Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45030) ON A LOAN IN THE AMOUNT OF US$ 12.

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45030) ON A LOAN IN THE AMOUNT OF US$ 12.0 MILLION TO THE BOLIVARIAN REPUBLIC OF VENEZUELA FOR A PUBLIC EXPENDITURE MANAGEMENT PROJECT April 30, 2007 Poverty Reduction and Economic Management Unit Bolivia, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean Regional Office Report No:ICR197

2 CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2006) Currency Unit = Bolivar (B) 1.00 = US$ US$ 1.00 = 2,150 (B) FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS ARTEMISA BCV CAS CGR GOV ICT IDB IMF ISR LAC LOAFSP M&E MDB MOF MOP MPD MTR NBF NCB ONAPRE ONCOP ONCP ONT OP PCU PDVSA Electronic Public Debt Negotiation Platform (Plataforma para la Negociación Electrónica de Títulos Públicos) Venezuelan Central Bank (Banco Central de Venezuela) Country Assistance Strategy Comptroller General Office (Contraloría General de la República) Government of Venezuela Information and Communication Technology Inter-American Development Bank International Monetary Fund Implementation Status Report Latin America and the Caribbean Region Organic Law of Public Sector Financial Administration (Ley Orgánica de Administración Financiera del Sector Público) Monitoring and Evaluation Multilateral Development Bank Ministry of Finance Memorandum of the President Ministry of Planning and Development Midterm Review Not-Bank Financed National Competitive Bidding National Budget Office (Oficina Nacional de Presupuesto) National Accountancy Office (Oficina Nacional de Contabilidad) National Office of Public Credit (Oficina Nacional de Crédito Público) National Office of Treasury (Oficina Nacional del Tesoro) Operational Manual Project Coordination Unit Venezuela Government Oil Company (Petróleos de Venezuela S.A.) Vice President: Pamela Cox Country Director: Marcelo Giugale Sector Manager: Nicholas Manning Program Team Leader: David F. Varela ICR Team Leader: David F. Varela

3 PIP Project Implementation Plan PMR Project Management Report PSR Project Status Report QAG Quality Assurance Group QET Quality Enhancement Team SIADE Public Debt Administration Integrated System (Sistema Integrado de Administración de la Deuda Pública) SIBOS Goods, Works and Services Integrated System (Sistema Integrado de Bienes, Obras y Servicios) SIGADE System of Administration and Control of Debt (Sistema de Gestión y Administración de la Deuda) SIGECOF Integrated Public Financial Management and Control System (Sistema Integrado de Gestión y Control de las Finanzas Públicas) SIGEFIRRHH Human Resources Financial Management System (Sistema de Gerencia Financiera de Recursos Humanos) SITP Public Employees Integrated System (Sistema Integrado de Empleados Públicos) SNIP National System of Public Investment (Sistema Nacional de Inversión Pública) SOE Statement of Expenditures SUCERTE Superintendence of Electronic Certification (Superintendencia de Certificación Electrónica) TAL Technical Assistance Loan TOR Terms of Reference TTL Task Team Leader UAD Deconcentrated Administrative Units (Unidades Administrativas Desconcentradas) UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program USEPP Evaluation Unit of Public Policies (Unidad de Seguimiento y Evaluación de Políticas Públicas)

4 VENEZUELA Public Expenditure Management Project CONTENTS Data Sheet A. Basic Information..i B. Key Dates..i C. Ratings Summary..i D. Sector and Theme Codes..ii E. Bank Staff.ii F. Results Framework Analysis ii G. Ratings of Project Performance in ISRs...v H. Restructuring...v I. Disbursement Graph...vi 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned (both project-specific and of wide general application) Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by components Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results (if any) Annex 7. Summary of Borrower s ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP

5 A. Basic Information Country: Venezuela Project Name: VE PUBLIC EXPENDITURE MANAGEMENT Project ID: P L/C/TF Number(s): IBRD ICR Date: 04/30/2007 ICR Type: Core ICR Lending Instrument: FIL Borrower: Original Total Commitment: Environmental Category: C Implementing Agencies: Ministerio de Finanzas Cofinanciers and Other External Partners: B. Key Dates REPUBLIC OF VENEZUELA USD 20.0M Disbursed Amount: USD 12.2M Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/11/1998 Effectiveness: 07/18/ /18/2000 Appraisal: 05/16/1999 Restructuring(s): Approval: 06/29/1999 Mid-term Review: Closing: 06/30/ /30/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Highly Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Moderately Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project Yes at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Theme Code (Primary/Secondary) Debt management and fiscal sustainability Primary Primary Decentralization Secondary Secondary Law reform Secondary Primary Public expenditure, financial management and procurement Primary E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Shahid Javed Burki Country Director: Marcelo Giugale Andres R. Solimano Sector Manager: Fernando Rojas Geoffrey Shepherd Project Team Leader: David F. Varela A. C. Martin Del Campo ICR Team Leader: ICR Primary Author: David F. Varela Sati Achath Primary F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the Project is to strengthen the Borrower's mechanisms of monitoring and control of public resources and to improve efficiency and accountability in the management of the Borrower's public finances. Revised Project Development Objectives (as approved by original approving authority) The Project Development Objectives were not revised. ii

