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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 (FSLT-71340) ON A LOAN IN THE AMOUNT OF US$155.0 MILLION TO THE REPUBLIC OF COLOMBIA FOR A SOCIAL SECTOR ADJUSTMENT LOAN June 2, 2003 Human Development Sector Management Unit Colombia, Mexico and Venezuela Country Management Unit Latin America and the Caribbean Region Report No: CO 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 as of June 2003) Currency Unit = Colombian Pesos (COP) Colombian Peso $2, = US$ 1.00 US$ = 1 Colombian Peso FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ARS Administrator of the Subsidized Regime (Administradora del MIS Management Information System Régimen Subsidiado) CAIPS Centers for Integrated Attention for Pre-School Children MOF Ministry of Finance Cajas Cajas de Compensación Familiar MOH Ministry of Health CAS Country Assistance Strategy MPS Ministry of Social Protection (Ministerio de Protección Social) CNSSS National Council of Social Security in Health NGOs Non Governmental Organizations Codhes Consultancy for Forcibly Displaced Persons and Human Rights PAC Annual Caja Plan (Plan Anual de Caja) (Consultoria para el Desplazamiento Forzado y los Derechos Humanos) CONPES National Council of Economic and Social Policy (Consejo Nacional de Política Económica y Social) PLRSSAL Programmatic Labor Reform and Social Sector Adjustment Loan DANE National Administrative Department of Statistics QAG Quality Assurance Group (Departamento Administrativo Nacional de Estadística) DNP Department of National Planning (Departamento QER Quality Enhancement Review Nacional de Planeación) DP Development Plan RAS Safety Net Programs (Red de Apoyo Social) DTP3 Diphtheria-Tetanus-Pertussis Vaccine RSS Social Solidarity Network (Red de Solidaridad Social) EN New School Program (Escuela Nueva) SABER National Evaluation System for the Quality of Education EPI/PAI Expanded Immunization Program SAT System of Tutorial Learning (Sistema de Aprendizaje Tutorial) EPS Health Promoter Enterprises (Empresas Promotoras de Salud) SECAL Social Sector Adjustment Loan FOSYGA Solidarity and Guarantee Fund (Fondo de Solidaridad y Garantía) SENA National Learning Service (Servicio Nacional de Aprendizaje) GDP Gross Domestic Product SER Rural Education Service (Servicio de Educación Rural) GOC Government of Colombia SFAL Structural Fiscal Adjustment Loan IBRD International Bank for Reconstruction and Development SINERGIA National System for Evaluation of Results of Public Sector Performance ICBF Colombian Institute of Family Welfare (Instituto Colombiano de Bienestar Familiar) SISBEN System of Beneficiary Selection (Sistema de Selección de Beneficiarios) IDB Inter-American Development Bank SNSSS National System of Social Security in Health IDP Internally Displaced Population SOH Superintendent of Health IMF International Monetary Fund SRM Social Risk Management System INS National Institute of Health SSR Social Risk System (Sistema Social de Riesgo) ISS Institute of Social Security (Instituto de Seguridad Social) TOR Terms of Reference LAC Latin America and the Caribbean Region UPC Risk Adjustment Premium MEN Ministry of Education WBG World Bank Group Vice President: Country Manager/Director: Sector Manager/Director: Task Team Leader/Task Manager: David de Ferranti Isabel M. Guerrero Ana-María Arriagada Vicente B. Paqueo

3 COLOMBIA Social Sector Adjustment Loan 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 5 5. Major Factors Affecting Implementation and Outcome Sustainability Bank and Borrower Performance Lessons Learned Partner Comments Additional Information 18 Annex 1. Key Performance Indicators/Log Frame Matrix 19 Annex 2. Project Costs and Financing 30 Annex 3. Economic Costs and Benefits 31 Annex 4. Bank Inputs 32 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33 Annex 6. Ratings of Bank and Borrower Performance 34 Annex 7. List of Supporting Documents 35 Annex 8 (additional). Partner comments full text 36

4 Project ID: P Team Leader: Vicente B. Paqueo Project Name: CO- Social Sector Adjustment TL Unit: LCSHS ICR Type: Core ICR Report Date: June 27, Project Data Name: CO- Social Sector Adjustment L/C/TF Number: FSLT Country/Department: COLOMBIA Region: Latin America and Caribbean Region Sector/subsector: Health (30%); General education sector (30%); Other social services (30%); General public administration sector (10%) Theme: Health system performance (P); Education for all (P); Other social protection and risk management (P); Public expenditure, financial management and procurement (P); Decentralization (S) KEY DATES Original Revised/Actual PCD: 01/17/2002 Effective: 09/17/ /17/2002 Appraisal: 02/20/2002 MTR: Approval: 08/01/2002 Closing: 12/31/ /31/2002 Borrower/Implementing Agency: Other Partners: Republic of Colombia/Ministry of Finance (Public Credit); Republic of Colombia/Department of National Planning; Republic of Colombia/and other agencies STAFF Current At Appraisal Vice President: David de Ferranti David de Ferranti Country Director: Isabel M. Guerrero Olivier Lafourcade Sector Manager: Cristopher Chamberlin Ana María Arriagada Team Leader at ICR: Vicente B. Paqueo Vicente B. Paqueo ICR Primary Author: Vicente B. Paqueo; Tarcisio Castañeda 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: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) Quality at Entry: 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 Colombia Social Sector Adjustment Loan (SECAL) was prepared at the end of former President Andres Pastrana s administration ( ), when the peace process had broken down and Colombia was suffering from a protracted economic and social crisis. In 1999, Colombia experienced its largest recession in 70 years with GDP falling by 4.3 percent. The recession was accompanied by a growing fiscal imbalance with public sector debt rising to close to 50 percent of GDP by On the social front, the historical unemployment rate doubled during the late 1990s, inequality continued to rise, and a number of poverty measures rose dramatically, including a 7 percentage point increase in urban poverty between 1995 and 1999, reversing a decade of poverty reduction progress. Politically, the crisis was accompanied by an intensification of Colombia s internal conflict, the displacement of hundreds of thousands of people, and a general increase in violence and insecurity. The SECAL was designed to encourage and enable the outgoing Pastrana