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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT (CPL-45370) ON A LEARNING AND INNOVATION LOAN IN THE AMOUNT OF US$5.05 MILLION TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A SOCIAL SECURITY TECHNICAL ASSISTANCE PROJECT JUNE 30, 2005 BRAZIL COUNTRY MANAGEMENT UNIT, LCC5C POVERTY REDUCTION AND ECONOMIC MANAGEMENT UNIT LATIN AMERICA AND THE CARIBBEAN REGION Report No: BR This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective May 26, 2005) Currency Unit = Brazilian Real (R$) R$2.43 = US$ 1 US$ 0.40 = 1 R$ FISCAL YEAR January 1 - December 31 ANSES CAS CNIS DATAPREV ESW FGTS ICR ICT IADB INSS IT LCR MARE MPAS NGO PAD PCU PDTI PMA PMR QAG RGPS RJU SAP SPC SIGECOF S/SECAL SUNSEP UNDP ABBREVIATIONS AND ACRONYMS Argentina's National Social Security Administration Country Assistance Strategy Unified Data Base of Social Information The Government's data processing service Economic and Sector Work Severance Guarantee Payment Fund Implementation Completion Report Information and Communication Technology Inter-American Development Bank National Institute for Social Security Information Technology Latin American and the Caribbean Region Ministry of Administration and State Reform Ministry of Social Security Non-Governmental Organization Project Appraisal Document Project Coordination Unit Information System Master Plan Attention Improvement Program Project Management Report Quality Assurance Group Private Sector Workers Pension System (Regime Geral da Previdencial Social) Public Sector Workers Pension System (Regime Juridico Unico) Secretaria de Estado da Admiistracao e do Patrimonio (formerly MARE) Secretariat of Complementary Pension Funds Intergrated Financial Management System Special Sector Adjustment Loan Superintendency of Pension Insurance United Nations Development Program Vice President: Country Director: Sector Manager: Task Team Leader/Task Manager: Pamela Cox Vinod Thomas Ronald E. Myers Chris Parel

3 BRAZIL SOCIAL SECURITY TECHNICAL ASSISTANCE PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 6 5. Major Factors Affecting Implementation and Outcome Sustainability Bank and Borrower Performance Lessons Learned Partner Comments Additional Information 19 Annex 1. Key Performance Indicators/Log Frame Matrix 20 Annex 2. Project Costs and Financing 21 Annex 3. Economic Costs and Benefits 23 Annex 4. Bank Inputs 24 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25 Annex 6. Ratings of Bank and Borrower Performance 26 Annex 7. List of Supporting Documents 27 Annex 8. Borrower's Evaluation Report 28

4 Project ID: P Team Leader: Chris Parel Project Name: BR INSS REF LIL TL Unit: LCSPS ICR Type: Core ICR Report Date: June 28, Project Data Name: BR INSS REF LIL L/C/TF Number: CPL Country/Department: BRAZIL Region: Latin America and the Caribbean Region Sector/subsector: Compulsory pension and unemployment insurance (94%); Law and justice (5%); Central government administration (1%) Theme: Law reform (P); Administrative and civil service reform (P); Social risk mitigation (P) KEY DATES Original Revised/Actual PCD: 01/11/1999 Effective: 03/31/ /24/2000 Appraisal: 03/25/1999 MTR: 10/01/ /03/2002 Approval: 02/07/2000 Closing: 12/31/ /01/2004 Borrower/Implementing Agency: Other Partners: REPUBLIC OF BRAZIL/MINISTRY OF SOCIAL SECURITY (MPAS) N/A STAFF Current At Appraisal Vice President: Pamela Cox David de Ferranti Country Director: Vinod Thomas Gobind T. Nankani Sector Manager: Ronald E. Myers Danny Leipziger Team Leader at ICR: Chris Parel Mariluz Cortes ICR Primary Author: Denise von Gersdorff; Kathrin A. Plangemann; Chris Parel 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: Sustainability: Institutional Development Impact: Bank Performance: Borrower Performance: S L M S S QAG (if available) Quality at Entry: S Project at Risk at Any Time: No ICR S