7 (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Increased cost effectiveness of selected public agencies' operational programs. Increased cost Increased cost effectiveness as effectiveness as measured by Costly operational measured by national and programs national and subnational documents, subnational budget documents, and evaluation reports. evaluation reports. Date achieved 07/18/ /30/ /30/2006 Comments (incl. % achievement) Indicator 2 : Fiscal savings resulting from streamlined budgets in the main central and decentralized units. Value quantitative or Qualitative) Inconsistent budget allocations and unclear priorities Fiscal savings achieved as measured by Government and evaluation reports. Fiscal savings achieved as measured by Government and evaluation reports. Date achieved 07/18/ /30/ /30/2006 Comments (incl. % achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years SIGECOF implemented in the deconcentrated administrative units. SIGECOF Implement The are 576 SIGECOF implemented in SIGECOF in deconcentrated units that implemented in were not electronically deconcentrated deconcentrated deconcentrated integrated to SIGECOF. units. units. units. Date achieved 07/18/ /30/ /30/ /30/2006 PAD established as original target values SIGECOF implementation in 160 Comments deconcentrated units. During project execution SIGECOF was implemented in (incl. % 321 deconcentrated units (56% of 576 existing deconcentrated units. Original achievement) goal surpassed 100%. Indicator 2 : Integration of the existing public debt registry and control systems with the iii

8 Value (quantitative or Qualitative) central accounting system SIGECOF and development of a uniform system of management and control of operations. The Government Implement an Uniform system in signed an efficient and operation. agreement with cutting edge Systematic support Deficient registry system UNCTAD, for a financial during the for controlling public new version of administration implementation of debt. SIGADE and the system and SIGADE and it development of strengthen the integration with the informatics public credit SIGECOF tool. system. Date achieved 07/18/ /30/ /30/ /30/2006 Comments (incl. % achievement) The project promoted and supported the acquisition and implementation of the public credit system which substantially contributed to the best administration of public debt by MOF. Indicator 3 : Redesign of SIGECOF, incorporating modern technologies of integrated financial administration systems. Value (quantitative or Qualitative) 0 New conceptual and functional designs, budgetary and economic classifiers, patrimonial account plans, single conversion matrix. New informatics tools for budget execution and accounting available. Date achieved 07/18/ /30/2006 Comments (incl. % achievement) Strengthen the capacity of the central government to monitor and enforce Indicator 4 : financial controls of human resources. Value (quantitative or Qualitative) 0 Implementation of new monitoring and control modules in 22 agencies of the central administration, the Industrial Bank of Venezuela, the Treasury Bank and the Bolivarian University (81% of the total). iv

9 Date achieved 07/18/ /30/2006 Comments (incl. % achievement) G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/04/2000 Satisfactory Satisfactory /29/2000 Satisfactory Satisfactory /19/2000 Satisfactory Satisfactory /14/2001 Satisfactory Unsatisfactory /28/2001 Satisfactory Unsatisfactory /21/2001 Satisfactory Unsatisfactory /21/2002 Satisfactory Satisfactory /27/2002 Satisfactory Satisfactory /26/2002 Satisfactory Satisfactory /19/2002 Satisfactory Satisfactory /25/2003 Satisfactory Unsatisfactory /16/2003 Satisfactory Satisfactory /14/2004 Satisfactory Satisfactory /20/2004 Satisfactory Satisfactory /18/2005 Satisfactory Satisfactory /22/2006 Satisfactory Satisfactory H. Restructuring (if any) Not Applicable v

