number of primary schools in '988 was 7,318 of which 88% were rural and 12% were urban. The number of schools grew by an average of 3.8% (244 schools) per year during 1983- 88. Most new school construction occurred in rural areas. The ratio of students to classrooms (47:1) remained the same during this period, however, as population growth kept pace with school construction. One recent study has estimated that there is a deficit of approximately 5,000 primary classrooms and that about 800 new classrooms will be needed each year to provide for expected population growth (some 250 are now being built annually) (AED, 1990, p. 22-24). 119. Not all schools offer six grades; more than a third of- fer fewer, and 12.5% offer only one, two, or three grades. The vast majority are multigrade schools (see below), those in which at least one teacher attends more than one grade level at a time in the same classroom. Half of existing schools need repairs, frequently on their roofs. Only 59% have latrines, 44% have potable water, 16% have electricity, and 15% have bathrooms. While data concerning building conditions and location of work needed are lacking, but a detailed school mapping and census study are now being conducted by the Government. 120. School construction costs are a serious problem for the Government: building and furnishing one classroom now costs L$15,300; in ten years, the cost is expected to rise to three times that amount. Most capital costs for new construction over the past five years have been borne by external donors, principally USAID. 121. Private schools educate between five and six percent of primary students. Most private schools are located in the metropolitan areas of Tegucigalpa and San Pedro Sula. There is a general impression that primary private schools offer better quality education, but there are no data that demonstrate their effectiveness. 122. Repetition and Desertion. Success rates are not high overall in Honduran primary schools. railure and desertion are serious problems that reflect poorly or. the quality of instruction offered. In 1989, among an estimated 93.7% of primary students evaluated, only 79% passed (in 1980, only 75% passed.) The highest rates of failure occur in the first three grades, particularly in rural areas. Desertion affects a smaller percentage of students, 4.5% of total enrollment, but four- fifths of the dropouts are rural students. Only 23% of rural students reach 6th grade, half the proportion of urban children. 123. The problems of repetition and desertion seriously degrade efficiency by the sixth grade. Only 18% of students succeed in going through grades 1-6 without repeating any grades; the average amount of education provided is 10.3 years for each 41 sixth grade graduate. Once more, the problem is much worse in rural areas, where only 13.5% reach sixth grade in six years, and twelve years is the average amount of education given for each graduate. 124. The annual loss of students through desertion or failure to pass appears to have improved since 1981, when one-half of the enrollment was lost. However, a closer examination of individual cohorts from 1980 through 1985 shows a consistent average loss of 70% of students by sixth grad&, with no significant improvement over the last five years. The i%:inistry of Public Education calculated the cost of losses from repetition for 1988 at L$50,405,000 (Honduras SEP, 1989, p. 49). 125. Multigrade Schools. The vast majority of Honduran schools are "multigrade" schocls, in which a teacher must attend students of more than one grade level at a time. In some, the teacher may have to attend as many as six grades and may also be responsible for all administrative tasks. Although some have suggested that the multigrade system is more efficient in countries with too few schools, it imposes particular burdens on teachers and detracts from the quality of education available to students. Administrative and logistical support for multigrade schools is complicated. Teacher training, curriculum, classroom technique, and textbooks have mostly been designed to suit the more classical one teacher/one class situation, and adaptations for the multigrade environment are still somewhat experimental. 126. Classroom practices in multigrade schools generally rely on repetitious instruction and traditional "directed" teaching (teacher-centered rathe- than child-centered). The high rates of illiteracy and of repettion and drop-out show that quality is poor. Didactic materials are practically non-existent (although USAID is currently producing texts for grades one through three) and their absence further reduces the amount of personal time and attention teachers can give their students. Little or no time remains for developing creative lesson plans, for exploring such subjects as personal hygiene and nutrition, or for becoming involved with the community. Prematu-e promotions to higher grades are inevitable, and a child who spends three years in a multigrade school is likely to receive first grade three times. 127. Primary School Teachers. There are about 24,000 primary teachers (see Table V-3). Of these, 62% work in the 12% of schools located in urban areas. Over 16% of those employed by the Ministry of Public Education (2,063 teachers) have no classroom responsibilities at all. The number of primary teachers has increased at about 3% per year since 1983. Almost all have teaching certificates. New teachers typically work in rural areas, where most school construction and hiring have occurred in the last five years. The number of teachers who teach only one class is stable at 38% but is higher in rural 42 Table V-3: PRIMARY SCHOOL DEMOGRAPHICS RURAL URBAN TOTAL Teachers 14,880 9,120 24,000 Pct. of Total Teachers 62% 38% 100% No. of Schools 5,424 876 2,300 Pct. of Schools 88% 12% 100% Cnildren 550,560 349,440 900,000 Pct. of Total Children 61.2% 38.8% 100% Teachers: School 2.3:1 10.4:1 --- Children: Teacher 37.0:1 38.0:1 37 Areas. The student/teacher ratio at the national level has been close to 37 to 1 for the last decade. 128. Teacher salaries include a common base salary .(L$425), a 35% adjustment for zonage (originally given only to those in difficult areas, but then authorized for all teachers as a way of raising salaries), and a recently authorized lump-sum increase of L$55 per month. Further, there is a 15% periodic increase after every five years of experience, and a series of adjustments according to the candidate's training (Normal School, Licencia- tura, Master, Doctorate) and for extra responsibilities (Director, sub-director, etc). These salaries compare favorably with what others earn in the work force; the lowest teacher salary is 5.1 times per capita GDP, while supervisors earn up to 10.7 times per capita GDP. 129. Teacher Traininq and Preparation. Primary teachers receive twelve years of formal education. Pre-service teacher training is a three-year course formulated by the Ministry and offered in twelve normal schools throughout the country. Until recently, the course was inadequate in several respects. There was not enough exposure to classroom reality, particularly that of multigrade schools (only one course was offered on multigrade situations, and it was theoretical). There was a serious lack of criteria for choosing normal school staff. Teachers were not taught how to prepare instructional material, nor how to manage the classroom, nor how to maximize academic time of task, nor how to evaluate students. However, the Normal School curriculum was revised in 1985 and the new form, considerably different from the original, was implemented in 1987. Its objectives are to prepare normal school teachers for productive work and improve efficiency in the classroom. The graduates of 1990 will be the first class 43 to have followed the new curriculum. To insure adequate mastery of the curriculum offered under the new program, a teachers' certification test should be introduced (a similar test should be applied to in-service teachers). 130. The normal schools produced more than 3,000 teachers in 1989, but only 1,100 of them were hired by the system (AED 1989, p. 45-46). In the period 1983-1988 fewer than half the graduates of normal schools found positions in the Ministry of Public Education due to lack of openings. 131. In-service teacher trainina is the responsibility of the Center for Teacher Training (CAM), created in 1982 and funded by USAID. This technical unit aims at improving the quality of primary education by imparting information and courses in teaching methods, subject matter, better use of time and administration in the classroom, to the 24,000 primary teachers. The primary in-service training technique is a "multiplier effect" through which about forty trainers from the Center and the Ministry teach 700 department-level supervisors, the district-level auxiliary supervisors, normal school professors, and selected school directors. These in turn train a third level of as many as 8,000 teachers in specific subjects and techniques. This procedure has been used almost exclusively to train teachers in the use of the new textbooks. Although there is considerable enthusiasm in the Center and its funding agency, some observers believe the program to be ineffective. It has not been systematically evaluated (AED 1989). 132. Supervision and Support. Oversight of primary school teachers is the responsibility of eighteen departmental supervisors who direct the efforts of 205 district-level auxiliary supervisors. Supervision is weak and problematic. Teachers are often tardy or absent, but there is no negative sanction for absence. Supervisors provide no systematic evaluation of teacher performance and practically no pedagogical guidance. Supervisors primarily act as administrative overseers (fiscalizadores), and their contact with schools and individual teachers tends to focus on housekeeping issues. The Supervision Manual that defines their responsibilities describes administrative tasks in detail but says little about teaching techniques or teacher performance. Supervisor oversight requires extensive travel to visit the large number of rural schools, many in distant and remote locations. Yet there are neither enough vehicles nor an adequate budget for travel and per diem, so supervisors are limited to a few trips each year. 133. Teaching Methods. Classroom teaching is traditional at all levels. The methods used do little to stimulate student thinking or develop higher order cognitive skills, critical analysis, innovation and curiosity, and scientific or artistic creativity. In primary schools, 80% of activities are teacher- 44 initiated and 70% of talking is done by teachers. Students respond to teacher questions in chorus, not individually. Learning is passive, emphasizing rote memorization and group repetition. 134. Teachers do not learn nor use multigrade methods systematically. New texts have been written for one-teacher/one- class situations, and where employed they do increase active learning. Yet poor use of teacher time is the norm, with lots of roll call and materials distribution but limited academic time on task. Much time is lost in non-academic activities. There are no systematic procedures for student evaluation, and no overall achievement measurements, and no comparisons among districts, regions, and departments. 