5 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The objective of the Project was to provide technical assistance for the design and implementation of institutional and legal reforms in order to help put into effect constitutional changes in the Brazilian Government s social security system, and for advancing changes in the system s provisions regarding private sector workers. To these ends, the Project plan called specifically for supporting measures to: (a) enable the National Institute of Social Security (INSS) to carry out new responsibilities; (b) strengthen the pension and insurance legal framework; and (c) strengthen supervision and regulation of the complementary pension funds system by the Secretariat of Complementary Funds (SPC). These objectives were set to help further the Government s pension reform program. The latter was part of the comprehensive fiscal reform campaign launched to overcome a crisis in Brazil at the end of the 1990s. This was fueled to a considerable extent by a sharp increase in pension expenditures and deficits, which contributed to an overall rise in the country s fiscal deficits and its substantially increased public debt. In November 1998, the Congress approved constitutional amendments which provided the basis for a first phase of social security reforms. The amendments were mainly aimed at: (a) introducing principles of actuarial and fiscal balance in private and public sector workers pension systems; (b) eliminating certain special benefit rules and regimes; and (c) enabling states and municipalities to create complementary pension funds. The Bank subsequently approved an S/SECAL of $ million in December 1998 in support of these policy actions, constituting its initial support of this phase of the pension reform program. This loan for the Social Security Technical Assistance Project, along with the S/SECAL, were consistent with the June 1998 CAS Progress Report (Document R98-116). It called for quick Bank financial support for key reforms in such areas as social security if the Government responded to external shocks with suitable corrective measures. Still other Bank measures taken for these purposes included a State Pension Reform TA Project (PARSEP) and help in arranging a PHRD grant for preparation of a second Social Security S/SECAL. The subject loan, in the course of seeking additional progress in pension reform, attempted to draw on the advantages of LIL features to provide some learning and innovative benefits. One of these elements was a provision to draw on, and to disseminate, international experience in pension reform. This was intended to inform social security stakeholders of the options available in such programs in order to have a more informed public (and possibly enlarging the constituency for reform). A second LIL aim was to define the parameters of possible solutions to the problems of restructuring social security institutions. The Project s objectives were well formulated and timely in relation to the Government s problem. They were closely linked to the requirements for rationalizing the social security system's issues. The Project s design provided clear and well-directed approaches to their remediation. Its components were well aligned with the desired institutional and technical - 2 -

6 changes. 3.2 Revised Objective: N/A 3.3 Original Components: Component 1. Restructuring of the INSS The 1998 constitutional changes included provisions calling for reforms of the INSS (which administers the private sector workers' pension system-rgps) in line with the Government's intentions of reducing that system's generous benefits formula. The authorities were also interested in the possible adoption of individual accounts under further pension system reforms. In addition to these factors, attention was focused on requirements for restructuring the INSS in order to try to overcome some of its deficiencies. The Institute was then the composite of several merged prior organizations. It suffered also from the problem of a very large scale and costly operation. Its revenue collection and benefit control procedures were weak, and its customer service facility had a poor public image. Consequently, the aforementioned S/SECAL set the stage for a series of remedial actions. It helped introduce measures to reduce INSS' costs and improve its collections. For this Project, it was decided to initiate even broader strengthening measures. These include an assessment of the Institute's strengths and weaknesses, based on which a strategic plan would be elaborated. (It should be noted though that consideration of the full implementation of the strategic plan was explicitly left for possible financing under a larger TA loan). In parallel, it was decided to determine what could be done to overcome INSS' lack of both reliable information on contributors and beneficiaries, as well as efficient data processing services. (i) Diagnostic/Strategic Plan This sub-component was to support the preparation of the diagnostic work and design of the Strategic Plan for institutional restructuring. It would evaluate possible institutional changes, define a future profile of the agency and formulate the Plan. Other activities included the evaluation and strengthening of the program to improve attention to users, improvement and validation of information system plan, audit planning and research. The aim of the Strategic Plan work was to design alternatives for the restructuring. (ii) Information System Renewal Master Plan - PDTI This sub-component was to diagnose the prevailing IT situation, design solutions and then develop a Master Plan for information system renewal. The renewal aimed: (a) to improve collection, monitoring and benefit payment functions; (b) adopt a system of individual pension accounts; (c) improve communications between INSS/MPAS and the Government's data processing agent; (d) improve client service center links to the information system; and (e) introduce an effective management information system

7 (iii) Implementation of Management of Contributors by Segment (SGS) This sub-component was to expand the "collection by segments system" (SGS). This was established to implement a contributors' management system. It was focused on groups including the 10,000 largest employers which account for 70% of all collections. The idea was to build on activities completed including the system's design and installation. It envisaged the following complementary activities: (a) SGS installation in 195 centers; (b) training of supervisory staff in SGS uses; and (c) study and research. (iv) Evaluation of CNIS This sub-component was to evaluate the quality of INSS' Unified Databases of Social Information material for determining pension benefits. The INSS had made significant efforts to unify the different data bases of social information under the CNIS. (v) Public Information Dissemination Strategy This sub-component was to help design an effective strategy for informing social security stakeholders about the choices and implications of system reform. Component 2. Pension and Insurance Legal Framework The Project was also concerned with the need for new parameters of the pension system for private workers to conform with the constitutional changes stipulating actuarial and fiscal balances. This component therefore called for studies to show trade-offs of different alternatives for achieving these balances. (i) Regulation of Work-Related Injury Insurance This sub-component would finance: (a) an evaluation of the proposed Injury Insurance Law, and (b) an examination of the regulation of private sector participation in the worker insurance system. (ii) Regulation of the Private Sector Workers System This sub-component was to prepare the legal framework for planned reforms of the RGPS, including the adoption of individual pension accounts. Activities to be financed would be: (a) the elaboration of actuarial models; (b) a study on expanding coverage of social security and (c) additional research. Component 3: Strengthening of Secretariat of Complementary Pension Funds-SPC The constitutional amendment for reforming the complementary system prescribed activities to eliminate or reduce the subsidization of these funds and to tighten their governance. Therefore, the SPC had undertaken institutional strengthening measures to enable it to implement these new provisions. Their main elements include: (a) the elaboration of laws and regulations regarding the - 4 -

