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Implementation Completion Report (ICR) Review - Uruguay Structural Adjustment Loan (prem)


  
1. Project Data:   
ICR Review Date Posted:
08/22/2005   
PROJ ID:
P077172
Appraisal
Actual
Project Name:
Uruguay Structural Adjustment Loan (prem)
Project Costs(US $M)
 151.52  151.52
Country:
Uruguay
Loan/Credit (US $M)
 151.52  151.52
Sector, Major Sect.:
Central government administration, Compulsory pension and unemployment insurance, Banking, Housing finance and real estate markets, Other social services,
Law and justice and public administration; Law and justice and public administration; Finance; Finance; Health and other social services
Cofinancing (US $M)
 0  0
L/C Number:
L7137      
   
Board Approval (FY)
  03
Partners involved
 
Closing Date
11/06/2002 10/01/2004
         
Evaluator: Panel Reviewer: Group Manager: Group:  
Jorge Garcia-Garcia
Yvonne M. Tsikata Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
General objective. To maintain a satisfactory macroeconomic policy framework.

Specific objectives [presented in Annex A of the program document (7/23/2002) and applicable to this loan]
1. Macro/fiscal. Contain public expenditures in order to reduce fiscal deficit.
2. Social protection. (a) Ensure appropriate coverage of social protection programs and avoid duplication between programs; (b) increase the efficiency of public spending on social protection; and (c) ensure that selected social programs are protected from budgetary cuts and that their effectiveness is monitored.
3. Unemployment insurance. Increase the coverage and efficiency of the unemployment insurance program, establish incentives for unemployed workers to exit unemployment, and eliminate abuse of the system.
The ICR lists social consultation as an objective, but neither the program matrix nor the legal agreement mention it or establish conditions that can help achieve it. The review excludes this objective.

b. Components (or Key Conditions in the case of Adjustment Loans):
1. Macro/fiscal. Contain wages of public sector employees and public company workers.
2. Social protection. (a) ensure that selected social programs targeted on the most vulnerable segments of the population are protected from budget cuts; (b) improve efficiency of social protection programs through improved coordination, and better monitoring and evaluation; (c) improve information on social spending.
3. Unemployment insurance. Increase the efficiency of the unemployment insurance system and expand training for the unemployed in the informal sector.

c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The Board of Directors approved the loan on August 8, 2002, and the first tranche of US$101,520,000 was released on August 9, 2002. The second tranche, US$50 million, was released on October 2004, 23 months later, since it took the authorities this long to comply with the actions agreed for that release. The Board waived the condition on passing a law to modify the regulations on unemployment insurance.


3. Relevance of Objectives & Design:

Following external and domestic shocks that began in 1999, Uruguay experienced a financial crisis and by the second half of 2002 was in deep recession. When the authorities decided to float the currency in 2002, the country lacked external financing and was at the verge of default on its sovereign debt. The government wanted to restore stability and growth, and the country required financial assistance to prevent an economic collapse larger than it would have had otherwise. The adjustment program required cutting government expenditures and raising government revenues, but the ensuing increase in poverty required protecting the poor from the potentially adverse consequences of the adjustment.
The program sough to increase the primary surplus, to protect the budget for social protection programs, to increase the efficiency of social expenditure, and to reduce the constraints to employment caused by the unemployment insurance system. The objectives and design of the project were, therefore, highly relevant.

4. Achievement of Objectives (Efficacy) :

1. Macro/fiscal. The primary balance changed from a deficit of 1.2 percent of GDP in 2001 to a surplus of 3.8 percent of GDP in 2004; this was achieved by restraining expenses in wages and social security and increasing revenue from taxes and state enterprises. The economy recovered and grew 15 percent in 2003-2004. The objective has been fully achieved.
2. Social protection. The government gave priority to protecting the budget for food programs, and executed the budget for all the programs selected but one. The programs benefited the most vulnerable groups. The Food Complementation for Mothers and Infants program doubled the estimated spending target, and the Program of Family Allowances covered more children in 2004 than before the crisis. The Work Training Program (PROCAL) was executed by half, and some of its resources were allocated to other programs; in PROCAL the evaluation found that the training courses had no impact.
The quality of the information on social expenditures improved, and the government produced a report on those expenditures for the years 2000-2002. The objective was fully achieved.
3. Unemployment insurance. The government drafted a bill to change the legislation on unemployment insurance, but could not get sufficient support in Congress to make it law. The setback did not prevent the government from shortening the effective terms of the unemployment insurance benefits through better enforcement. The gain is temporary and insufficient to make the labor market more flexible; the permanence of the gains obtained so far also depend on the willingness of the present government to continue with what the previous administration did. The objective was achieved.

5. Efficiency:

None to comment on
6. M&E Design, Implementation, & Utilization:

None to comment
7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

None to comment on

8. Ratings:
ICR
OED Review
Reason for Disagreement/Comments
Outcome: 
SatisfactorySatisfactory
Institutional Dev.: 
ModestModest
Sustainability: 
Highly LikelyLikelySee comment on unemployment insurance in section 4.
Bank Perf.: 
SatisfactorySatisfactory
Borrower Perf.: 
SatisfactorySatisfactory
Quality of ICR: 
Satisfactory

NOTES:
- When insufficient information is provided by the Bank for OED to arrive at a clear rating, OED will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

9. Lessons:

Before asking government to pass laws, the Bank should: (a) examine the likelihood that the law will pass through the legislative chambers; and (b) seek alternative ways of achieving the same objective by changing the way it administers the program without changing the law.

When preparing CASes the Bank should look at the likelihood that the risks of a crisis will materialize and design ways to respond to the crisis when it becomes a reality.


10. Assessment Recommended?  Yes

          Why?  The loan should be assessed with other loans granted to Uruguay during the crisis, to establish their impact. Such an assessment should be done in four or five years, when sufficient time has passed to gauge the medium-to-long-term impact of the programs.

11. Comments on Quality of ICR:

The ICR is of uneven quality. Some sections are good, but others are imprecise (e.g., social protection), the evidence is wanting or the extent of the achievements is clear only to people that know the programs. In one case, the ICR compares data for periods that are not comparable, making it difficult to find what was actually achieved. The discussion of the exchange rate veers between discussing it as a pegged and a flexible exchange rate, but it is not clear which one it is.

The lessons section is one of findings and few lessons.

Some editing would have helped to catch where information is missing (key dates, and value of loan in cover page and annex). There are two issue dates for the report: June 15 and June 30; the report was sent to the government on June 21, a possible reason for why there are no government comments.

OED strongly urges the Region to fill the gaps in information and file the revised ICR with SECBO.

(ES-Rev4-Jul/05)
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