administration s momentum on several key social reform initiatives that were developed with active World Bank support. The Government of Colombia (GOC) and the Bank agreed on a broad policy agenda that would support efficiency improvements with little or no additional budget allocations and several key reforms based on extensive Economic and Sector Work, carried out jointly between the GOC and the World Bank. The loan was approved in August 2002, just before inauguration of the current president of Colombia, President Alvaro Uribe. The SECAL supported a smooth transition based on timely financial support, provided continuity in Colombia s social sector development, and created an opportunity for the newly-elected government to commit itself to key social reforms supported by the loan. The SECAL, a one-tranche loan, was designed to establish a foundation for the expansion of critical reforms that, combined with follow-up actions, would significantly contribute to the advancement of social sector strengthening and the political sustainability of fiscal adjustments. The SECAL had three overarching objectives. These were to: (a) Consolidate the current stage of Colombia s Bank-assisted social sector strengthening program based on supporting key reforms in education and health and an integrated social risk management strategy; (b) Encourage the incoming administration to incorporate follow-up activities in its medium-term strategic agenda to carry forward the reforms supported by the loan; and (c) Provide the GOC with a financial cushion and support for social measures to complement the fiscal reforms under the Bank-supported Structural Fiscal Adjustment Loan (SFAL, Loan 7092-CO, approved December 2001). Assessment The stated objectives of the loan were chosen satisfactorily. These objectives supported the Country Assistance Strategy (CAS) and given the political and financial circumstances, they were appropriate, realistic, and responsive to the GOC s priorities. The SECAL represented the culmination of the GOC s Bank-supported social sector strengthening activities over previous years ( ). The loan was complemented by the continual engagement of the Bank with Colombia in support of social protection programs with the Human Capital Protection Project (Familias en Acción-Families in Action, Loan 7050-CO) and the Community Works and - 2 -

6 Employment Project (Empleos en Acción-Employment in Action, Loan 7017-CO) approved as part of the Red de Apoyo Social (Social Support Network, RAS) emergency safety net program. Analytical work included studies such as the Colombia Poverty Report (2002), the Colombia Social Safety Net Assessment (2002), and Colombia: The Economic Foundation of Peace (2003), which all helped to identify major social reform areas. The social sector program was also closely coordinated with the Inter-American Development Bank (IDB). The IDB Social Sector Adjustment Credit was processed in parallel and IDB financed a complementary Youth Training Project (Jóvenes en Acción), also part of the RAS program. As a SECAL, the processing and approval was pre-conditioned on maintenance of a satisfactory macroeconomic framework. In this respect, the GOC had obtained International Monetary Fund (IMF) support for its macroeconomic program under a Stand-by Agreement dated January In retrospect, the risks of negotiating with and supporting the outgoing administration were widely recognized and discussed with representatives of the different presidential campaigns during loan preparation and appraisal and later, with representatives of the new government, who, for the most part, endorsed the conditions of the SECAL. Simplifying the Loan Policy Matrix could have lowered the project risk. First, the project could have reduced the numerous specific actions set out as conditions of the SECAL and the heavy burden on the large number of agencies that had to be mobilized in the preparation of the project. Second, the project could have lowered the complexity arising from the wide range of sectoral issues and the large number of central and local government institutions it had to deal with. However, largely because of the strong ownership and commitment of the GOC, the project was not impeded by delays in the fulfillment of the policy conditions. 3.2 Revised Objective: The Program Objectives were not revised. 3.3 Original Components: The social reform program under the SECAL consisted of four components, as detailed below and in the Matrix of Conditions (see Annex 1). Component 1. Improve Transparency and Citizen s Oversight of Social Programs. Colombia has traditionally needed effective monitoring and evaluation systems of public sector and specifically social programs. As a result, many programs of dubious impact continue to be operated at a great expense to social budgets. Also, the public, particularly the poor, are not well informed about assistance they can apply for when they are in desperate need of help. This component was designed to improve the governance of social programs with greater transparency of their impact and citizens oversight of their performance through the introduction of a system of impact and performance evaluations and public monitoring of the GOC s main social sector programs. This component sought to help the government to address this situation by: (a) completing impact and performance evaluations of the three newly created RAS safety net programs: Empleos en Acción, Familias en Acción and Jóvenes en Acción; (b) inducing the Instituto Colombiano de Bienestar Familiar (Colombian Institute for Family Welfare, ICBF) and the Servicio Nacional de Aprendizaje (National Learning Service, SENA) to enter into the culture of monitoring and evaluation of their main assistance and training programs; and (c) reinforcing monitoring and dissemination activities of social programs through SINERGIA (National System for Evaluation of Results of Public Sector Reform), the evaluation unit in the Departamento Nacional de Planeación (Department of National Planning, DNP)