8 constitutional changes, (b) upgrading the Secretariat's regulatory and supervisory activities, and (c) consideration of the creation of a new national agency which would regulate all pension funds according to a single set of business practice standards. (i) Preparation of Complementary Laws and New Models This sub-component would finance: (a) the preparation of complementary laws; (b) design and implementation of a new investment model; (c) preparation of actuarial, financial, registration, accounting and other modules; and (d) coordination of related activities. (ii) Preparation of Ordinary Laws This sub-component was to support the: (a) drafting of ordinary laws and regulations; and (b) the conduct of conferences and seminars on the new framework. (iii) Strategic Plan for Regulatory Agency This sub-component was to support the preparation of a strategic plan for the creation of a the new national agency to regulate complementary pension funds. The activities to be financed would be: (a) drafting of the plan; (b) equipment purchases; and (c) staff training. (iv) SPC s Information System This sub-component was aimed at improving, expanding and upgrading SPC s information system and related administrative procedures. The activities financed would be: (a) elaboration of a plan for these purposes; and (b) purchase of equipment and (c) training. (v) External Information Network This sub-component was to provide advisory services for preparing and implementing a new external information network. The Project would finance: (a) a design of the network; (b) equipment; (c) training; and (d) additional studies. Component 4: Project Coordination This component was to enable the implementing institution, the Ministry of Social Security and Social Assistance (MPAS), to establish a project coordinating unit (PCU). The component would provide funds for project administration assistance including training in Bank procurement, disbursement and financial management procedures; the purchase of equipment for the PCU and UNDP management services. It also aimed to create a Technical Unit in the Ministry to assist the PCU in meeting the technical requirements of the Project

9 3.4 Revised Components: The Project's plans regarding the institution for regulation of complementary pension funds were altered to the extent that the planned changes to affect the SPC were set aside. Only after the change in the Brazilian Government administration, did the authorities decide to proceed with the envisaged creation of a new autonomous national agency and new legislation was recently submitted to create a new autonomous organization, "PREVIC". Hence, much of the planned work on this activity was not carried out. In their place, the Government requested the reallocation of the funds involved to provide greater support for the evaluation of CNIS than had been originally designed. The work done in the evaluation had shown a need to expand the existing date bases and create additional ones. As a result, the Government requested, and the Bank subsequently approved, the reallocation of Loan funds to meet the enlarged task. 3.5 Quality at Entry: Satisfactory. Quality at entry was not assessed by the Quality Assurance Group (QAG). This review concludes that the Project's quality at entry was satisfactory. The Project's objectives were consistent with the Government's need and program to improve the long-term actuarial balances of the social security system, in view of its heavy burden on public finances. The Project was well shaped to address the structural problems involved, alongside of the policy measures addressed by the S/SECAL and other Bank-assisted activities. It was thus consistent with the Bank's strategy too. The preponderant Loan support for INSS was appropriate, as well as suitably focused on the reforms it needed to discharge its new responsibilities. During project design, the operation's controversial aspects were well evaluated and covered (although the proposed creation of a new complementary fund national agency was not considered to be very risky). The design did not, however, include particularly substantial "learning and innovation" features. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Satisfactory. The Project achieved its main objectives. Its accomplishments can be expected to help arrest over time the growth of national expenditures and of the public sector pension system deficit, as well as to reduce the complementary funds' debt. In turn, these developments should contribute to the advancement of greater national equity. It bears noting, though, that the Project's accomplishments were 'limited' by the influence of political forces on some planned measures. This applied most notably to the proposed creation of a new national agency for regulation of pension funds, discussed above, and IT strategy and platform definition. However, the deficiency in the case of SPC may be considered to have only constituted a temporary setback. The subsequent enactment of new legislation (Law MP 233) in December 2004 established a new autonomous supervision agency, which has taken over some of the supervisory functions of the SPC. It is expected that this will contribute to a more effective private pension system. In addition, there were also problems which still remain unsolved concerning the proposed improvement of the Ministry's IT operation. It proved difficult to obtain decisions on the related strategy and the platform

