Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED SOCIAL PROTECTION TECHNICAL ASSISTANCE LOAN

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1 I_--- Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: CL Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED SOCIAL PROTECTION TECHNICAL ASSISTANCE LOAN Public Disclosure Authorized IN THE AMOUNT OF US$10.71 MILLION TO THE REPUBLIC OF CHILE November 21,2003 Public Disclosure Authorized Human Development Management Unit Argentina, Chile, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their may nut be otherwise disclosed without World Hank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective November 19,2003) USD$1 = CLP$ (+/-) Variable FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BPF CAS CASEN CONADI CONAMA Ficha CAS FMA FMRs FONASA FOSIS GDP GPN ICB IDB IPDP LCS MIDEPLAN NCB NGOs OECD OM PASIS PIU PUENTE QCBS SA SAP SBD SOEs SUF VAT( rate) Conditional cash transfer for participants in Puente Program (Bono de Proteccidn Familiar) Country Assistance Strategy Chile s national household survey, conducted every two years (Caracterizacidn Socio Econdmica Nacional) National Comission for Indigenous Development (Corporacidn Nacional de Desarrollo Indigena) National Environment Commision Questionnaire based targeting instrument used to prioritize recipients of social transfers Financial Management Assessment Financial Management Reports Chile s public health insurance system (Fondo Nacional de la Salud) Chile s social investment fund (Fondo Solidario de Inversidn Social) Gross Domestic Product General Procurement Notice International Competitive Bidding Inter-American Development Bank Indigenous Peoples Development Plan Least Cost Selection Ministry of Planning and Cooperation National Competitive Bidding Non-Governmental Organizations Organization for Economic Cooperation and Development Operations Manual Non contributory, social assistance benefit to elderly indigent (Pensiones asistenciales) Project Implementation Unit Entry program to Chile Solidario, administered by FOSIS Quality and Cost-Based Selection Special Account Potable water subsidy (Subsidio a1 Consumo de Agua Potable) Standard Bidding Documents Statement of Expenditures Non contributory single subsidy to poor families (Subsidio Unico Familiar) Value Added Tax Vice President: Country Director LCC7C: Human Development Director: Human Development Lead Economist: Sector Leader, Human Development LCC7C: Social Protection Sector Manager: Task Team Leaders David de Ferranti Axel van Trotsenburg Ana Maria Arriagada Ariel Fiszbein Jesko S. Hentschel Christopher Chamberlin Theresa Jones & Truman Packard

3 FOR OFFICIAL, USE ONLY Chile: Social Protection Technical Assistance Loan CONTENTS Part A Part B Part C Part D Annexes Strategic Context and Rationale 3 Country and sector issues Rationale for Bank involvement Higher level objectives to which the project contributes Project Description Lending instrument Project development objective and key indicators Project Components Lessons learned and reflected in the project design Alternatives considered and reasons for rejection Implementation Institutional and implementation arrangements Monitoring and evaluation of outcomes/results Sustainability Critical risks and possible controversial aspects Appraisal Summary Economic and financial analysis Technical Fiduciary Social Environment Other Safeguard policies Policy Exceptions and Readiness Annex 1 Annex 2 Annex 3 Annex 4 Annex 5 Annex 6 Annex 7 Annex 8 Annex 9 Annex 10 Annex 11 Annex 12 Annex 13 Annex 14 Country and Sector Background Major Related Projects Financed by the Bank and other Agencies Results Framework and Monitoring Detailed Project Description Estimated Project Costs Implementation Arrangements Financial Management and Disbursement Arrangements Procurement Arrangements Economic and Financial Analysis Safeguard Policy Issues Project Preparation and Supervision Documents in the Project File Chile: Financial Relations with the World Bank Map: IBRD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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5 Chile Social Protection Technical Assistance Loan Project Appraisal Document Latin America and the Caribbean Region Human Development Date: November 21,2003 Country Director: Axel van Trotsenburg Team Leader: Packard Theresa P. Jonesmruman Sector Managermirector: Ana-Maria Sectors: Social Protection Arriagada Project ID: PO82037 Themes: Social Protection Environmental screening category: C Lending instrument: Technical Assistance Safeguard screening category: S3 Loan - Project Financing Data: [x] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loandcreditdothers: Total Bank financing (US$m.): Proposed terms: Fixed spread loan in US$ with 4 semiannual repayments on June 15 and December Financing Plan (US$m.) Source Local Foreign Total Borrower /IDA Others Total Does the project require any exceptions from Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Does the project meet the Regional criteria for readiness for ono Yes ono

6 Project development objective The development objectives of the proposed Social Protection Technical Assistance Loan are to support the efforts of the Government of Chile to implement Chile Solidurio and lay the foundation of a national system of social protection. Project description [one-sentence summary of each component] The proposed technical assistance project has the following four components: Design and implementation of a national information system for social protection; 0 Training for the social workers and agencies involved in the implementation of Chile Solidario; Implementation of a system for analysis, evaluation, and monitoring of social programs and policies; and 0 Institutional strengthening to improve the effectiveness of MIDEPLAN as coordinating agency for the social protection system in Chile. Which safeguard policies are triggered, if any The indigenous peoples safeguard policy is triggered by this project (Operational Directive 4.20). The technical assistance loan includes several activities designed to ensure that Chile Solidurio reaches and is effective among these groups, including special studies, training social workers on how to work with indigenous peoples, and the development of indicators to measure the coverage and effectiveness of the Program among the indigenous population. These activities are described in the Indigenous Peoples Development Plan (IPDP), a summary of which is in Annex 10. MIDEPLAN prepared the IPDP and it was approved by the Board of Directors of CONADI. The consultations described earlier included areas of the country where indigenous groups account for a significant share of the population. During project preparations, additional discussions were carried out with the technical staff of MIDEPLAN responsible for indigenous issues, Chile Solidurio staff working with indigenous groups, and members of the CONADI Board. The IPDP was made available at the Info Shop on October 23,2003 (Image Bank, IPP-62), and in Chile on the MIDEPLAN website ( on October 10,2003. Significant, non-standard conditions, if any, for: Board presentation: None Loadcredit effectiveness: None Covenants applicable to project implementation: None 2

7 Chile Social Protection Technical Assistance Loan Project Appraisal Document A. Strategic Context and Rationale Country and sector issues 1. While Chile s economic performance was less affected by negative regional developments than many of its neighbors, growth slowed in 2002 to 1 percent, down from 3 percent in This deceleration was driven by stagnating investment and a fall in consumption. Nevertheless, the economy began to revive towards the end of 2002, and by June 2003 growth stood at 3 percent as compared to a year earlier. This growth is expected to be sustained by an expansion of exports as a result of somewhat greater dynamism in the international economy, improved copper prices, the entry into force of the free trade agreement with the European Union, and by some strengthening in domestic demand. 2. Chile continues to rely on counter-cyclical fiscal policy, which permits deficits in years of slower growth that are recouped when the economy regains strength. Under this policy, the government keeps its expenditures to a level that would give a fiscal surplus of 1% of GDP if output were expanding at its full potential. Chile has strong economic fundamentals: a credible monetary policy; rules-based fiscal policy; and a flexible exchange system, providing a strong foundation to support rates of growth above 4 percent in the medium-term. 3. The share of the Chilean population below the poverty line has fallen from 40 percent in 1987 to slightly under 16 percent by 2000 (the latest year for which national data are available). The share in extreme poverty has dropped from nearly 13 percent in 1987 to about 4 percent in 1996, where it has remained. The rapid decline in poverty was mainly associated with economic growth and an increase in targeted social spending. Nevertheless, the Government is concerned about the persistent rate of extreme poverty. 4. Analytical work suggests that an important determinant of persistent extreme poverty is exclusion from a variety of networks that provide access to public and private risk mitigation instruments. Indeed, the gaps in coverage of social protection programs tend to be most common among the poorest and in rural areas. Although Chile s social protection institutions are relatively strong and well run, several weaknesses in the system may make it harder for the Government to address exclusion. These include: (i) the inefficient use of available information; (ii) weakness of the targeting instrument; (iii) gaps in monitoring and evaluation of social programs and policies; and (iv) insufficient coordination between different levels of government and civil society. 5. In May 2002, the Lagos Administration announced the Chile Solidario initiative, a package of legislative and administrative reforms to Chile s poverty reduction and social 3

8 protection policies. The objective is to bring Chile s 225 thousand poorest households out of indigence poverty. The policy reforms, will, inter alia: 0 Institute an outreach strategy to the indigent, connecting many who were previously excluded from the social protection system - including the indigenous; 0 Widen the focus from the individual to the family unit; 0 Shift from a piecemeal approach by better integrating existing social services and cash transfers, and create a new temporary conditional cash transfer for the poorest families that choose to participate; 0 Eliminate quotas and rationing of benefits for the poorest; 0 Connect excluded groups to the public and private network of services; 0 Reduce the number of intermediaries between the providers and beneficiaries of social protection interventions; and Act as a catalyst for new targeted interventions in other social sectors. 6. In addition to identifying the households that would be contacted by the case workers, the Ministry of Planning and Cooperation (MIDEPLAN) is coordinating efforts with other line ministries involved in delivering the payments and services guaranteed to targeted households. The integration of different databases used by various public agencies, as well as those administered by the civil registry and taxation agencies, will become increasingly critical to ensure that the initiative is properly targeted and coordinated. Effective implementation of the reforms linked to Chile Solidario will require a strong monitoring and evaluation system, including the participation of civil society. Rationale for Bank involvement 7. The Bank has worked with Chile over a long period of time on analyzing trends in poverty and the effectiveness of the Government s poverty reduction strategy. This work is embodied in several poverty assessments, as well as other studies, including most recently an analysis of the social protection system (Chile: Household Risk Management and Social Protection). The latter has informed the reforms that are being supported in the proposed technical assistance loan as well as an accompanying adjustment operation. In recent years Bank lending to Chile has shifted towards the social sectors, including projects in both health and education. Thus this operation fits well within the Bank s general program in Chile. 8. The Government has requested the technical assistance loan from the Bank in order to ensure adequate financing and advice during the implementation of the policy reforms that are supported under the adjustment operation. From the Bank side, participation in both operations would facilitate close monitoring of the reform program and provide support in critical areas, such as impact evaluation. The Bank has a comparative For a detailed description of Chile Solidario, see Annex 1 and the Program Document for the Social Protection Adjustment Loan, October 24, 2003, Report No