135. Materials. After teacher salaries are paid, very little remains to pay for educational materials. Of the L$278 spent for each primary student, only one lempira is used for materials. The new texts being distributed in grades one through three, are therefore a major contribution. Teachers generally like the texts and want more such materials including student workbooks, better teacher guides, and more supplementary material. 136. Instructional materials also include blackboards, whiteboards, chalk and erasers, and student desks. There are desks for only 39% of the students and the combination of desks and chairs covers only 74% of the primary population. 137. Interactive radio is being tested among a small sample of first and second graders, primarily in mental arithmetic, as a supplement to the new textbooks and a means to help teachers make more effective use of their time. The initial results are encouraging, and the Ministry is considering broader use of this form of distance education. Secondary, Technical, and Adult Education 138. Secondary education is less efficient and less equitably available than primary education. In 1988 there were 474 secondary schools, half of them private with about 40% of enrolled students. More than 40% of Hondurans aged 14-19 are enrolled in secondary education. 139. Secondary students are divided into two groups: (1) common cycle and college preparatory; and (2) technical education. The first includes all students in the Common Cycle (grades 7-9), Normal Education, Diploma in Sciences and Letters, Artistic Education and Social Promotion -- a total of 196,911 students in 1988. The second group includes students in the specialties of Commercial, Secretarial, Industrial, Agricultural, 45 Business Administration, Technical/Industrial, and Home Economics -- 75,183 students in 1988. 140. In the last decade the government has given emphasis to the Technical/Industrial group, whose numbers have grown by 18%. 141. There is no national standard evaluation of student learning at the end of the secondary cycle. Evaluation occurs only through the tests given by the teachers. Graduation rates are low: approximately 11.75 years of secondary education are provided for each graduate, which means that secondary education is less efficient and more costly per unit than primary education. 142. Of 19,648 secondary graduates in 1987, 23% were college preparatory students, 16% were normal school students who studied to be primary teachers, 36% were commercial clerks and public accountants, and 13% graduated as commercial secretaries. While the College Preparatory students are specifically trained for university studies, many of the clerical and normal school graduates enroll in the university although they do not have the rigorous background in mathematics and natural sciences that the university presumably requires. (More than 3,000 normal school graduates are currently studying at the Autonomous University.) 143. Teachers. There were 7,901 secondary teachers in 1987, of whom 62% had five years or less experience. Three-quarters are directly involved in teaching while the remainder are school directors, sub-directors, secretaries, and counselors. Full- time sec3ndary school teachers enjoy salaries that range upward from 9.9 times per capita GDP (in the United States, secondary teachers earn between 3 and 5 times per capita GDP). 144. Curriculum. At the secondary level the contents of the curriculum are highly theoretical, requiring memorization and repetition of verbal information with little practical or laboratory experience. Very little laboratory and materials budget is available for either public or private schools. Both secondary cycles fall short of their educational goals. The common cycle does not succeed in transmitting a general cultural foundation or preparing students for future studies. The diversified cycle does not offer sufficient training to produce the technical personnel needed for economic and social development, particularly in industrial and agricultural sectors. 145. Adult Education. This area provides for persons fourteen or older who have not had access to regular formal education. There are three main programs: (1) Accelerated Primary Education, which is basically an urban program with a four level study plan taught by primary teachers; (2) Functional Adult Education, eminently literacy training, which is primarily in rural areas through community development projects; and (3) 46 Popular Cultural Centers, educating young adults of both sexes in basic productive skills such as tailoring, beauty work, electricity, refrigeration, etc. Currently, there are seven such centers around the country. Enrollment in all these programs dropped significantly in the past 3-4 years for reasons that are unclear; total enrollment was above 53,000 in 1987 but fell to under 42,000 by 1989. Higher Education 146. Honduras has four universities, four institutions of higher learning not considered to be universities, and two military academies: --The Autonomous National University of Honduras (UNAH) --Jose Cecilio del Valle University (UJCV) --University of San Pedro Sula (USPS) --Central American Technical University (UNITEC) --Francisco Morazan Higher School for Secondary Teachers - (ESPFM) (about to become the Pedagogical University) --National Forestry School (ESNACIFOR) --National Agricultural School (ENA) --Panamerican Agricultural School (EAP) 147. Enrollment for 1988 was 33,848 in the universities and 6,425 in the other institutions. No figures are available for the military academies. The mean age of university students is 24.4 with one-fifth older than 30. The probability of attending the university is directly related to parents' education; students come from middle and upper-middle class families. More than 82% come from the urban departments of Francisco Morazan (Tegucigalpa), and Cortes (San Pedro Sula). 148. About 38% of UNAH students are women, but women constitute 51% of graduates. Women experience difficulty gaining admission to the university; they tend to enroll in service- related fields rather than engineering and science fields. 149. There are 48 careers streams in higher education institutions, of which three-fourths are service-oriented. In 1988 most graduates were in medicine (205), law (154), and civil engineering (113), all fields which currently report lack of employment opportunities. 150. The primary teaching method is lecturing (speeches) to classes of as many as one hundred students. Students memorize and repeat text-based concepts. Most teachers work part time; even those paid for full time also work at part-time jobs in other areas of the economy. 47 151. Higher Education Financing. UNAH has a guaranteed income of 6% of the government budget, decreed by the Constitution. Over half of the UNAH budget is devoted to Administration (see Table.V-4). Research receives only 1.2% of the budget and 0.6% of faculty time at the country's major university. In the 1980s, the budget for academic development grew less than 2% per annum, while the administrative budget grew by 5.6% annually (Honduras SECPLAN 1990, p. 32). 152. There are several indicators Table V-4: NATIONAL AUTONOMOUS that point to UNIVERSITY EXPENDITURES inefficiency at UNAH. BY PURPOSE Average time to (1980) graduate is eleven years. Each graduate AREA BUDGET PERCENT prepared by UNAH costs ('000) the state around L$65,200 because of the large number of Teaching 44,745.5 47.4 students who never Research 1,120.7 1.2 complete a degree. Extension 799.1 0.8 Graduates from the Administration 47,799.1 50.6 Higher School for Teachers cost about TOTAL 94,464.4 100.0 L$30,000. These figures are several Source: Cifras de la UNAH. times greater than Prepared by: Departamento de student fees at the Educacion, SECPLAN. private University Jose Cecilio de Valle, estimated at L$15,000. The cost per student-year at the Autonomous University rose from L$1,154 in 1979 to L$2,996 in 1989. There is no evidence that this increase in cost yielded improvement in student learning. 153. EDUCREDITO, a scholarship program founded in 1976, finances academic studies in the country and abroad and promotes technical and professional training for persons with low incomes. During 1988 Educredito awarded 403 loans worth L$3,063,100. From 1979 to 1989 it gave 7,249 loans worth L$40 million. System Administration and Management 154. The Ministry of Public Education (MOE), responsible for establishing policies and programs and directing all public education except the universities, has become the major employer in the country and therefore an enormous personnel office. About 3,000 people work in the central Ministry office (including non- technical personnel like janitors); it is responsible for another 34,000 employees. It is reputed to have more than 500 ghost 48 positions (people who presumably work there, receive their salaries Figure V-1: PERSONNEL there, and yet are on leave, ACTION PROCEDURE seconded to some other ministry, permanently disabled, or simply President of the not there). Republic 155. With so many staff, Minister of Education administration of personnel is often over-centralized, haphazard, Chief Clerk and confused. The Office of Personnel Movements (Oficialia Teaching Personnel and Mayor) each month processes about Payroll Office 3,000 requests for personnel actions, including hiring, General Administration transfers, promotions, sick and for Primary Education maternity leaves, more than all other Ministries combined. Each Departmental Supervisor of these documents must be signed by the Minister and by the Auxiliary Supervisor President of the Republic (see Figure V-1). This excessive School Director traffic means that most actions are at least six months behind, although a new computerized system has begun to reduce delay and improve efficiency. 156. As in many other Ministries, available data concerning the system are poor, often missing, and frequently inconsistent. Currently there is no adequate system of information, despite several efforts to develop one. This places planners and decision-makers in the position of assigning resources and programs without a reliable information basis. Efforts are underway to make major improvements in the statistical and data processing departments of the Ministry as well as the procedures for gathering data in the field. 