10 I. Disbursement Profile vi

11 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance) A. Political Overview. After the mid-1980s, the quality of democratic governance and public institutions deteriorated in Venezuela. The disappointing economic performance of the 1980s generated a realignment of electoral preferences in search of new alternatives. Two failed military coups in 1992, the impeachment and removal from office of President Pérez in 1993, the return to power of former President Caldera in 1994, and the electoral victory of outsider Hugo Chávez in 1998 were milestones in the collapse of the Constitutional regime established in New Constitutional Framework. President Chávez initiated his first term with a proposal to overhaul the country s institutions. He promoted the drafting of a new Constitution that was ratified by a National Referendum in late The Constitution changed the basis of Venezuela s political system and established new principles for the country s economic and social development. (a) Political System. According to the Constitution, Venezuela is a Democratic and Social State of Law and Justice. The Constitution extended the President s term in office from five to six years, introduced the possibility of immediate reelection, and provided various mechanisms for citizen participation (for example, recall referendum and local planning councils). (b) Economic and Social Development. The Constitution establishes a system based on economic freedom and private initiative, with significant intervention of the State to assure social justice. Specific provisions deal with issues like: (a) the Venezuelan Central Bank (BCV) independence, (b) the establishment and operation of the Macroeconomic Stabilization Fund (FEM), and (c) the promotion of economic integration and development in the Latin America and the Caribbean Region (LCR). Natural resources remain in public ownership. The Constitution promotes respect for enhanced indigenous people s rights, declaring Venezuela a multicultural and pluri-ethnic country. Recent Political Developments. The political crisis that included a failed coup in April 2002 and a two-month national strike in December 2002 was resolved in 2004 through a recall referendum which confirmed President Chávez. Sustained popular support and the withdrawal of the opposition candidates shortly before the 2004 and 2005 elections led to his coalition winning 21 out of 23 state governorships, a large majority of mayoralities and municipal councilor positions, and all the seats in the National Assembly. Finally, Mr. Chávez won the December 3, 2006 election by more than 62 percent of the votes. The President s main campaign pledges were: (a) to pursue a constitutional amendment to eliminate presidential term limits (this would allow him to run again in 2012); (b) to enhance, deepen, and expand the Bolivarian Revolution to build a 21st century socialism in Venezuela. This includes institutionalizing the popular social programs (misiones), reducing bureaucracy, and fighting corruption; and (c) oppose U.S. hegemony and promote a multi-polar world. During his third inauguration in January 2007, Mr. Chávez announced his intention to nationalize strategic sectors including power and telecommunications. 1

12 B. Economic Overview. The Venezuelan economy is exposed to considerable volatility related to the country s terms of trade. The dependence on a volatile commodity (oil) has translated into high relative variance of most macroeconomic indicators. Previous attempts by Venezuelan authorities to reduce the impact of such variances through stabilization funds and reform programs have had limited impact; the rules applicable to stabilization funds have been continuously changed and the programs have lacked continuity and coordination. As a result of the political turmoil and the ensuing oil sector strike, economic growth contracted severely and unemployment and inflation rose significantly. Since the last quarter of 2003, the Venezuelan economy has experienced a strong expansionary cycle with 13 consecutive trimesters of positive growth rates the longest cycle in the country s history. The increase in the gross domestic product (GDP) came from higher consumption (both private and public) fueled by the oil sector windfall and credit boom. Fiscal Policy. The boom in oil prices and improved efficiency in tax collection and administration have increased government revenues, helping the fiscal accounts reach a surplus of 2.6 percent of GDP in However, the non-oil fiscal deficit reached 17.5 percent of GDP, and any major slide in oil prices could generate a serious fiscal imbalance. The current level of public spending, around 37 percent of GDP, is sustainable only if oil prices remain at high levels, and will be difficult to reduce if oil prices decline, because oil revenues supply about 45 percent of budget income. To manage the windfall revenues, several funds have been established outside the national budget, including the National Development Fund (FONDEN), which received $8.5 billion in 2005, or six percent of GDP. The State Oil Company (PDVSA) has become a direct financier of social expenditures. Monetary and Exchange Policy. Since the inception of exchange controls in 2003, the monetary aggregates have grown at rates exceeding 50 percent a year, a fact that, together with the establishment of a fixed exchange rate regime, has limited the ability of the BCV to conduct monetary policy. To restrain the impact of monetary growth on inflation, BCV has issued the equivalent of $16 billion in certificates of deposit (as of December 2006). As a result of this sterilization policy, the real exchange rate has not yet appreciated significantly despite the oil windfall. Public Debt. Venezuela s total public debt stands just below 25 percent of GDP. Public external debt was $27.2 billion as of end-december The maturity structure of the external debt is relatively sound, with about 75 percent maturing in 2011 and beyond. Despite recent upgrades by credit rating agencies, Venezuela s ratings remain below investment grade, due to concerns about the sustainability of public finances and political risks. The debt management strategy for 2006 was consistent with prudent debt management practices and no changes are expected for The first stage of this strategy to lower indebtedness to 31.7 percent of GDP was launched in March 2006 with the buyback of $4 billion in Brady bonds and prepayment of around $500 million owed to bilaterals and IBRD. The second stage, which started in May 2006, would tackle the internal debt s structure, lengthening the maturity of instruments and shifting from a variable to a fixed rate. Venezuela has also invested in sovereign bonds of other LCR countries. Sector Background Public Expenditure Management Issues: Recurrent oil shocks and public debt have led to structural and chronic distortions in Venezuela's public sector. Venezuela's poor fiscal 2