9 advantage in several of the areas addressed under the project including impact evaluation, poverty analysis, and better integration of information on individuals. 9. The program of the Inter-American Development Bank is more diverse than that of the Bank, but there are important complementarities as well. For example, in the case of support for indigenous peoples, the agreed division of labor is that the Bank would integrate ethnicity - as well as gender- into programs rather than deal with them on a stand-alone basis. The IDB is providing direct assistance under its Indigenous Communities Project. Higher level objectives to which the project contributes 10. The most recent CAS for Chile (January 23,2002) sets out 3 broad goals: (i) sustaining economic growth and social progress; (ii) promoting inclusion, especially of rural populations and vulnerable groups; and (iii) modernizing the state, necessary for achieving the previous two objectives. Together with the complementary Social Protection Sector Adjustment Loan, the proposed technical assistance loan responds to the latter two objectives. It would support Chile s proposed reform of social policy, directed to the poorest households (disproportionately located in rural areas and encompassing vulnerable groups, such as the indigenous), and incorporates initiatives to modernize the state in order to facilitate this reform, by supporting better management of information and an expanded role for civil society. 11. The project would support the Government s objective of reducing indigence poverty and through that would contribute to two performance indicators included in the most recent CAS. As part of the program development goal of promoting inclusion, the project would contribute to the objectives of (i) reducing the poverty gap between regions and groups; and (ii) increasing the coverage of the poor of social programs, specifically the family allowance, other subsidies and child-care. Investment or technical assistance lending services in the area of social protection was envisaged in the most recent CAS. B. Project Description Lending instrument 12. The proposed operation is a technical assistance loan. This is the most appropriate instrument to assist the Government in implementing, monitoring, and evaluating the reforms associated with Chile Solidurio. The loan is closely linked to the social protection sector adjustment loan. The rationale for the borrower s selection of the financial terms (a fixed spread loan in US$ and a grace period of 6 years with 4 semiannual repayments on June 15 and December 15 in 2010 and 201 l), is that they allow for increased flexibility and greater efficiency in Chile s debt management. 5

10 Project development objective and key indicators 13. The objectives of the proposed Social Protection Technical Assistance Loan are to support the efforts of the Government of Chile to implement Chile Solidurio and lay the foundation of a national system of social protection. The loan would support Government actions in four key areas: 0 Reforms to Chile s poverty reduction and social protection policies, to reduce poverty and exclusion by creating greater access to social protection and wider social services for the neediest households (Chile Solidario); 0 Increasing the efficiency and efficacy of social policy through improved targeting and better use of information by integrating, gathering and exchanging publicly and privately held data on households and relevant to social policy, into a national information system, as well as improvements to the country s primary targeting instrument, the Fichu CAS; 0 Strengthening regular monitoring and impact evaluation of social programs and policies; and 0 Increasing the sustainability of reforms to poverty reduction and social protection policies, through clear assignment of roles and division of responsibilities between central government, municipal authorities and civil society. 14. The primary target group for Chile Solidurio is the estimated 225 thousand indigent households, a substantial share of whom would participate. Beneficiaries are expected to improve their standard of living, including, but not limited to level of income. Thus if the project is successful, one would expect to see a decline in the share of households below the extreme poverty line, higher coverage of existing social protection policies and programs among the extreme poor, and some re-design of interventions to better address the needs of this group. Other groups besides the extremely poor or those participating in Chile Solidurio will benefit from improvements in social protection policies because some reforms will affect a broader segment of the population. Because of its focus on families in extreme poverty, Chile Solidurio is expected to have a positive impact on indigenous households, since they constitute a disproportionate share of these households. Moreover, the Government has developed a strategy to ensure that the program is able to work effectively with indigenous families (Annex 10). This strategy has been unanimously endorsed by the National Commission for Indigenous Development (CONADI). During the implementation of the project there would be periodic consultations held with CONADI, no fewer than once a year, to update them on the activities included in the strategy. Project Components 15. The proposed social protection technical assistance loan has the following four components: 6

11 Design and implementation of a national information system for social protection; Training for the social workers and agencies involved in the implementation of Chile Solidario; Implementation of a system for analysis, evaluation, and monitoring of social programs and policies; and Institutional strengthening to improve the effectiveness of MIDEPLAN as coordinating agency for the social protection system in Chile. Component 1: National Information System for Social Protection (US$3.0 million, excluding contingencies) 16. The design and implementation of a national information system for social protection would address current limitations of the lack of communication, articulation and dialogue between different systems of information, managed by different agencies. Instead, there would be a holistic design for the gathering, handling, and management of data related to the social and economic characteristics of individuals. In the first phase, the system would cover all families participating in Chile Solidario. It would then expand to include families participating in all social programs, and finally, cover the total population. Chile would take advantage of modern technologies in the area of hardware, software and communications to promote the interchange of information on the civil, social, and socioeconomic attributes of the current population and potential beneficiaries of social programs in Chile. 17. The national information system for social protection would be administered by a unit located in the Department of Social Information, one of 3 departments of the Social Division of MIDEPLAN. The project would finance consulting services necessary for the design of the system and the development of the procedures, standards, and rules governing its operation; software applications; computing equipment and data storage/processing services, staff training and the carrying out of a public information campaign on the benefits of the integrated system and protection of individual privacy. Component 2: Training (US$1.7 million, excluding contingencies) 18. There are two training sub-components. The first covers training of MIDEPLAN and other government officials, at both the central and local levels. To carry out this activity a unit would be set up within the Department of Social Policy Development within the Social Division of MIDEPLAN. The training supported would include activities to help MIDEPLAN progress in the design of a system of social protection, based on the initial experience with Chile Solidario, would support the implementation of the national information system for social protection, and would train staff in the supervision and evaluation of a system of social protection. In addition, activities would be organized to train technical teams in social sector ministries. 7

12 19. The second sub-component would strengthen the capacity of the social workers and others who work with the families of Chile Solidurio. Training for the social workers is critical given the importance of the interaction between the social worker and the family in the design of Chile Solidurio, as well as the complexity of the issues they face. Based on the initial experience implementing the Program as well as on consultations with both social workers and supervisory staff, a community of learning has been designed. 20. The strategy has several distinguishing features. It stresses team work and facilitating fluid communication between the different actors implementing the Program. It addresses the needs for initial training, permanent skills upgrading, establishment of feed-back loops into improvements in the methodology and organization of these activities, as well as strengthening the Program. This requires a combination of different mechanisms for training and the formalization of knowledge and experience. The system integrates several types of learning activities including: (i) structured small group discussions among practitioners on specific themes; (ii) a program of short-term exchanges between different municipalities or regions and contacts with technical experts; and (iii) formal training through courses, seminars, and conferences. All of these activities, as well as a virtual library, would be supported through the design and implementation of an appropriate technological platform, that would operate through a special website. 21. An agreement(s) acceptable to the Bank between FOSIS (or another agency satisfactory to the Bank) and MIDEPLAN, to coordinate this training, outlining the respective responsibilities of each agency, including the need to ensure that Bank guidelines are followed, would be a condition of disbursement for this component of the project. 22. Under training, the project would finance: the design of curricula, the organization of courses, associated travel and materials costs, staff exchanges, national and international technical advice, seminars to discuss issues and problems arising in the course of implementation of Chile Solidurio, and supporting technological platforms. Component 3: System for Analysis, Evaluation, and Monitoring of Social Programs and Policies (US$2.2 million, excluding contingencies) 23. The goal of this component is to strengthen capacity within the public sector to measure the impact of Chile Solidurio and its associated programs. Also included are monitoring activities, that would permit the adjustment of actions as implementation proceeds. The project would finance, (a) the design of an integrated system to monitor the management, processes and partial results of Chile Solidurio; (b) the evaluation of the impact of selected programs of Chile Solidurio in addressing the needs of the beneficiaries of Chile Solidurio; and (c) the carrying out of an impact evaluation of Chile Soliurio in its entirety. Beginning in 2003, both the household survey (CASEN) and the proxy means test (fiichu CAS) will include questions to identify indigenous families. This data would be used to evaluate the impact of Chile Solidurio on these families and also to test for gaps in coverage of thefichu CAS. On the basis of this information, which 8

13 should be available in mid-2004, the need for a special strategy to ensure the registration of indigenous families would be evaluated, and designed, as necessary. In addition, the regional cut-off scores determining the eligibility of families for Chile Solidario would be reviewed. The monitoring indicators for Chile Solidario include several related to indigenous families (for example, the number of participating indigenous families, the number invited to participate, but refusing the offer, and the number of families receiving monetary subsidies). 24. The design and implementation of a pilot project of citizen accountability would be supported under the proposed project. The pilot would involve contracting a consultancy which would design and implement a process of consultations with community organizations in selected areas to assess the implementation of Chile Solidario. The information from this consultative process would provide evaluation inputs and help to detect errors and weaknesses. The activity would be done jointly by: (a) a civil society organization with experience in poverty alleviation programs and citizenship accountability, and possessing local networks and high national coverage; and (b) an academic or research institution, with experience in social program evaluation. The Government counterparts for the study would be representatives of the Monitoring and Evaluation Unit of Chile Solidario, the Department of Social Policy Development, and the Department of Social Inclusion Policies, all in MIDEPLAN. Component 4: Institutional Strengthening of MIDEPLAN and Project Administration (US$3.2 million, excluding contingencies) 25. In order for MIDEPLAN to carry out its designated role to coordinate the implementation of the new set of policies, a program of institutional modernization and strengthening for the ministry is required. This process, if successful, would strengthen MIDEPLAN s role as the coordinator of social protection policy and programs in Chile. Two types of activities are envisaged. The first is the installation of several operating units in MIDEPLAN to support the operation of Chile Solidario. These units would be responsible for: (i) managing analytical work which would address issues and questions as they arise during implementation as more families are covered, they spend more time in the Program, and eventually graduate ; (ii) organizing training; (iii) supporting the Executive Secretariat for Chile Solidario; (iv) coordinating the integration of information sources; (v) monitoring the progress of the program; and (vi) handling the day-to-day administration of the technical assistance loan. Each unit would contribute to the strengthening of MIDEPLAN s analytical and professional capacity. 26. Several studies relating to issues related to indigenous families are planned. These include a review of their status on basic needs and the human development index, and their demand for public services and programs. In addition, MIDEPLAN plans to include an expert in indigenous issues (selected by CONADI) in all of the working groups constituted to develop the terms of reference or other proposals for studies related to Chile Solidario. In addition to consultancy services, the proposed project would finance office equipment for the Project Implementation Unit, as well as the refurbishment of office space. 9

14 27. The second major activity in this component is the carrying out of an analysis of the current strengths and weaknesses of the Social Division of MIDEPLAN. Based on that analysis, a proposal would be formulated for the restructuring of the Social Division so as to support more efficiently the coordination and installation of Chile Solidario and, more broadly, of a social protection system more inclusive of the extreme poor. Lessons learned and reflected in the project design 28. The design and implementation arrangements take into account lessons learned from other activities in Chile, as well as technical assistance projects in general. The project addresses one of the two primary roles identified for the Bank in the recently completed Country Assistance Evaluation in Chile, which is to advance the social agenda, including safety net programs. Other key lessons are: (i) the need for borrower commitment with strong project leadership; (ii) project design that builds on policies where the Bank has previous involvement; and (iii) institutional capacity building of key public sector agencies to ensure sustainability. The Chileans worked closely with the Bank to prepare the project and put into place some of the administrative structure (project coordinator, for example) for project implementation. The Chile Solidario initiative was identified within Chile and announced by the President. The request for technical assistance derives from the Government s recognition that improvements were needed in its poverty reduction strategy and social protection institutions and that the Bank could assist in that effort. The Bank has long experience working with the Chilean Government to analyze poverty trends and reduction strategies, most recently in sector work on household risk management and social protection. The technical assistance project focuses on strengthening MIDEPLAN so that it can coordinate social protection policy in Chile. Alternatives considered and reasons for rejection 29. The proposed project is linked to the Social Protection Sector Adjustment Loan. Alternatives would have been for the Bank and the Government to proceed with either the technical assistance or the adjustment loan. The advantage with implementing them together is that it increases the potential participation of the Bank in assisting the Government in the implementation of Chile Solidario. Involvement in the details of implementation and evaluation through the technical assistance project will help support the commitments made in the adjustment loan. Another option would have been to process an investment project in support of the program. Given the desire of the Chilean authorities for financing flexibility and technical advice, the combination of the technical assistance and adjustment loan was deemed more appropriate. 10