10 The project's accomplishments are also significant in that they advanced the changes needed for momentum in the second phase of the social security reform program. This was no small feat given that this reform has to be considered as meeting one of the most important challenges in Brazil. Significant political and technical obstacles still continue to impede these efforts but the project provided important assistance and resources for continuing analytical work and debate and many technical solutions. (Ref. section 4.2) Notable examples include the following: (a) The Project contributed to strengthening the legal framework for pension reform through the design of three Complementary Laws, (two of them already approved by Congress) and the drafting of a Law on Injury Insurance. (b) The Project contributed to the strengthening of INSS' institutional capacity. Its Strategic and Technology Master Plan is now beginning to be implemented (albeit slowly). It helped the INSS to reorganize its activities and staff, improve the calculation and approval of benefits, and to accelerate their payments. The effectiveness of the INSS was also enhanced by the improvements that were made to the integrated data base (CNIS). Similarly, the INSS strengthened its internal audit process and follow-up of large contributors. 4.2 Outputs by components: Component 1. Restructuring of the INSS Enabling Legislation (Satisfactory) Output Sought: Enabling legislation to implement the Constitutional Amendment of 11/98. Target: To have enabling legislation in place Actual: This was completed and approved by Congress. The studies done with Loan funding that contributed to the drafting of laws included: Upgrading/reform of CNIS and verification of data quality and that the data could be used for calculation of benefits from 1976 Draft Law--Inversao do Onus da Prova ( Inverting the Burden of Proof ) Elaboration of a Draft Law regarding Workers/Workplace Insurance; publication of volume #5 of the Social Security Collection, "Work Injury Insurance System in the Americas ( Sistema de Seguro Contra Acidentes de Trabalho nas Américas). Institutional reforms (Satisfactory) Output Sought: To have reforms in place Target: INSS diagnosis and Strategic Plan for institutional restructuring of this agency completed within 6 months after Loan effectiveness. Actual: INSS diagnostic and Strategic Plan involving numerous agencies and activities completed (note: it took about 12 months). The institutional reforms began to be implemented in a largely satisfactory manner

11 Sub-components: (i) Diagnostic/Strategic Plan for the INSS (Satisfactory) The following studies and activities were undertaken and completed. Strategic Plan for INSS with recommendations completed. Diagnostic of processes and service quality in the agencies completed, including the implementation of specific measures intended to improve attention to clients Modernization and improvement plan for Internal Auditing completed. Diagnostic and proposals made for restructuring INSS. Institutional strengthening diagnostics/recommendations across key agencies undertaken. Diagnostic/recommendations completed regarding administrative/judicial efficiency of collections. 170 officials trained as a result of the above study and 40 officials were trained in fiscal management. Computer equipment provided to 102 Executive Offices. Data Mart (MIS) developed for Procuradoria. Data Mart developed for Fiscal Planning and Collections Directory. (ii) Information Systems Master Plan (Satisfactory) Output Sought: Information Systems Renewal Master Plan (PDTI) finished Target: Information System Master Plan finished within 6 months after Loan effectiveness Actual: Master Plan finished Significant progress was made on the design of a high quality IT Strategy Plan. However, its development was not followed by significant progress in its implementation following the Lula administration's assumption of government. The new administration reviewed work done and made changes. Debates continue regarding key issues. Some criticism has been leveled at PROAST and the GOB regarding the need to evaluate more critically INSS's interactions with other institutions and programs. In particular, questions were raised as to whether it should have tackled the debatable issue of the role of DATAPREV, the Government agency which manages the INSS data base and has been criticized for its technical limitations and policy decisions. And greater attention should have been paid to data security in the design of the PDTI. But the PDTI, despite its criticisms, remains an important and technically sound contribution. In addition, component products included: (i) the completion of a diagnostic and recommendations for IT strategic architecture, and (ii) information systems strengthening activities implemented. (iii) Implementation of the SGS system (Satisfactory) Output Sought: Strengthening of the SGS system to manage large debtors Target: The SGS system implemented--connected to all management units--and INSS staff trained. Actual: System changes completed, plus provision of equipment for 103 INSS Management - 8 -

12 Units. The following studies and activities were carried out. Evaluation, review, conceptualization and detailing of the processes of the Active Debt-Divida Ativa system. Redesign of the process of Judicial Collection of the INSS Divida Ativa in the states of Sao Saulo and Rio de Janeiro Evaluation and reform of administrative and judicial collections verifying inconsistency of data, fragmentation of credits, low success rates-especially for large credits. Training of 170 officials in reformed processes 102 INSS Executive Agencies equipped and making use of the SIGS system, Internet, networks, etc.--acquisition of 148 microcomputers, 130 printers, 12 scanners, 29 notebooks Training of 40 INSS staff in a Fiscal Management MBA course Support for developing Data Mart for the area of "Fiscal Action Planning" of the INSS Collections Department Definition of a "Portal of Fiscal Intelligence," (a managerial vision for planning supervisory) Development of Data Mart for the Procuradoria, making available essential data for managing administrative and judicial collection efforts. (iv) Evaluation of CNIS (Satisfactory) Strengthening CNIS ("Unified Data Base of Social Information")--including evaluating its data and proposing improvements to the system was contemplated in the original loan design. It expanded by the reallocation of funding (from the SPC component) to implement recommendations and carry out the work program identified in the initial studies. The studies undertaken were strategic, generally quite solid, comprehensive and well addressed. The implementation of study recommendations could possibly have been pushed more proactivly, which would have required stronger high level leadership, resolution of PDTI issues, and considerable staff training. The remaining challenges include greater exchange of information between different ministries. The following studies and activities were completed: Evaluation of quality of data Development of GFIP information system for obtaining information directly from employers Development of cadastre of natural persons Development of program to permit migration of data to Oracle Development of Data Mart for CNIS Development of system to incorporate unemployment insurance information from the Ministry of Labor Development of a security system controlling access to CNIS Development of a system for identifying natural persons based upon Portuguese phonetics Development of a system (Oracle) to recognize employees rights related to - 9 -