13 performance has been partly a consequence of an antiquated public financial management system, inadequate human resources and personnel management policies, and a weak tax administration. Public finances have been characterized by structural deficiencies such as: (i) rigidities in the national budget; (ii) public resource cycles that increase the effect of external shocks; and (iii) an accumulation of public deficits over nearly three decades ( ). The problems presented by the management of public resources included: (i) significant deviations between the budget approved by Congress and the one executed because of a lack of a proper evaluation of expenditure results and due to horizontal transfers between subsections of deconcentrated units; (ii) overly-centralized procedures due to a high degree of co-management between the Executive and Congress; (iii) sharp declines in investment spending resulting from oil shocks (iv) lack of an effective internal control to support sound accounting practices;( iv) weak incentive mechanisms for promoting and enhancing human resources within the public sector; (vi) no system of control and management of the Nation's non-financial assets; and (vii) institutional arrangements between the executive, the sub-national governments, and Congress that inhibited the effective management of public resources. In addition, the management of public resources was also characterized by: (viii) a dispersion of payments and structural impediments to implementing a single-account approach; (ix) inability to know precisely the availability of funds in all budget executing agencies; (x) fiscal management based on formal budget approval instead of actual availability of funds; and (xi) numerous "cash advances" that led to the emission of government bonds to finance the cash flow. Rationale for Bank assistance: The project was consistent with the Country Assistance Strategy's (CAS) for Venezuela. 1 The project was envisioned to contribute to the CAS goal of modernizing the public sector. In addition, the Bank's substantial experience in the Region would: (i) supply highly qualified technical advice, based on its worldwide experience in implementing financial management and other key public management systems; (ii) bring credibility and transparency to the reform effort; (iii) promote efficient and effective use of the resources supporting a broad modernization strategy (Sistema Integrado de Gestión y Control de las Finanzas Públicas SIGECOF), as well as ensuring that specific initiatives fall within the framework of wider sector reforms, and were supported by appropriate economic and technical regulation; and (iv) provide needed financing at a time when it was required. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the project was to strengthen mechanisms of monitoring and control of public resources and to improve efficiency and accountability in the management of Venezuela s public finances. Significant achievements in core strategic areas were expected: (i) integration of the existing public debt registry and control systems with the central accounting system, and development of a uniform system of management and control of operations; (ii) establishment of a general inventory of Government assets; (iii) implementation of human resources financial management and control systems; and (iv) designing a system of budgetary monitoring and evaluation. 1 Document number: VE; Date of latest full-fledged CAS discussion: May 6,

14 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The objective was not revised. 1.4 Main Beneficiaries, (original and revised, briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) The main beneficiaries of the project were: central government entities and decentralized public entities. 1.5 Original Components (as approved) Component 1 Decentralization and Deconcentration of SIGECOF (Project Cost: US$7.1 million) This component would support: implementation of systems developed in the first stage of SIGECOF in 160 units that were responsible for budget execution in the central public administration development of a new management system for the National Treasury that involved the procedural modernization integration of the existing registry and control system for public debt with the central accounting SIGECOF development of a system of registry, budget, and accounting control of projects financed by multilateral banks to harmonize accounting information required by the Government of Venezuela (GOV) design and implementation of a public finance data warehouse for the Ministry of Finance (MOF) promotion and implementation of SIGECOF's strategy within decentralized and deconcentrated public administrations (e.g., sub-national governments, autonomous public enterprises, and institutes) adjusting to accommodate each entity's institutional capacity to participate, as required Component 2 - Registry, Administration, and Control of National Non-financial Assets. (Project Cost: US$4.3million) This component would support a strategy that included the creation of policies and legal and regulatory framework for non-financial asset management, and the development and implementation of a registry, administration, and control system so as to ensure efficient and rational management of these assets, under the exclusive responsibility of MOF based on current legislation. Strategically, this component comprised four levels: At the normative level, new laws and procedures would be developed to establish criteria for asset management At the institutional level, an organizational restructuring of MOF would reposition the unit responsible for asset management and define its relationship to other GOV agencies At the managerial level, this new unit would be responsible for the implementation of the new normative framework. 4