15 C. Implementation Institutional and implementation arrangements 30. Chile Solidario. In August 2002, a Presidential Advisory Commission was created to advise the President of the Republic on the implementation, coordination and consistency of the measures of Ministries and other public services in the framework of the Chile Solidurio System. The Commission is comprised of the Minister of Planning and Cooperation (who is also the head), the Minister of the General Secretariat of the Presidency, the Minister of Labor and Social Security, the Director of Budget, the Sub- Secretary of Regional Development and Administration, and the Executive Director of the Fund of Solidarity and Social Investment (FOSIS) The Commission has the following responsibilities: Propose the measures necessary for the implementation and adequate functioning of Chile Solidurio; Coordinate the distinct organs of the government administration, with the goal of optimizing the use of public resources - human, financial, and technical - directed to individuals and families in extreme poverty; Serve as the coordinating body for the authorities and agencies involved in the implementation of Chile Solidurio and for the measures, actions, and programs that are carried out within that framework; Propose legal or administrative changes aimed at benefiting individuals and families in extreme poverty; Ensure the fulfillment of the sectoral program initiatives that are intended to benefit the extremely poor population; Make specific proposals on the requirements of Chile Solidurio, on financial matters, and management of resources and communications; Ensure adequate progress of Chile Solidurio, supervising the goals and the time periods that are defined to execute the program, and the measures and actions that are included; and Inform the President of the Republic periodically, through the Ministry of Planning and Cooperation, concerning the progress on the Program and fulfillment of its commitments. 32. An Executive Secretariat, located in the Ministry of Planning and Cooperation, is responsible for providing technical and operational support to the Commission. The Secretariat reports directly to the Minister of Planning and Cooperation. The Executive Secretariat can carry out activities in the regions, through the respective Regional Secretary of Planning and Cooperation. The Secretariat is responsible for: 11

16 Assisting the President of the Commission; Performing tasks delegated to them by the President of the Commission; Coordinating the services of the public administration; and Proposing to the Commission the mechanisms to evaluate the actions which are carried out in the framework of Chile Solidario. 33. The Ministry of Planning and Cooperation is responsible for providing the technical and administrative support necessary for the effective functioning of the Commission and the Executive Secretariat of Chile Solidario. The communication strategy for Chile Solidario i s handled by the communications unit of MIDEPLAN. 34. In addition to the head, the Executive Secretariat has three members, each with specific responsibilities. The first member is in charge of the process of entry of families into Chile Solidario (including the analytical underpinnings of the strategy) and the delivery of the Bono de Proteccio'n Familiar to them. The second member is in charge of the delivery of monetary transfers to the Chile Solidario families that require them and meet the eligibility criteria (family allowance, old age or disability pension, and water and sewerage subsidy). The third member is in charge of the supply of services (education, health, employment, etc) to the families. 35. Management Arrangements for the Technical Assistance Loan. Management of the proposed technical assistance loan would be located within the Social Division of MIDEPLAN. The Project Coordinator would report directly to the Chief of the Social Division. S/He would be responsible for managing the project, as well as for relations with other institutions, which are critical given the integrated nature of the Chile Solidurio Program. The Project Coordinator would head a unit of 4 professionals, each of whom would be responsible for a component. In addition, there would be a unit responsible for training and technical assistance incorporated within the Social Division. This unit would be responsible for organizing the training activities envisaged to strengthen the sectoral and ministerial capacities at the central and regional levels in the area of social protection. They would also provide technical assistance to these institutions in order to transfer technical expertise and appropriate methodologies in the area of social protection, as well as strategic planning. The materials that would be used for this activity would be produced by the Department of Social Policy Development, particularly the strategy group that would be supported by the technical assistance loan. Their activities would focus first within MIDEPLAN and then would extend to other ministries and sectors. A training coordination agency would be responsible for the training program for social workers. 36. The Finance Department of MIDEPLAN will be responsible for the accounting, budgeting, and treasury operations of the project. Project operations will be recorded and processed in the integrated financial management system of MIDEPLAN. The operations of the Finance Department are fully documented in their Finance Administration Manual. There is proper segregation of duties, and posts are staffed by competent personnel. In line with procedures followed with other Bank funded 12

17 operations in Chile, loan proceeds will be disbursed into a Special Account in Dollars in the Central Bank of Chile under the control of the National Treasurer. The disbursement method to be used by the Project will be transactions based on Statements of Expenditure. Monitoring and evaluation of outcomedresults 37. The overall aim of Chile Solidurio is to eliminate extreme income poverty (indigence) in Chile. Under this overall objective there is a set of intermediate objectives, centered on the specific capabilities at the family level identified on u priori grounds as key to escaping extreme poverty. Pre-determined minima are set for a long list of intermediate outcome indicators, related to access to employment, existing subsidies, social services and participation in the community. These multiple objectives are nested under the overall aim of eliminating extreme income poverty; the intermediate objectives are not seen as independent objectives. However, to fully assess the program it is desirable that one can identify impact on the intermediate objectives, so one can learn about the ways in which overall impact is (or is not) achieved. 38. The evaluation efforts that would be supported under the proposed technical assistance loan are designed to assure that there is a complete and rigorous ex-post impact assessment covering the range of both final and intermediate objectives of the Program and other (possibly unexpected) benefits and costs. The evaluation design takes advantage of the existing CASEN survey which has a long history in Chile and would be carried out in November 2003 and again in The 2003 survey includes additional questions related to Chile Solidurio. The survey would be used to identify both treatment (beneficiaries of Chile Solidurio) and control group families2. In addition, a supplementary sample of Chile Solidurio would be surveyed in order to ensure representativeness at the regional level. The samples of Chile Solidario and control group families would be re-surveyed in both 2004 and 2005, the years in between the CASEN survey. 39. A second strand of evaluation would be complementary qualitative research, so as to better understand the processes influencing the program s impact (or lack of impact). This would include instruments such as beneficiary assessments and participatory monitoring and evaluation with local groups, including some involved in the private and public network of services provided to the participants in Chile Solidurio, and research on indigenous participants. Sus tainabili ty 40. Chile currently spends a relatively low share of its GDP on social assistance (about half of 1 percent of GDP), compared to either OECD or other countries in the Latin America Region. One of the objectives of the Chile Solidurio System is to expand * The control group would comprise families whoseficha CAS score exceeds the cut-off in their locality, but not in others; families whoseficha CAS score is close to, but above, the cut-off point, and families who would be invited to participate in subsequent years. 13

18 coverage of the social protection system to the extremely poor who are not participating. In order to ensure financial sustainability, the Congress already has approved an increase in tax rates, including a 1 % increase in the VAT rate, intended to ensure that adequate resources are available. The activities included in the technical assistance loan are designed to ensure the sustainability of the improvements in the social protection system, particularly the installation of the National System of Information for Social Protection, training for social workers and government staff, and strengthening of the capacity of MIDEPLAN, particularly in the area of monitoring and evaluation of social programs. Critical risks and possible controversial aspects 41. The risks to this program are considered minimal. Chile s excellent track record in economic management, program implementation and transparency make the satisfactory completion of the program highly likely. Nevertheless, several areas could prove difficult for the Government to implement. These include: closing the employment gap among the neediest households; ensuring good targeting of Chile Solidurio and making any needed adjustments during implementation; including historically excluded groups, such as the indigenous; and promoting greater participation of local governments and civil society. 42. A draft bill of law for Chile Solidurio has been presented to the National Congress. It would provide clear powers for MIDEPLAN to coordinate and implement Chile Solidurio, to create the national information system for social protection, and consolidate the administration of the cash transfers. Although the law has not yet passed, the Chile Solidurio Program has been carried out since 2002 under contractual arrangements with the agencies involved. Delay in passage of the law could slow implementation and the formalization of these administrative arrangements, but would not prevent the Government from continuing to make progress on the reform program. D. Appraisal Summary Economic and financial analysis 43. Given that this is a technical assistance project, a standard economic and financial analysis has not been carried out. Nevertheless, significant efficiency gains are expected from several activities of the project, over and above its contribution to improvements in both the access of the poorest households to the social protection system and the effectiveness of this system in alleviating extreme poverty. For example, improvements in the accuracy of the proxy means test are aimed at reducing targeting errors. The better integration and use of information on households would enable cases of fraud, misallocations, and overlapping or duplicating benefit payments to be identified and eliminated. Improved coordination between the various targeted poverty alleviation programs are expected to result in efficiency gains. 14

19 Technical 44. The choices of information technology (both hardware and software) for the information system for social protection have taken into account compatibility with other systems in Chile, particularly within the public sector, and those which have been shown to be more robust and suited for this type of work. The project has been guided by expertise both within Chile and from similar systems in other countries. The proposed design for the evaluation of Chile Solidur-io reflects best practice in the area of impact evaluation and makes use of recent statistical techniques and innovations in the field. Fiduciary 45. The procurement assessment (see Annex 8) showed that MIDEPLAN has experience in the procurement of goods and consultant services and has solid technical and administrative capacity. In July 2003, Chile enacted law (Procurement law), which provides the framework for procurement of supply and service contracts. Current legal regulations promote transparent and competitive practices and contain sound provisions for contract administration and evaluation. However, certain provisions are in conflict with Bank policy. These were discussed with MIDEPLAN staff during preparation. In order to ensure that Bank guidelines are followed, specific provisions have been incorporated into the Loan Agreement (set forth also in Annex 8,B). The procurement chapter of the operational manual for the project would set out the main responsibilities and procedures that would be followed, consistent with Bank guidelines. Procurement risk is assessed as average. 46. The Financial Management Assessment (see Annex 7) found that the financial management of MIDEPLAN satisfies the Bank s minimum financial management requirements and that MIDEPLAN can produce the requisite project financial management reports following procedures agreed during project preparation. The assessment rates financial management risk as low since the project will operate under the responsibility of the Department of Finances of MIDEPLAN and would be fully integrated with the MIDEPLAN financial management systems. MIDEPLAN would confirm in the Operational Manual that the project specific coding needed to report using the format of the cost categories and components set out in the loan agreement has been incorporated into the integrated financial management system. Other financial management provisions will be included in the operations manual. Chile has an excellent record on compliance with project audit requirements. MIDEPLAN has agreed to contract the Auditor General of Chile to conduct the annual project audit in line with Bank guidelines. 47. The main implications for the project design of these assessments are: (1) the decision that procurement and financial administration functions would be integrated within MIDEPLAN; (2) agreement on the content of the parts of the operational manual dealing with these topics; and (3) the need for specific training for project unit and MIDEPLAN staff in Bank procedures. 15