13 employment/remuneration Implementation of OLTP technology in CNIS Elaboration of Data Mart for CNIS-UNISYS Elaboration of system for quality control of the data base of pessoas fisicas ("Protective Shield-Escudo Protetor") Elaboration of system to develop the validate awards/payments of the INSS system ( Projeto Ambiente de Homologacao- Homologation Environment Project) Elaboration of a system to disseminate statistics GFIP Elaboration of Data Mart--CNIS-OracleElaboration of a system to disseminate statistics regarding legal persons pessoas juridicas of CNIS Purchase and installation of six servers and other equipment for CNIS Development of a Project to Create Statistical Indicators GEFIP Elaboration of a Strategic Communications Plan for social security Elaboration of standard visual identity norms in INSS agencies Acquisition of a large central storage equipment--server for the network servers system. (v) Public Information and Dissemination Strategy. (Satisfactory) Output Sought: Studies on expanding coverage Target: Studies completed Actual: Studies completed This component is rated satisfactory because of the sizeable number of activities carried out and their outreach. However, there was not always adequate support from the Ministry to carry out the component dissemination strategies. As a result, in some cases, the design of the dissemination was suboptimal in its targeting, and its implementation could have been more rapid and effective. It is also important to note that the studies performed contained qualitative analyses rather than quantitative ones. Studies and activities completed: Diagnoses of IT and "e-government" to attend the production of films portraying reforms in employers' electronic payment of obligations ("guidelines for electronic payment of social security and payment of Social Security into individual retirement accounts ) and nation-wide dissemination Elaboration of a prototype website to portray individuals social security situation (Prev-Cidadao) Development of a website regarding INSS "INTRA-PREV" Elaboration of a system to present on a website an extract of the work life of individuals Contracting of consultants to support expansion effort in 10 states Publication of "Social Security inclusion, and combating poverty", Social Security and Social Stability; and "Basic course in Social Security" Training of all members of Regional Committees of the Social Stability Program Publication of volumes on strategic topics: political economy of reform, actuarial and financial management, pension reform in Latin America, and the translation of actuarial

14 mathematics of social security. Component 2: Pension and Insurance Legal Framework (Satisfactory) (i) Workers Accident Insurance Law SAT (Modest) Output Sought: Draft Workers Accident Insurance Law Target: Present a draft Law to Congress Actual: Studies completed; a Final Draft Law was produced but was not submitted to Congress. Studies also included Diagnostic/recommendations regarding repercussions of the new SAT model. Survey leading to publication of Volume # 13 of the Social Security Collection Colecao Previdencia Social, "Machinery and Work Accidents" (ii) Regulation of RGPS (Satisfactory) Studies included the following Actuarial analysis --probability tables regarding the concession of benefits for new retirement/pension/loas beneficiaries. Study of the Actuarial Model for Government Employees--creation of a cadastre of 2,150 state and municipal laws and social security benefits in 900 municipalities. Component 3: Strengthening of Secretariat of Complementary Pension Funds-SPC (Modest) When the Government decided not to set up an independent SPC, work under this component was focused on more limited institutional and systems strengthening. (i) Preparation of Complementary Laws and New Investment, Actuarial, Financial, Supervision Models (Satisfactory) Output Sought: Draft Ordinary Laws to Regulate Complementary Pension System Target: Required ordinary laws presented to Congress Actual: Several ordinary laws were presented to Congress Studies carried out included the following. Development of specific norms and analytic tools--resulting in a draft decree to regulate Complementary Law 109 of Proposals to alter the minimum retirement age which influenced the improvement of actuarial results and financial health of systems, and the harmonization of legislative and actuarial practices. (ii) Strategic Plan for new regulatory agency for Complementary Pension Funds (Unsatisfactory) Output Sought: Strategic Plan for new regulatory agency for Complementary Pension Funds