157. Educational Budget and Unit Costs. Between 1981 and 1988, Honduran education expenditures grew faster than either the economy or the population. During this period, per capita primary education expenditures increased from 22 to 26 lempiras (or from 2.0 to 2.6% of GDP per capita). Unit costs for primary education, adjusted for inflation, increased by about 20% during the same period, Several factors account for these rapid spending increases, but the chief factor was escalating teacher salaries. A simple division of sub-sector budget allocations by the number of students served yields a crude estimate of the public subsidy provided per student by level of education (see Table V-5). Recall that but L$1 of the L$278 spent per pupil in primary school is allocated to anything other than salaries. Additional non-salary resources will have to be allocated at the primary level if there is to be any hope for improved effectiveness 49 of primary teaching. The subsidy per student is ten Table V-5: UNIT COSTS times higher at UNAH than it BY EDUCATION LEVEL is in primary education (the ratio is similar in Brazil, LEVEL UNIT COSTS among other countries). (Lempiras) Higher education is of course costlier to deliver than is primary schooling; however, it Primary School 278 does not therefore necessarily Secondary School 448 merit a larger subsidy. College Preparatory 27 Because university-level Technical Secondary 454 students can expect rather Adult Education 53 soon to benefit from their Autonomous University 2,996 education, they should be willing, if they are able, to I pay a substantial share of the costs of their schooling. The next section, in summarizing education sector issues, offers an alternative approach to subsidizing UNAH that would better address the needs of poor students and could inspire greater efforts to achieve efficiency in the university system. Summary of Sector Issues 158. Major differences exist between education offered in cities and that available in rural areas where the majority of people live. The effects are apparent in continuing higher levels of illiteracy, school desertion, repetition, and undernour- ishment. Much more effort should be made to channel new resources into improving rural educational opportunities and combatting illiteracy. 159. Although overall funding for education has risen during the past decade as a proportion of GDP, most of the increase has been absorbed by university and technical education and by ever- increasing administrative costs and higher teacher salaries. Yet it is at the primary school level that system weaknesses are most glaring and its needs increasing most rapidly. A reallocation of sector resources to favor Primary education is essential, even if this means postponing desirable investment at higher levels. The Government may wish to reduce the earmarked allocation for UNAH as an early step in achieving a more equitable and efficient mix of education services. 160. Automatic salary increases pushed teacher salaries up six percentage points faster than the inflation rate since 1981, and they now consume 97% of the-total education budget. Teachers receive generous retirement benefits, have access to personal and housing loans, and enjoy job stability. Yet the lowest teacher salary is 5.1 times per capita GDP, and supervisors earn up to 50 twice that. It is more than Honduras can afford. The Government may wish to seek legislative changes to alter the prevailing system of automatic salary increases for teachers in favor of a system based on merit incentives. 161. Concentration of power at the national level results in top-heavy review procedures, personnel management delays, inadequate supervi4ion, and poor response to teacher needs. Centralization of authority excludes community leaders from participation in decisions vital to local interests. The Ministry of Education may wish to devolve authority downward to the community level, as a means of inculcating greater local responsibility for educational results and of reducing the red tape now strangling the system. 162. Teacher supervision, support, and evaluation need to be improved. Oversight of teachers is weak, both in ensuring that performance standards are met and in affording teachers the guidance and support they need. Tardiness and absences are not punished, nor is good performance rewarded. Pedagogical help and advice are rarely provided. Classroom performance is not evaluated in any systematic fashion. supervisors chiefly concern themselves with housekeeping issues. 163. MOE needs a program for upgrading teacher performance, program content, and supervisory oversight composed of these ele- ments: Higher teacher recruitment standards; better pre-service teacher training (practical course work more closely related to classroom reality); periodic in-service teacher training, especially in the use of new textbooks and materials in a multigrade environment; certification tests for beginning and in- service teachers; periodic, objective evaluation of teachers and principals; and thorough staff development plans and systematic in-service teacher training. 164. Present student testing is inadequate to serve, as it should, as a basis for determining what the system is achieving - - what the students are learning and not learning -- or for defining educational priorities and practices. A better system would motivate teachers to try harder; encourage parents to pay closer attention to what their children are doing and interact more with teachers; enable the Ministry to make wiser resource decisions and bargain more confidently with unions; and help students themselves gauge their strengths and career opportuni- ties better. With external technical assistance, MOE could develop a systematic and comprehensive student achievement evaluation program. Such a program would require clarifying curriculum objectives, developing testing procedures (samples, dates, distribution, analysis of results), deciding which groups to evaluate (for example third, sixth, and twelfth grade leavers), engaging and informing all participants (teachers, 51 students, parents, communities and Ministry); and applying test results to make management decisions and allocate resources. 165. Current curriculum does not address students' basic needs for success in the workplace or community. Time spent in the classroom does little to prepare students for employment; deepen their understanding of social studies, geography, and health; or stimulate a sense of initiative, responsibility, and citizenship. Curriculum should be redesigned to emphasize language as a com- munication and thinking tool; basic mathematics for everyday problem-solving; and social studies and natural sciences in relation to the community, health and environment. 166. Lack of appropriate curriculum and teaching materials for the multigrade classroom seriously peanalizes the vast majority of primary students in rural areas and imposes impossible burdens on their teachers. Textbooks now being produced do not by themselves fill the need for materials keyed to the multigrade environment. Elemental, inexpensive teaching materials (and specialized teacher training) should be developed to supplement curriculum and present textbooks for use in multigrade classrooms. 167. Low levels of adult literacy and numeracy, especially in rural areas, suggest the need for special programs for those who left school without those basic skills. Distance education that makes use of existing appropriate technologies, including radio, TV and video cassettes, could be offered after normal work hours in rural Honduras. Such programs could emphasize the same objectives as general and basic education, with added emphasis on basic science applied to agriculture, such as soil chemistry, soil conservation and the use of chemicals in the context of environmental protection. Adult education could use the same rural facilities as the primary schools, but at hours that would not conflict with the children's programs. An ongoing World Bank-supported project on rural primary education could support a study of the staffing and financing requirements of such a program and could then finance pilot efforts to test and improve models of service delivery. Subsequent expansion could draw on additional donor support and partial cost recovery from the beneficiaries. 168. School construction is not keeping up with population growth, particularly in rural areas, and over half of existing schools need rehabilitation or major repairs. However, data have not been collected to carry out an orderly and equitable school building program. Nor has analysis been done of the recurrent cost implications of such a program. Future school construction should closely adhere to the results and recommendations of the school mapping and census projects now being conducted. Measures for controlling construction costs (including use of local 52 building materials and voluntary labor from the community) should be rigorously applied in any such program. 169. The subsidy provided to UNAH, where four out of five students come from families of urban, middle-income groups, has a heavy cost0 to government with limited benefits because of the institution's inefficiency. If that subsidy were targeted on lower-income students with outstanding academic potential, it could be an effective means of giving those from poor families a Sairer chance at success. One way to target more effectively would be to change the way the subsidy is given to the education sector. Instead of making a payment to UNAM to cover its costs, the Government could establish a grants program to worthy individuals. These persons would then choose their course of study and institution and make payments for tuition charges to that institution, be it UNAH or a private university. UNAH might continue to receive some subsidy from the Government, but it could be directed at certain purposes, such as strengthening research in areas of national priority. 170. As long as UNAH receives a guaranteed subsidy that is unrelated to performance, there is no incentive to be more efficient. Thus, a first step toward creating a more efficient and equitable system of higher education is to reduce or eliminate the earmarked fund for UNAH. A second step is to introduce cost recovery from students. A third is to cut costs as necessary by reducing and strengthening higher education staff in light of student demand. A fourth step is to provide a subsidy directly to low-income students with high academic potential. A fifth step is to decide what specific programs of UNAH merit support because of their contribution to national development that would not be financed by tuition fees or other means of mobilizing resources. 53 VI. SOCIAL SECURITY 171. Throughout Latin America and the Caribbean, social security institutes collect wage-based taxes and provide health care, pension and disability benefits to public and modern- sector workers. In only a few countries do these institutes provide a social safety net for the rural poor, despite good intentions by many governments to direct these institutes toward the objective of poverty alleviation. The six institutes in Honduras are no exception from the regional norm; they serve a limited clientele with important services, but they do not address larger objectives of social protection for those most in need. Were these institutes operated as private insurance associations creating no public obligations, they could be for the most part ignored in a study addressing the role of public social spending in relation to problems of poverty and equity. In fact, however, the Government of Honduras has substantial obligations to the beneficiaries of these institutes and, given current actuarial deficits that prevail in most of them, will one day have to transfer general revenues to pay for the benefits of these middle-income affiliates. This chapter will describe the current institutes and their services and identify possible changes that could make them less of a burden on public resources and perhaps more apt to serve the needs of poverty groups at some future date. 172. The major issues in social security in Honduras today are: the low level of coverage of the population; the inequitable and regressive nature of the system; the lack of investment opportunities for pension funds; the serious financial problems of the main social security institution (IHSS); the efforts to create a national health system through a coordination of the activities of the Ministry of Public Health and IHSS; and efforts to unify the entire social security system. 