7 Component 2. Develop a Comprehensive Social Risk Management System. As indicated in the Social Safety Net Assessment, Colombia lacked a coherent social assistance network for protecting the poor and most vulnerable during crisis times and for addressing the needs of the chronically poor. Due to the fact that the financing of most social insurance and assistance programs is tied to payroll contributions, expenditures are highly pro-cyclical. For instance, the budget of ICBF declined by over 10 percent during the recession of 1999 (a much larger decline than GDP), due to the large increase in unemployment to about 20 percent of labor force. This component was designed to improve Colombia s state of readiness to assist the vulnerable poor during times of crisis; strengthen social assistance and insurance to chronically poor during normal times; improve the quality and coverage of early childhood development services; and assist the internally displaced population (IDP). The main actions were to: (a) encourage the outgoing and, especially, the incoming administration to undertake bold steps to create a comprehensive counter-cyclical Social Risk Management System to protect the poor and vulnerable during crisis times; (b) improve coverage, effectiveness, and efficiency of ICBF s main assistance programs; and (c) improve coverage of services to the chronically poor and displaced populations a growing problem in Colombia with the intensification of the civil conflict. Component 3. Expand Health Insurance Coverage and Support Improvements in Resource Use. Beginning in 1994 since the implementation of Law 100 (health sector reform), Colombia rapidly expanded health insurance coverage through the contributory (formal sector) and subsidized (for the poor) regimes. In 2001, 24 million people or 52 percent of the population were affiliated with the two regimes (13 million in contributory and 11 million in subsidized). However, the switch from financing public hospitals (the supply) to financing the demand (health insurance), which provides most of the money for the subsidized regime, was difficult because of pressures from hospitals and other groups and the lack of efficient hospital administration. In addition, public health activities have suffered since financing for public health activities was transferred to health insurance companies and regional governments, without a clear definition of responsibilities among the different actors. Law 715, enacted in 2001 to improve transfer mechanisms and define responsibilities to departments and municipalities, corrected these flaws. This component was designed to improve the health status and reduce financial risks from illness through the achievement of universal health insurance coverage and the strengthening of the control of communicable diseases. This component sought to encourage the GOC to: (a) promote further expansion of the subsidized health insurance regime; (b) improve resource allocation of health sector transfers to territorial entities through the application of the new formula of Law 715; (c) enhance the supervision role of the Superintendent of Health (SOH); and (d) increase immunization coverage rates, which had dropped to dangerous (ineffective) levels in the last few years. Component 4. Improve Public Education Regulatory Framework. Colombia s education spending increased rapidly over the last ten years, mainly as a result of the 1991 Constitution, which increased education (and health) resources, and mandated their decentralization to departments and municipalities. The distribution formula in Law 60 of 1993 did not however, provide incentives for efficient use of resources and increase coverage, but instead was driven by teacher costs in each territorial entity. The new formula in Law 715 of 2001 links the transfer of resources to the number of students attending, the coverage gap, and poverty, therefore creating incentives for increasing coverage and attending to poor areas. This component was designed to improve the overall educational status for children through increased - 4 -

8 efficiency and equity in the allocation of resources. This component was proposed to help the GOC to: (a) implement the new rules of Law 715 regarding resource transfers and support all the necessary measures (including reorganization of territorial education secretaries, improvement of information systems, etc.) which are needed for implementation at national and territorial levels; and (b) encourage the GOC to introduce new service provision alternatives, including contracting out to the private sector and providing scholarships (vouchers) to poor high performing students. Assessment These four components were well identified, each responding to the main sector issues and supporting the overall project objectives. The main policy actions were developed through extensive sector work and lessons learned from previous social sector adjustment operations. The Department of National Planning (DNP), which is responsible for investment and program coordination and for preparation of the four year Development Plans, coordinated all the components and requirements. The achievement of these components was linked, to a large extent, to the enactment of laws and regulations, most of which occurred during project preparation or before Board presentation. Bank staff and consultants commented on drafts and made suggestions for improvement. Focusing on legislation and basic institutional building was a judicious decision since it often takes a new administration time to become informed and produce needed regulations (regulatory decrees and other norms and procedures) thus, setting the stage for continuation of the reforms and providing the groundwork for faster implementation. 3.4 Revised Components: Not applicable. 3.5 Quality at Entry: ICR Rating: Satisfactory. Project preparation was guided by a rich body of previous sector work in the areas of the project objectives and there was close coordination with other donors, including the IDB and the IMF and consultation with stakeholders. Since 1998, the GOC and the Bank were engaged in joint sector work on poverty, an assessment of social assistance programs, and social protection lending operations (reports listed in Section 3.1). The focus of the SECAL was to support the legal and basic institutional underpinnings for the advance of social reforms in health, education, and social protection. In this regard, the loan was fully consistent with the CAS, since its main objectives for Colombia were to support the government's objectives, poverty alleviation, social development, and sustainable economic growth. To date, there has not been a Quality Assurance Group (QAG) review of the SECAL, one is scheduled for July However, the task team requested a Quality Enhancement Review (QER), which reviewed the rationale for the adjustment operation, its timing, its design, and the substance of the policy matrix. The QER was carried out by the network anchor, with participation of experts in and outside the sector, and helped guide the development and implementation of the SECAL. The QER's recommendation focussed on the risks of a one-tranch adjustment loan at the end of an administration. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: - 5 -