15 Target: Strategic Plan for new regulatory agency for Complementary Pension Funds Actual: This work was not done during loan implementation because the Cardoso administration ruled out proceeding with the creation of an autonomous agency. (iii) Strengthening of SPC Information System (Modest) Output Sought: Upgrade SPC information systems Target: Plan to expand and upgrade SPC's information system completed Actual: A new system partially developed Studies and activities undertaken included: Digitalization and indexation of SPC archived documents resulting in facilitating access and dissemination of documents. Development of specific norms and analytic tools--governing profitability calculation, budgeting, portability, market risks, and dissemination strategies. Development of the DAIEA system that maintains data bases of affiliated complementary pension systems resulting in greater transparency, norms for calculation, standard reports, and facilitating policy development. Development of an integrated MIS-SPC system and affiliated companies' systems (iv) External Information Network and Institutional Strengthening Studies (Satisfactory) Studies and activities carried out produced: Publications (3) on Complementary Pensions' proportional deferred benefits, market regulation, principal norms. Organization of events involving SPC, companies and government agencies with closed systems to explain the application of legislation. Study on acquired rights and breaking contracts, which influenced the definition of plan parameters for financial equilibrium, age limits, compatibilization of rights with pension policy. Manual of procedures on restructuring processes, documents, guidelines. Training of 20 officials in the evaluation of assets and investment portfolios Study on proposals to alter minimum retirement ages which impacted on improving actuarial results and financial health of systems, and equating legislation and actuarial realities. Component 4: Project Coordination Project Coordination was initially rated "highly satisfactory". Nearly the entire loan had been disbursed by the original Closing Date. Taking into account that the Ministry was not always an easy work environment, the PCU did well, e.g., to generate quality terms of reference for the consultants, evaluating proposals and performing the work required to negotiate and sign contracts. However, the final period's work considered just "satisfactory" because of the delays in the purchase of the server which required extensions of the Closing Date of two years. The new administration, upon taking office, questioned the management and direction of the program and

16 brought in fiscal inspectors to verify procurement. It also undertook changes affecting all PCUs in the Federal Government that resulted in an almost complete turnover of staff. This had less impact on PROAST than other MPS loans because most of the loan had been implemented. Procurement Issues. Issues arose as a result of the changes in the PCU and resulting project implementation difficulties. A two year extension was allowed for the purpose of procuring a single large server, which also proved to be a difficult process owing to confusion regarding equipment specification and guarantees. These problems were identified during supervision missions. All procurement under these categories was halted. The Procurement Specialist concluded that the aggregate amounts could not be increased for a second time. The Disbursements Department indicated that the amounts disbursed in excess" of the aggregate limit were ineligible expenditures and should be refunded to the Bank. The PCU suggested, that to solve the issue, they would reverse the disbursement applications of a number of contracts exceeding aggregate limits and fund them instead with counterpart funds. The idea was that, once refunded, these amounts would be available for use against subsequent expenditures, provided these were procured in accordance with Bank rules. The Bank accepted this proposal. Auditing and Financial Management. Initially, there were concerns regarding auditing methodologies and supporting financial systems. The COFRE financial management system introduced by the PCU around the time of start-up was assessed by the Bank, and found to be adequate for generating financial reports and requisite information. It proved to be reliable. FMRs were submitted on a timely basis. In addition to improving financial management systems, the PCU was also instrumental in improving auditing of project funds and INSS funds. Good progress was made by moving towards greater preventive auditing and the good practices initiated in the PCU were replicated in other ministries. 4.3 Net Present Value/Economic rate of return: Typically, activities of this nature are not subject to conventional economic analyses. 4.4 Financial rate of return: Typically, activities of this feature are not subject to conventional financial analysis 4.5 Institutional development impact: One of the principal objectives of the Project was to help bring about reforms to improve the Government agencies that oversee the pension system. This assessment concludes that the Project s performance was satisfactory on balance in meeting this goal. The Project was unsuccessful in realizing the goal of setting the basis for the creation of a new national agency of complementary pension fund regulation. As noted above, this intention was thwarted because of the Cardoso administration's decision to not implement the reform. To be sure though, as para. 4.1 indicates, this can be considered to have been a temporary shortfall since the passage of the 2004 law did ultimately result in the establishment of a new supervisory agency (which partly succeeds SPC). Meanwhile, the targeted plan for internal SPC improvements was developed. The Project was more successful in bringing about the envisaged INSS improvements. The