173. The Honduran social insurance system is made up of six separate autonomous institutes. The largest (in terms of population coverage and risks covered) is the Instituto Hondureno de Securidad Social (IHSS). The remaining five institutes provide only pension coverage to specific groups: Instituto de Prevision Militar (IPM), Instituto de Prevision del Magisterio (INPREMA), Instituto de Jubilaciones v Pensiones de los Empleados y Funcionarios del Poder Eiecutivo (INJUPEMP), Instituto de Prevision de Periodistas (IPP) and Instituto de Prevision de la Universidad Nacional Autonoma de Honduras (INPREUNAH). These institutes employ about 3,000 persons, most with IHSS, and 1,500 of them delivering health care services. 174. Following is an analysis of the three major institutes that make up the Honduran social security system. (Due to the small size of the IPP and INPREUNAH, neither will be discussed 54 here. Nor is IPM covered as it has little connection with the rest of the social security system.) Instituto Hondureno de Seguridad Social (IHSS) 175. IHSS is the largest of the social security institutes in Honduras and the only one that directly offers both pension and health-maternity benefits. There are two main problems: first, the level of coverage of the population is very low; second, the health-maternity system is in severe financial difficulties and is only able to operate through 'loans' from the pension fund. These financial problems stem from (a) the salary ceiling on which contributions are based and (b) the large accumulated debt of the state as tripartite contributor. 176. Coverage. Affiliation is mandatory for all those who work for any person or business, including the government. Even on a voluntary basis, however, coverage does not extend to the self-employed, domestic workers, seasonal workers, those who work out of their home, or those in agriculture (unless working in a business that is not a cooperative and employs more than ten people). Given the small percent of the population who are salaried employees in the formal sector, this severely limits population coverage. It follows that coverage is concentrated in Tegucigalpa and San Pedro Sula, with very little in rural areas, especially for health-maternity. (As discussed below, recent efforts in Villanueva and Juticalpa are changing this to some extent.) 177. Financial Situation. Contributions to the IHSS represent 14% over salaries, with the worker paying 3.5%, the employer 7.0%, and the state (as tripartite contributor) the remaining 3.5%. Contributions are paid on salaries up to L$600 a month; this ceiling has been in effect since the system began and is one of the principal factors limiting revenues. A recent actuarial study (Bayo 1986 and 1988) projected that, unless the ceiling is raised, the entire system (both health-maternity and pensions) would be bankrupt by 1994-95. It should be noted that the projections are based on a decrease in the number of external medical consultations per 1,000 affiliates. It is not clear that this is a reasonable assumption and officials in IHSS indicate that the opposite is true, i.e., that visits are increasing. Thus the projections of the Bayo study must be considered to be over-optimistic. 178. The other limit on revenues has been the lack of payments from the st&te (as tripartite contributor) to the IHSS. At present the accumulated state debt to the IHSS is L$250 million. Given present economic circumstances, it is not likely that the government debt will be canceled soon. The IHSS has recognized this and is attempting to change the contribution structure to: 55 4.5% from workers; 7% from the employers; and only 0.5% from the state. Since the system is presently working with only 10.5% contribution, this change would amount to an increase in revenues. 179. Efforts to change both the salary ceiling for contributions and the share of contributions paid by workers and employers face serious opposition from the labor organizations in the country. Everyone interviewed, both inside and outside of IHSS, stated that the efforts would be unsuccessful. Piecemeal changes may be possible however. As discussed below, the project in Juticalpa with the Ministry of Public Health envisions eliminating the salary ceiling. This change has been approved by the local chamber of commerce and labor groups. Whether this model can be replicated elsewhere remains to be seen. 180. The health-maternity program has been in the red since 1981. Figure VI-1 shows in graphic form the shortfall between health fund revenues and expenditures since 1985. This shortfall has been bridged by borrowing from the pension fund, but to date, the pension program has received neither interest nor principal payments on these forced loans. The total debt owed to the pension fund by the health-maternity program is L$134 million plus L$32 million in accumulated interest. The IHSS administration plans to transfer several health-maternity properties to the pension program as payment on these Hloans". 181. The pension fund, which provides old age, incapacity, and survivors pensions, is financially sound apart from the health- maternity debt. According to the Bayo study, if the health- maternity program repays its debt, the latter will remain in actuarial balance throughout the 1990s. Figure VI-2 shows the revenues and expenditures of the system for the last five years. 182. The pension fund invests in both private and state banks with annual interest rates ranging from 10 to 13 percent. Given the present nominal interest rate of 4% monthly, the fund will be in serious difficulty soon if more profitable investments are not made. Figure VI-1: HEALTH AND MATERNITY: IHSS Figure VI-2: IVM: IHSS Revenues and Expenditures Revenues and Expenditures (Constant 1978 Lempiras) (Constant 1978 Lempiras) 1985-1989 1985-1989 Millions Millions 26 40- 20' t ~ ~ ~ ~ ~ .. .... ..... ....2B.. ................ ....... .. 1986 1988 0987 1Q88 t9 1986 1986 1987 1988 1989 Revenues 15555 Expenditures Revenues Expenditures 57 183. Administrative Costs. In 1989, costs of administration represented approximately 13% of total IHSS expenditures. The pension fund pays 10% of its receipts to the health-maternity fund to cover administrative expenditures. No effort has been made to determine if this amount is justified either for the IVM or the health-maternity programs. Originally, the amount was to be 6% but this was raised by the Board of Directors without, apparently, any evaluation of the relationship of this amount to the actual administrative costs generated by the IVM program. Thus, changes in administrative costs in the pension program do not indicate an increase or decrease in efficiency but only a change in the quantity of contributions received. Pension fund receipts have been declining in proportion to expenditures. The proportion of payments for administration to the health- maternity fund has decreased since 1985. 184. There are 2,500 IHSS employees at present. Of these, 43.3% are administrative and support staff and the rest medical personnel. Present reorganization plans call for dismissing many employees. For 1990, this will represent a cost of L$700,000 in severance pay, but reorganization is expected to save L$2.7 million in 1991. Whether the institute will be able to reduce the number of employees is doubtful, given the strength of the employees union. Moreover, the 1986 legislation raising salaries of all medical doctors and limiting their work day to six hours has increased the IHSS wage bill. 185. Benefits. Insured workers are covered for health- maternity and workmen's compensation claims and are provided pensions for old age, incapacity, and survivors. Female spouses of insured workers are covered for maternity and any health coverage which, due to its complexity, requires treatment in Tegucigalpa. Until recently male spouses were not covered if their spouses were insured; in the Jut calpa program, this will change (see below). Children of insured workers are covered for health benefits up to the age of five years. The government is attempting to change this by adding one year of age each year for the next few years. 186. The level of pensions is very low due to the cap on the amount of salary subject to tax. Contributors are eligible for old-age pensions if they have completed 15 years of service and are either 65 years old (male) or 60 (female). Old-age pensions are equal to 40% of the monthly base salary, plus 1% of salary for every additional year of contribution beyond the first five years. The calculation is based on a salary ceiling of L$600 per month. Pensions cannot be less than 50% of base salary nor greater than 80%. Since the base amount is a percentage of salary and is not a fixed sum (as in INJUPEMP), minimum pensions in IHSS are lower than in the other institutes. 58 187. Insured persons who continue to work after having met the requirements for an old age pension benefit from having 3% of the base salary added to their pensions for every year worked thereafter. This provides some incentive for people not to retire early and avoids the issue of moral hazard seen in other pension programs. Survivor pensions for spouses amount to 40% of the old-age or incapacity pension that workers received or would have received. Children receive 20% of the pension up to age 14 and, if still in school, to age of 18. In this respect, the benefit system provides incentives for the worker's children to remain in school. The real value of pensions has fallen since 1985; given the ceiling on pensions and rising inflation in 1990, further erosion of the real value of pensions will occur. 188. In summary, IHSS is the largest of the social insurance institutes in Honduras and it is also the weakest, both financially and in actuarial terms. The salary ceiling for contributions and the rising costs of health-maternity benefits have put the system in the red and will increase the system's debt if the taxable wage base is not raised, costs cut, or benefits decreased. The state as tripartite contributor has not fulfilled its obligations, so overall revenues are below what they should be. New contribution schedules that recognize the state's inability or unwillingness to pay will be necessary if the system is to be balanced. And attention needs to be paid to pension funds investments to prevent erosion of their real value. Instituto de Jubilaciones y Pensiones de los Empleados y Funcionarios del Poder Ejecutivo (INJUPEMP) 189. Officially created in 1974, INJUPEMP is the most secure institute in financial and actuarial terms. According to the director, the institute will be able to withstand the present economic crisis without problem. 