15 At the operational level, the main tool would be a methodology to keep inventory records of the GOV s real estate and to carry out a pilot inventory of MOF's real estate, to be replicated in other agencies. An information system for these assets would be developed in parallel. Component 3 - Human Resource Financial Management and Control. (Project Cost: US$2.7 million) This component would strengthen the capacity of: (i) GOV to monitor and enforce financial controls over human resources; and (ii) MOF to allocate adequate budgetary resources to meet its general objectives and program targets. The component would develop and implement a human resource financial management and control system in each of the units of GOV's central administration and consolidate them in MOF. It would also develop an information approach to produce each entity's payroll and maintain a current and historical roster of employees, and would integrate this data with central SIGECOF in MOF. This would improve the execution of personnel expenditures and provide an adequate information base for human resource expenditure policies. The project would finance: (i) the preparation by SIGECOF of the technical specifications for the required information. An interface to transfer this data would be developed; (ii) the elaboration of a set of regulations for the financial management of human resources; and (iii) the design and implementation of a local SIGECOF for human resources to support these regulations. Component 4 - Rationalization and Planning of Public Expenditure. (Project Cost: US$0.5 million) This component would support the development and application of performance indicators to correlate the outcomes of the budgetary execution process and physical progress with the goals previously established during the budget planning phase. Additionally, these indicators would contribute to the evaluation of the cost-effectiveness of public programs. They would also provide feedback for the elaboration of multi-year budgets based on a well-defined plan for targeting public expenditure priorities. The indicators would also reflect the environmental and social cost of public expenditures. Component 5 - Reform and Institutional Development. (Project Cost: US$0.8 million) This component would support the reform and institutional strengthening of MOF. Efforts would be made to improve the Ministry's internal organization and institutional capacity for the rationalization of public expenditure. The component would also support proposals for an efficient and rational management of public resources and public investment through a phased integration of the various levels of Government (both national and sub-national) to eliminate duplication of responsibilities and general inefficiencies. The component included studies for supporting reforms of the institutional framework related to public finance processes. Reforms would focus on the budget cycle, structural rigidities in the budget, the lack of a mid-term fiscal program and the improvement in intergovernmental relations. 5

16 Component 6 - Project Management. (Project Cost: US$4.4 million) This component supported a Project Coordination Unit (PCU) technical capacity-building. The PCU would coordinate the technical and administrative execution of the project by preparing progress reports required by the agencies participating in the project, supporting the administration of project funds, and assisting Bank supervision missions. 1.6 Revised Components The components were not revised. 1.7 Other significant changes (In design, scope and scale, implementation arrangements and schedule, and funding allocations) Project schedule: The closing date of the project was extended for the first time by one year from June 30, 2004 to June 30, 2005 in order to provide extra time for the implementation of the previously reoriented components. It was extended for the second time by another year to June 30, 2006 in order to complete key pending activities that GOV had identified as priorities. Scope and scale of the project: See section 2.2 Funding allocations: An amount of US$5.5 million of the loan was cancelled before the closing date because GOV determined it would not be possible to spend that amount within the revised Closing Date 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) The Project Appraisal Document (PAD) aimed at strengthening financial public sector and supporting GOV during the implementation of systems and procedures to provide more efficiency and transparency for the management of public finances and to contribute to fight against corruption as substantial goals established by the CAS. During preparation, the project design took into account lessons learned from other public sector projects (especially from the development and implementation of SIGECOF's first stage). Likewise, the design considered the risk factors and appropriate measures were adopted to mitigate them. The project also provided an adequate participatory framework. a) Lessons Learned from previous projects Incentives. Merely adopting a new set of formal rules is not sufficient to change an institutional culture and incentive structure based on informality. Public officials of participating government agencies and subnational governments were committed to using the SIGECOF strategy; otherwise, a project focused on MOF run the risk of being regarded as only serving this Ministry's special needs. Officials must "buy-in" to the program so they are willing not only to learn how to use the strategy but how to put it 6