17 Government obtained the important agency assessment and resulting strategic plan, which sets a framework for accomplishment of the intended restructuring. Initial implementing actions have been taken. Thus, the target was met. And it merits noting that the Borrower s segment of this ICR (ref. Annex 8) cited still other useful achievements than those reported in para. 3.3 on Component 1. These include the creation of a new information technology unit, installation of better yardsticks to gauge the performance of executing management units, and the installation of stronger controls on employer contribution payments. Collectively, these actions represent a quite positive advance. However, they do not comprise fundamental structural improvements (which the Project did NOT promise). It is uncertain moreover how far and well the INSS strategic plan will be fully put in place. COMPONENT/ BENEFICIARY I Restructuring the INSS INSS (Controller s Division ( Controladoria ), CGINF and SGS) MPS (SE, Social Communication) ACTIVITIES/ Current Use and Impact of Outcomes MAJOR PROJECTS 1. INSS Strategic Plan The Annual Operating Plan of the INSS employs strategic guidelines established by the INSS Strategic Plan undertaken with Project resources. 2. Information Technology Master Plan 3. Implementation of Segment Management System - SGS. 4. Quality Assessment of CNIS data 5. Strategic Social Communication Plan At present, all contracts and procurements involving the information technology area must be in line with the Information Technology Master Plan drawn up by the company contracted. The Segment Management System was an innovative task based on dividing debtors into different segments and different economic status levels. The training that was provided and the expanded technical resources incorporated by the SGS contributed to improvements in the quality of work. The CNIS is the National Register of Social Information, basically a register containing data about Brazilian workers. The register is used by Social Security and a number of other government bodies. A range of measures and rules was introduced to enhance the security of the data contained in the CNIS. Furthermore, a quality evaluation was undertaken of such data, which confirmed that the registered data is reliable and can be employed for granting benefits from 1976 onwards, thereby eliminating the need for beneficiaries to present date-specific documentation. A Bill was drawn up covering utilization of all CNIS data in the process of automatic recognition of rights for the award of benefits for workers from However, this Bill has not yet been voted on in the Congress. The figures have in effect been used for calculating benefit payments from July 1994 onwards. A company undertook a survey dealing with the public s image and opinion of, and satisfaction level with, the INSS. At present, the measures outlined in this Plan are used indirectly by the Ministry of Social Security, with the research data being employed as a source of information for social communication projects

18 II Legal Structure of the Social Security General Regime RGPS and SAT MPS and Social Security Secretariat SPS 1. Legal appraisal of Parliamentary Bill 2. Regulating the participation of the private sector in the Accident at Work System - SAT 3. Elaboration of the pure actuarial model 4. Studies on the expansion of coverage The final draft of the Bill concerning Accidents at Work insurance, drawn up on the basis of appraisals and opinions of contracted consultants, was not approved by the National Congress. In view of the non-approval of the Bill, the resources that were initially earmarked for this activity were reallocated to the activity on "Study of the Expansion of Coverage". Consultants were contracted to draw up probability tables of entries concerning new retirement pension ( aposentadoria) and family survivor (pensão) benefits. These projections are used for awarding retirement pensions and family survivor benefits. A range of training activities was carried out in addition to activities aimed at educating the public in general on Social Security questions. The latter consisted of seminars and a series of publications on the influence of Social Security on Brazilian society. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Positive. The devaluation of Brazilian currency vis-à-vis the US dollar resulted in significant increases in Project funds. This helped give more momentum to the implementation of activities. Negative. The transition disruption attending the change in Government plus change in rules regarding employment in PCUs caused some delays in project implementation. 5.2 Factors generally subject to government control: Positive. The support and commitment of high level Ministerial authorities were critical, as were the experience and dedication of the PCU team which was able to implement almost the entire loan in the 3 year loan period a rarity in Brazil. Negative. Government's delay in taking decisions constrained the reform of SPC. The new administration brought a different approach to IT and other issues that resulted in important changes and leaving some issues still pending. 5.3 Factors generally subject to implementing agency control: Positive. Procurement, disbursement and financial management issues were managed efficiently by the PCU. Its stability was an important factor up to the change in administration. Monthly meetings and presentations to top Ministerial staff facilitated implementation. Negative. The Borrower also indicated that the inexperience of new PCU staff created some delays in procurement and contract/implementation

19 5.4 Costs and financing: The total cost of the Project was US$9,722,270 compared with the Project Appraisal Document (PAD) estimate of US$10,050,000. The Bank financed US$4,857,107 million (49.96%), while the Government contributed a total of US$4,865,166 million equivalent (50.04%) 6. Sustainability 6.1 Rationale for sustainability rating: Since fiscal sustainability continues to be Brazil's central economic challenge, and increased equity one of its most pressing social challenges, the Government has shown its appreciation that the pension system will need further reforms. Therefore, it is likely that the changes which this Project advanced will be sustained for the further advancement of the reform program. This forecast is supported by the now extensive evidence that Brazilian Government administrations (even of differing parties) have been serious about tackling the pension systems' strains on public resources and ending their past abuses. The constitutional amendment of December 2003 demonstrated continuing resolve as well as progress in efforts aimed at rationalizing pension expenditures and deficits. However, the expectation of still greater changes needs to be qualified. Some of the additional reforms required involve some complex areas and very sensitive political undertakings, a number of which may need the approval of two thirds majorities in Congress. And much will depend on the extent to which Brazil maintains a sound macroeconomic program. 6.2 Transition arrangement to regular operations: In June 2005, the Bank approved a programmatic Loan for further social security reform, primarily for public sector works, along with further changes concerning private sector workers and the "voluntary pillar". In addition, it is preparing a TAL that addresses INSS/Complementary Pension issues. 7. Bank and Borrower Performance Bank 7.1 Lending: Satisfactory. The Bank s extensive sector and operational work provided it with an in-depth knowledge of social security in Brazil, which led to an effective identification of the main challenges it faced. It also led to a high quality in the design of the operation as well as other Bank projects in Brazil and Argentina. The Project's monitoring yardsticks were well designed and targeted. 7.2 Supervision: Satisfactory. The Bank s supervision was satisfactory. The Project was supervised regularly and its ratings were adequately reported. During the interviews conducted as part of the ICR preparation, management and staff in government repeatedly praised the input from Bank counterparts. Tasks managers and teams were perceived as very responsive to client needs, reacting promptly to requests and dealing professionally and courteously with the clients, even under difficult circumstance, and providing adequate support as needed. At times, relations were tense but task managers and other staff succeeded in maintaining the channels of communication