190. Coveraqe. INJUPEMP co-ers all those who work for the central Government of Hondura. except teachers who are covered under INPREMA) and employees of 14 autonomous institutions. Over 90% of those insured in INJUPEMP are located in Tegucigalpa and San Pedro Sula. INJUPEMP has begun conversations with the government examining possibilities of expanding coverage to the private sector and including the self-employed. Doing so would put INJUPEMP in direct competition with IHSS and would test whether people are willing to pay for higher pensions (IHSS pensions are much lower than INJUPEMP's but contributions are also lower.) 191. The number of insured under the INJUPEMP system in 1990 was 41,633, with 82% employees of the central Government and the remainder from decentralized government institutions. Growth has been variable but a large increase occurred in the last two 59 years. However, the present administration is attempting to decrease the number of public employees, so further growth may be curtailed unless INJUPEMP moves into insuring the private sector. 192. Financial Situation. The two major sources of income for INJUPEMP are contributions from members (and from the state as employer) and interest earned on invested funds. Employees contribute 7% of their salaries and the employer (the state in this case) 11%. There is no ceiling on the salary over which contributions are paid, unlike INPREMA (see below), where a salary ceiling of L$1,000 was in effect for the first years. Additionally, state contributions to INJUPEMP in the early 1980s were higher than those for INPREMA. These two facts help to explain the actuarial balance of the system as well as its strong financial situation. 193. INJUPEMP's investment plans are oriented to investing in private firms and productive purposeeO. According to the director, these investments will yield positive real rates of interest even with the rising inflation. 194. Benefits. The major benefits provided by INJUPEMP are old-age, incapacity, and survivors pensions. Voluntary retirement with full pension benefits can occur as soon as the insured has contributed for a minimum of ten years and reached 58 years of age. Retirement is mandatory at sixty-five with a minimum of ten years' service. Pensions are calculated at 2.75% of the average of the last 36 monthly salaries earned, multiplied by the number of years of service. Regardless of the calculation, no pension can be lower than L$250 nor greater than 90% of the average salary. 195. Once enrolled in INJUPEMP, insured persons are automatically eligible for two other types of pensions regardless of age or years of service: incapacity pensions, calculated at 80% of monthly salary; and survivors pensions either the pension of the employee or a single payment equai to 18 times (for natural death) or 36 times the monthly employee's salary (for accidental death). 196. The level of pensions is higher in INJUPEMP than in either IHSS or INPREMA, and the real value of pensions has not declined as drastically. This is the result of both the manner in which the pensions are calculated and the lack of a ceiling to limit contributions. 197. INJUPEMP is negotiating with IHSS to obtain health benefits for its retirees. At present the employer is scheduled to pay 2.5%. The employees' contribution has not been established. 60 198. Of the three institutes discussed here, INJUPEMP is in the best financial and actuarial condition and provides the highest benefits. The critical issue for INJUPEMP in the short term is whether or not their investment plan will provide the returns necessary to maintain the balance of the system. Instituto de Prevision del Magisterio (INPREMA) 199. Created in 1980, INPREMA, serves the education sector. The two primary concerns of INPREMA are actuarial imbalance and erosion of the real value of invested funds due to inflation. 200. Coverage. Affiliation is mandatory for all teachers, public and private, throughout the country. At the end of 1989, INPREMA had over 35,400 affiliates. The number of affiliates has increased substantially in the decade since INPREMA's inception. 201. Financial Situation. Contributions to INPREMA represent 18 to 19 percent of salaries. Of this, the employee pays 7% and the employer pays 11% (if a private sector school) or 12% (for public sector schools). The state as state (and not employer) does not contribute to this institute. A plan to provide IHSS health coverage for retirees has been approved in INPREMA whereby retirees would pay 2.5% of their pension income to IHSS and INPREMA would pay 5%; this is not yet in effect. 202. Financially, INPREMA is solid although the growth rate in net revenues has declined. In actuarial terms, however, the system is not in balance. The last actuarial study of INPREMA was carried out in 1986 and showed that the actuarial deficit of the institute was almost L$3 million. Another study is being done now, through the Ibero-american Social Security Organization (OISS). It is expected that this study will show a further increase in the actuarial deficit. 203. Administrative costs. Administrative costs represented almost 17% of expenditures in 1989, decreasing from over 19% in 1986. Within the Latin American region this percentage is high. 204. Benefits. INPREMA provides pension benefits to its insured population in the form of old-age, incapacity, and survivors pensions (IVM). In addition, INPREMA has an agreement with the IHSS whereby 2.5 percentage points of the 7% employee contribution is transferred to IHSS; in return, IHSS provides health-maternity benefits to those affiliated to INPREMA. These health-maternity benefits are only available for teachers who live in Tegucigalpa and San Pedro Sula. As noted above, a plan to provide health coverage for retirees has been approved in INPREMA but has not been implemented. 61 205. Persons insured in the INPREMA system can retire voluntarily with full pension benefits at 50 years of age if they have completed ten years of service and paid ten years of contributions. Retirement is mandatory at 60 years of age with a minimum of ten years of service. Pensions are based on 3% of the average of the last 36 months' salaries multiplied by the number of years of service. There is no salary ceiling for either contributions or pensions. The lack of a ceiling on contributions has permitted INPREMA pensions to maintain more of their real value than IHSS pensions have. The way in which pensions are calculated, on the other hand, has kept them at a low level. Pensions are equal to half of previous income if the employed contributes for a minimum of 20 years. 206. Other services provided by INPREMA are personal and housing loans, housing developments for members, and special services for the elderly (social, psychological, and physical therapy services). Loans to members represented 52.8% of total assets. Interest charged on personal and housing loans is lower than that received by the institute from bank investments. Since these loans represent half of the total investments of INPREMA, the fact that personal loans grew by 39.5% and housing loans by 15.2% from 1988 to 1989 may be of concern given the rising inflation. Bank investments during the same period increased only 3.3%. 207. In short, INPREMA provides both pension and health- maternity (indirectly) benefits to its members as well as some financial services. The system is financially sound but the actuarial imbalance is fairly critical. At present, INPREMA does not have secure investment opportunities that will provide a positive real rate of return on its investments. This will affect the financial situation of the institute. Efforts must be made to balance the system and discover reasonable investment activities if the system is to maintain financial stability. It may be necessary to increase contribution rates to bring the system into actuarial balance; it would be difficult to lower the level of pension benefits. C. Coordination Among Institutes 208. Overall, there has been little coordination among the various social security institutes in Honduras. However, some efforts in this direction merit watching. 209. Pensions. There is some interest at IHSS in unifying the county's pension systems. The other two major institutes, however, are uninterested given the financial problems at IHSS and their own relative stability. Only INJUPEMP is in both financial and actuarial balance; integrating it with the other 62 two funds without putting them in balance first would be of little benefit. 210. INJUPEMP is negotiating with the government for the right to extend pension coverage to the private sector, which is now monopolized by IHSS. The Director of INJUPEMP thinks the prospects are fairly good. Permitting INJUPEMP to insure private employees would create a competitive system, at least in the formal private sector. If this occurs it will provide good information on the willingness and ability of Hondurans to pay higher rates to receive higher benefits. 211. Health-Maternitv Proqrams. Since at least 1986, there has been talk of creating a national health system. One problem is the fear that the private health sector would be eliminated. The present plan would leave the private sector untouched and only combine the Ministry of Health and IHSS programs. The aim is not to divide functions by levels of health care (as in Costa Rica, where the Ministry of Health is responsible for preventive and primary care and the Social Security Institute for secondary and curative care) but to combine resources at a given geographic location, as has already occurred at Villanueva and is proposed at the new hospital in Juticalpa. 212. In addition to expanding coverage, coordination at these locations has made it possible for IHSS to secure agreement from both local chambers of commerce and labor groups to increase the contribution rate (from 2.5 to 3.5 percent per employee) and eliminate the salary ceiling. These actions will make it possible for IHSS to cover the costs of services to their insured population. Whether or not the restructuring will be more efficient is unclear. On the one hand, efficiency will be improved simply because MOH relies more heavily on nurses than IHSS and is thus able to produce lower cost services. On the other hand, however, Hondurans in the sector believe that the overall efficiency of IHSS hospitals is greater than those of the MOH. It is thus somewhat unfortunate that the Juticalpa hospital will be administered solely by the Ministry. 213. The optimum solution, joint administration of the hospitals, is impossible due to two factors: * First, The Ministry appears to interpret its constitutional mandate to mean that it should run facilities, not subsidize those of others (like IHSS); * Second, the staffs of the two organizations work under two separate labor codes (the Codiqo de Trabajo covers those working for IHSS and the Civil Service Code covers MOH employees). Significant differences 63 between these two codes make it almost impossible to run a facility with a combined staff. 214. IHSS now has plans to institute health-maternity benefits at Ministry facilities in Choloma, Puerto Cortez and Choluteca. As prospects for integration and changes in contribution rates and ceilings through the legislative process appear to be dim, these experiments in coordination deserve close attention. The director of IHSS argues that the ability to coordinate activities at a specific location is what makes the Honduran system unique and that only through this process will global change in the system occur. 