9 ICR Rating: Satisfactory. The project was successful in achieving its three overarching objectives. The lending operation encouraged and enabled the outgoing administration to continue its social reform initiatives until its final days. At the same time, it provided a timely opening for the incoming government to commit itself to the social reform agenda supported by the lending operation. The new government s four year Development Plan, Hacia un Estado Comunitario (Towards a State Based on Community Spirit) not only continues, but also extends and deepens many of the SECAL reforms, including: (a) Greater transparency and citizens oversight by extending this concept to the hiring of high-level regional officials of the Instituto de Seguridad Social (Institute of Social Security, ISS), SENA, ICBF and new Ministerio de Protección Social (Ministry of Social Protection, MPS) based on merit rather than on political considerations, under the meritocracy program headed by the Vice-President; (b) Implementation of institutional reforms to better coordinate and to increase impact of social spending, including health, social assistance and safety nets for the poor and most vulnerable, with the creation of the Ministry of Social Protection and the Social Protection Fund; (c) Continued expansion of the subsidized health insurance regime and increasing immunization coverage for 2002 and 2003; and (d) Rapid expansion of secondary and tertiary education and measures to improve efficiency of regional education budgets. Macroeconomic Management Colombia has a long tradition of prudent and successful macroeconomic management, including good debt management. Nonetheless, GDP growth has slowed in recent years, with the economy growing by 1.4 percent in 2001 and by about 1.6 percent in The slowdown in growth is mainly the result of low private investment levels (reflecting the deterioration of domestic security conditions) and a difficult external environment. Colombia's traditional exports fell in 2001 and 2002, because of declining petroleum production (and despite a rise in world oil prices); historically low international coffee prices; and difficulties in the important Venezuelan market. Supported by prudent macroeconomic management, declining imports helped maintain a surplus in the trade balance and kept the external current account deficit under control (at an estimated 1.7 percent of GDP in 2002). Inflation declined in 2002, staying in the 6-7 percent range over the last 12 months; this allowed the Central Bank to reduce interest rates, which, along with enhanced prudential regulation helped the financial sector rebound from the significant crisis of Over the past half-decade, new realities have emerged in Colombia's fiscal domain, including significant public sector deficits and large future fiscal liabilities. Total public sector debt in Colombia is at about 56 percent of GDP, while the estimated fiscal deficit for 2002 is 4 percent of GDP. Nevertheless, the Uribe administration has stressed its commitment to continue the fiscal adjustment efforts of the previous administration. In December 2002, Congress approved a strong tax package estimated to yield an increase in tax collections of about 1 percent of GDP in 2003, 1.2 percent in 2004, and 1.7 percent of GDP by In addition, Congress has already passed two key structural reforms: (a) a strengthened pension reform to address the looming deficits of the social security sector; and (b) a labor reform to increase flexibility in Colombia's rigid labor market. The fiscal deficit is expected to come down to 2.5 percent of GDP in 2003 and 2.1 percent in Previous and current administrations have continued to implement sound macroeconomic policies, within the framework of the agreements with the IMF. The Uribe administration has already undertaken key reforms to strengthen the fiscal accounts, while the Central Bank and other public bodies continue to - 6 -

10 implement sound policies consistent with the overall policy framework. The GOC requested a new Stand-by Agreement from the IMF, which was approved by the IMF Board in January The IMF program proposes to slow the pace of growth of public expenditures, contain sub-national indebtedness, and make the pension system more sustainable. 4.2 Outputs by components: The specific status of each component, as of February 2003, is detailed in Annex 1. An evaluation of achievement of the outputs by component is discussed below. 1. Transparency and Citizen s Oversight of Social Programs. ICR Rating: Satisfactory. The main advances in this component occurred in the evaluation of the three RAS safety net transfer programs Familias en Acción, Empleo en Acción, and Jóvenes en Acción. For Familias and Empleos en Acción programs, baseline surveys were carried out in mid-2002 for experimental and control groups, and the final surveys and reports are expected during 2003/04. For the Jóvenes en Acción program (IDB financing), the surveys will be carried out in More modest advances occurred in evaluation of ICBF family welfare and SENA training programs. Terms of Reference were prepared as indicated in the Policy and Evidence Matrix prior to Board Presentation (Annex G of Program Document and Annex 1), and the studies are being carried out. ICBF and SENA manage traditional programs, which were expected to be evaluated to assess their impact and cost-effectiveness. The institutional development impact of this component is considered Substantial. A coordination group with responsibility for impact evaluations was created under the SINERGIA group (System of Public Sector Results Monitoring) in DNP, to coordinate the impact evaluation studies and disseminate results. In addition, local firms, working with international counterparts, are applying methodologies, statistical analysis and other aspects of impact evaluation that will strengthen local capacity. Additional coordination and better engagement in policy dialogue among DNP, the Bank, SENA, and ICBF to show the benefits