17 into practice. To foster adherence to new rules of the game, participants should perceive the envisaged changes as a way to make their jobs simpler, yet more efficient and effective. Ownership. The Borrower's sense of commitment and ownership of the overall reform is usually achieved through extensive dialogue with the authorities in all aspects of project design and implementation. Usefulness. With the infrastructure in place, large amounts of financial information will be produced and the project's structured training would teach users how to make information productive in their management practices. Phased training would involve public officials incrementally, overcome potential reticence, and assist them in learning how to use the new tools. GOV began to use this training by acquainting managers and technicians with initial versions of the platform as well as with basic concepts of financial management. Consensus building. Creating a consensus about project implementation costs and benefits is critical. For the achievement of this consensus, the project was presented to a wide audience of senior Executive Branch and congressional leaders, civil society, and key staff within the public administration. Public access to information. For the sake of consensus, increased transparency and accountability, the project should make an effort to publicize the availability of information produced by the systems. Criteria should be established so as to determine levels of access of different groups to the information, including the legislature, other civil servants, the general public, and other public groups. Informing these groups about the availability of the information required the use of social communication campaigns and other informational techniques. PCU administrative capacity. In the case of lessons learned from other Venezuelan operations, the technical capacity of the PCU as well as close supervision of project operations were essential to attain goals on time and with high quality. The project was expected to benefit from the executing unit of the previous project which was implementing SIGECOF satisfactorily. b) Risks and their mitigation. Risk Lag in institutional adaptation to budget's evaluation outcomes Backlog in the approval of law amendments or decrees Unstable macroeconomic outlook Uncertainty about Government's policy framework Failure of agencies to participate, use or maintain the strategy Mitigating measure Develop workable institutional arrangements The strategy counted with high level political support to keep draft law in the National Assembly The project was an integral part of the Government's agenda to improve financial governance Ongoing dialogue between GOV and the Bank was intended to mitigate this risk Engagement in a training/incentives structure and develop workable inter-agency 7

18 Lack of Congressional commitment to reforms Progress of proposals largely determined by political factors Stakeholders not providing input into the process of implementation Management and staff of sector institutions fail to internalize changes generated by the new strategy arrangements. Social communications to develop external constituencies for reform Organize seminars for National Assembly members to engage them in understanding the project's relevance Ensure the commitment of all levels of GOV to the management and control of public finance as an strategic tool Extensive training and direct technical assistance to the ministries were expected to help the implementation. Incentives to entities to adopt reforms in order to increase their influence over the design and execution of their own budgets A comprehensive training program would help adopting the new financial management practices. GOV had identified the strategy as a way to "put the house in order." Counterpart teams in each executing agency would be trained to facilitate project implementation c) Adequacy of participatory processes. The primary beneficiaries which included centralized and decentralized public administration, National Congress, and other donors collaborated with the Bank in the preparation of the project. Other key stakeholders such as academic institutions were consulted during project preparation. 2.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) Project activities were implemented within the political, economic and institutional changes of Venezuela after 1999 which did not affect the accomplishment of the PDO but required adjustments to certain components: i. GOV promoted the structural transformation of public sector by giving priority to the role of the State in society as reflected in legislation (Ley Orgánica de la Administración Financiera del Sector Público LOAFSP- (2000), Ley Orgánica de la Administración Pública (2001), Ley Orgánica de Planificación (2001), Ley de Estatuto de la Función Pública (2002), Ley contra la Corrupción (2003), Ley Orgánica de la Contraloría General de la República y del Sistema Nacional de Control Fiscal (2001)), as well as in the creation of special purpose funds, social programs (Misiones), and new ministerial offices. ii. This change process generated a high rotation of staff throughout the public administration. For instance, from 2000 to 2006 MOF had five different Ministers and the project had three Directors. This generated a natural delay in the contracting processes and product delivery. Likewise, in the interim the project lost consultants with broad experience and professional qualification who could not be replaced. 8

19 iii. iv. The previous project (IBRD-Ln. No. 3225) delivered SIGECOF s information and communications technology (ITC) platform to the National Accountancy Office (ONCOP) to be implemented at the national level and key consultants became ONCOP staff. However, this application was not able to fulfill its function as it lacked of technical skills needed for the integration of financial management systems (budget, accounting, treasury, public credit). As a consequence, ONCOP was not able to produce financial statements since 2001 and the structure and content of budget classifiers and account plans was not conducive to the implementation of an integrated system of financial administration. This project had to redesign SIGECOF s conceptual and functional models and promote the building of a new platform at the national level as well as the design of new classifiers and account plans to meet the requirements of a modern financial administration. This situation delayed the results expected in terms of the implementation of SIGECOF at the decentralized levels. The Bank conducted a Midterm Review (MTR) in 2002, and assessed the progress on project components and the prevailing implementation issues. Based on the recommendations of the MTR, the Loan Agreement was amended in order to: (i) enable the project to benefit from the advanced information technology that had become available after project approval; and (ii) slightly reorient the activities by narrowing the project scope to focus on the financial management module and capacity building of MOF in terms of de-concentrated agencies. This amendment also aimed to make the financial management system sustainable in other institutions and resources were provided to train the trainers which would help sustaining the roll-out in these institutions. The following factors affected project implementation: Factors outside government control or implementation agency ITC Constraints. The SIGECOF s ITC platform delivered as a final product by previous project - was only operating for budget expenditures execution and payment orders. It did not meet basic requirements for the implementation of a modern integrated system of financial administration such as budget revenues execution and the relationship between the budgetary system with accounting systems, treasury and public credit. New Government priorities. There was a substantial change in Venezuelan public sector during the first phase of project execution in terms of revised legislation (see section 2.2), creation of special purpose funds, social programs and new Ministries. Consequently, MOF with the Bank s support, decided to implement a new strategy regarding project management with special focus on the redesign of SIGECOF at the national level for it to become a new modern integrated system of financial administration able to match the new legislation with technological progress following the precedent of successful initiatives in the region. As a result, the implementation of SIGECOF in other decentralized levels was no longer a priority because the strengthening of financial administration of the national level was paramount. Delay in project effectiveness. Originally, the project was to be approved just as the previous project closed in June While this project was approved, the closing date of the previous project was extended by six months to December 1999, to enable GOV to use remaining balances, and then again from December 1999 to June 2000 to help 9