215. Escuela Centro-Americana de Sequridad-Social. One final area in which the social insurance institutes in Honduras are working together --- the only successful one to date -- is creation oi a Central-American Social Security School. The idea of a regional training center located in Honduras has great merit given the paucity of trained social security personnel. The agreement to create the school was signed in May of this year by the Ministry and principal institutes with the Ibero-American Social Security organization (OISS). The center will have no campus or infrastructure; instead, each of the four Honduran signatories will provide physical space, equipment, and staff to enable the center to conduct short courses (three to six months). Trainers and professors will be hired on an ad hoc basis. Meetings to formulate an operating plan have yet to be convened. Summary of Sector Issues 216. A unified pension system could provide the same benefits to all members. At present, in the three institutes discussed here, the benefits and the costs (contribution rates and salary ceilings) are very different. To bring benefits in the various organizations in line would require either increasing the lower benefits or decreasing the higher benefits or some compromise between the two extremes. As IHSS pensions benefits are low and the other institutes serve powerful labor groups that will probably not allow their benefits to decline, it appears more feasible to raise IHSS benefits rather than to lower those of the affiliates of the other institutes. 217. In order to do this, however, the contribution rate of IHSS would have to rise and the salary ceiling be eliminated. To bring the various systems into line would entail a substantial increase in the contributions paid. Employees would go from paying 1% over a maximum salary of L$600 to 7% over unlimited salaries and employers' payments would increase from 5% over the maximum L$600 salary to 11 or 12 percent over unlimited salaries. Obviously this increase would further distort the demand for 64 labor and encourage workers who want to avoid the wage tax to shift to the informal sector. 218. The problem of whether or not this increase would be accepted by workers and employers remains. On the one hand, workers might be willing to accept this increase given the substantially greater benefits they would receive. On the other hand, employers would receive no direct benefits from higher payroll taxes; their willingness to accept increases would depend in part on whether they can pass on these added costs to customers. The extent to which they are able to do so, especially in higher prices on basic goods, has a regressive impact since the majority of Hondurans, who do NOT have access to social security benefits, would be paying the tax -- not those who benefit. 219. The danger that imposing higher payroll taxes could also dampen employment opportunities also needs to be examined. The ability of the employer to pass on to consumers his or her higher tax costs has a much lower regressive impact if the system is made universal. Given the structure of the present system and the Honduran economy, achieving universal coverage in the short (or even medium) term will be extremely difficult, if not impossible. The increase in coverage will not, however, negate a decrease in employment opportunities that could occur if employers are not able to pass on higher costs. 220. Coordinating provision of health care services between IHSS and Ministry would have several benefits. First, while the two systems are legally separate, the distinction is blurred the actual use. In many areas, people insured under IHSS use Ministry facilities and, through various illegal methods, non- insured gain access to the IHSS facilities -- by borrowing the identification cards of those who are insured, for example. Merging the IHSS and Ministry of Public Health services is a logical action that should be considered. 221. Another way to increase coverage is to allow non-formal sector workers to join the IHSS voluntarily. Legislating universal coverage at this point is very difficult but providing optional insurance coverage could increase the number of people covered in the system. This option would probably be most effective in areas outside of Tegucigalpa and San Pedro sula where IHSS and the Ministry are planning to establish health facilities. It would probably be harder to increase coverage voluntarily only for pensions. Workers outside the non-formal sector should be allowed and encouraged to join the IHSS system voluntarily. 222. The critical issue of investment portfolio management in periods of high inflation needs to be addressed. While INPREMA has an investment plan they do not feel that it will be adequate 65 in the face of the present economic picture. IHSS is in the same boat as INPREMA. INJUPEMP has plans that it considers adequate for maintaining the real value of their funds. 223. Any effort to increase the diversity and returns earned on pension fund investment must take into account the fact that the pension system in Honduras had, as of 1988, L$1,300 million in the banking system, which represented 60% of the banking systems' credit line (Camus 1989). Thus, changing present investment strategies may have a significant and destabilizing effect on the banking system in Honduras. The ramifications of any major change in pension fund investment portfolios should be carefully studied in any analysis of investment opportunities. The Government might wish to seek and finance technical assistance to the various pension funds to enable them to find investment opportunities that will protect their real value during the present inflationary period. 224. Given deep doubts about whether people will accept increased costs for pensions and the difficulties involved in establishing a uniform system, integration will be possible only in the medium or long term. The fcllowing actions could facilitate eventual integration: (1) Allow INJUPEMP to expand its coverage to the private sector (this will provide useful information on behavior patterns); (2) Determine the impact on consumer prices and employment of the increased payroll tax in Juticalpa; and (3) Determine whether access to health benefits increases people's willingness to accept higher contribution rates. 225. While creating an integrated national health service is also a medium to long range plan, a great deal can be done in the short term to facilitate this process. In particular, the Villanueva experience and the Juticalpa effort should be monitored to determine the costs and benefits of the undertaking. In addition, the Ministry and IHSS should determine, on the basis of efficiency data, the best use of their respective personnel, budget and infrastructure. 226. Some reforms specific to the Honduran Social Security Institute may improve system efficiency through better financial management. IHSS could try to establish financial and actuarial balance in its system. The loan from the pension program to the health-maternity program should be repaid with accrued interest and the two accounts (for pensions and health-maternity) kept separate. The health-maternity program should act to increase revenues and curtail expenditures. Coordinating activities with MOH is one way to do so. IHSS could establish a cost recovery method based on ability to pay. While this will not create large amounts of revenue, it will reduce costly abuse of the systems free services. 66 VII. STRATEGY FOR SOCIAL SECTOR RESTRUCTURING 227. The Government of Honduras could build on past successes, and solve the remaining problems of high infant mortality, malnutrition, and school dropouts, by developing a coordinated program of basic social services that would be extended to the rural poor while still maintaining basic services for middle- income and urban groups. However, a horizontal expansion of the current pattern of service delivery in education, health, and nutrition would be ineffective and too costly. It is difficult to imagine, for example, that Honduras could readily expand the share of GDP and of government revenues that it now devotes to social spending. 228. Any external assistance will probably be conditioned on the capacity of the Government of Honduras to sustain the recurrent spending on basic social services at a time soon after conclusion of that assistance. Whatever program is developed must thus be consistent with, and be limited by, the resources that government can generate locally and devote to social services, even though external assistance could help speed the process by which services are extended to poverty groups. In practice, a sustainable social services program probably cannot exceed 10% of GDP, but SECPLAN estimates that a higher level of support for social services, perhaps on the order of the 175 of GDP allocated by the Government of Costa Rica to these sectors, could be sustained with additional international assistance over the next few years. 229. What options for restructuring social programs are open to the Government of Honduras? The following section reviews six steps that could improve the efficiency and equity of social programs in Honduras. This review proceeds in light of the principles enunciated in Chapter III, and with due regard to the limited availability of financial resources. Despite these limitations, the Government of Honduras could establish a social safety net, a minimum set of benefits to be made available to all those in need, aimed at assuring equal chances for all and the reduction of poverty. 230. Options need to be considered in light of several priorities, including timing, political and technical feasibility, and impact on equity, efficiency, and resource mobilization. Actions that are wholly within the control of the government, especially those affecting the planning, finance, and management of social programs, would seem appropriate for priority attention. 67 Planning, Finance and Management of Social Programs Step l. Prepare an agenda for reform of social programs. 231. Preparation of an agenda for reform could begin with reflection on the principles of equal access, individual choice, transparency, preference for public goods, and priority for low- income groups. The discussion in this chapter will proceed as if the principles are acceptable, politically appealing, and indicative of directions for program reform. Reforms might include changes in several areas: Program consolidation (merger of MOH and IHSS facilities as with the experiments underway in Juticalpa); cost containment (limits on staff salaries and administrative costs); user fees (charge for medicines, higher education, elective surgery); benefit enhancement for poor and vulnerable groups (rural health care, maternal and child nutrition assistance; and higher-quality primary schooling). Under terms of a second structural adjustment loan, SAL II, the Government of Honduras is reviewing its social programs and preparing a preliminary plan for action in 1991. That plan may meet many of the objectives discussed in this section. 