20 Social 48. The Chile Solidario initiative was announced in May 2002 by President Lagos. The involvement of the highest levels of Government has assisted the Program in being able to begin to shift away from the piecemeal approach regarding extreme poverty alleviation to a more consolidated and integrated effort. Nevertheless, it is to be expected that as the reform proceeds, there may be resistance from other public institutions and different levels of government to the reforms and administrative changes being promoted by the reform initiative. So far, MIDEPLAN and FOSIS are managing these risks through both their communications strategy and their ability to establish effective working relationships with many public institutions, even at this early stage of implementation. So far, there are 25 agreements between MIDEPLAN and government or private agencies in the context of the Program. All eligible municipalities have concluded agreements with FOSIS to facilitate their participation in Chile Solidario. 49. As part of preparation of this project, as well as the social protection adjustment loan, formal consultations were held with civil society and municipal authorities in six municipalities selected in consultation with MIDEPLAN to reflect socio-economic, geographical and political diversity. More than 200 people representing civil society organizations (community-based organizations, private foundations, NGOs, and producer associations), the private sector and local governments participated in these consultations. The consultations provided a first hand opportunity to the Bank team, as well as MIDEPLAN staff, to listen to the assessment of the stakeholders on progress and the difficulties encountered during implementation. 50. The main issues identified in the consultations included: Representatives from civil society and local governments had an uneven, but in general, low level of knowledge of the program. Those directly involved in execution and management had a positive image of the Program and valued it as a new approach to poverty alleviation. There was concern with the ability of the proxy means test to target the extremely poor, in part because some families had not been surveyed. Also there was disagreement on the cut-off points used for each region and municipality to set eligibility ceilings. Some participants questioned the relevance and, in some cases, feasibility, of some of the minimum conditions which had been set for each participant family. Some specific instruments used by the social workers with the families seemed ineffective or inappropriate in some settings (some rural or indigenous communities, for example). Many pointed to the need to promote more links between the Program and existing social networks in the community. Better coordination in the provision of services to the participant families was needed. In part, this reflected a gap in the flow of information and policy directives from the center to the local level. 16

21 0 0 Some municipalities and most civil society organizations argued for a more active and systematic role in the Program. There was concern about the long-term sustainability of the Program which depended primarily on family members obtaining employment, and thus a more stable source of income Several activities to be supported by the technical assistance project would respond directly to these concerns. These include special studies, the reform of the proxy means test, the generation of information on the coverage of the proxy means test among extremely poor families (including the indigenous), and the impact evaluation itself. In addition, the Government has decided that in order for the Program to exploit more the strengths of participation with civil society groups, it would undertake a pilot project on social accountability of the Program. The objective of the pilot is to test the instrument of social control, with the participation of beneficiaries and civil society organizations (see Paragraph 24). Environment 52. The proposed Social Protection Technical Assistance Loan has no direct impact on the environment. For the purposes of Operational Directive 4.01 the operation has an environmental category of C, which does not require an environmental assessment. More generally, the Bank has assisted Chile in improving environmental management. The Environmental Institutions Development Project supported the work of the national environmental commission (CONAMA) to update legal regulations, develop procedures and guidelines for environmental assessments, sponsor educational campaigns and develop information systems. There are environmental units in ten ministries and a solid track record in impact assessment, policy analysis and information systems. By 1999, norms were approved for 14 different sectors of activity. CONAMA still faces major challenges in promoting enforcement and improving natural resource management in key sectors closely linked to important extractive industries. Other safeguard policies 53. The indigenous peoples safeguard policy is triggered by this project (Operational Directive 4.20). The technical assistance loan includes several activities designed to ensure that Chile Solidurio reaches and is effective among these groups, including special studies, training social workers on how to work with indigenous peoples, and the development of indicators to measure the coverage and effectiveness of the Program among the indigenous population. These activities are described in the Indigenous Peoples Development Plan (IPDP), a summary of which is in Annex 10. MLDEPLAN prepared the IPDP and it was approved by the Board of Directors of CONADI. The consultations described earlier included areas of the country where indigenous groups account for a significant share of the population. During project preparations, additional discussions were carried out with the technical staff of MIDEPLAN responsible for indigenous issues, Chile Solidurio staff working with indigenous groups, and members of the CONADI Board. The IPDP was made available at the Info Shop on October

22 (Image Bank, IPP-62), and in Chile on the MIDEPLAN website ( on October 10,2003. Policy Exceptions and Readiness 54. No policy exceptions are required. The project is judged ready for implementation. The financial management and procurement arrangements have been agreed and are in place. Key project staff (in particular, the project coordinator) were mobilized prior to appraisal. Sufficient funds have been allocated in the draft 2004 budget. The first year s procurement plan has been prepared and submitted for approval to the Bank. The indicators to be used for monitoring and impact evaluation have been agreed and the work for the impact evaluation has started. 18

23 Annex 1 Country and Sector Background Country Background 1. While Chile s economic performance was less affected by negative regional developments than many of its neighbors, growth did slow in 2002 to only 2 percent (down from 3 percent in 2001). This deceleration was driven by stagnating investment and a fall in consumption. Nevertheless, the economy began to revive towards the end of 2002, and by June 2003 growth stood at 3 percent as compared to a year earlier. 2. This growth is expected to be sustained by an expansion of exports as a result of somewhat greater dynamism in the international economy, improved copper prices, the entry into force of the free trade agreement with the European Union, and by some strengthening in domestic demand helped by Chile s currently expansive monetary policy. The central bank s inflation targeting policy has kept inflation within the 2-4 percent band, ending 2002 at 2.8 percent, and projected to stand at between 3 and 3.5 percent at the end of Since 2000, Chile has been able to implement a counter-cyclical fiscal policy, which permits deficits in years of slower growth that are recouped when the economy is stronger. Under this policy, the government keeps its expenditures to a level that would give a fiscal surplus of 1 percent of GDP if output were expanding at its full potential and copper prices were at their long-term average. The sluggish economy took its toll on public finances in 2002, which ran a deficit of 1.2 percent of GDP, which translates into a structural balance of 0.7 percent of GDP, in line with the rule. The 2003 budget provides for a small decline in the deficit to 0.9% of GDP, consistent with a structural fiscal surplus of 0.8 percent of GDP. 4. The essential challenge facing Chile is a return to fast economic growth and lower unemployment. Chile continues to emphasize the importance of trade and direct investment to the growth and evolution of its economy. The resumption of rapid growth will continue to depend on improvements in global economic prospects which would encourage exports and foreign direct investment. Fundamental economic and policy conditions in Chile, as summarized by credible monetary policy, rules-based fiscal policy and a flexible exchange system, already provide a strong foundation to support rates of growth over 4 percent. To buttress its foundations for growth, Chile has continued to promote an impressive reform agenda to tackle domestic obstacles to rapid growth and to place itself in a stronger position to reap the benefits of a global upturn when it materializes. 19

24 Poverty Reduction Strategy 5. Chile has achieved substantial success in reducing poverty. For almost the entire period from poverty in Chile declined. The share of the population below the poverty line fell from 40 percent in 1987 to slightly under 16 percent by The share of the population below the extreme poverty line fell from nearly 13 percent in 1987 to about 4 percent in 1996, where it has remained. The rapid decline in poverty was mainly associated with economic growth and an increase in targeted social spending. Nevertheless, the Government has been concerned that the share of extremely poor has not declined. 6. Analytical work suggested that an important determinant of persistent extreme poverty is exclusion from a variety of networks that provide access to public and private supplied risk mitigation instruments. With few exceptions, in almost every stage of the life cycle, risks to earnings capacity and earned household income are highest among the poorest groups. Further, while Chile s households are relatively well covered by social protection programs, and the beneficiaries of key targeted interventions tend to be in poorer groups, gaps in coverage (of contributory pensions and health care, in particular) are apparent among the poorest and in rural areas. 7. In its last poverty report for Chile, the Bank suggested that the Government be more proactive in its poverty reduction and social protection policies. Analysis in that report as well as in the report, Household Risk Management and Social Protection, indicated that a new set of policies and interventions -buttressed by institutional reforms to correct targeting errors and to mainstream monitoring and evaluation practices - might be required to reach Chile s poorest groups and increase the effectiveness of social policies. Although Chile s social protection institutions are relatively strong and well run, several weaknesses in the system may make it harder to address exclusion. These are: (i) the inefficient use of available information; (ii) weakness of the targeting instrument; (iii) gaps in monitoring and evaluation of social programs and policies; and (iv) insufficient coordination. 8. Use of Information. Chile has more information and better data on social protection programs at its disposal that most other countries in the region. What is missing in Chile are the critical links between data bases on receipt of social transfers; employment and earnings; taxation and compliance; and the civil registry. Such links allow governments in OECD countries to accurately identify the poor, weed out tax evasion, and monitor the impact of their policies. 9. Targeting Instrument. The Ficha CAS proxy means test is the most widely used targeting device in Chile. Data on over 5 million households have been collected with the Ficha CAS and are held by MIDEPLAN. Analysis for the Bank s last poverty report (World Bank, 2001) showed that the targeted social programs in Chile cover a relatively small percentage of the population in poverty. The most extensive program, family allowances, only reached about 32 percent of the poorest quintile of the population. Furthermore, there are leakages from targeted programs to the non-poor. Of the 20

25 beneficiaries of the family allowances, about 66 percent are poor, and about 54 percent of the beneficiaries of non-contributory pensions are in the lowest quintile. Although the instrument has been successful in identifying many of the poor, this is mainly done at the moment that an individual applies to receive a particular program. Data is not updated often enough, thefichu CAS misses some poor people, and data is not cross-checked with other sources of information. MIDEPLAN has undertaken a thorough evaluation of the Fichu CAS to identify and correct weaknesses. The proposed technical assistance loan would support these efforts. 10. Monitoring and evaluation. The monitoring and evaluation of social programs also needs to be strengthened in Chile. There is the sense that there has been a proliferation of sometimes overlapping, redundant and weakly targeted programs in the line ministries, in part because not all programs have been subject to critical review. Current laws require programs to be evaluated to receive continued support in the annual budget. There is a well equipped and trained monitoring and evaluation unit in the Finance Ministry. However, monitoring and evaluation needs to be extended to additional programs. 11. Coordination. Aggravating these weaknesses, there is no single government agency that broadly coordinates social policy (Le. that supervises data collection; sets standards; determines eligibility; or evaluates social programs) Although MIDEPLAN was explicitly given this role in its original mandate, the Ministry has lost much of its power and capacity. The Government has decided that the country needs a strong institution to coordinate social policy, set standards, propose norms, manage agreements between agencies, and conduct regular reviews of eligibility of beneficiaries, as well as detect overlap in its social programs. 12. Municipalities and Civil Society. Greater efficiency and sustainability would be brought to the social protection system by a clearer allocation of powers, roles and responsibilities between central and municipal authorities in the formulation and implementation of social policy and programs. Finally, there are few links between Chile s social protection programs and policies, and non-governmental community organizations. Civil society in Chile could play a greater role in implementing social programs and policies, especially in bridging the divide between the poorest and the publicly supplied transfers and services to which they are entitled. Greater involvement of civil society could help the Government to correct some of the targeting and monitoring problems, and to expand access to the social protection system. Program Background 13. In May 2002, the Lagos Administration announced the Chile Solidario initiative, a package of legislative and administrative reforms to Chile s poverty reduction and social protection policies. The package of reforms represent a concerted effort to bring Chile s 225 thousand poorest households out of indigence poverty. The Chile Solidario package includes both new legislation and changes in current laws that imply significant changes in the Government s approach to confronting indigence and extending social protection. 21