of good evaluations will be beneficial for future attempts to introduce impact analysis in these institutions programs. The sustainability of this component is considered Likely. A CONPES (Consejo Nacional de Política Económica y Social, an authoritative statement of government policy and guidelines issues by the Legislature s National Council of Social and Economic Policy) was issued in 2002 mandating evaluation studies for major social programs, including those of SENA and ICBF. Based on this CONPES and the ongoing successful experiences with evaluation of the RAS programs (Familias and Empleos en Acción), the GOC needs to develop specific policy measures and technical guidelines regarding the design and costing of impact evaluations of social programs. There are two significant issues in this component. First, although the impact evaluations of the RAS programs are being completed, it is not clear that the other impact evaluations have been accorded the necessary financial and technical attention for successful design and launching, particularly for the main social assistance programs (ICBF and SENA) that were identified as needing evaluations by the CONPES statement and whose evaluations are needed to inform reforms in the social risk management system. The outgoing administration was unable to commit funds for the following fiscal year, it could only make budgetary recommendations. Commitments involving financial allocations would have been more effective if they could have been linked more directly to the budget. Second, SINERGIA has made considerable advances, but needs to move beyond reporting to engaging both the public and the government more systematically in order to move effectively toward a system of results-based management. This area is a - 7 -

11 priority for follow-up in the proposed Programmatic Labor Reform and Social Sector Adjustment Loan (PLRSSAL). 2. Comprehensive Social Risk Management System. ICR Rating: Highly Satisfactory. This component largely addressed identified sector issues and progress was achieved in most areas. The social protection system was expanded and enhanced so that it can better respond to vulnerability and improve living conditions of the population, particularly the poorest. A CONPES was elaborated which defined the principal elements of the social protection and assistance strategy, including the creation of a counter-cyclical Social Protection Fund to finance selected programs during crisis times to help protect the poor and vulnerable populations. The Social Risk Management Framework (Sistema Social de Riesgo, SSR) outlined in this CONPES articulated measures to be undertaken by the RAS programs, ICBF, SENA and other agencies to better and more efficiently respond to crisis periods and to help the chronically poor and displaced populations. The institutional development impact of this component is considered Substantial and sustainability is considered Likely. These ratings are based on four significant advances in this policy area: First, the Ministerio de Protección Social (Ministry of Social Protection, MPS) was established in February 2003 through a merger of the Ministries of Labor and Health, as part of the government s response to developing a more integrated and efficient system of Social Protection. The Ministry of Social Protection will oversee a variety of previously uncoordinated agencies that provide the bulk of social assistance and insurance protection in Colombia, including ICBF, SENA, ISS, and other agencies in health, labor, and Cajas de Compensacion Familiar (decentralized social assistance agency that assists low income formal sector workers and their families). This new ministry forms the institutional backbone of Colombia s new social risk management system. Second, the Social Protection Fund was created in the Labor Reform Law enacted in December 2002 to provide financing for social assistance. However, this Law lacked some of the components detailed in the CONPES, such as the concept that the Fund would accumulate resources in good economic times (GDP growth over 4 percent per year) to allocate to priority programs when conditions deteriorate. It is important to note that the concept of earmarking of funds remains controversial in Colombia, as it creates less flexible budget management, particularly in times of acute budget constraints. Nonetheless, the new Social Protection Fund will be very important as a potential counter-cyclical tool since it will manage all RAS funds and others not tied to payroll contributions. Third, as part of the reform effort to better coordinate social insurance and assistance programs, all three RAS programs are being transferred from the Presidency to the Ministry of Social Protection. Fourth, a renewed effort to target poor populations has emerged with the nationwide implementation of the Sistema de Selección de Beneficiarios (System of Beneficiary Selection, SISBEN) surveys to update municipal databases (started in January 2003). This effort provides significant improvement in poverty measurement through an improved SISBEN Index and improvements in administration, auditing, and the regulatory framework, including sanctions for false information and mismanagement of the system. Although it remains to be seen however, how effective the MPS will be in coordinating powerful institutions such as ISS, ICBF, SENA, and Cajas, which have their own earmarked funding, the establishment of the ministry represents a very important step forward in creating an integrated social risk management system. Regarding actions related to ICBF, the increase in coverage and efficiency was pursued through: (a) implementing pilot decentralization and co-financing agreements between ICBF and ten municipalities and pilot testing of separation of financing and operation; (b) charging for services provided by the Centers for Integrated Attention for Pre-school Children (CAIPS) to better off children, according to family income; (c) promoting citizen s oversight and control of ICBF services through the regional offices; and (d) preparing Terms of Reference and contracting services for improving ICBF s design of the management information - 8 -