20 financial management activities related to recovery from natural disasters. GOV then decided to use the remaining funds before signing and activating the new operation. Consequently, 12 months passed between Board approval and project effectiveness, triggering a "project-at-risk" rating. The supervision of this project continued during this period (with missions in December 1999 and June 2000) but was reported in the Project Status Reports (PSRs) for the previous project and only vaguely cross-referenced in the PSRs for this project, generating the impression that the new project had not been supervised and that no appropriate action had been taken to resolve the delays in loan effectiveness. Transition in task teams. In mid to end-2000, a restructuring took place in the Bank s Latin America and the Caribbean (LAC) Region that affected the supervision of the project. The entire task team for the project turned over. The Country Department was abolished, the Venezuela program began to be managed from Mexico City, and sector management changed in August These changes complicated the transition of task teams and the maintenance of the project documentation. There was no formal handover to the new task team; briefings and project records were not transferred systematically. No overlapping missions took place. A mission by the new Country Director and Task Team Leader (TTL) in January 2001 and a full supervision mission in April 2001 returned supervision activities to regular operations. Communications systems between the Bank and the Borrower improved, and issues such as an overdue audit report were addressed. Procurement of essential goods and services started at an accelerated pace. Factors subject to government control or implementation agency High Turnover of MOF authorities and project staff. During execution, the project had five different Ministers of Finance and four Project Managers. This high rotation of authorities meant sudden changes in policy direction and delays in the design and operation of key products. There was also some lack of ownership on the side of certain Ministers. The same happened in the Ministry of Planning and Development (MPD) and in some beneficiary ministries there was also a high rotation of counterpart personnel. These facts led to delays in the timely provision of counterpart funding which in turn contributed in slowing down procurement activities. Lags in procurement schedules. The overall slowdown in procurement was due mainly to the high turnover of project staff. On the procurement of the ITC system, the invitation to submit proposals for the monitoring module was published by the PCU about 17 months after receiving the Bank s no objection. This was because, after a change in project manager, the new team stopped the process until they found time to analyze the process background and justification. With this substantial delay, some of the firms included in the short list declined to submit proposals and the team of one of the two firms that submitted proposals varied. Deviations in procurement processes. There were also some deviations in procurement procedures. Selection of individual consultants was not fully made in accordance with the Bank s Guidelines that mandate comparison of qualifications of at least three candidates. Further, the procurement of ITC systems was initially consolidated in two processes. However, to accommodate a more systematic approach to implementation, the Borrower decided to procure the systems in three separate processes which required extra time. 10

21 Finally, the project Procurement Committee was replaced by the Bidding Committee of MOF at the end of This decision delayed the execution of the Procurement Plan because of the lack of experience of the new committee with Bank Procurement Rules. Lag in disbursement schedules. During its first phase, the project had very low disbursements (less than 25% until end 2003). However, as a result of project streamlining and strategic planning in 2004, disbursements improved considerably to reach 80% of the Loan balance (after cancellations) by the closing date. According to a national budget law, for year 2003 the project could not disburse more than US$1.2 million. This amount was not sufficient to finance the US$5.75 millions originally estimated for that year. PCU requested and obtained an additional US$4.5 million to finance the shortfall. Delays in the activation of the special account in BANDES also contributed in slowing down disbursements. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design. Monitoring of project execution was to be undertaken by PCU. The Bank would also monitor project implementation through periodic supervision missions. PCU would provide the Bank with an annual work plan no later than June 30 of the preceding year starting in Annual reviews of the project would be carried out no later than July 31 of each year, starting in July 31, A MTR would be conducted by July 31, 2001 to assess progress in meeting agreed targets, review the impact of the implementation of SIGECOF and to identify required adjustment to project implementation plans. M&E implementation. Appropriate data was actually collected using standard collection methods developed by the project. The quality of data was rated satisfactory by the Bank supervision mission. M&E utilization. The data collected was used by GOV and the Bank to inform decision-making and resource allocation. The sustainability of the M&E arrangements is guaranteed by GOV decision to utilize and strengthen the existing M&E systems beyond the Closing Date. 2.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) There were no deviations or waivers from the Bank safeguards and fiduciary policies and procedures during the implementation of the project. 2.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Transition arrangements. Even though no follow-on project is currently envisioned, GOV has assumed full ownership of the project and ensured its future operation. Most of the key consultants hired under the project have remained as permanent MOF staff for follow-up activities financed within the GOV s own resources. MOF is also interested in continuing to receive specialized technical assistance from the Bank for the strengthening of financial 11

22 administration instruments to give greater transparency and efficiency to the Venezuelan public sector. The Bank may contribute to sustaining benefit, by further monitoring of the project s operation from Caracas country office as a way to maintain dialogue with MOF on a possible follow-on project. Lessons incorporated in the arrangements for post-completion operation. Based on the lessons learned from the project, GOV has adopted the following measures for post-completion operation: To hire key project consultants as regular MOF staff To maintain project structure as a part of the line structure of MOF List of performance indicators. The following set of monitoring and evaluation indicators developed under the project will be used as part of the GOV s regular payment systems operations: Increased cost effectiveness of selected public agencies' operational programs Fiscal savings resulting from streamlined budgets in the main central and decentralized units SIGECOF implemented in deconcentrated administrative units Integration of the existing public debt registry and control systems with the central accounting system and development of a uniform system of management and control of financial operations Establishment of a performance indicators system to monitor the effectiveness of public management Suggested priority and optimum timing of any future impact evaluation. An impact evaluation is recommended for Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The objective was clear and relevant to the country s financial management needs. It helped GOV to design and implement a comprehensive and integrated strategy to manage and control public resources. This strategy enhanced the capacity and productivity levels of MOF, equipped MOF with the tools necessary to play the lead role in promoting efficient and responsive management of public resources. At both the national and sub-national levels, those agencies implementing the strategy also benefited from increased capacity and productivity. As mentioned in Section 6.1, the project was also consistent with the CAS for Venezuela. The project aimed to continue developing an integrated financial management strategy across government levels by extending the satisfactory experience of the financial management component of the Pre-investment and Institutional Development Loan (PIID) which had established the legal, institutional and ICT infrastructure basis to improve public financial management in MOF. The project aimed to help GOV improve its public finance administration and fiscal discipline by providing accurate information in the management of financial and nonfinancial public resources. 12

23 3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) Moderately Satisfactory. The project fulfilled its main objective in terms of : (a) strengthening financial administration in the Venezuelan public sector, working with the core units of MOF in the modernization of financial management; (b) developing tools in critical areas of Venezuelan financial management that can be applied over a long period of time; (c) providing technical answers to the various levels of GOV, given the new realities of the public sector, such as special funds, social programs and new sector ministries; and (d) incorporating the project within the organizational structure of MOF. However, as extra-budgetary public expenditure also increased significantly during project implementation, the overall achievement of the project development objective should be considered moderately satisfactory. 2 The following specific achievements show a direct correlation between the project s outputs and outcomes: The project achieved an increased cost effectiveness ratio in beneficiary Ministries and other agencies at the national level in terms of managerial skills acquired and budget classifiers and account plans developed that guarantee a better computer-based registry and bring more transparent information to effectively support the decision makingprocess of public executives and allow fiscal controls on real-time operations. The project also financed the decentralization of SIGECOF to local entities and its full application to 23 central agencies. The project was instrumental in creating the legal, institutional and ICT infrastructure bases to improve public finance management in MOF. The project dramatically modernized public finance methods and processes, linked central agencies and sub-national governments to an information network, and provided the technical capacity needed to analyze financial information and better allocate resources. In addition, national budget programming and execution improved, as more accurate information allowed decision-makers to plan for the use of public resources. The SIGECOF comprised four basic types of reforms: (i) normative, including legal and policy reforms; (ii) institutional, including organizational culture changes; (iii) managerial, involving the modernization of methods and procedures of each management function; and (iv) instrumental, focusing on the development of related ICT systems and complementary tools. Within this framework, the project facilitated integration of GOV's core financial administration systems (budget, accounting, public debt, treasury, and internal control) together with personnel expenditure management, management of non-financial assets, 2 For instance, to manage the windfall revenues, several funds have been established outside the national budget including FONDEN, which received $8.5 billion in 2005, or 6 percent of GDP. Similarly, a number of the Government s social programs (Misiones) are being financed through the State Oil Company (PDVSA) technically a separate private corporation. 13