26 14. The policy reforms, will, inter alia: (i) (ii) (iii) (iv) (v) (vi) (vii) Institute an outreach strategy to the indigent, connecting many who were previously excluded from the social protection system; Widen the focus from the individual to the family unit; Shift from a piecemeal approach by better integrating existing social services and cash transfers, and create a new temporary conditional cash transfer for the poorest families that choose to participate; Eliminate quotas and rationing of benefits for the poorest; Connect excluded groups to the public and private network of services; Reduce the number of intermediaries between the providers and beneficiaries of social protection interventions; and Act as a catalyst for new targeted interventions in other social sectors. 15. The Chile Solidario initiative has several distinguishing features. A starting premise is that the principal asset of indigent households is their desire to live as a family and the intra-household mutual support that this includes. Thus, the preferential access to Chile s social protection system created under the Chile Solidario reforms targets households/families, rather than individuals, currently classified as indigent. The initiative seeks to overcome the isolation and exclusion of many indigent by actively promoting assistance and protection. Armed with the data identifying Chile s poorest, social workers go door to door, and invite indigent families to participate in the two-year program of social support. The approach to these families also tries to promote within these families self-initiative and the development of strategies to improve their situations, and address specific needs which are different for each family. 16. Chile Solidario builds on the Puente (Bridge) program piloted by FOSIS in early Puente acts as the entry point to the social system for the 225 thousand indigent households. If the identified household agrees to participate in the Puente Program, the case worker helps the household to identify its needs in seven areas: health; education; employment; housing; income; family life; and identification. The household and the case worker then draw up a strategy for how these needs will be met, and how progress will be monitored over the two year duration of the program. 17. Participating households receive the newly created Bono de Proteccion Familiar, a conditional cash transfer, intended as an additional incentive to participate in the Puente Program. Households that participate and then graduate from the Puente Program are guaranteed access to all the non-contributory transfers to which they are entitled. The new conditional BPF is set at Ch$10,500 per month for the first six months of the Puente program, decreases to Ch$8,000 in the second six months, then to Ch$5,500; and finally to an amount equivalent to the usual family allowance for the last six months. Participating households are granted preferential access to all of Chile s public interventions related to the seven areas specified. For example, in health, the households in the Chile Solidario initiative are given priority access to primary health care under FONASA. In the area of employment, heads of targeted households will be the priority beneficiaries of active employment programs administered by FOSIS and the Ministry of 22

27 Labor. In the area of education, schools attended by members of targeted households will receive special school retention vouchers recently introduced by the Ministry of Education. 18. In addition to identifying the households that would be contacted by the case workers, MIDEPLAN is coordinating efforts with other line ministries involved in delivering the payments and services guaranteed to targeted households. An integration of different databases used by various public agencies, as well as those administered by the civil registry and taxation agencies, will become increasingly critical to ensure that the initiative is property targeted and coordinated. Effective implementation of the reforms linked to Chile Solidario will require a strong monitoring and evaluation system, including participatory methods involving civil society. An additional institutional change implied by Chile Solidario is the expansion of the role of municipal governments in the implementation of social policy and delivery of social services. For example, although 44% of case workers are contracted by FOSIS, the rest (the majority) are municipal employees. 23

28 Annex 2 Major Related Projects Financed by the Bank and other Agencies Sector Issue Bank-financed Project Latest Supervision (PSR) Ratings (B ank-financed projects only) Implementation Progress (IP) Development Obiective (DO) Social risk reduction, social analysis and monitoring Lifelong Learning and Training (Ch ) S S Decentralization, Strengthening program evaluation Public Expenditure Management (Ch-71410) S S Municipal governance and institution-building, Education and health sector perf. Municipal Development (Ch ) S S Other development Agencies Indigenous peoples develodment Origines (IDB) 24

29 Annex 3 Results Framework and Monitoring B. Results Framework Project Development Objectives Support the Borrower's efforts to Implement Chile Solidario and lay the base for a national system of social protection. Intermediate Results Component One: Design and implement national information system for social protection Outcome Indicators *No. of families invited to participate in Chile Solidario *No. of families participating in Chile Solidario *No. of families receiving the Bono de Proteccion Familiar *% of coverage of social programs and monetary included in Chile Solidario among the neediest families, according to theficha CAS Results Indicator for Each Component Component One: No. of institutions (databases)agreeing to Exchange info./ Total no. of institutions (databases)with which desire to exchange information No. of variables incorporated into information ;ystem/total number of variables planned to be ncorporated Vo. of institutions adhering to Use of Results Information YR1 Check coverage of proxy means test and estimate base-line for coverage YR2 Monitor pace of families entering Puente and fulfillment of minimum conditions, monitor changes in baseline coverage rates YR3 Monitor changes in baseline coverage rates; Feed into evaluation and strategy for reforms of social motection svstem Use of Outcome Monitoring YR1 Finalize estimate of total number of institutions that should exchange information YR2 Develop strategy to integrate additional data bases YR3 Monitor functioning of system YR1 Estimate no. of variables to be incorporated based on diagnostic study YR2 Develop strategy to incorporate more variables YR3 Monitor functioning of system YR1 Develop standards 25

30 Component Two: Social workers are better prepared to work with Chile Solidario families, including indigenous Strengthen Borrower s ministerial and sectoral capacities at the center and regional levels to implement, develop, and monitor the Chile Solidario system of social protection Component Three: Strengthen Borrower s capacity to quantify the impact of the Chile Solidario System: (1) Design integrated system to monitor management processes and partial results of the Chile Solidario system; (2) Evaluation of selected programs of the Chile Solidario System proposed standarddno. of institutions with which desired to exchange information Component Two: % of Puente social workers trained Amount of material known on particular theme before course/amount of material known on particular theme after the course No. of courses receiving a grade superior to satisfactory by participants/total no. of courses given Component Three: No. of programs included in monitoring systerdtotal no. of potential programs No. of users satisfied with systemho. of total users Carry out 5 program evaluations per year and estimate timing of adherence for institutions YR2 Develop strategy to promote adherence by additional agencies YR3Monitor functioning of svstem Component Two: YR1 Plan training strategy YR2 Ensure workers are receiving adequate training YR3Qualitative study of results of training YRl Use to measure knowledge gaps YR2Use to measure effectiveness of training YR3Use to measure effectiveness of training YRl Use to measure quality and make needed changes YR2 Same YR3 Same Component Three: YRl Review design YR2 Develop strategy to include more programs YR3 Monitor functioning of system YRl Review design YR2 Monitor and make changes as needed YR3 Monitor and make changes as needed YRl Carryout evaluations YR2 Incorporate results 26

31 No. of seminars organized to discuss results/total no. of evaluations and start new ones YR3Incorporate results of new evaluations and complete rest YRl Test process YR2 Ensure complete coverage YR3 Monitor results (3) Carry out impact evaluation of the Chile Soliario System (4) Design and implement pilot project of social accountability for the Chile Solidario System Component Four: Strengthen capacity of MIDEPLAN No. of reports on status of implementation of results/total no. of evaluations Carry out surveys necessary for impact evaluation; agree on final design Agree on TOR and carry out pilot Component Four: Successful creation of 4 supporting units for technical work *Monitoring Indicators for the Social Protection Sector Adjustment loan, associated with Chile Solidario. Included for reference only. YR1 Test process YR2 Ensure complete coverage and plan follow- UP YR3 Monitor results YRlCarry out survey, work on intermediate evaluation; YR2 - incorporate results of intermediate evaluation; carryout survey; YR3 - incorporate results of impact evaluation YR1 Agree on TOR YR2 Complete pilot YR3 Incorporate results Component Four: YRl Establish units and begin work YR2 Monitor results on MIDEPLAN capacity and results with management of Chile Solidario System YR3 Review/Discuss implications for changes in the institutional structure of MIDEPLAN 27

32 Arrangements for Results Monitoring 1. There are two aspects to results monitoring within the technical assistance project. First, the project includes support to carry out of an impact evaluation of the Chile Solidario System. Second, there would be a system of monitoring of all of the activities supported by the project. Design of an Impact Evaluation for Chile Solidario 2. In order to orient the direction of all the evaluations - impact, program, monitoring, supervision - MIDEPLAN has defined the final and intermediate objectives, and the outputs of the Chile Solidario System. Thefinal objectives are the following; Reduce extreme poverty in the country Raise the quality of life and welfare of indigent families Raise the level of income of indigent families 3. The intermediate objectives refer to the changes in the behavior of the participating families that are expected to be produced once they have gotten access to services at the local level and have assimilated the facilitating and promotion objectives of the intervention. These include: Raise the human and social capital of the participant families Raise the economic and social capacities of the participant families by increasing the coverage of educational and training services in the families Raise school retention rates and school completion rates Raise the access of indigent families to social and productive programs 4. Outputs include the number of family protection bonds issued, the preferential access to monetary subsidies, and the preferential access to social promotion programs. In addition to quantity, the technical quality of the goods and services delivered would be monitored. Methodology of Impact Evaluation 5. The design of the impact evaluation of Chile Solidario was agreed between the Bank and the Government during project preparation. The main elements are described in this following paragraphs. More detail is available in the project file. The main household survey instrument in Chile (CASEN) would be carried out in November Several questions have been added to the survey to identify families who have completed the proxy means instrument survey and all those participating in Chile Solidario. This will enable the identification of a sub-sample of Chile Solidario families and to know when they began their participation and as well to identify a sub-sample of non-participating families who could serve as a control group. In both 2004 and 2005, the same survey instrument will be applied to both groups of families, with the addition of some retrospective questions in In 2006, the full CASEN would be implemented again 28

33 and that would provide the data needed for the final impact evaluation. The sample of families and controls (averaging 15,000 per year) would be representative at the regional level. 6. The control group would be chosen among the following: Families close in the proxy means instrument score and within the same region, relative to current Chile Solidurio participants Families who would enter Chile Solidurio in the future (entering in 2004, 2005, 2006). Families whose score differs only slightly from the score of Chile Solidurio participants, but who are just above the cut-off score. Qualitative Research 7. There is a lack of international evidence on how long it will take to produce the desired impact from the Chile Solidurio Program. Thus it is planned under the project to carry out complementary studies focused on the participant families, that would permit a better understanding of the processes that influence the impact of the intervention, the dynamics of poverty, the vulnerability of the families in extreme poverty in the face of shocks, the differences in impacts between the waves of entering families, and the impact on specific groups, for example female-headed households, or indigenous families. Another set of studies would examine changes in the way public and private services are managed at the local level after the introduction of Chile Solidurio. 29