12 system. While the objective of increasing coverage of ICBF services, such as school meals, was achieved with the help of co-financing arrangements, less progress was made on decentralization of ICBF and improving efficiency of the institution. The pilot testing of devolving Hogares Comunitarios (informal daycare centers) to municipal administration and financing faced the legal challenges of how to pay community mothers. While ICBF can legally pay a bonus or scholarships to community mothers (which is less than the minimum wage) municipalities are unable do this and would have to pay the minimum wage plus the other benefits associated with a labor contract. Future efforts need to address this issue and develop a solution. ICBF has created oversight committees at the regional level, as required in SECAL. The new ICBF administration is deepening this process with the creation of Municipal Social Committees to improve coordination between ICBF and municipal governments. Under Law 715, municipalities were charged with providing (or contracting the provision) of food assistance (particularly school meals) and childcare programs, and need to assign budgets for those purposes. Finally, based on the recommendations from the consultancy contract (a condition of the SECAL), ICBF finished a draft of the design of the information system that was sent to DNP for its review and approval. Contracting is expected in Regarding attention to internally displaced populations (IDP), this was to be accomplished by: (a) adoption of a common methodology for estimating the size and characterizing the IDP; and (b) adoption of a time-bound plan for eliminating barriers for access of the IDP to RAS safety net programs. With support from the Technical Committee established to validate the methodology [participation of the National Statistical Institute, the Red de Solidaridad Social (Social Solidarity Network, RSS), Codhes (Consultoria para el Desplazamiento Forzado y los Derechos Humanos, non-governmental organization that works with internally displaced populations), and Pastorial Social (Catholic social service agency)], 2,800 surveys in 13 cities will be carried out in the second semester of Within RAS, the Familias en Acción program made special efforts to include IDP by accepting their SISBEN scores (or applying new surveys) from the point of origin. Also, the Development Plan ( ) proposes to give special consideration to IDP in the housing subsidy programs. Given the intensification of the civil conflict in the last few months, the number of IDP will likely increase and more attention to this problem will be urgently required. The design of this social protection component raises some issues. First, there may have been too many conditions (twelve, not including agreements with municipalities) involving a large number of agencies and making it difficult for DNP and the Bank to keep track of and monitor all activities. Second, there was a lack of prioritization of those conditions. The component could have been much stronger if a smaller number of priority conditions (e.g. for ICBF) had been established in support of the main sector and institutional objectives. Third, since there was a need to improve the legal and institutional framework in this component (i.e. the social risk management framework and ICBF improvement of incentive structure), more emphasis should have been given to outputs or outcomes (e.g. number of children 0-7 attended by ICBF, number of IDP attended by RAS, etc.). It is important to note, however, that the time frame of SECAL preparation (less than seven months from Initiating Memorandum to Board presentation) was too short to have strong output-based conditions for ICBF (and other agencies) and reforms to improve targeting and efficiency of ICBF programs. The proposed Programmatic Labor Reform and Social Sector Adjustment operation provides an opportunity for the GOC and the Bank to have in-depth discussions on these issues. 3. Health Insurance Coverage and Resource Use Improvements. ICR Rating: Satisfactory. In checklist terms, all of the eighteen conditions requiring evidence in the Policy and Evidence Matrix (Annex G of the Program Document and Annex 1) were met, in timing and content. As of February 2003, many of these conditions are being implemented and are included in the new - 9 -

13 Government s Development Plan, The GOC expanded health insurance coverage by over one million people during and is planning to expand coverage of the subsidized regime by five million people over the four-year period ending in After a precipitous fall, vaccination rates improved, reaching the following coverage rates nationwide by the end of 2002: Triple Viral: 93 percent, BCG: 87 percent, and Polio: 83 percent. The new improved formula for distributing resources to departments and municipalities (which includes the number of uncovered poor as a distribution criteria) started to be applied in 2002, along with measures to allocate resources for public health activities to departments and municipalities responsible for public health (e. g. vaccination). A new law allowed the Superintendent of Health Services (SOH) to charge supervised agencies a fee to finance supervision activities. By the end of 2002, funds paid by supervised agencies were providing most of the SOH financing. The institutional development impact of this component is considered Substantial. The laws and regulations have established a new institutional framework with a more clear definition of functions and responsibilities among the different government levels. In addition, the new Ministry of Social Protection will have a strong coordinating Vice-Ministry (in addition to the Vice-Ministry of Health and Labor Relations) to help assure horizontal coordination among sectors, regional government agencies, and social welfare agencies. The sustainability of this component is considered Likely since laws and regulations aimed at solving previously identified problems back most of these measures and they were incorporated into the new Development Plan ( ). The design of this health sector component raises some questions. First, there were eighteen conditions, which although they were complied with in their entirety, may be considered excessive in other cases. Many of the conditions related to inputs or processes (which were well understood by the GOC and the Bank as evidenced by the large amount of high quality sector work), could have been eliminated to focus more specifically on outputs and targets. For instance, this component could have concentrated on targets for immunization coverage, financial allocations for the Superintendent of Health, and supervision, leaving the GOC more latitude on the precise ways it achieved agreed targets. However, as previously indicated, the timeframe of SECAL preparation was considered too short to have measurable outputs as conditions, all of which, had to be met before Board presentation and loan effectiveness. In the proposed Programmatic Labor Reform and Social Sector Adjustment Loan, the GOC and the Bank are concentrating efforts on measurable outputs as loan conditions. Second, the component design could have benefited from a better definition of priorities. Given the magnitude of the identified health sector problems, priorities could have been ranked beginning with immunization coverage, coverage of the subsidized regime, and supervision activities of the Superintendent of Health. 4. Public Education Regulatory Framework. ICR Rating: Satisfactory. As described below, all conditions under this component were met and all have supported the objectives of the previous government and the new administration. The new distribution rules of Law 715 started to be applied in There is a strong commitment of the new authorities in the Ministry of Education to help territorial Secretaries of Education rationalize their education spending, particularly the teaching force. The Ministry of Education has started the design and implementation of information systems at the national and territorial levels and these information systems will be key to implementation of the new formula and for monitoring and supervision activities. Rules and regulations to be applied by territorial entities for contracting out education services to private providers were established and a large number of student places in primary and secondary education (about 640,000) are proposed to

14 be created through contracting service agreements with private sector providers and scholarships (demand subsidy) in the Development Plan ( ). Finally, the Ministry of Education plans to expand rural education by 60,000 places during through innovative models (Education Services Portfolio, including pre-school; Escuela Nueva, (approach to primary education designed for multi-grade schools in rural areas); Telesecundaria (Telesecondary); Sistema de Aprendizaje Tutorial (System of Tutor Learning, SAT), etc.) supported by the loan. The institutional development impact of this component is considered Substantial. The Ministry of Education is providing technical assistance to territorial Secretaries of Education and designing and implementing information systems to support implementation of the new distribution formula and for monitoring and evaluation purposes. Unlike in the past, now that distribution of resources will be based on number of students attending, coverage gaps, and poverty indicators, good information systems are fundamental. Significant efforts will be needed to ensure the accuracy of information provided. Efforts by the central Ministry of Education will be concentrated in the 42 decentralized municipalities and in Departmental Secretaries of Education, which will support the municipalities still not decentralized. Institution building at national and territorial levels is a complex task, as evidenced by the slow progress achieved since 1994 when Law 60 started to be implemented. Possible political interference at all government levels and the continued change of authorities could impede rapid progress in these areas. The sustainability of this component is considered Likely, since most of these changes have occurred through Law 715, a statutory law that required enactment of a Constitutional change. In addition, through the same law, beginning in January 2003, financing was decentralized, beginning with a pilot project in 42 municipalities with over 100,000 residents (over 70 percent of the student population). The Ministry of Education has established agreements with municipal and departmental Secretaries of Education for technical assistance and debt restructuring in the education sector, conditional on restructuring and efficiency improvements of education services. These measures provide assurances that these positive changes should be maintained in the future. There are two issues that deserve attention. First, as in the other components, there may have been too many conditions and a lack of prioritization of those conditions. Second, the emphasis on inputs and processes may have been appropriate in this component, since major restructuring was needed to improve efficiency of the sector. For the future, as Law 715 begins to be fully operational, more emphasis will need to be placed on outputs or outcomes of the education sector since territorial entities will need to comply with restructuring agreements signed with the Ministry of Education. This output-based approach is being pursued in the ongoing preparation of the proposed Programmatic Labor Reform and Social Sector Adjustment operation. 4.3 Net Present Value/Economic rate of return: Not applicable. 4.4 Financial rate of return: Not applicable. 4.5 Institutional development impact: ICR Rating: Substantial. Considerable progress was made in setting up mechanisms that provide greater institutional support to each of the program s stated objectives. The SECAL supported institutional development impacts in three areas to improve: (a) citizen s oversight of social programs and community participation; (b) the institutional setting for coordinating and making social protection more effective for

15 the poor and most vulnerable populations; and (c) the efficiency of health and education spending though a better allocation formula to departments and municipalities, based on services rendered rather than on historical costs. Assessment of the institutional development impact for each component is described in Section 4.2. The new Ministry of Social Protection will be a strong force in helping coordinate insurance and assistance schemes for protecting the poor and vulnerable populations. The Ministry will coordinate ISS, ICBF, and SENA actions to better manage insurance and assistance programs. The responsibilities assigned to the Board of Directors of these various agencies have still not been changed. The Social Protection Fund is potentially a strong arm of the MPS to direct social spending and assistance to MPS priorities and respond quickly to crises or other emergency events. However, it will depend on a strong minister to secure allocations from the general budget and/or to control spending earmarked to ISS, ICBF, SENA, and Cajas de Compensación Familiar. Law 715 (health reform and new model of education transfers, 2001) provides major improvements over Law 60 (decentralization of health and education resources, 1993) on the distribution formula and the definition of responsibilities for different government levels. It provides better incentives to territorial entities to reform their institutions and to increase coverage and improve services. Municipalities are free to allocate teachers and apply personnel actions in their territories. Municipal and Departmental Secretaries of Education and Health are pressed to improve performance and show results, and many cities, especially the larger ones, such as Bogotá and Medellin, are becoming models of efficient administration. Finally, in terms of citizens participation and oversight, the project promoted extensive impact evaluation studies for major social assistance and safety net programs and wide dissemination of results. It also promoted the expansion of monitoring activities of ICBF by local governments and the strengthening of the SINERGIA ex-post evaluation unit of the DNP. While impact evaluations of the three RAS programs have been or will be undertaken, other programs such as SENA s training programs and ICBF s assistance programs have not yet started to be evaluated. Efforts made to evaluate RAS programs have, nonetheless, served to improve SINERGIA s capacity to design, contract, and follow-up on impact evaluation studies, activities that were not done previously. It remains to be seen if SENA and ICBF can enter into the culture of scientific evaluation studies and provide adequate funding for those studies. Regarding citizens participation, ICBF is promoting the creation of Social Policy Coordination Committees in most municipalities to coordinate ICBF actions and budget with local planning and budgeting processes. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The SECAL was prepared at the end of the Pastrana administration ( ), when Colombia was experiencing difficult economic conditions and acute budget constraints. The loan was approved in August 2002, just when the new government was taking office and, thus, it inherited the challenge of putting in place and starting implementation of these reforms. The pace of implementation has proceeded rapidly and so far, the objectives have been reached. This is due to two factors. First, during preparation, both the GOC and the Bank agreed on a broad policy agenda that would support efficiency improvements with little or no additional budget allocations. Thus, the main focus of the loan was to support landmark reforms, such as the reform of the transfer Law 60. Second, these reforms had been proposed for a long time by local experts, academics, and Bank-supported Economic and Sector Work, but had not been passed because of the opposition of vocal groups (teachers, health sector workers, among others). The Pastrana administration had the opportunity and the backing of Congress to reform the law (which required a

16 Constitutional change)

17 5.2 Factors generally subject to government control: The incoming administration of President Uribe was quick to begin implementation of most of the reforms and to establish a foundation for strengthening and deepening those regulations at the central and local levels. Most education coverage expansion will be derived from savings and restructuring of the teacher force and other inputs. Similarly, in health, the proposed rapid expansion of the subsidized regime will have to result from increased allocations of the health budget to demand subsidies away from direct payments to hospitals. There is a hospital restructuring plan and legal initiatives to eliminate the bailout of public hospitals, which commonly run deficits by the end of each year. In terms of social protection, the GOC proposes to improve coordination and efficiency of assistance spending under one roof: the MPS. The challenge is now to implement these measures and to design effective instruments to achieve coordination and improved efficiency. In addition, the government was successful in providing an appropriate macroeconomic environment for the reform program. The GOC implemented a stringent fiscal adjustment to reduce fiscal deficits, in accordance with its Stand-by Agreement with the IMF approved in January The government proposes to contain the expansion of public expenditures at the national level, control the growth of debt by territorial entities, and control the growth of expenditures on pensions. Control of the growth in spending, in addition to increased revenues brought about by the fiscal reform of December 2002 and the pension reform of January 2003, are expected to reduce the consolidated public sector deficit from 4.0 percent of GDP in 2002 to 2.4 percent of GDP in 2003 and 2.1 percent of GDP in 2004, according to the Development Plan ( ). 5.3 Factors generally subject to implementing agency control: DNP coordinated the entire package of loan conditions and provided coordination with the Bank, IDB, IMF and stakeholders.. The implementing agencies, including the Ministries of Health, Education, SENA, ICBF and selected departments and municipalities (which had subscribed agreements with the Ministry of Education to restructure Education Secretaries, and with ICBF for coordination of assistance programs) have continued implementation of the measures supported by the loan. Despite changes of personnel at the top, many key officials have stayed in their posts ensuring the continuation of activities under the loan. One important aspect is that regional governments did not change at the same time that the national government did, making it easier for the continuation of the reforms undertaken with sub-national governments. 5.4 Costs and financing: Not applicable. 6. Sustainability 6.1 Rationale for sustainability rating: ICR Rating: Likely. Sustainability ratings are provided for each component in Section 4.2. The Uribe administration proposes to implement most of the components of the reform program, as stated in the Development Plan ( ), which will remain in effect for the next three and a half years. In addition, Law 715 is a statutory law so it is unlikely that it will be changed in the near future. This law provides an overall framework for the transfer of resources for health and education mandated by the National