232. One perspective in formulating an agenda of reform is to focus on how to reduce some lower-priority programs to finance those of highest priority. The following are examples of such swaps: o Require middle-income families to pay for health care services to enhance maternal and child primary care programs. o Reduce subsidies to higher education and apply the saving to primary schools in rural areas. o Reduce general food subsidies to free resources for targeted nutrition assistance for the poor. The potential for shifting resources between benefits, once the opportunity to make such shifts is recognized, may be quite -large. Step 2. Prepare a plan to verify and document the results of implementing the agenda of reform. The system of documentation could include a strateqic social plan, an annual review of the social situation, and a program of analysis and evaluation of social programs. 233. To document its achievements associated with the implementation of an agenda of reform, the Honduran government needs to develop instruments of verification. It is not enough 68 to act; it is also essential to create feedback mechanisms that will enable the government to verify that its policies are having the desired results. Of the many options available to document its achievements, three are particularly appropriate to adopt at this time. 234. The Strategic Plan. A consolidated social account of the safety net would have several advantages, the most important being increased transparency of government action aimed at providing basic needs to all Hondurans. In addition, such an accounting would enable policymakers to identify how tax resources are allocated and whether to choose some better ways to promote public social objectives. A consolidated social account of the safety net would make it possible to answer these kinds of questions: Is too much spent on higher levels of schooling, too little on primary education? Do nutrition programs for the very young need to be increased, even at the cost of school lunches? These kinds of questions need to be answered as part of the ongoing exercise of establishing and reviewing social priorities. 235. Similarly, the government may wish to prepare and publish annual budgets and accomplishments of all social spending. A disadvantage of current data publications is that no official organ collects and disseminates a complete review of social spending. No entity includes information on state and local spending in its publications. It would be useful to have a periodic review of all state and local programs aimed at enhancing the safety net. The Honduran government could also consider monitoring the private sector as its actions may affect the safety net. 236. In preparing for this report, the mission met considerable difficulty in developing a consolidated account of social spending. Authorities have inadequate access to information about local spending. They have almost no information on private social spending. The discussion in Chapter III called attention to the adjustments households and local governments make to the spending decisions of the government. Program effects can be diluted if these entities change their behavior because of the program. It would be essential for planning purposes that a strategic social plan cover private social spending and the activities of local governments. 237. Annual Review of the Social Situation. The government could publish an annual review of the social situation, summarizing the status of vulnerable groups, progress in addressing their needs, and assessments of the efficacy of various program approaches. SECPLAN already gathers much of the necessary information. 69 238. Program Analysis and Evaluation. Program evaluations can help determine whether benefits reach poor and vulnerable groups. They can check on compli&nce with the principles used in this report. They can address issues of fairness. Is there equal treatment for equal persons, fairness to old and young, and equitable treatment by place of residence (urban vs. rural)? Government officials do not appear to have focused on this kind of distributive issue. 239. Program evaluations need also to address broader questions of the cost-effectiveness of programs. In doing so, evaluations can help program managers define objectives and link them to program inputs. In the course of such exercises it will be possible to refine objectives as well. Do school lunches aim merely to fill plates w. h food, or are they an intermediate step to achieve better nutrition and school performance? If plate- filling is the objective, then evaluations need only monitor the kitchens and tables of schools to see that children are being fed. If the larger objective is sought, however, as most analysts would hope, then evaluation must explore the linkage between full plates and how students perform in school and on a weighing scale. This more complex analysis can help the managers of the school lunch program plan how best to pursue this larger objective. It might reveal that regularity of delivery is more important than ample quantity. 240. Information provided in the aforementioned planning and budgeting exercises would enable the Honduran government to evaluate and set priorities for sociaL programs within an overall context. Do some programs command too large (small) a share of resources? This important question can only be answered within a context of aggregate commitments of revenues to the full body of social programs that, taken together, have a single objective -- to improve the chances of poor and vulnerable groups to raise their standards of living to a level much _loser to the average of all Hondurans. Step 3. Reduce the earmarking of revenues to specific programs. 241. Wage-based social contributions pay for health care and retirement benefits for a minority of public and modern-sector workers. There is a reasonable justification for the deferred compensation of public employees, but the private-sector workers would be better served with a private insurance system. Health care provided under the current arrangement depends not only on the wage tax but also on the cross subsidy from pension revenues. The service now provided could not be sustained without that subsidy. If earmarking were to end, the integration of MOH and IHSS services would then appear as a more reasonable option to IHSS beneficiaries who are now receiving far more in health care services than they and their employers are paying for. 70 242. Earmarked funds for UNAH could also be eliminated as the earmarking itself is a cause of inequity and inefficiency. A better approach would be to limit the share of education budgets that can be allocated to salaries. The object of such limits is to assure adequate quantities of teaching materials. More promising options than earmarking might include offering positive incentives for good performance. 243. Earmarking has the additional disadvantage of insulating program managers from scrutiny, periodic review, and evaluation by central authorities. Resources for social programs might receive more careful scrutiny if they were consolidated with other treasury resources, or gathered together into a large pool. The objectives of social programs change. Nutrition assistance may have had a low priority in the 1970s, but it is now acknowledged to be very important. There are no earmarked resources for nutrition so that program has had difficulty mcbilizing the resources it needs to reach poor and vulnerable groups. 244. Most external assistance is earmarked for specific purposes, but the life of most projects is sufficiently short so that major distortions are not likely to arise. Nonetheless, government officials must give continuous attention to the need to assure that donor aid is consistent with government objectives and that no projects are allowed to operate outside established priorities. Some governments have accepted attractive assistance in hospital construction and equipment only to find themselves unable to finance the recurrent costs associated with the facilities. Most donors would gladly cooperate with a program to c-cordinate assistance and assure its place within an overall framework of social programs. 245. If the principle of em.phasis on public goods were to be acc,-.ced, it might be feasible to reduce public-sector delivery of social services by gradually handing over responsibility for delivery of personal services to private providers. This report identified a large part of curative medicine and public higher education as public services that serve individual interests more than they serve general social interests (see Chapter III above). Such services may be contrasted with immunization in which the community as a whol-- benefits from individual decisions to be immunized; with primary education, in which the community benefits from the gradual accretion of skills among all its members, and with urban water supplies, in which potable water enhances community health standards overall. 246. This report has also shown that on fairness grounds many personal services are objectionable because they are not available to all eligible persons. AP. option would be to reduce subsidized personal services and some of the taxes that pay for them. Those who wish to purchase the services directly from 71 private providers could do so out of their higher take-home pay. The government would maintain social contributions at a level h'igh enough to finance basic services that contribute to the public good and, in contrast with the present situation of unequal availability, extend basic services to all eligible persons. 247. Equity could be improved by charging tuition in the public universities and requiring copayments from the beneficiaries of public health care. There is, however, a firm belief among policymakers that introducing fees is not politically feasible. A major challenge facing the Government of Honduras is the search fcr politically-acceptable ways of achieving greater equity within limited budget constraints. Strengthening Service Delivery Step 4. Shift resources to favor more spending on primary education, primary health care, and nutritional improvements for children under five years of age. Increase resources for targeted nutrition programs. 248. On grounds of equity (large spending disparities) and efficiency (high rates of return to spending for preventive health care and early schooling), the government could give priority attention to primary education. These services, when properly delivered, can help assure equal access, concentrate on public goods rather than individual benefits, and are targeted preferentially on poor and vulnerable groups. Efficiency improvements could transform primary education. These could include new policies on repetition, class size, and teacher qualification and training; more instructional materials in the classroom, and adequate tools and enrollment policies for handling multigraded classrooms in the rural areas. Savings of up to half the budget for primary education could result from cutting the repetition rate. 249. Feductions in publicly funded high-technology medicine could he.Lp pay for expansion of primary health care. It is also the case that donor assistance is particularly abundant in support of expanded rural health care. That assistance can pay for the 400 additional CESARs and CESAMOs that may be needed, and it can support programs of training ana management st-7engthening that are essential to make the additional investment yield to its potential. Donors will wish to assure themselves, however, that Honduran commitment to basic services is reflected in priorities for the use of national resources to complement donor assistance. In that respect, the social budgets and annual reports discussed earlier will be welcomed by the donors as tools useful in clarifying government spending priorities. 72 250. A. targeted program could reduce malnutrition to a level comparable to that of such countries as Colombia at a cost of about 0.8% of GDP each year for about five years, according to an analysis prepared by Bank staff in 1989. The study found that the government, various donors and NGOs spend about US$5 million annually on school feeding and maternal and child health nutrition programs. Spending would have to rise to about five times that level and be targeted on groups likely to be malnourished, if the desired impact is to be achieved. A goal set out in that study was to reduce the incidence of malnutrition, as measured in Table I-1 of this report, from a current 18% to under 10%. To achieve such a reduction in malnutrition would be a major success; given the achievements of the past score of years, success is not out of reach, if the Government of Honduras has the will to develop effective programs. Step 5. Review staffing requirements for teachers and health workers to determine career development, waqe setting practices, and means to increase efficiency in delivery of these services. 251. There are many distortions in pay and working conditions in the social sectors in Honduras. IHSS physicians are paid more than those working in MOH. Physicians work at several jobs, which implicitly results in conflicts of interest. There may be some oversupply of MDs in Tegucigalpa and San Pedro Sula; there is certainly a dearth in rural areas. Some physicians are allowed to occupy two public jobs; most are restricted to one. Official working hours vary from four to eight hours per day, and actual hours served vary even more widely. Allied health workers, including nurses and bealth attendants, have no clear career path and few incentives to work effectively in public service. The situation is similar in public education; the details offered in Chapter V need not be repeated here. Some jobs are handed out on the basis of political patronage rather than in response to clear criteria included in job descriptions. 252. Because there are so many distortions, it is impossible a priori to offer clear guidance for specific policy or administrative changes. There is an urgent need for a comprehensive review of human resources in delivery of all social services. Out of that review could emerge some feasible options for further consideration. These would have to assure that systems of compensation give adequate incentives to perform well. Employment in the social sectors will not draw the best talent unless public sector jobs offer career opportunities for 2 Feeding Latin America's Children, LAC Discussion Paper. Washington DC: World Bank, Table 10 and Annex Table 16. 73 advancement. Conflict of interest, a major problem in the health field but less significant in other social programs, will be a continuing problem that requires ongoing and thoughtful attention as no easy solutions will be found. The lifetime tenure of public employees protects them from reasonable sanctions and performance revision. It may thus be appropriate to consider contract assignments that protect the ability of public managers to require good performance. Step 6. Enhance local control over the quality and delivery of social services by qivinq local committees control over user fees, copayments, and other income generated by the sale of public services. 253. The Callejas Administration favors devolution of authority and responsibility to lccal governments. In the future, they may be asked to take greater responsibility for the delivery of services, especially for programs that require community participation. This approach could increase community interest in the quality of services delivered by professionals in health and education who too often ignore consumer complaints. In its operation, FHIS could reward institutional development and fiscal responsibility at the municipal level by disbursing its funds only to municipalities that implement efficient and equitable social programs. 234. A sure way to achieve decentralization is to limit the extent to which local authorities must seek financial support at higher levels of government. If these authorities could charge their clienteles for services, they could probably operate much more effectively than is currently the case. It would be advisable to introduce limited experimentation with a system of charges for services in a few locales. The experiments could be subjected to rigorous analysis and study prior to their extension. Choosing Options, Managing Change 255. The options having been identified, the Government of Honduras must next choose among them and, having chosen, must develop an effective strategy for managing change. There are many ways to describe that process, but one way that may be helpful is to identify four elements in a strategy for productivity enhancement. 256. First, the Government needs to establish a firm limit on how much it will spend for social programs, a limit consistent with its mracroeconomic framework developed as part of a plan for structural adjustment. That limit could be identified as a snare of GDP, or central government revenues, or both. Establishing 74 such a limit is essential because of the constant pressure of special interests to exceed it. If a constraint of 10% or even 17% of GDP is accepted, then the Government must consider how that amount will be financed, especially the interaction between its own resources and those of external donors. Both government and donors will want to be certain that neither's resources are applied to purposes outside an agreed sectoral program. 257. The second element is to seek consensus on a vision of objectives and priorities for the social sectors. That vision nee4s to be much more client-focused than is the current system of delivery for social services. Elements of what a client- focused system would have to consider appear as a series of questions about good service and good employees: Externally- Oriented Elements: (i) How does the service concept propose to meet customer needs? (ii) What is good service? Does the proposed service concept provide it? (iii) what efforts are required to bring client service expectations and service capabilities into alignment? (iv) What are the important features of the service delivery system? (v) How can the actual and perceived differences between the value and cost of services be maximized? and (vi) Where will investments be made and efforts concentrated? and Internally-Oriented Elements: (i) What are the common characteristics of employee groups? (ii) How important are each of these groups to the delivery of service?; (iii) What needs does each group have? (iv) How does the service concept propose to meet employee needs? (v) To what extent are the service concept and the delivery system for serving important employee groups internally consistent? and (vi) To what extent have employees been involved in the design of the service concept and the delivery system? 258. At a more general level, the vision would refer to concerns for equity, priority for programs that address the needs of the poor, and assignment of resources to government actions that cannot be carried out by the private iector. Many examples were cited in the discussion of the options earlier in this chapter. It is essential that the vision be consistent with the budget constraint. The main instrument needed to achieve consistency is the social budget, as it offers a comprehensive overview of what is to be spent, and for what purposes. Without such a budget it would be very difficult to set relative priorities and make choices between programs. 259. A third element is to create internal incentives, recognition, and rewards for social sector personnel that contribute to achievement of sector goals. Too ofter., incentives work against objectives. Rural school teachers interviewed in another Central American country, with more than sixty children in multigrade schools, discourage attendance to reduce class size and enhance their teaching effectiveness. The immediate result may seem positive, but in the larger context, these moves 75 increase dropouts and inefficiency due to repetition and work against equity objectives. Sector managers need to review all aspects of service delivery to assure that each staff member is rewarded and recognized for working to achieve the objectives of the overall vision for the sector. 260. This area of incentives and rewards may be the greatest challenge to public management of social programs. Public workers often fear that incentive pay creates divisions among themselves that are unwarranted. Public managers feel themselves constrained by organized employee groups. The clients wonder whether anyone is interested in their needs. The analysis in this paper suggests that public workers in the social service areas are not underpaid. Inadequate wages are not an important cause of inadequate service delivery. Instead, it can be shown that there are no rewards for good performance. Managers may thus need to seek creative ways of identifying nonsalary rewards that are important to staff. These include recognition of specific contributions with, for example, a letter of appreciation, mention at a staff meeting, public praise in a newsletter, or a simple thank-you by a supervisor. The use of these moral incentives, nonpecuniary rewards that are valued by the type of person who decides on a career in public social service, is probably far less than it could be in Honduras. If there are no such rewards, it is a virtual certainty that the small efficiency builders will dry up. 261. A fourth element is individual and group empowerment, or what is often referred to as decentralization, that assures that sector staff, and the communities in which they work, have sufficient control of their own work to make it more productive. Too often decentralization has meant shifting responsibility to local levels without the requisite control over resources that is required to achieve sector objectives. Sector managers, having established for themselves a vision of these objectives must seek consensus among those who deliver and benefit from these services as part of the process of restructuring. In the field of medicine, for example, it may not be easy to convince hospital- based medical personnel, especially MDs, that basic health care merits priority and hence a larger share of fiscal resources. Yet there can be no successful restructuring without winning the active support of the medical staff throughout the system. Winning support of education and health professionals will require an intense effort to build consensus and agreement among all parties. BIBLIOGRAPHY AED. Academy of Educational Development. 1990. Central America Education Field Technical Support Contract. Tegucigalpa: USAID. 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