34 Annex 4 Detailed Project Description Component 1: National Information System for Social Protection (US$4.0 million, including contingencies) 1. The Government of Chile has improved its management of social information. However, this has occurred in an independent manner and technical capacities vary among agencies. As a result, there are errors in the targeting of social spending and other inefficiencies in public spending. MIDEPLAN has been made responsible for designing and implementing a national information system for social protection to use as a strategic tool for social policy and, in particular, the Chile Solidurio System. The new system would address current limitations of the lack of communication, articulation and dialogue between the different systems of information, managed by different agencies, by advancing the concept of a holistic design for the gathering, handling, and management of data related to the social and economic characteristics of individuals. In the first phase, the system would cover all families participating in Chile Solidurio. It would then expand to include families participating in all social programs, and finally, cover the total population. Chile would take advantage of modern technologies in hardware, software, and communications to promote the interchange of information on the civil, social, and socioeconomic attributes of the current population and potential beneficiaries of social programs in Chile. 2. The specific objectives of this component are: Contribute to better targeting and implementation of social programs and policies through the generation and more systematic availability of timely information, validated and kept up to date; Establish the standards necessary for the coordination and articulation of the different institutions in the network of social programs with the perspective of systematic and continuous interchange of information; Establish the legal and administrative guidelines for all government organizations, that coordinate, administer and utilize information about individuals, protecting the right to statistical secrecy; Take advantage of the best instruments of software and hardware for the entry, modification, reading and tracking of information; Administer the information of the Chile Solidurio System in order to contribute to its effective implementation; and Facilitate the access to the public, civil society, and researchers of social information. 3. The component is being carried out under the umbrella of the Gobierno electronic0 initiative announced by the Government in May The overall objectives of the 30

35 initiative are to use information technology and communications to improve the information services offered to citizens, increase the efficiency and effectiveness of public management and to increase substantially the transparency of the public sector. 4. The national information system for social protection would have several important characteristics. It would be virtual - the links between data bases are logical, not physical. It would be dynamic. The characteristics of individuals change frequently, thus the system must be able to capture the most up to date data. It would be autonomous. Each institution integrated within the system would maintain their independence and control over their own information. It would be scaleable and integrated. The system would expand gradually, both in terms of the variables covered and the groups of population for whom information is available. The system would also be linked to institutional development. The component allocates resources for the preparation and training of the staff of MIDEPLAN, as well as other institutions so that they can link fluidly to the system. 5. Implementation of the system would take place in stages, some of which are overlapping: Participate in the Committee of Electronic Government (ongoing). Prepare a diagnosis of the different institutions and their data bases including the characteristics of the information, users of the data, inter-relations between institutions, scarcities and overlapping of information, legal impediments to the use of data bases and individual information. Construct a structure of interchange and a model for the standardization of information. Define the conceptual design, physical logic and start the System (including modeling, design, construction and starting the software applications). Establish the agreements with other public agencies, protocols, and legal norms. Adjust the information to the technological model. Administer the project and undertake technical inspections (throughout all phases). 6. The national information system for social protection would be administered by a unit located in the Department of Social Information, one of 3 departments of the Social Division of MIDEPLAN. The project would finance consulting services necessary for the design of the system, and the development of the procedures, standards, and rules governing its operation, software applications, necessary computing equipment and supporting services, training of staff in both MIDEPLAN and in other agencies, as well as the carrying out of a public information campaign on the system. Component 2: Training to Support Chile Sulidariu (US$1.7 million including contingencies) 7. The objective of the component is to support the efficient and effective implementation and management of Chile Solidario by strengthening the capacity of the 31

36 staff of MIDEPLAN, and of other agencies and levels of government (sub-component l), as well as of those who are directly working with the participant families (sub-component 2). The component will be managed by a unit within the Department of Social Policy Development in the Social Division of MIDEPLAN. The staff will cover the areas of poverty reduction strategies, training in information technology, social programs, and curriculum design. The training offered will be oriented towards the areas incorporated within the Chile Solidurio System and more generally, a national system of social protection. 8. Sub-component 1: Training of Government officials. The activities under the first sub-component include the training of the MIDEPLAN staff related to putting in place a social protection system. This would involve workshops to analyze the implementation, monitoring, and evaluation of Chile Solidurio. Training courses would be organized with international and national experts in the area of social protection, and participation in international seminars would be supported. A series of seminars would be organized to exchange views on the experience of other countries in organizing a system of social protection, as well as on social risk analysis and management. The aim is to have professionals in MIDEPLAN with the up-to-date knowledge, methodologies, and other tools necessary to carry out the agency s mandate. Training would also be provided to staff in the sector ministries, at the central and regional levels, that form part of the structure of the Chile Solidurio System. The training would focus on strengthening capacities in the area of social protection, and also assisting in the installation of organizational and functional changes that would be necessary in order to ensure the effective implementation of Chile Solidurio. Training related to the new national information system for social protection would also be carried out. 9. Sub-component 2: Training of Social Workers. The second subcomponent is implementation of a program to strengthen the capacity of the case workers who are working in with the Chile Solidurio families. The interaction of the case worker with the targeted households is a critical design feature of the Program. In order for them to contribute to the progress of these households in improving their livelihoods, the case workers need to be knowledgeable in many different areas. Recognizing the importance of the role of the individuals who have been contracted or assigned to this work, and based on the experience in implementation during 2002, FOSIS requested outside support in designing a community of learning which would include several different components, some of which would be supported by the proposed technical assistance loan. This proposal i s aimed to address the weaknesses which have been detected in the initial work of the case workers and the insufficient capacity that some of them have to address the often complex and sensitive situations and problems that arise in their work with the Chile Solidurio families. Examples are how to work effectively with indigenous households and how to manage the personal stress that accompanies this type of work. 10. The strategy has several distinguishing features. It stresses team work and facilitating fluid communication between the different actors implementing the Program. It addresses the needs for initial training, permanent skills upgrading, feeding back into improvements in the methodology and organization of these activities. This requires a 32

37 combination of different mechanisms for training and the formalization of their knowledge and experience. The system integrates 4 important types of learning activities: 0 Circles of Analysis of Practices in which there would be structured communication and interchange of experiences among practitioners at different levels and with different responsibilities. 0 An Agency which would facilitate exchanges within the program, including visits to other locations, apprenticeships, the contacts with outside experts and agencies. 0 An Institute which would be the focus of technical assistance provision to the case workers through courses, seminars, conferences, round tables, using both residential and virtual spaces. In particular, the Institute would be responsible for coordinating the access of the social workers to needed outside experts in various areas; and 0 A University through which the Faculty of Social Sciences of the University of Chile would open a post-graduate degree for a social work specialty for the social workers with the objective of improving theoretical and practical knowledge, analytical capacity, and learning from practical experience. The instruction would be organized in modules incorporating self-learning, seminars, courses, seminars, and various forms of access and connection via a technological platform Training of the social workers would be coordinated by FOSIS or other agency satisfactory to the Bank. The agreement between MIDEPLAN and FOSIS (or other agency), including the need to ensure that Bank guidelines are followed, would be a condition of disbursement for this component of the project. The proposed technical assistance project would finance activities related to the first 3 parts of the system. This would include the organization of training courses, costs associated with exchanges between staff in different areas, periodic workshops for the social workers to discuss issues and themes arising in their work, arrangements for input and advice from national and international experts, and the information platforms necessary to support the system of learning. Component 3: Analysis, Evaluation, and Monitoring of Social Programs and Policies (US$2.8 million, including contingencies) 12. The goal of this component is to ensure the capacity within the public sector of quantifying the impact of the Chile Solidurio System and of the associated social and economic programs. Also included are monitoring activities, that would permit the adjustment of actions as implementation proceeds. The project would finance (a) the design of an integrated system of monitoring of management, processes and the partial results of the Chile Solidurio System; (b) evaluations of programs that, forming part of the social protection network, provide benefits and transfers to the users of Chile Solidurio; and finally, (c) the carrying out of an impact evaluation of the Chile Solidario System on the families. The objective of this component is to implement an integrated system to evaluate the management, processes and impact of the Chile Solidurio system. 33

38 13. In addition, recognizing the benefits to be derived from the participation of civil society organizations in the evaluation process, the design and implementation of a pilot project of citizen accountability would be supported under the proposed project. It is expected that this activity would contribute to generate the space, mechanisms and instruments of social accountability linked to the implementation of the Chile Solidurio System and would favor the generation of social capital among the extreme poor. The activity would be carried out jointly by a civil society organization with experience in poverty alleviation programs and citizenship accountability, and possessing local networks and high national coverage. An academic or research institution, with experience in social program evaluation would also participate to provide technical support. The Government counterpart for the study would be comprised of representatives of the Monitoring and Evaluation Unit of Chile Solidario, the Department of Social Policy Development, and the Department of Social Inclusion Policies. 14. The technical assistance project would finance the necessary consultant services to design and implement the activities described, conduct households surveys related to the impact evaluation, and support qualitative research. Component 4: Institutional Strengthening of MIDEPLAN and Project Administration (US$6.4 million, including contingencies) 15. In order for MIDEPLAN to carry out its designated role to spear-head the implementation of the new set of policies, a program of institutional modernization and strengthening for the ministry is required. This process, if successful, would restore MIDEPLAN s role as the coordinator of social policy and programs in the country. The technical assistance activities identified include two major activities. The first is the installation of several operating units in MIDEPLAN that to support the operation of Chile Solidario. These units would be responsible for: (i) managing analytical work which would address issues and questions as they arise during implementation as more families are covered, they spend more time in the Program, and eventually graduate from it; (ii) organizing training; (iii) supporting the Executive Secretariat for Chile Solidario; (iv) coordinating the integration of information sources; and (v)monitoring the progress of the program. Each of these units would contribute to the strengthening of MIDEPLAN s analytical and professional capacity. Within the Department of Social Policy Development, there would be a group focusing on analytical work to inform the functioning of Chile Solidurio and the strategy in regards to social protection issues, in general. There would be 8 professionals located in this unit which would function as an area for strategic thinking and policy planning and development. Further, there would be a group of 3 professionals contracted to provide the day-to-day support necessary to ensure the effective functioning of the Executive Secretariat for Chile Solidurio. In addition, a small unit would manage the day to day activities of the technical assistance loan. 16. The second major activity in this component is the carrying out of an organizational/institutional audit of MIDEPLAN s current strengths, weaknesses and needs, and based on that analysis, the formulation of a proposal for redesigning the 34

39 institutional structure of MIDEPLAN so that it can support more efficiently the execution of Chile Solidurio and, more broadly, the coordination and installation of a social protection system more inclusive of the extreme poor. The technical assistance project would finance the consultancy services necessary to the establishment of the special units within MIDEPLAN and studies, as well as minor office remodeling. 35

40 Annex 5 Estimated Project Costs Project Costs by Component National Information System for Social Protection Training Analysis, Evaluation and Monitoring of Social Programs and Policies Institutional Strengthening of MIDEPLAN Project Administration Total Baseline Cost Contingencies Total Project Costs3 Front-end fee Total Financing Required Total US $million lo Identifiable taxes and duties are US$784,200. The total project cost, net of taxes, is US$14.2 million Therefore, the project cost sharing ratio is 70 (Bank)/30(Borrower)of total project cost net of taxes. 36

41 Annex 6 Implementation Arrangements Background 1. The Social Protection Technical Assistance Project would support the implementation of Chile Solidurio. Linked closely to that overall goal, the project aims to strengthen the role of the Ministry of Planning and Cooperation (MIDEPLAN) as the agency leading the development and expansion of the social protection system in Chile. MIDEPLAN would be responsible for implementation of the components of the technical assistance project. In the process, MIDEPLAN s own capacities would be strengthened. 2. The mission of the Ministry of Planning and Cooperation is to collaborate with the President on the design and application of policies, plans and programs of regional development; to propose the targets for public investment and evaluate the projects financed by the State; to harmonize and coordinate public sector initiatives to reduce poverty; and to guide the international cooperation that the country received and gives. Its strategic objectives are: Collaborate in the design and formulation of public policies by preparing evaluations and diagnostic studies to inform decision-making of those agencies designing and implementing programs; Contribute to improvements in the efficient and effective use of public investment resources and to orient that investment so that it responds to strategic national development goals; Evaluate and propose policies that guide and support regional development and decentralization, collaborating with regional governments in the administration of each region; Contribute to the achievement of equitable social development, supporting the design, management, evaluation, and coordination of social policy, and formulating and proposing policies to generate equality of opportunities, especially for priority groups; Promote scientific research and capacity-building through the training of postgraduate professionals; and Through its related services, contribute to the design and implementation of policies and programs oriented towards groups defined as a priority for social policy. Project Implementation Arrangements 3. A unit within the Social Division of MIDEPLAN was responsible for working with the Bank team to prepare the project. A professional was assigned to work on each component and another person worked on administrative issues. Once the project is approved, this unit will be converted into the Project Implementing Unit for the loan. In 37

42 order to maximize the role of the technical assistance loan in strengthening MIDEPLAN, implementation will be closely integrated with the technical and administrative units of that agency. The Project Implementing Unit will continue to be located with the Social Division of MIDEPLAN. The head of the Social Division would be responsible for the overall strategic direction and substantive content of the loan. A project coordinator would handle day-to-day activities and would be responsible for all operational matters, both within the Project Implementation Unit and with other units within MIDEPLAN and other agencies of the Government. The project coordinator would be the primary contact for the Bank. 4. Project Implementation Unit. The objective of the unit is to ensure the adequate administrative, financial and legal functioning of the project within the time frame and arrangements agreed with the Bank and to ensure accomplishment of the objectives of each component. In addition to the project coordinator, the unit with have at least 4 other professionals, qualified in the areas of finance, budgeting, procurement and legal issues. The latter three professionals will be the liaison between the project and the respective units responsible for these areas within MIDEPLAN as a whole. Staff in these divisions will be responsible for most of the daily administrative work related to the project. These professionals will ensure that the carrying out of project activities are consistent with Bank guidelines. An operational manual to be agreed with the Bank would: (i) lay out the structure of the Project Implementation Unit; (ii) describe how activities would be coordinated within the unit: (iii) define the responsibilities and functions of the unit; (iii) describe the profiles of the professionals in the unit; and (iv) the mechanisms of coordination with the components of the project, its internal norms, as well as administrative, financial, and budgeting procedures. The Project Implementation Unit will also be in charge of coordinating with the units responsible for the other components and for the preparation of the annual procurement plan. The unit would design a framework to monitor the status of all project activities, and, more generally, monitor and supervise project implementation. The unit would also be responsible for preparing a communications strategy for the project, which would include a web-site, information bulletins, and regional and local seminars. 5. Responsibility for carrying out each component of the project would reside with units specially constituted for this purpose and located within specific departments within the Social Division. The units responsible for the training and the evaluation components would work within the Department of Social Policy Development. In addition, a studies unit would be located in the same department. The studies unit will be responsible for preparing materials needed to support the operation of the Chile Solidurio Social Protection System. The studies would provide technical input and diagnostic analysis, in order to detect critical issues and to inform the decision-making of the Executive Secretariat for Chile Solidurio and of MIDEPLAN. MIDEPLAN has identified the content of the studies that would be carried out during the first year of the project. The unit responsible for the National Information System for Social Protection would work within the Department of Information. The staffing and terms of reference for the staff to be contracted for these units is contained in the operational manual and has been agreed with the Bank. 38

43 Annex 7 Financial Management and Disbursement Arrangements Summary of Financial Management Assessment 1. The Financial Management Assessment found that the financial management of MIDEPLAN satisfies the Bank s minimum financial management requirements and that MIDEPLAN can produce the requisite project financial management reports following the procedures agreed to during project preparation. It also concluded that financial management risk is low, given that the project will operate under the responsibility of the Finance Department of MIDEPLAN and be fully integrated with the MIDEPLAN financial management systems. MIDEPLAN would confirm that the project specific coding needed to report in the format of the cost categories and components of the project loan document can be incorporated in the integrated financial management system, and include this and other financial management provisions in the Operational Manual to be issued by effectiveness. 2. The accounting, budgeting, and treasury operations of the project will be the responsibility of the Finance Department of Finance of MIDEPLAN and fully integrated, recorded, and processed in the integrated financial management system established in MIDEPLAN. Transactions processed here will be exported to an Excel spread sheet monthly where the agreed Financial Management Reports ( FMRs) will be prepared along with the certified Statements of Expenditures (SOEs). The movements reported in the Excel data base will be reconciled to the transactions and balances reported in the integrated financial management system. 3. The operations of the Finance Department of MIDEPLAN are fully documented in their Finance Administration Manual, there is proper segregation of duties, and posts are staffed by competent personnel. Additionally, their operations are subject to the on going review of the internal audit department of MIDEPLAN. Audit Arrangements 4. Chile has an excellent record on compliance with project audit requirements; specifically, MIDEPLAN reported both satisfactory financial management and audit compliance in the implementation of the Chile Millennium Project (Ln.-4466). MIDEPLAN has agreed to contract the Auditor General of Chile to conduct the annual project audit in line with the Guidelines and Terms of Reference for Audits of Projects with Financing by the World Bank in the Latin America and Caribbean Region ( updated for the changes in audit policy effective July 1,2003). 1 The full Financial Management Assessment (FMA) is archived in the project s permanent file. 39

44 Disbursement Arrangements 5. In line with procedures followed with other Bank funded operations in Chile, and as further examined in the Financial Management Assessment for the proposed project, budget control procedures to which MIDEPLAN is subject indicate adequate arrangements to ensure that the Loan proceeds will be disbursed for purposes intended. A Special Account (SA) of 1 million US Dollars will be established in the Central Bank of Chile, under the control of the National Treasurer on terms and conditions satisfactory to the Bank (including appropriate protection against set-off, seizure and attachment if it were to be established in a commercial bank instead.). The SA would cover the Bank's share of the average four-monthly eligible expenditures for disbursement categories 1 through 5. Based on monthly projections of the resources needed to effect payments for the project, MIDEPLAN will request the sale of dollars and the deposit of Chilean Pesos into an Operating Account in the Banco del Estado under the control of MIDEPLAN, Department of Finance. Counterpart funds will be deposited into the Operating Account and mixed with the loan proceeds so one check may be made to suppliers. 6. Deposits into the Special Account and replenishments up to the authorized allocation set out in the Loan Agreement and the disbursement letter, would be made on the basis of Applications for Withdrawals accompanied with the supporting and other documentation as specified in the Disbursement Handbook. The project will justify uses of the loan proceeds with documentation and not on the basis of reports. All disbursements against contracts of works and goods for less than $350,000, consultant firms for less than $100,000, individual consultants for less than $50,000, and training and incremental operating costs would be made on the basis of certified Statements of Expenditure (SOEs). The supporting documentation for the FMRs and the SOEs would not be sent to the Bank but would be retained by the Project Implementation Unit and made available for inspection by Bank staff and auditors. 7. Retroactive financing of $500,000 would be available to cover eligible expenditures incurred after July 1,2003, but no more than 12 months prior to loan signing. 40

45 Allocation of Loan Proceeds Expenditure Category Works Goods Computers, office equipment, and supplies Services Consultant and other services4 Training Amount in US$ ,042,000 6,9 10,000 Financing Percentage 80% of local exdenditures 100% of foreign expenditures,loo% of local expenditures (ex-factory costs) and 80% of local expenditures for other items procured locally 95 % of local and 100% of foreign expenditures (a) for Part B.l of the Project (b) for Part B.2 of the Proi ec t Operational Costs Unallocated Front-end fee Total 1,134, , , , ,100 10,710, % 100% 70% of expenditures made until twelve months after the Effective Date and not exceeding in the aggregate $100,000; and 30% thereafter Other services would involve data processing, storage, and security. 41

46 Annex 8 Procurement Arrangements Procurement for the proposed project would be carried out in accordance with World Bank Guidelines: Procurement Under IBRD Loans and IDA Credits, published in January 1995 (revised January/ August 1996, September 1997, and January 1999); and Guidelines: Selection and Employment of Consultants by World Bank Borrowers published in January 1997 (revised in September 1999, January 1999, and May 2002), and the provisions stipulated in the Loan Agreement. 1) Procurement methods: The methods to be used for the procurement described below, and the estimated amounts for each method, are summarized in Table A. The threshold contract values for the use of each method are contained in Table B. The responsible body is the Ministry of Planning and Cooperation (MIDEPLAN), which will establish a Project Implementing Unit (PIU). Procurement of Works Works procured under this project could include minor construction works to adapt existing structures in the Ministry to provide adequate space for the PIU. No major contracts for these works are foreseen. Minor civil works, estimated to cost less than US $ 350,000 equivalent per contract, may be procured on the basis of at least three quotations received in response to a written invitation, which will include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Bank, and relevant drawings, where applicable. The award should be made to the contractor who offers the lowest price quotation and the experience and resources needed to complete the contract successfully. Procurement of Goods Goods procured under this project would include computer equipment for the national information system for social protection, as well as office equipment, furniture and supplies for the PIU, totaling US$ 1 million equivalent. To the extent possible, contracts for these goods will be grouped into bidding packages of more than US $350,000 equivalent and procured following International Competitive Bidding (ICB) procedures, using Bank-issued Standard Bidding Documents (SBDs). Contracts with estimated values below this threshold per contract may be procured using National Competitive Bidding (NCB) procedures and standard bidding documents agreed with the Bank. Contracts for goods which cannot be grouped into larger bidding packages and estimated to cost less than US$ 100,000 per contract, may be procured using shopping (Nationalhternational) procedures based on a model request for quotations satisfactory to the Bank. 42

47 Selection of Consultants Consulting services will be contracted under this project in the following areas of expertise: social policy and programs, design of training, evaluation, information systems, and surveys., Other services would include ones related to data storage, processing, and security. Together, consulting and other services are estimated to cost US$6.9 million equivalent and would be procured using the Bank Standard Request for Proposals. Firms Contracts for firms would be procured using QCBS except for small and simple contracts estimated to cost US$lOO,OOO equivalent or less that may be procured using Least Cost Selection (LCS) method. Individu a1 s Specialized advisory services (in evaluation, design of social assistance, design of training curriculum, among other areas) would be provided by individual consultants selected by comparison of qualifications of three candidates and hired in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines, up to an aggregate amount of US$ 2.5 million equivalent. Training: This category does not involve procurement processes. It includes expenditures for cost of travel, room, board and per diem incurred by trainees and other participants in connection with the training and the course fees charged by academic or other institutions. Training services are estimated to cost US$ I.7 million equivalent. Training to strengthen the Borrower s ministerial and sector capacities at the center and regional levels to develop, implement and monitor a system of social protection would amount to an estimated US$1. lmillion (Part B. 1 of the project). Training to strengthen the capacity of the social workers of Chile Solidario accounts for about US$600,000 (Part B.2 of the project). Operational Costs: Sundry items, office utilities, support staff, and travel of PIU staff would be financed on a declining basis and procured using MIDEPLAN administrative procedures which were reviewed and found acceptable to the Bank. The Bank will finance 70% of expenditures made until 12 months after the Effective Date and not exceeding in the aggregate US$lOO,OOO; and 30% thereafter, up to an aggregate amount of $180,000. 2) Prior review Thresholds: The proposed thresholds for prior review are based on the procurement capacity assessment of MIDEPLAN and the project implemention unit and are summarized in Table B. 43

48 Assessment of the agency s capacity to implement procurement The overall project risk for procurement is AVERAGE. In July 2003, Chile enacted Law (Procurement Law), which provides the framework for procurement of supply and service contracts. Current legal regulation promote transparent and competitive practices and contains sound provision for contract administration and evaluation. The executing agency for the project will be the Ministry of Planning and Cooperation (MIDEPLAN). A project manager currently staffs the procurement unit of MIDEPLAN with procurement officers for the projects Origenes and Chile Solidario ; and officials in charge of materials and stock, the purchase of airline tickets, telephone maintenance and Internet and vehicles. In addition there are two administrative staff, one in charge of MIDEPLAN contracts and one of administrative contracts. A capacity assessment of MIDEPLAN s procurement unit was prepared based on the experience of the personnel with local procedures. The assessment includes a review of the procurement organizational structure of MIDEPLAN and an Action Plan agreed upon during Negotiations. The Action Plan includes the following aimed at reinforcing the implementing procurement capacity of MIDEPLAN: (i) hiring a procurement consultant knowledgeable in Bank procurement policies and procedures; (ii) drafting of standard bidding documents for NCB procurement of goods and works; (iii) developing a computer based methodology for preparation and monitoring of annual procurement plans; (iv) developing a chapter within the Operational Manual (OM) for procurement consistent with the procurement provisions in the Loan Agreement; (v) training of at least two weeks for MIDEPLAN procurement staff, and (vi) developing and implementing a project filing system and providing adequate space. In order to reinforce the action plan, a project launch workshop will be organized at an early stage in project implementation to familiarize the implementing team in the execution of the project. The workshop will cover procurement, disbursement, reporting and auditing requirements and will be follow-up by training. The General Procurement Notice (GPN) will be published by the end of The principal risks identified in the assessment are: (i) the use of staff inexperienced in Bank procurement procedures, (ii) the multiple steps (17 steps), prior to the signature of a contract, and (iii) some existing practices observed in Chile that are not in conformity with Bank procedures. The OM will address shortcomings in existing practices in accordance with the special procurement provisions listed below. A. The following principles of procurement shall expressly govern all procurement of works and goods under National Competitive Bidding: 1. All documents pertaining to a bid shall be submitted at the same time. Bidders shall not be required to submit bid securities or other documents in advance and separately from their bids. 44

49 2. Contracts shall be awarded to the bidder who meets the appropriate standards of capability and resources and whose bid has been determined (i) to be substantially responsive to the bidding documents and (ii) to offer the lowest evaluated cost. 3. Contracts shall be evaluated without using the bracketing to consider a competitive range calculated on the basis of the official budget. 4. Foreign contractors or suppliers shall not be required to have a representative in Chile as a condition for bidding. B. The following principles of procurement shall expressly govern the selection of consulting services: 1. Foreign consultants shall not be required to have a representative in Chile as a condition of participation in the selection process. 2. MIDEPLAN shall publicly advertise expressions of interest as the basis for developing short lists of firms. Procurement Plan A Procurement Plan for the first year of implementation of the project has been submitted to the Bank and found to be satisfactory. Frequency of Procurement Supervision In addition to the prior review supervision to be carried out by the Bank, the capacity assessment of the PIU recommends one full supervision mission to visit the field to carry out post review of procurement actions. Based on the overall risk assessment (AVERAGE) the post-review field analysis should cover a sample of not less than 1 in 10 contracts signed. 45

50 Expenditure Category Annex 8, Table A: Project Costs by Procurement Arrangements (in US $million equivalent) a/ Procurement Method ICB NCB Other N.B.F bl 1. Works 0.25 (0.2) 2. Goods.4.625,250 (0.3) (0.5) (0.2) 3. Consultants and other Services cl 4. Training dl (a)part B. 1 of the Project Total Cost (including contingencies) 0.25 (0.2) 1.3 (1-0) 10.2 I (6.9) (1.1) (1.1) (b) Part B.2 5. Operating Costs el.6.6 (4 (a Front-end fee (0.10), (0.1), I \ I Total (0.3) (0.5) (9.9) (10.7) Note: a/ Figures in parenthesis are the amounts to be financed by the Bank loan b/ N.B.F. = Not Bank-financed cl Consultants services: details provided in Table A-1 dl includes cost of travel, room, board and per diem, and course fees e/ PIU maintenance and consumable office supplies, materials, rental of facilities, incidental costs, travel of project implementation and technical units fl Procurement arrangement will depend on category of expenditure 46

51 Annex 8, Table Al: Consultant Selection Arrangements (in US $million equivalent) Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan. 47

52 Annex 8, Table B: Thresholds for Procurement Methods and Prior Review (US$ thousands) Expenditure Category 1. Works 2. Goods Contract Value (Threshold) 3. Services Technical Assistance / Training / Studies Firms > 100 Individuals >50 Procurement Method < 350 Three (3) quotations > 350 ICB c 350 NCB c 100 Shopping QCBS See Section V of Guidelines Total value of contracts subject to prior review: Contracts Subject to Prior Review / Estimated Total Value Subject to Prior Review First two All First two First two All All (TOR, contract, CV) 35% 48

53 Annex 9 Economic and Financial Analysis Since this is a technical assistance loan it is difficult to quantify the benefits expected to be derived from the activities of the project. Nevertheless, the objective of the Chile Solidario Program is to improve the effectiveness of social policy in Chile, including through better targeting in order to reach the poorest and better coordination of existing programs. The proposed national information system for social protection is likely to yield cost savings through the detection of the participation in social programs of ineligible beneficiaries and of overlapping benefits, as well as the through the development of standards for data-bases within the Government in order to promote more interchange of information. The Government has ensured future financing for the Chile Solidario program by passing legislation increasing the rate of the value-added tax. In addition, the Government has included an allocation for sufficient funding for the technical assistance project in the proposed 2004 budget. The main recurrent costs would be associated with the maintenance of the equipment for the national information system for social protection. However, those expenses are relatively small, as equipment purchases constitute a relatively small share of the total project costs. 49

54 Annex 10 Safeguard Policy Issues 1. The indigenous peoples safeguard policy is triggered by this project (Operational Directive 4.20). The Government believes that if Chile Solidario is successful it should have a positive impact on the indigenous population. According to the 2002 census, indigenous peoples account for 5 percent of the population, but 10 percent of extremely poor families. In order to ensure that Chile Solidario incorporates equally the indigenous, a series of activities are included in the proposed project to ensure that the methodologies used are culturally appropriate and that sufficient information is available on the effects of the Program on these families. The Indigenous Peoples Development Plan (IPDP) is available at the Bank InfoShop (Image Bank, IPP-62) and on the website of MIDEPLAN ( A summary is presented here. Background 2. The indigenous population in Chile, as in other countries, are affected by conditions of poverty and social exclusion. Although the Chilean Government has taken several actions to improve conditions for the indigenous population, much remains to be done. The legal framework is the Indigenous Law passed in October About 60 percent of the indigenous peoples live in 2 regions (the IX Region and the Region Metropolitana). According to the 2000 CASEN, 40 percent of indigenous households fall in the bottom quintile of households ranked by income; on the other hand, only 6 percent fall into the top quintile. Indigenous households are more likely to be employed in agriculture and are more likely to be unemployed than the general population. The rate of illiteracy is twice as high among the indigenous peoples, as is the share of those who haven t completed basic education. Differences in educational attainment between indigenous and the rest of the population are smaller among younger age groups. 3. The Government, in the framework of the Indigenous Law, created the National Corporation for Indigenous Development (Corporacidn Nacional de Desarrollo Zndigena - CONADI), a decentralized, public service, with separate legal status and autonomy, under the supervision of MIDEPLAN. Since 1994, public policy has been guided by the Indigenous Law and as such, seeks to establish a new relationship between indigenous communities and the State, based on respect of their identity and recognition of their rights, and seeking, moreover, to protect their lands and resources. Among the functions of CONADI are the promotion of the integrated development of indigenous communities and individuals, especially as relating to economic, social and cultural matters, and the promotion of their participation in national life. CONDADI is directed by a National Council made up of 5 members representing government ministries, 3 members appointed by the President, 8 indigenous representatives, and a National Director, also appointed by the President. CONADI is responsible for several programs including the Fund for Land and Water which provides subsidies for land acquisition, conflict 50

55 resolution, and the regularization or purchase of water rights. There are also programs which finance local development activities and education and cultural programs. 4. In 2001, the Government established a Coordination of Indigenous Policies and Programs, under the Under-Secretary of MIDEPLAN, that includes representatives of Ministries with responsibilities over issues that affect this population. The initiative aims to support diverse initiatives and commitments so that they can be carried out efficiently and more rapidly. The Government is also implementing, with the support of the Inter- American Development Bank, the Origenes Program. This program aims to support the locally-driven development of indigenous communities. The Program is designed to be intersectoral, intercultural, decentralized and participative. Cultural Appropriateness and Indigenous Participation in Chile Solidurio 5. Estimates from the Progrumu Puente (pending information from the recently-added question on ethnicity in theficha CAS) based on surnames of Chile Solidurio participants indicate that through the end of June 2003, indigenous families represent about 11 percent of the total. This compares with an estimate based on the matching of the data of theficha CAS with the CASEN, of 8 percent of indigenous families qualifying to participate in Chile Solidario. The entry of indigenous families into Chile Solidurio has been designed in phases (as for all households). As of June 2002, all indigenous households in urban areas have entered in accordance with their score on theficha CAS. As of September 2002, households have entered who live in rural areas of Region I, that are not participating in the Origines Program, and as of November 2002, all households in rural areas of this region. Beginning in 2003, families are entering who live in rural zones in the Regions (8,9, and 10) that are benefiting from the Origines Program. 6. The Puente Program incorporated into the training for social workers that work with indigenous families in rural areas, specific tools that would ensure cultural appropriateness. This included a prior evaluation of the characteristics of the indigenous communities by the municipal supervisor, CONADI, and the Progrumu Origines. Specific training i s provided on indigenous themes, local characteristics (geography, key informants), minimum competency in the indigenous language and the behavioral requirements for working with these families and the community. Depending on the reviews of CONADI and the Origines Program, the contact can be made initially with local authorities in order to explain the program, particularly the entry procedures. Work has also been undertaken to adapt the materials used in working with indigenous families. In some communities, social workers have been able to use the same materials developed for the overall population, but in other cases, they have adapted the materials to increase their effectiveness with indigenous households. Based on the mixed experience in using the Chile Solidurio materials with indigenous households, it was decided to undertaken an analysis and revisions with a view to improving their effectiveness. 7. When Chile Solidurio began, working groups were constituted to work on themes related to ethnicity. At the central level, the group is made up of the Sub-secretary of 51