20 open. 7.3 Overall Bank performance: Satisfactory. Overall Bank performance was satisfactory during all stages of the Project cycle. Borrower 7.4 Preparation: Satisfactory. The Borrower s performance in the preparation of the Project was satisfactory. The Administrations were committed to accomplishing the objectives set out for the implementation of the second phase of pension reform. Government officials and staff of the implementing agencies worked closely with the Bank s team on a continuous basis providing good cooperation and all information required. 7.5 Government implementation performance: Satisfactory. Under the Cardoso Government there was strong commitment for fulfilling the Project's objectives. The new administration, however, halted progress on many initiatives made under the Bank loan for 8-10 months (not counting the six months prior to elections when everything stopped) as it took stock of what had been done. The Minister was changed as were the technical teams. Progress on important initiatives and especially on the fate of key IT Strategy work was stopped and changes were introduced. On balance, however, the Government's performance is rated "Satisfactory" because it largely achieved what it set out to do under the loan. Also, the PCU and MPS officials demonstrated considerable flexibility and creativity in carrying out the numerous activities. And according to the Ministry, the practices developed for project management were recognized as a national model by the Office of Good Practices at INFASIG. 7.6 Implementing Agency: Satisfactory. In the first three years of operation, almost all anticipated results were achieved, a significant achievement. Project unit staff have generally been highly professional, technically strong and results-oriented although the turnover in project staff under the successor administration initially created problems. 7.7 Overall Borrower performance: Satisfactory. Overall Borrower performance is rated satisfactory. The Project did not suffer from major counterpart funding, procurement or financial administration problems; audit reports were generally available on or just after the due dates, and there were no major accountability issues. 8. Lessons Learned (a) Project ownership and implementation team continuity is key. Under the first administration, and when the PCU team was intact, loan implementation functioned very well. But the project suffered when the turnover of staff occurred. Could anything have been done to improve the transition from one administration to another? Perhaps not as the gulf between the two political parties was very great. Conceivably, some mitigating actions were possible, e.g. (i) preparation of a transition strategy and studies supporting key reforms, (ii) a fuller dissemination of project objectives among staff likely to continue in important ministerial positions, (iii) planning for the transition and courting the new administration, explaining the advantages of carrying

21 through with the existing programs, (iv) stressing the high cost/benefit return of IT and other reforms, (v) undertaking public information and stakeholder campaigns prior to elections. But it is not at all certain that any of these would have made a difference. Also it would have required unusual action on the part of the project team and a willingness to intervene in such sensitive circumstances. These actions are not always advisable either. (b) Upfront investment in PCU staff. The Ministry had little experience in multilateral (IFI) project funding and lacked trained procurement and financial management staff. (Even today the procurement unit in the Ministry does not handle IFI projects). In such circumstances, an investment in helping the client adapt to a "project culture" and master Bank procedures could pay dividends. The Bank should insist on Bank training for PCU staff, especially in procurement. (c) Promoting a culture of strategic planning. During interviews, the Borrower consistently highlighted the need for a culture of strategic planning for project management and the need for better defined mechanisms for project monitoring and control. It suggested that instruments for control of project activities be designed well before implementation begins and then fine-tuned during the period of execution, especially for IT systems. (d) Maintaining Flexibility. Much work was carried out for this project which contributed importantly to its impact. Many of the studies and activities were shaped as the project progressed. e.g. the CNIS work. In this regard, a LIL's flexibility can be very important, especially in difficult institutional strengthening projects in challenging environment. The early LILs, before they were converted into 'hypothesis testing' exercises, were well suited to challenging institutional environments. PROAST testifies to the utility of small, flexible and well targeted technical assistance operations. The State Pension Reform LIL--PARSEP which closes in December will reaffirm this finding. The Bank needs to continue to make space for small, targeted, flexible operations which are too often avoided because of cost, a bias towards larger loans, and limitations on SIL and total loan numbers. (e) Maintaining contact with middle income countries. Social Security system reforms in Brazil were the culmination of many years of ESW and policy dialogue. In an MIC such as Brazil, this association plays a valuable role. And the Bank has learned a good deal from Brazil in this process. 9. Partner Comments (a) Borrower/implementing agency: See Annex 8 [Borrower s Evaluation Report] (b) Cofinanciers: N/A (c) Other partners (NGOs/private sector): N/A 10. Additional Information A. The Bank s ICR Team consisted of the following members: