Document of The World Bank

Report No. 29122

SIMPLIFIED IMPLEMENTATION COMPLETION REPORT

ON A LOAN TO

REPUBLIC OF ECUADOR

FOR THE

FIRST PROGRAMMATIC HUMAN DEVELOPMENT REFORM OPERATION

IN THE AMOUNT OF US$50.0 MILLION

LN 71730-EC

JUNE 29, 2004 Human Development Department Peru, Bolivia, Ecuador and Venezuela Country Management Unit Latin America and the Caribbean Region

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GOVERNMENT FISCAL YEAR January 1 - December 31

CURRENCY EQUIVALENTS

Currency Unit = US Dollar

ACROYNMS AND ABBREVIATIONS

AUS Aseguramiento Universal en salud Universal Health Insurance BDH Bono de Desarrollo Humano Conditional Cash Transfer Program BE Beca Escolar Conditional Cash Transfer Program for students BS Bono Solidario Unconditional Cash Transfer Program CGP Conjunto Garantizado de Prestaciones Guaranteed Health Care Services CPM Conjunto de Prestaciones Mínimas Minimum health care services

DINEPP Dirección Nacional de Educación Popular Permanente National Office for Permanent Popular Education

GDP Producto Interno Bruto Gross Domestic Product GOE Gobierno de Ecuador Government of Ecuador

HDRL Programa de Reforma de Desarrollo Humano Human Development Reform Program

HDRP Préstamo de Reforma de Desarrollo Humano Human Development Reform Loan

IESS Instituto Ecuatoriano del Seguro Social Social Security Administration IMF Fondo Monetario Internacional International Monetary Fund

INNFA Instituto Nacional de la Niñez y la Familia National Institute for Children and the Family

ISSFA Instituto del Seguro Social de las Fuerzas Armadas Social Security Administration for the Military

LMG Ley de Maternidad Gratuita Free Maternal Health Care Law LOI Carta de Intención Letter of Intent MEF Ministerio de Economía y Finanzas Ministry of Finance MEC Ministerio de Educación y Cultura Ministry of Education

MODERSA Proyecto de Modernización de los Servicios de Salud. Health Sector Modernization Project

MOH Ministerio de Salud Ministry of Health ORI Operación Rescate Infantil Early Childhood Development program PAE Programa de Alimentación Escolar School Feeding Program PAI Programa Ampliado de Inmunizaciones Immunization Program

PANN Programa de Alimentación y Nutrición para Niños Feeding and Nutrition Program for Children

SELBEN Selección de Beneficiarios Proxy Means Test

SIISE Sistema Integrado de Indicadores Sociales del Ecuador Integrated System of Social Indicators in Ecuador

SSC Seguro Social Campesino Subsidized Health Insurance for Rural Workers

STFS Secretaría Técnica del Frente Social Technical Secretariat of the Interministerial Social Sectors Committee

SIGEF Sistema de Gestión Financiera Government financial management system

TABLE OF CONTENTS Page No.

1. Program Data 1 2. Principal Performance Ratings 2 3. Program Description 2 4. Achievements of Objectives and Outputs 4 5. Major Factors Affecting Implementation and Outcome 6 6. Bank and Borrower Performance 6 7. Findings and Implications for Subsequent Operations 7 Table 1: Summary of Program Objectives, Achievements of Phase 1, and Triggers for Phase II

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Annex A. Achievements and Outputs of Phase 1 15

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First Programmatic Human Development Reform Operation

Simplified Implementation Completion Report

Operation ID: PO82395 Operation Name: First Programmatic Human Development Reform Operation

Team Leader: Daniel Dulitzky TL Unit: Human Development Department Report Date: 05-10-2004

1. Program Data

Name: Programmatic Human Development Reform Loan 1

L/C Number: 71730-EC

Country/Department:

Peru, Bolivia, Ecuador, and Venezuela CMU Region: LAC

Sector/subsector: Human Development; Health, Education, Social Security Themes: Efficiency and Effectiveness of Basic Social Services, Transparency

and Accountability; and Protection of Priority Social Sector Programs

KEY DATES Original Revised/Actual

PCD/PR: Effective: 09/16/2003 09/16/2003 Appraisal: 04/02/2003 MTR: na Approval: 05/27/2003 Closing: 12/31/2003 12/31/2003

Borrower/Implementing Agency: Government of Ecuador/Ministry Of Economy and Finance; Other Partners: Ministries of Health, Education, Social Welfare; assisted by the

Technical Secretariat of the “Frente Sociale” STAFF Current At Appraisal Vice President: David de Ferranti David de Ferranti Country Director: Marcelo Giugale Marcelo Giugale Sector Manager: Evangeline Javier Evangeline Javier Team Leader at ICR: Daniel Dulitzky Daniel Dulitzky ICR Primary Author: Robert Crown

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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: M Bank Performance: S

Borrower Performance: S* * The outcome of the entire reform program will be evaluated at the completion of the third and final phase of the program, following guidelines for evaluating programmatic structural adjustment lending. As progress towards reaching this ultimate outcome, the Borrower has met all conditions for the first loan satisfactorily. The evaluation of the Borrower’s preparation for the second phase is given in this report, accompanied by options for responding to this evaluation. QAG (if available) ICR

Quality at Entry: Na S Operation at Risk at Any Time: No No

3. Program Description

3.1 Program Description Government of Ecuador’s Human Development Reform Program (HDRP) was a response to deteriorating condition of the population from the perspective of key social indicators. In spite of having made significant investments in health, education and social protection, including the provision of income support and fuel subsidies, by 2001, some development indicators like infant mortality rates and access to basic health care services compared unfavorably to those in other Latin American countries and to lower-middle income countries in general. Although a major contributor to this deterioration was the severe economic down turn of during 1998-2000, in which GDP dropped by between 5 and 13%, and the incidence of poverty rose significantly, the worsening macroeconomic situation also highlighted other structural problems that could no longer be compensated for through growth. In most cases, social programs were badly targeted, poorly coordinated, and suffered from a general lack of transparency and objective accountability. As a result, significant segments of the population were not receiving support; for example, about 32% of the population lacked access to basic health care services; and more than 70% of the population was not covered by long term income protection plans, especially the elderly. Programs also favored urban populations.

The Government that came to power in January 2003 set new goals for social sector improvement that aimed, by 2007, to raise social sector and priority program spending as a percentage of GDP, to increase years of schooling, and to expand access to basic health services; while decreasing poverty and extreme poverty by, illiteracy, and infant mortality. Fully aware of its precarious financial situation that would limit its capacity to make significant new investments (financed through borrowing) in the short term, GOE proposed a Human

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Development Reform Program (HRDP) that would rely heavily on reformulating strategy; introducing regulatory reform; rationalizing the use of current treasury resources and social institution’s capacity; and focusing programs on the most vulnerable groups in society (the extreme poor, mothers and children, the elderly, and culturally excluded).

3.2 Operational Design Operationally, the HDRP would have three broad objectives and components:

a. Protection of Public Spending in the Social Sectors and in Priority Programs: to be accomplished through assuring that the normal budget process produced growth in social sector ministry budgets in real terms, and in the budgets of a group of seven priority programs. Timely availability of resources would also be guaranteed through focused treasury cash management;

b. Increase the Effectiveness and Efficiency in Basic Social Services and Programs: to be accomplished through

(i) introducing a conditional cash transfer program for certifiably poor persons and re-qualifying beneficiaries of an existing unconditional cash transfer according to a means test; retargeting and removing overlap among similar social programs;

(ii) re-targeting and rationalizing food and nutrition programs aimed at the poor;

(iii) designing and implementing a reform of the technical and financial administration of the Ministry of Education and culture (MEC), including its personnel allocation and payments practices;

(iv) harmonizing the services of key health service provider institutions including the Ministry of Health (MSP); adopting a common minimum package of services, and rationalizing and sharing resources so as to increase health care coverage; and

(v) expanding effective income protection for the elderly.

c. Raising Transparency and Accountability in the Social Sectors and Priority Programs: to be accomplished through improving the monitoring of social spending and information dissemination; conducting rigorous evaluations of social programs and application of results to program design; introducing processes for consultations with civil society and stakeholders in evaluation of social sector achievements and program development.

The program would be implemented in three phases. The first would attempt to halt further deterioration in the financing of social programs by protecting social sector spending in the current budget cycle, initiate the evaluation and retargeting of key social programs, and adopting regulatory and administrative measures that would set the framework for improved efficacy and efficiency of social expenditures during the period of financial austerity. In the second and third phases GOE and the institutions involved would begin to implement medium term measures that would set the stage for longer term spending and investment in the social sectors.

GOE developed a set of benchmark activities that would allow it to monitor progress in implementing these three phases (Policy Matrix ; Annex A).

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The World Bank agreed to support the HDRP through three loans that would mirror the HDRP’s phases. It agreed with GOE on a core set of benchmark indicators that would be considered as “triggers” for appraising the second and third loans. These are shown in “bold face” in the Policy Matrix, Annex A; Actions for May 2004 and May 2005.

4. Achievement of Objectives and Outputs The goals of the overall three-phase program, the achievements of the first phase, and the

triggers for the second phase are reviewed in summary in Table 1, and outlined in detail in Annex A; Actions as of April 2004.

GOE made significant achievements through the first phase of the reform. Of critical importance has been agreement within the GOE on the concept of a “human development agenda” that formalized the linkages that may have been implicitly drawn between various areas of social concern, into a coherent program. The process of formulating this program was also of significance in validating the role of the TSFS in consolidating actions to achieve human development objectives. GOE met all of the prior actions for approval of the first loan satisfactorily and in a timely manner.

Considerable progress was also made following approval of the loan in implementing what may be considered a “flagship” element of the Reform; the introduction of the conditional cash transfer system, the BDH. It re-qualified about 75% of the pool of beneficiaries of ongoing income transfer programs, and added new beneficiaries using a proxy means test (the SELBEN). It also began making cash transfers to these beneficiaries. This process met with general acceptance by the beneficiaries, as well as by those who previously received cash transfers through the BS/BE but have been excluded. A full implementation of the transfer program was not completed owing to budgetary constraints on program administration and high turnover in the implementation team, but this delay should be absorbed during the current budget year.

The second key element of the plan – the introduction of conditionality and co-responsibility in continuing to receive benefits- requires additional experimentation and beneficiary feedback to be fully introduced. This also should be accomplished in about one year. A pilot test of the mechanism was successfully implemented and finished, and the only remaining hurdle to scaling up the program consists of reaching an agreement on administrative procedures and criteria with commercial banks which will be monitoring compliance with co-responsibility obligations by beneficiaries at the time benefits are paid to families. GOE has also made a significant, although not complete, improvement in the practice of openness and transparency by major actors in the social sectors. The STFS has systematized the availability of information and basic data on social sector performance. In addition, both the Ministries of Education and of Health have both adopted or planned processes for managing the reform efforts in their respective sectors that would be highly participatory and consultative with civil society and major stakeholders. The administration of the LMG which is critical for maintaining maternal and child health care in rural areas has also adopted practices that are more consultative and sensitive to beneficiary needs.

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In contrast, since loan approval, GOE made less than satisfactory progress in other parts of the reform. Firstly, GOE has only partially halted the deterioration in the financing of social sectors and little progress has been made in actually raising budgetary resources in real terms. MEF continued a historic practice of reducing initial budgets throughout the budget year to respond to short term needs, and failed to actually commit large parts of this reduced budget. The record for 2003 showed that MEF actually reduced its initial budget for the social sectors –health, education, and social welfare-- by more, and implemented less of this reduced budget, than in the two previous years. In spite of the trend in global budgets, however, some priority programs, like the LMG, PAI, and BDH, had a good level of execution and protected budget. Progress in retargeting and rationalizing food and nutrition programs was negligible owing to problems in gaining the cooperation of the management of current programs. With this impediment, very little additional attention was been devoted to framing a food security and nutrition policy. While the framework has been set to proceed with further reform of health sector management, GOE made little progress in achieving immediate increases in health care coverage through contracting for use of underutilized IESS/SSC infrastructure ( a short term issue) and in defining and providing a system to offer a package of basic health services for the poor. This resulted largely from GOE’s inability to resolve inter-institutional conflicts in a timely manner. Further, while a consultative group was formed and began deliberations on improving some of the dimensions of income security, interest focused on the traditional contributory insurance-based model, and these deliberations were limited to jurisdictional issues raised by IESS. The income assurance needs of vulnerable groups under non-contributory systems, was not taken up.

From the perspective of preparing for a second and third phase of the program as originally designed, progress in meeting specific benchmarks has been delayed. Efforts to improve the transparency of IESS operations have not been fruitful owing to IESS’s status as an autonomous body, which operates beyond the purview of the Government. In addition the process of critical and participatory evaluation of individual programs (particularly the BDH and PAE) has not occurred. Additional studies and agreements have not been completed or reached that would permit second phase activities to be pursued on the original schedule; including: (i) the work of the SIAN in giving direction to basic nutrition and food security policy; (ii) actual resolution of managerial and financial issues facing education (although a new framework for addressing these issues ahs been proposed); (iii) delays in the specification and basic technical design of the CPB and the management of the AUS as a critical input to future restructuring of health care services delivery (although an effort to formulate broad regulations for the health sector is being launched); and (iv) work of the CISS on an income protection strategy. On the other hand, a number of studies have been completed: (i) a methodology to change resource allocation in education has been proposed and implemented in some budget items; (ii) the firm in charge of the design of the AUS has been contracted; (iii) resources have been secured to initiate evaluation of social sector programs by civil society; and (iv) the resources to complete the evaluation of BDH have become available.

The final outcome of the HDRP will become apparent and should be evaluated when all three phases are completed. The program itself was satisfactorily launched with completion of the prior conditions to the first loan (to which the current assessment assigns a “Satisfactory” rating). GOE has, however, had mixed success in maintaining the initial momentum of the

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program and has not satisfactorily completed all of measures that were originally identified as benchmarks and triggers for a second loan. Moreover, progress that has been made has taken longer that originally planned. Therefore, at this moment, and without modifications, achieving anticipated outcomes and institutional sustainability of the program could at best be “likely”. 5. Major Factors Affecting Implementation and Outcome

Several factors have had a negative influence on the outcome of the program to date. The HDRP was designed shortly after a new government took office in 2003, during a period of economic and financial crisis. During the 12-18 months of first phase implementation, GOE had not fully consolidated its structure or key appointments which led to changes in ministers, re-assignments of authority for such issues as health restructuring, and changes in technical personnel. GOE relied heavily on the STFS, which is a sub-ministerial agency, which performed consistently well within its mandate, however, the program was slow to be embraced by most agencies responsible for its implementation.

At the same time, GOE has continued to experience low levels of treasury resources, which it has had to manage tightly, with short term cash flow considerations being critical to allocation decisions. As in most past years, the budget itself was continuously revised (and reduced) to account for available funding, and the performance of key agencies. As a result, agencies have been periodically under-resourced which has slowed implementation of some operational work. Under-resourcing was also exacerbated by a cumbersome reporting system mandated by MEF in order to transfer resources to the social programs, and by insufficient prioritization within the social ministries themselves.

GOE also deprived itself of available grant resources (a PHRD Grant) intended to finance preparation activities for the second and third phases of the program, owing to internal disputes between key implementation agencies over management and governance arrangements. Several delays can be attributed to this factor. The PHRD grant has been recently signed, six months after its approval.

On the positive side, two principal ministries with mandates for human development, education and health, have new leadership and have re-started processes of reform on a more classical sectoral basis, using strong participatory and consensus-building techniques. While this may be postponing solution of some of the specific issues that were identified as elements in the HDRP, it also has the potential for finding longer term, sector-wide and sustainable solutions to these problems while still achieving global program outcomes. 6. Bank and Borrower Performance The operation was identified, prepared and approved in a compressed time frame. Under time pressure, Bank staff performed satisfactorily throughout the project cycle. Bank teams included an adequate level of expertise and drew on extensive background analyses to identify and frame issues, and to provide credible advice to the government. During implementation, Bank staff interacted frequently with Ecuadorian counterparts and provided technical support. The preparation process also appears to have met Bank standards for satisfactory “quality at

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entry”. However, in hindsight, staff may not have fully appreciated and accounted for the human and institutional difficulties that have been subsequently encountered in the coordination and harmonization of programs to increase efficiency. This can be corrected in the second and third phases.

Some agencies of government also performed satisfactorily, particularly the STFS which was mandated to coordinate program implementation. This agency monitored and reported on progress in a thorough and timely manner, and has also been pro-active in offering assistance and technical support to others involved in the program. The Government’s performance was also satisfactory in general. It accomplished in time all the prior actions related to the first phase of the program. In addition it has made significant progress in the implementation of reforms in the social protection sector and some positive changes in education setting the stage for further reforms. However there are areas where performance has to improve. Specifically, the GOE did not succeed in giving sufficient weight to the resolution of issues of coordination of key programs and to overcome parochial interests (nutrition, rural health), or on broadening the focus of new initiatives (income security for the elderly) to include the majority of the needy population. Most critically, the program depended heavily on the relationship between the Government and the IESS and neither of these parties appeared able to manage this relationship positively. Therefore, unless the GOE takes the necessary steps to solve these issues, there is a risk that its performance will be ranked unsatisfactory in the future.

7. Findings and Implications for Subsequent Operation(s) in Series

7.1 Findings and Program Modifications The original goals of the reform continue to be valid and second and third phases of the HDRP are clearly warranted to achieve them. Although it did not fully prepare the second phase of the program as anticipated, the first phase provided valuable lessons and insights that should be accounted for in the second and third phases.

(a) Accounting for constitutional rights of IESS as an autonomous body and its clients: As originally designed, IESS was expected to be a major instrument in reaching program goals. It was directly involved in completing 6 monitorable actions, including two triggers for a second stage. However, it has not effectively participated in the program, citing its independence from GOE policy. Moreover, IESS currently serves only a minority part of the population and almost none of the population that is poor and extremely poor. The conditions under which IESS could (i) be convinced to be an instrument for achieving largely poverty alleviation objectives rather than strictly insurance-based goals (owing to its corporate structure), and (ii) affect a change in corporate culture and undertake the capacity building that might be required to do it, do not at present appear to be achievable. In contrast, with the growing interest in models of community-based basic health care, early success in implementing the BDH as an income program, coupled with a renewed effort to reformulate health care delivery overall through institutional strengthening of the LMG, reducing the reliance on IESS as a principal driver of the reform program should be reconsidered.

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(b) Recognizing budgetary and liquidity constraints as a longer term fact: Reforms are underway to restore economic and financial stability in Ecuador. In addition, GOE is attempting to address critical issues of budget management that would progressively extend to all ministries and agencies (the SIGEF). Meanwhile however, GOE’s room for maneuver to meet budgetary commitments across sectors, including the social sectors, will be very limited and it will certainly be obliged to continue relying on short term budget re-allocation tools and special arrangements to manage its cash flow. Such manipulations distort the use of “budget implementation tracking” as a means of following GOE’s basic priorities for social sector outcomes. The program should consider modifying the indicators used to track GOEs real intentions to include measures of sectoral outputs and outcomes, not solely sector budget inputs, as evidence of commitment. This modification would have the additional benefit in supporting the formalization of “results-based” sector budgeting into GOE’s fiscal management.

(c) Strengthening the capacity of STFS to support change: STFS has established a sound record in monitoring and motivating the program to date, and should continue this role in the future. Two modifications would improve its performance. First, as other organs of government intended to mobilize national dialogue have been eliminated, STFS should have its mandate and role in this strengthened through additional assistance on the professional aspects of communications; generating beneficiary feedback (beneficiary assessments; rapid rural assessments; “market research”); preparing and targeting messages; and supporting consultative events to permit it to support other agencies and ministries who have direct contact with their publics. Second, while building ownership among first-in-line agencies and their constituencies is the preferred means if sustaining reforms in the quality and efficiency of social services delivery, STFS may require additional legal authority in the context of the HDRP to promote or direct changes and arbitrate differences and positions and report directly to the decision-making level of government to affect regulatory reforms governing the social sectors.

(d) Defining a more concrete strategy in certain areas: With experience to date, it is clear that steps taken to coordinate existing agencies has not led to desired breadth of reform proposals needed to successfully address pension reforms and reform of nutritional and food security programs. GOE would need to propose a fresh strategy for addressing these two critical areas of the social safety net for the HDRP to be effective.

7.2 Options for Bank Management The Bank may wish to consider several options for responding to the current situation with the HDRP, for advising GOE on alternative courses of action and for providing additional financial support.

(a) Maintain the original policy framework and triggers for lending: Under this option, GOE would require more time to meet initial expectations in terms of program

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actions and satisfaction of requirements for second and third loans. In fact, some triggers (budget performance, expansion of IESS services,) may not be met at all, leaving Ecuador without needed budgetary support. Moreover, as the situation is evolving in Ecuador, meeting some conditions may be redundant. This is not a preferred option.

(b) Maintain the original policy framework, waive problematic requirements, and reduce loan amounts: Waiving conditions may seriously affect the integrity of the overall program. At present there are 9 triggers for new lending, of which 4 refer to budget performance and 1 requires cooperation of IESS. Two of the remaining triggers relate to implementation of the conditional income support program, the BDH, and would provide a basis for new lending; the remaining triggers may become redundant considering dialogue that is ongoing. It is unlikely, however, that lending could be realistically lowered to levels supported by a reduced program. In addition, waiving agreements would not recognize promising new actions that are being planned and undertaken which may enrich the overall program. Therefore, while positive, this option may not add value to the reform effort.

(c) Modify the policy framework, and retain loan amounts: There is promising scope for modification in the details of the program, including identification of new triggers for lending that would maintain the integrity of the overall HDRP. New triggers could in full or in part, substitute for current actions and could include: (i) meeting expectations for dialogue in health and education sectors; (i) introducing results-based budgeting to complement (or substitute for) budget protection objectives; (iii) broadening the scope of policy development in income and pension protection and food and nutrition security; and (iv) expand coverage of basic health care through the LMG instead of IESS. Such new triggers would reflect the current state of development in Ecuador’s social sectors and provide an adequate basis for maintaining planned lending levels. From the perspective of responding to an evolving situation in country, while maintaining focus on the longer term objectives of the reform, this would be a preferred option.

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TABLE 1: SUMMARY OF PROGRAM OBJECTIVES, ACHIEVEMENTS OF PHASE 1, AND TRIGGERS FOR PHASE 2.

PROGRAM OBJECTIVES

ACHIEVEMENTS OF PHASE 1 TRIGGERS FOR SECOND PHASE LOAN APPRAISAL

I. PROTECTION OF PUBLIC SPENDING IN THE SOCIAL SECTORS AND PRIORITY PROGRAMS Objective: to assure minimum levels of public spending in health, education, and social welfare and priority programs of special importance for vulnerable groups

Poverty reduction through increase funding on health and education basic services.

Adequate budget provisions have been made for priority social sectors and priority programs, consistent with stated social sector policy

Budget provisions for the 3 major social sectors were set according to Loan conditions, however, following past practice, MEF reduced these levels during the year to account for changes in the availability of treasury resources, and judgements concerning the absorptive capacity of social sector ministries. This produced a de facto budget that was about 16% below the initial budget and 76% of this reduced budget was actually provided. Comparable results for 2002 were: a 1.1% increase of final budget over initial budget, with 88% of the final budget implemented; for 2001, an 8.4% increase of final budget over initial budget, with 93% of the final budget implemented.

The 2004 social sector budget has been published that exceeds the 2003 initial budget in nominal terms (by about 9%) but is for practical purposes, equivalent to the 2003 budget as a percentage of GDP.

In 2004, the initial budget for health was established at about 1.3% of GDP, marginally lower than in 2003.

The 2004 budget for the priority social sector functions — Education, Health, and Social Welfare — has been established at levels higher than or equal to the 2003 budget, as a percentage of GDP

Expanded financing for priority poverty-related programs achieved during economic transition

GOE has established the 2004 budgets for four of the seven priority social programs identified in the program below 2003 levels in real (2002) terms. Financing for these programs has not been fully assured.

The 2004 budget for each of the social programs is equal to or greater than their 2003 respective budget in real terms

GOE’s performance in meeting goals for implementing the social sector program budgets is ambiguous. It met targets for executing five of seven priority programs on the basis of budgets adjusted throughout the year, but only 2 compared to the initial budgets.

In contrast, quarterly execution of the PAI and the LMG appear to have substantially met the agreed goals.

(i) The 2003 budget for at least three priority social programs has been executed at a level no less than 80 percent of the planed budget, and the global budget for all programs listed in Annex 3.A of the Program Document at levels equal or greater than 80 percent of the planned budget, and

(ii) In 2003 the quarterly execution level of the Ley de Maternidad Gratuita and the Programa Ampliado de Inmunizaciones was no less than 80 percent of quarterly agreed level.

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II. INCREASE IN EFFECTIVENESS AND EFFICIENCY OF BASIC SOCIAL SERVICES AND PROGRAMS Objective: To assure that basic social services and social protection programs reach intended beneficiaries within acceptable budget envelopes through (i) identifying intended beneficiaries with administratively clear criteria ; (ii) improving targeting mechanisms for the delivery of basic services and raising consistency in their administration; and (iii) directing social assistance spending towards the most demonstrably efficient programs

SOCIAL SAFETY NET

Safety net available to intended beneficiaries, concentrated on poor districts and households in first and second quintile of income

Progress in implementing the transition from the BS/BE to the BDH has been largely positive. The original timetable for completing the transition was been modified to account for a budget crisis and change in program management in late 2003. About 65% of expected beneficiaries have been enrolled in the new program and a similar number dropped from the former programs. The second phase of means testing and enrolment in the BDH should be completed in the next 6 months, accompanied by complete closure of enrolment in the BS.

Beneficiary families of the BDH are aware that they are to (i) assure that infants receive well-baby care, and (ii) that primary school aged children attend classes. At present however, compliance is not being monitored or enforced, pending completion of pilot projects designed to find the most acceptable means for doing so. It is likely, however that the rest of the transition will be completed by 2005 as planned.

The transition process from the BS and BE to the BDH has progressed adequately according to the implementation schedule agreed upon in May 2003

The transition process from the BS and the BE to the BDH has finished by May 2005

There has been little progress in retargeting the PAE. There is concern that retargeting the program on a poverty map basis as planned may be less effective than alternatives. In its place, STFS is developing alternative systems based on an assessment of the level of poverty in a school, rather than a parish. However, PAE management is resisting any attempt to retarget at this point.

The poverty map has been adopted as the targeting instrument for the PAE and evidence has been presented that at least 40 percent of the PAE benefits in 2003 was directed to the parroquias of the first quintile, and at least 30 percent was directed to parroquias in the second quintile

STFS has made excellent progress in finalizing the application of the SELBEN system, in spite of an interruption of resources in the latter quarter of 2000. STFS has also made progress in assuring transparency and mobilizing local support for the SELBEN process. To date all rural jurisdictions (Juntas parroqiales) and about 205 of 218 urban jurisdictions have formally joined the system. An evaluation of the efficiency and efficacy of this system is planned.

GOE established the National Integrated Food and Nutrition System (SIAN) to be supported by a funding mechanism (FNSIA) to raise nutritional levels and food security for poor and vulnerable groups. Progress in establishing this system has been minimal, however, largely owing to resistance from PAE administrators. There are, on the other hand, promising initiatives that illustrate that fully targeting nutrition and feed security on the poor can be developed and managed with local participation and control (PRADEC)

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EDUCATION

The Ministry of Education is in the position to undertake an enhanced program for educational coverage and improved quality

More efficient and equitable allocation of financial resources that results in improvements in the provision of education

MEC is taking a different approach to addressing issues in education than originally envisaged. MEC is organizing a consultative process to develop these themes and to build consensus and ownership among key stakeholder groups, to culminate in a “Third National Dialogue: Education in the 21st Century”, planned for December 2004. This should provide a 10-year framework for strengthening education performance and results. Improving rural education is to be a key focus in this regard.

Efficient and effective human resource management

MEC has made significant progress in identifying and terminating irregular teacher appointments. So far, in 6 provinces, about 322 possible cases have been uncovered. The process of leading to further should be finalized by end 2004.

Further elaboration of a human resources system would be a theme to be developed as part of the National dialogue process.

Improvements in education coverage and quality in rural areas

The Secretaria del Dialogo was disbanded and some of its consultative functions were transferred to the Planning Ministry. However, the MEC initiated is own consultative process, that will lead to a Third National Dialogue: Education in the 21st Century, by late 2004.

Teachers have an added incentive to remain in post and fulfill their obligations

Reducing delays in salary payments to teachers continues to be an intractable problem owing to the general lack of liquidity in the MEF

HEALTH

The percentage of the population with no access to basic health would be reduced to about 10 percent of the population

Virtually no progress has been made in improving access to basic health care by vulnerable populations through the strategy of negotiating resource sharing between IESS and Ministry of Health, or in encouraging IESS to extend coverage to families of its affiliates. Internal administrative issues confronting IESS and legal concerns about the provisions of the umbrella Social Security Law have slowed IESS decisions. Further, negotiations which have been pursued for several months on the cost and fee structure for a service package and mechanisms for payment for services are not progressing. In contrast, the Management of the LMG has made progress in designing a system to overcome cultural barriers to increasing access to care by vulnerable groups.

(i) Relatives of affiliates to the IESS health services receive benefits according to the implementation schedule and the financing constraints determined by the actuarial studies. The minimum package being offered is the one defined by the LMG (ii) The number of first time prenatal consultations and consultations for children less than 6 years of age has increased in 10 percent (iii) The monitoring system and the mechanism to overcome cultural barriers that prevent some groups of the population from accessing health services have been implemented

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Even though the MOH stated recently that an agreement between LMG and SSC is imminent, under these circumstances, it is doubtful that the targets for 2004 and 2005 will be met in a timely manner.

Poor and disadvantaged families would not forego receiving basic health care for financial reasons; Poor families have increased access to essential drugs

The working group designated under the National Health Council (CONASA) has made a preliminary proposal covering the design of a self-targeted system for delivering a package of basic services (GPB) to the poor. In parallel, under the responsibility of the Vice Presidency, consultants (CARE and Johns Hopkins Medical Center) have been engaged to complete work outlined in the Terms of Reference previously agreed, including inter alia, definition and methods for administering a basic care package, and improvement in essential drugs availability. Results are expected by the end of 2004.

Pilot projects in 2 cantons ( one each in Quito and Guayaquil) are to be launched as part of the overall consultancy contract, to examine the effectiveness of AUS system alternatives. In addition, independent actions have been launched in Guayaquil, Quito, Cuenca and Cotacachi by municipal authorities to work with private insurance companies to provide health insurance for poor residents.

A new Minister of Health has been given authority to pursue the development of the CPB and an administrative system.

General agreements between MSP and IESS on rationalizing access to services and fee and payment structures have not been negotiated.

IESS has completed work required to rationalize its internal organization, and its accounting systems to provide a basis for separate management and auditing of various accounts (pension, health insurance, workmen’s compensation, SSC…). IESS’s status under the Ecuadorian constitution gives it virtual autonomy of operations and the ability of GOE to oversee or influence IESS’s operations is extremely limited.

PENSIONS

Poor families have increased access to essential drugs The Inter-institutional Commission on Social Security, (CISS), chaired by the Superintendence for Banks and Insurance, began work in late 2003. It is working mainly in the context of a reformed national Social Security Law which continues to have elements whose constitutionality is being challenged Thus, the CISS has been focused exclusively on improving the performance of contributory pension and social security systems, circumscribed by the Social Security Law. However, this law affects a small minority of Ecuador’s population (15%) which have a stake in contributory pension plans. As a result, while important, the CISS work does not appear to be consistent with the longer term goal of the Reform program.

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III. TRANSPARENCY AND ACCOUNTABILITY IN SOCIAL SECTORS AND PRIORITY PROGRAMS Objective: to improve access to social sector and program information and transparency in the administration of such resources by both public sector managers and planners and by user/beneficiaries

Regular accounting of social services spending would be available to policy makers for the purpose of rationalizing costs with program effectiveness

Improvements in health and education status related to social assistance programs would be demonstrated

The STFS has developed a system for compiling and reporting on social spending at a program level and at a sectoral level (SIAPS). It also provides quarterly commentary reports on achievements, with explanatory materials, on all points covered by the reform program. This material is also web-based. In addition STFS has an active publications program.

An evaluation of the process and results of the BDH has been delayed owing to a general delay in establishing monitoring and enforcement mechanisms and lack of funding. Both issues are close to a favorable resolution.

The impact evaluation of the BDH is progressing adequately according to the implementation schedule agreed upon in May 2003

Management of the PAE has not agreed to new targeting methods so that an evaluation of the impact of the retargeting has not begun although STFS is performing simulations of the possible impact of changes in targeting the program as a basis for decision-making.

An improved regulatory framework would allow open access to information and greater public accountability for social sector costs and performance

Regulations governing the implementation of the new Health System Law, passed in 2002, were published in January 2004. However, regulations were issued without a consultative process. A new Minister of Health has established a process for addressing this fault. Regulations will cover some 9 areas, Work lasting about one year, will overlap and be coordinated with other issue areas such as design of the AUS and the formulation of a CPB.

Civil society and beneficiaries of social programs would be empowered to define priorities and direct the provision of services

Major efforts to promote a consultative process are being made in health sector regulation; educational sector reform (leading to a Third National Dialogue: Education for the Twenty-First Century; and cultural sensitivity in the LMG. STFS includes a social communications unit, recently re-staffed, whose work program for 2004 includes building awareness of the current situation with social service delivery, beneficiaries and costs

IESS would be a more accountable and auditable institution

IESS has taken steps to separate accounts established for to meet various objectives, and is following Ecuadorian law as it concerns having these accounts audited. It does not distribute or make public these audits however, owing to its character as an autonomous institution.

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ANNEX A

ECUADOR: PROGRAMMATIC SOCIAL SECTOR LOAN POLICY MATRIX

ACTIONS MAY 2003 ACTIONS AS OF WRITING OF ICR (APRIL 2004) ACTIONS FOR MAY 2004 AND

ACTIONS FOR MAY 2005 PROGRAM RESULT

I. PROTECTION OF PUBLIC SPENDING IN THE SOCIAL SECTORS AND PRIORITY PROGRAMS Objective: to assure minimum levels of public spending in health, education, and social welfare and priority programs of special importance for vulnerable groups

The 2003 budget for the priority social sector functions — Education, Health, and Social Welfare — has been established at levels higher than or equal to the 2002 budget, as a percentage of GDP

Budget provisions for the 3 major social sectors were set according to Loan conditions, at about 4.8% of GDP. As traditionally occurs, MEF modified these budgets during the fiscal year to account for changes in the availability of treasury resources, and judgements made by MEF concerning the accountability and absorptive capacity of social sector ministries. This produced a de facto ex post budget (presupuesto codificado; pc) that was about 16% below the initial budget (presupuesto initia; pil). GOE ultimately implemented about 63% of the initial budget owing to chronically low levels of treasury resources. Moreover, GOE implemented only 76% of the ex post de facto budget. This compared poorly to 2002 when the pc was 3% above the pi and the pc was 88% implemented; and 2001 when the pc was 8.4% above the pi and the pc was 93% implemented.

The 2004 social sector budget has been prepared and published. Overall it exceeds the 2003 initial budget in nominal terms (by about 9%) and is for practical purposes, equivalent to the 2003 budget as a percentage of GDP; that is 4.8%.

In 2004, the initial budget for health was established at about 1.3% of GDP, marginally lower than in 2003. Moreover, GOE was able to implement only about 70% of the initial 2003 budget.

For May 2004: The 2004 budget for the priority social sector functions — Education, Health, and Social Welfare — has been established at levels higher than or equal to the 2003 budget, as a percentage of GDP

For May 2005: The 2005 budget for the priority social sector functions — Education and Social Welfare — has been established at levels higher than or equal to the 2004 budget, as a percentage of GDP, and the 2005 budget for the priority social sector function of Health at levels higher than or equal to 2.3 percent of GDP

Poverty reduction through increase funding on health and education basic services.

Adequate budget provisions have been made for priority social sectors and priority programs, consistent with stated social sector policy

The 2003 budget for each of the social programs listed in Annex 3.A is equal to or greater than their 2002 respective budget in real terms

GOE has established the 2004 budgets for four of the priority social programs identified Annex 3.A below 2003 levels in real (2002) terms, by between 5-8%. In addition, the budget of PAE has been reduced by 13%, and PANN 2000 has been virtually eliminated with a reduction in budget of 86%. Only the budget of PRADEC, a community based food security program representing about 5% of the value of these priority programs, has been maintained in real terms. At this moment moreover, financing for these programs has not been fully assured as all programs except the Bono Desarrollo Humano and PRADEC rely on significant levels of contributions from non-treasury sources, which are less certain than treasury resources.

For May 2004: The 2004 budget for each of the social programs listed in Annex 3.A is equal to or greater than their 2003 respective budget in real terms

For May 2005: The 2005 budget for each of the social programs listed in Annex 3.A is equal to or greater than their 2004 respective budget in real terms

Expanded financing for priority poverty-related programs achieved during economic transition

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GOE’s performance in meeting goals for implementing the social sector program budgets named in Annex 3.A of the Program Document is ambiguous.

GOE executed (using the concept of “presupuesto devengado” or “committed budget”) about 65% of the initially planned 2003 budget (in 2002 real terms) for the 7 priority social programs. Individually, the results were: BDH, 84%; PAE, 45%; PRADEC, 56%; PANN2000, 61%; PAI, 73%; LMG, 100%; and education investment, 38%. Under this methodology, the aggregate target was not met and only two programs realized the goal of executing at least 80% of their planned budgets.

However, taking the rolling updated budget (presupuesto codificado) as a base, GOE executed about 84% of this ex post budget for the 7 programs identified. Individually, the results were: BDH, 100%; PAE, 84%; PRADEC, 70%; PANN2000, 100%; PAI, 84%; LMG, 100%, and education investment, 42%. Using this method, the global target was realized and all but 2 programs realized 80% or more of their budgets.

Quarterly execution of the PAI and the LMG appear to have substantially met the agreed goals. Three of four quarterly commitments of the LMG substantially exceeded the 80% target, largely compensating for a marginally lower level of execution (70% of target) in the quarter that was missed. Execution of the PAI substantially exceeded quarterly goals for execution in 2 quarters, marginally missed the goal in a third (75% of target) and missed its goal in a fourth quarter (55% of target).

For May 2004:

(i) The 2003 budget for at least three of the social programs listed in Annex 3.A of the Program Document has been executed at a level no less than 80 percent of the planed budget, and the global budget for all programs listed in Annex 3.A of the Program Document at levels equal or greater than 80 percent of the planned budget, and

(ii) In 2003 the quarterly execution level of the Ley de Maternidad Gratuita and the Programa Ampliado de Inmunizaciones was no less than 80 percent of quarterly agreed level (Annex 3.B of the Program Document)

For May 2005:

(i) The 2004 budget for at least three of the social programs listed in Annex 3.A of the Program Document has been executed at a level no less than 80 percent of the planned budget, and the global budget for all the programs listed in Annex 3.A of the Program Document at levels equal or greater than 80 percent of the planned budget, and

(ii) In 2004 the quarterly execution level of the Ley de Maternidad Gratuita and the Programa Ampliado de Inmunizaciones was no less than 80 percent of quarterly agreed level (Annex 3.B of the Program Document).

II. INCREASE IN EFFECTIVENESS AND EFFICIENCY OF BASIC SOCIAL SERVICES AND PROGRAMS Objective: To assure that basic social services and social protection programs reach intended beneficiaries within acceptable budget envelopes through (i) identifying intended beneficiaries with administratively clear criteria ; (ii) improving targeting mechanisms for the delivery of basic services and raising consistency in their administration; and (iii) directing social assistance spending towards the most demonstrably efficient programs

SOCIAL SAFETY NET

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A conditional cash transfer program, the “Bono de Desarrollo Humano (BDH)” has been created. The program —having the characteristics described in Annex 4 of the Program Document— has started to progressively replace the Bono Solidario (BS) and the Beca Escolar (BE)

Progress in implementing the transition from the BS/BE, that served about 1.2 million persons in 2003, to the BDH (with an eventual enrolment of 1.2 million) has been positive. However, the original timetable for completing the transition was been modified to account for a budget crisis and change in program management in late 2003. A first phase of the transition that included inscription of persons with income levels in the poorest two quintiles (first and second quintiles according to the SELBEN) and the elimination of ineligible recipients of the BS/BDH has resulted in transfers into the BDH of about 793,000 persons, and the reduction of recipients of the former Bono Solidario to about 240,000 (from 1,170,000 receiving the BS in March, 2003). Assuming adequate resources are available to support the administration of the transition process, plans call for completing the administration of the second phase of means testing and enrolment of beneficiaries in the BDH to a level of 1.2 million in the next 6 months, accompanied by complete closure of enrolment in the BS.

The principle constraint on this process is the risk of inadequate operating budgets for the Social Protection Program (PPS) which is responsible for administering the program. GOE/MEF has made provisions for financing the PPS. Once enrolled however, beneficiaries have been receiving their payments as planned (see budget implementation figures, above).

Social acceptance of the transition appears to have been positive, owing to a well-conceived communications campaign and a process of assuring transparency and open access to information collected through the SELBEN (see SELBEN, below), and the resultant establishment of eligibility for the BDH. Earlier fears of resistance to the transition, particularly among those having their benefits terminated, have not been realized.

Beneficiary families of the BDH are aware that they are to (i) assure that infants receive well-baby care, and (ii) that primary school aged children attend classes. However, the extent to which recipients are respecting these conditions is not clear, owing to delays in establishing the monitoring and follow-up regime needed to control compliance. At present, therefore, any compliance with conditions is largely voluntary. However, beneficiaries may not be aware that they are not being monitored, although this will not last. As a result there is a risk that the basic improvement in the living conditions of the target population will be lost.

The operational definitions and methodology for monitoring and controlling the conditions, and organizing the staffing and manuals to assure the operation is not complete. PPS has initiated a pilot project (in one parish; Pamampiro) to test systems for reinforcing the message that beneficiaries have educational and health responsibilities associated with the BDH, monitoring compliance with the conditions, and enforcing compliance through withholding payments when conditions are not met.

The transition process from the BS and BE to the BDH has progressed adequately according to the implementation schedule agreed upon in May 2003

The transition process from the BS and the BE to the BDH has finished by May 2005

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In addition this pilot project is also refining details related to keeping beneficiary lists current, and for individual and public access to lists to provide additional transparency to the process. It is expected that this pilot program will provide further guidance for refining the operations manual for administering the BDH, monitoring co-responsibility of beneficiaries, application of sanctions; needs for information and communications with beneficiaries; and training needs for BDH operational staff (in PPS and cooperating agencies such as local banks, schools, and clinics).

It is likely, therefore, that the rest of the transition will be completed by 2005 as planned.

Although there has been a recent agreement between the management of the School Feeding Program (PAE) and STFS to cooperate on developing operational criteria and a methodology for retargeting the PAE, there has been little agreement on these criteria and methodology to date. As a result, the PAE continues to provide funds for individual schools in “poor regions” whose communities ask for assistance, and agree to provide counterpart goods and services. In addition, as resources for the PAE have diminished in the past 2 years, PAE management has further rationed resources without objective guidelines.

STFS has been developing simulations for retargeting the PAE, however as a basis for providing objective and statistical basis for future retargeting. Among these, one simulation appears to cast doubt that redirecting benefits to assure universal coverage of children in poor parishes (“parroquias”) as proposed in the present Matrix (a policy based on poverty mapping) would substantially redistribute benefits towards the children in poor families. Rather, it could reduce the actual number of beneficiaries, and not improve the distribution by quintile. In its place, STFS is developing alternative systems based on an objective assessment of the level of poverty in a school, rather than a parish as a basis for retargeting the program.

The poverty map has been adopted as the targeting instrument for the PAE and evidence has been presented that at least 40 percent of the PAE benefits in 2003 was directed to the parroquias of the first quintile, and at least 30 percent was directed to parroquias in the second quintile

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The firms in charge of the expansion of the SELBEN have been hired and an implementation schedule for expansion has been agreed upon

STFS has made excellent progress in finalizing the implementation of the SELBEN system, in spite of an interruption of resources in the latter quarter of 2003. At present approximately 1.8 million applications/surveys have been completed from which individuals are classified by income quintile. The target is to complete the remaining 200,000 surveys by July 2004. A survey covers 27 items related to income and assets that are aggregated into an index describing a level of wealth. Individuals are surveyed/evaluated voluntarily, and are generally aware that a SELBEN rating is required to qualify for the BDH. This raises the incentive to participate.

STFS has also made progress in assuring transparency and mobilizing local support for the SELBEN process, as an instrument for managing the BDH. STFS’ goal in conducting this “Open Window” (ventanilla abierta) program is to create a local process for communications, updating SELBEN ratings, and providing transparency and access to records by individuals that are rated. The program is designed to assure confidentiality of individual records, while allowing participating local jurisdictions access to information for program administration purposes (apart from BDH). To date all rural jurisdictions (Juntas parroquiales) and about 205 of 218 urban jurisdictions (municipios) have formally joined the system. An evaluation of the efficiency and efficacy of this system is planned from which recommendations for institutionalizing the administration and financing of SELBEN is expected.

For May 2004: The process of expansion of the SELBEN , and a technical evaluation have been completed

For May 2005: A financing plan and an implementation schedule for the revision and updating of the SELBEN have been drafted, and the methodology for the updating has incorporated all changes required according to the technical evaluation.

The objectives and target population of the nutrition and feeding programs have been restated so that the current overlapping has been eliminated

GOE established the concept of the National Integrated Food and Nutrition System (SIAN) to be supported by a funding mechanism (FNSIA) by Executive Order, September 2003. A draft regulatory framework was also produced. The objectives of the system were to raise nutritional levels and food security focusing on the needs of the poor and vulnerable segments of society. Regulations were to provide for targeting according to the SELBEN, and harmonize the methods and targeting of the use if resources already available for food and nutrition programs in order to reach common objectives. Finally, a funding system would be developed that would pool all or part of the resources currently being administered by the separate and “specific client-driven” programs that had evolved over the past several years, into a national nutrition budget and reapply these funds so that global nutritional goals were met.

Progress in establishing this system has been minimal, largely owing to resistance from the PAE to the reformulation of its targeting criteria (see discussion of targeting PAE above). There are, on the other hand, promising initiatives that illustrate that fully targeting nutrition and feed security on the poor can be developed and managed with local participation and control (the Ecuadorian Food Program, PRADEC, in conjunction with the National Council of Parish Unions, CONAJUPARE). To assure progress, GOE would need to embrace a sector-wide view of the nutritional and food security and set policy goals at the macro level as a framework for component programs

For May 2004: The Fondo Nacional del Sistema Integrado de Alimentación (FNSIA) has been created and is in operation within the PGE 2004 with the goal of rationalizing the operation of the various nutrition programs

For May 2005: The nutrition and feeding programs have been consolidated and their budgets adjusted according to efficiency and impact criteria

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EDUCATION

A working group with representatives of the Frente Social has been constituted to discuss proposals for reform to the education system

MEC is taking a different approach to addressing issues in education as originally envisaged in the Matrix. A new Minister of Education has formed a Technical Team (January, 2004) empowered to organize the process and arrive at a reformed financial planning, administration, and management information systems. This Team has also been charged to begin a reform of educational content as well. This is expected to be a broad-based effort, led by an experienced technical educator. It consists of a director and 3 specialist experts, and is being supported by international donors.

For May 2004: (i) A reorganization and institutional strengthening plan for the financial planning and administration of the Ministry of Education has been completed, including the implementation of a new information system at the central level; (ii) Guidelines and a methodology for the allocation of financial resources based on territorial, cultural, ethnic and gender equity criteria have been agreed upon and published

For May 2005: (i) The restructuring and strengthening plan has been completed, and the information system is working in the totality of the country; (ii) As the restructuring of the MEC has been completed, the MEF has transferred to the MEC the competence to manage and allocate the education budget, within the scope of the laws of fiscal responsibility and the budget

The Ministry of Education is in the position to undertake an enhanced program for educational coverage and improved quality

More efficient and equitable allocation of financial resources that results in improvements in the provision of education

To frame the reform, MEC is organizing a consultative process to develop these themes and to build consensus and ownership among key stakeholder groups. Building on consultations at the cantonal and provincial levels, the process will culminate in a “Third National Dialogue: Education in the 21st Century”, planned for December 2004 that should provide a 10-year framework for strengthening education performance and results. Improving rural education is to be a key focus in this regard. The Minister has exercised his right to convene a National Education Council, comprising representatives of major organized and institutional interests in education to guide this process.

The MEC Technical Team anticipates that several important concepts will drive discussions, including: the decentralization of educational management to sub-national units; and financing education on the basis of demand for services rather than supply of educational inputs.

MEC expects to have a resources allocation plan as part of its 2005 budget submission that accounts for various and differentiated regional, cultural, ethnic and gender demands. Technical assistance is being sought to complete this task.

With technical assistance from the Secretaria Tecnica del Frente Social, a preliminary diagnosis of the current status of human resources has been prepared using the Teacher Census 2000-2001

MEC has made significant progress in identifying and terminating irregular teacher appointments. In a first group of 6 provinces studied, about 322 possible cases have been uncovered. This is a much smaller number that had been anticipated, but if verified and acted upon, terminations would save about US$1 million per year. The process of identification, validation of irregularities, contact with teachers involved and termination should be finalized by end 2004.

For May 2004: 60 percent of all irregular teacher certificates (partidas) have been rationalized and a plan for the implementation of a human resource monitoring and management system has been elaborated

For May 2005: The human resource monitoring and management system has been fully implemented and its financing is ensured

Efficient and effective human resource management

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Further elaboration of a human resources system would be a theme to be developed as part of the National dialogue process. Enacting it would follow

The Secretaria del Dialogo was disbanded and some of its consultative functions were transferred to the Planning Ministry. These functions are of a general planning nature and considered not fully relevant for sector planning.

However, the MEC initiated is own consultative process, that will lead to a Third National Dialogue: Education in the 21st Century, by late 2004.

For May 2004: Through a consultation process organized by the Secretaria del Dialogo, policy recommendations have been made to improve education coverage and quality in rural areas

For May 2005: The implementation of the policy recommendations put forward by the consultation group has started and its financing is ensured

Improvements in education coverage and quality in rural areas

Teachers have been paid their March salary, and a system to measure delays in and increase the transparency of teacher salary payments has been designed

Reducing delays in salary payments to teachers continues to be an intractable problem owing to the general lack of liquidity in the MEF, in spite of intentions to improve the situation.

A theme to be discussed during the Third National Dialogue will be alternative means of financing education, that may include alternative methods for contracting teacher services so as to avoid full dependence on the national treasury to meet payrolls.

For May 2004: During the first quarter of 2004 the system that measures delays in payment of teacher salaries has been used to show that delays in payments have been reduced, giving priority to poor areas and provinces with lower performance in education

For May 2005: During the last quarter of 2004 and first quarter of 2005 the system that measures delays in payment of teacher salaries has been used to show that delays in payments have been reduced, giving priority to poor areas and provinces with lower performance in education

Teachers have an added incentive to remain in post and fulfill their obligations

HEALTH

To begin to improve access and coverage to basic health care services for the most vulnerable groups in the population, the following measures have been implemented: (i) The IESS has concluded a study to evaluate the cost of covering the spouses and children under 6 of current beneficiaries (ii) Agreements have been signed to provide services included in the LMG in facilities that belong to the Seguro Social Campesino (SSC), for the population not covered by this insurance scheme, including a process to identify

Virtually no progress has been made in improving access to basic health care by vulnerable populations through the strategy of negotiating resource sharing between IESS and Ministry of Health, and in encouraging IESS to extend coverage to families of its affiliates. Specifics are as follows:

i) IESS has not acted on the results of the study evaluating the costs of extending coverage to spouses and children under 6 years of age of current beneficiaries, citing absence of regulations that would operationalize a recently passed reformed Social Security Law (regulations being delayed owing to an issue of constitutionality of parts of the Law); and questions regarding the work records and hence eligibility of several groups of current subscribers to IESS insurance. While these are valid concerns, IESS itself appears not to be proactive in addressing the issues.

ii) Negotiations between Health Ministry/ Implementation Unit for the LMG and IESS/SSC to provide maternal and child health services to expanded coverage of rural persons not yet covered by the Maternal Health Care system have not been concluded. Negotiations have been pursued for several months on the cost and fee structure for a service package, and mechanisms for payment by the MSP to SSC for services. Moreover, IESS

For May 2004: (i) Relatives of affiliates to the IESS health services receive benefits according to the implementation schedule and the financing constraints determined by the actuarial studies. The minimum package being offered is the one defined by the LMG (ii) The number of first time prenatal consultations and consultations for children less than 6 years of age has increased in 10 percent (iii) The monitoring system and the mechanism to overcome cultural barriers that prevent some groups of the population from accessing health services have been implemented For May 2005 (i) The necessary changes to the financing scheme and the package of services have been made to guarantee an increase in coverage of IESS to relatives of affiliates (ii) The number of first time prenatal consultations and consultations for children less than 6 years of age has

The percentage of the population with no access to basic health would be reduced to about 10 percent of the population

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non-affiliated beneficiaries

has been attempting to condition its agreement with this arrangement on resolving an issue with MEF on obtaining additional international credits for strengthening SSC. Again, while valid concerns, IESS does not appear to be active in seeking solutions.

increased in 20 percent, and at least 20 percent of such consultations benefited the population not affiliated to the SSC.

(iii) The Executing Unit of the LMG has started the process of designing a system of monitoring and control of payments, and a process to identify a set of instruments to be used to overcome cultural barriers that prevent some groups of the population from accessing health care

iii) The Management of the LMG has made only modest progress in designing a system to overcome cultural barriers to increasing access to care by selected vulnerable groups.

Under these circumstances, it is doubtful that the targets for 2004 and 2005 will be met in a timely manner.

iii) The monitoring system and the mechanism to overcome cultural barriers that prevent some groups of the population from accessing health services continue being used

At present IESS provides health care services to about 18% of the population; MSP to about 31%; other agencies including the private sector (including NGOs) 20% , while 31% are structurally and financially without access to basic health services. Building on its present base, IESS would have to increase its operations, which are currently designed as contributory schemes, several-fold to reach a significant level of coverage among the currently underserved. Considering delays in implementing the current expansion, and the fact that most of the population currently without coverage is poor and could not contribute, the current strategy for expanding services through IESS may not be a timely or practical, and an alternative should be developed.

The Government has created a working Group to oversee the design of a universal basic health insurance model (AUS), using the Ley de Maternidad Gratuita (LMG) and the Seguro Social Campesino (SSC) as stepping stones. The working group has produced TORs and/or studies to analyze the following aspects of the AUS: (i) definition of a set of guaranteed and self targeted basic health services, the Conjunto Garantizado de Prestaciones CGP; (ii) identification of beneficiaries excluded from CGP; (iii) gradual integration of existing systems in a single system to provide the services guaranteed

The working group designated under the National Health Council (CONASA) has made a preliminary proposal covering the design of a self-targeted system for delivering a package of basic services (GPB) to the poor. In parallel, under the responsibility of the Vice Presidency, consultants (CARE and Johns Hopkins Medical Center) have been engaged under an ongoing World Bank financed project (MODERSA) to complete work outlined in the Terms of Reference previously agreed in the Program. Contracts for this work have been signed, and results are expected by the end of 2004.

Along with specific studies, planning with the consultants is underway to hold consultations in each of the 22 provinces, leading to national workshops for designing the content of the CPB and the administrative features of a “Universal Health Assurance system (AUS).

Pilot projects in 2 cantons ( one each in Quito and Guayaquil) are to be launched as part of the overall consultancy contract, to examine the effectiveness of AUS system alternatives. In addition, independent and apparently uncoordinated initiatives have been launched in Guayaquil,

For May 2004

(i) The design of the AUS has been completed and the CGP has been discussed at a national level gathering

(ii) The group has presented the results of the studies committed in 2003, an implementation plan, and TORs for a study on catastrophic insurance

(iii) The MOH has initiated two pilots for the implementation of the AUS. At least one of such pilots will be implemented in one or more districts of the first quintile according to the poverty map

For May 2005

(i) The AUS has been implemented at the national level having incorporated the changes in design resulting from the evaluation

Poor and disadvantaged families would not forego receiving basic health care for financial reasons

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by the CGP; (iv) the financial implications of increasing coverage of CGP; (v) establishing an institutional and judicial framework, as well as the regulatory scheme for the functioning and quality of the CGP; (vi) establishing a base line for obstetric networks, and (vii) a study of legislation, registry, and utilization of essential drugs

Quito, Cuenca and Cotacachi by municipal authorities to work with private insurance companies to provide health insurance for poor residents. A common feature in all of these is the desire to capture funds from BDH payments to cover all or part of the premiums.

At present the situation appears to be poorly coordinated and lacking leadership. A new Minister of Health has been given authority to pursue the development of the CPB and an administrative system, however there does not appear to be vehicle for coordination. Moreover, significant policy and design issues remain to be resolved that may require a longer period of consultation and study that currently envisaged (one being the proposal to tie part of the conditional income subsidy for the poor, BDH, to an in-kind transfer, a health insurance premium).

of the pilots

(ii) The pilots have been evaluated and evidence has been presented showing that the AUS has covered more than 60 percent of the population in the first and second quintile as defined by SELBEN

(iii) The PGE 2005 has incorporated funding for the AUS

General agreements between MSP and IESS on rationalizing access to services and fee and payment structures have not been negotiated or concluded.

An agreement between the MOH and the IESS to purchase health services has been signed, based on the studies about cross subsidies in the health sector

The cross subsidies in the health sector have been completely eliminated

Research on this theme has not begun, but is included in the mandate of consultants working on the AUS.

A new legal framework regulating the purchase, distribution and use of essential and generic drugs has been presented

The legal framework for essential and generic drugs has been approved

Poor families have increased access to essential drugs

In order to implement the separation of financing from provision in health care services within the IESS, as expressed in the Social Security Law LSS, the IESS has signed management agreements with 84 implementation units

IESS has completed work required to rationalize its internal organization, and its accounting systems to provide a basis for separate management and auditing of various accounts (pension, health insurance, workmans compensation, SSC…). IESS’s status under the Ecuadorian constitution gives it virtual autonomy of operations which it guards jealously; and the ability of GOE to oversee or influence IESS’s operations is extremely limited.

The IESS has evaluated the management agreements and effectively implemented the separation between financing and provision in at least 20 pilot units

The experience of the 20 pilot units has been evaluated

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Pensions

A working group responsible for designing a strategy for economic protection of the elderly has been created

The Inter-institutional Commission on Social Security, (CISS), chaired by the Superintencia for Banks and Insurance, began work in late 2003. It is composed of 7 agencies with a direct interest in social security; including MEF, Ministry of Human and Social Development, Central Bank, IESS, Armed Forces Social Security Institute, National Police Social Security Institute and the Superintencia for Banks and Insurance. It is undertaking its deliberations against a background in which a national Social Security Law has been reformed following several years of intense discussion, and which continues to have elements whose constitutionality is being challenged (IESS has been applying some of the provisions of this law covering separation of funds with divers objectives into separate accounts; see above).

CISS has received briefings by the World Bank on its own analysis of public pension systems in Ecuador, and support in seminars educating its members on international experience with pension systems and methods and tools for analyzing alternative pension proposals for coverage and sustainability. The Commission has outlined a terms of reference for consultants to assist them in addressing technical issues of a reformed social security regime but does not have resources to finance such a consultancy. It has also outlined a work program for about one year that would move the debate forward.

The working group has prepared a strategy for fiscally sustainable coverage expansion in the long-run, incorporating the agreements reached on the existing fiscal contingencies

The strategy has been implemented

Poor families have increased access to essential drugs

Work has not advanced however. Principally, there is not full agreement on the part of IESS, which would be the major institution covered by the new Social Security Law, with several of the Law’s principal provisions (establishing pension systems with mixed public-private management; tightened supervision of its activities by the Superintendencia of Banks and Insurance; assumption of new insurance functions for previously non-insured persons) which would alter the agency’s institutional culture and independence. For these and other reasons related to interagency relationships, it has not participated voluntarily in the work of the CISS. This has frustrated the work of drafting regulations for applying the LSS.

Further, the attention of the CISS has been directed towards exclusively towards the concept of contributory pension and social security systems, circumscribed by the Social Security Law. Its work strategy is to resolve these issues before moving to new areas that include alternatives that involve fully or partially non-contributory elements, even though a small minority of Ecuador’s population (15%) have a stake in contributory pension plans ( a further 15% have some form of non-contributory income protection and the remainder have no recognizable income protection benefits). As a result, while important, the CISS work does not appear to be consistent with the longer term goal of the Reform program.

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III. TRANSPARENCY AND ACCOUNTABILITY IN SOCIAL SECTORS AND PRIORITY PROGRAMS

Objective: to improve access to social sector and program information and transparency in the administration of such resources by both public sector managers and planners and by user/beneficiaries

The STFS has developed a coherent and complete system for compiling and reporting on social spending at a program level and at a sectoral level (SIAPS). It has created a core team (2 professionals) that serves as the center of a network of data collection, cross checking and compilation for reporting purposes, that functions through direct contact with staff of social programs. Information is available on a STFS webpage.

STFS has also provided quarterly commentary reports giving updated details of achievements, with explanatory materials, on all points covered by the reform program. It has also published hard copy bulletins on social protection spending, social budget execution and execution of priority social programs.

For May 2004: Since June 2003 the government, through the MEF or the Frente Social has issued quarterly reports detailing the execution of social spending by program and source of funding

For May 2005: For 2004 the MEF has presented monthly reports regarding the execution of social spending by program and source of funding

The firm in charge of the baseline survey for the BDH impact evaluation has been selected, and a methodology and an implementation schedule for the evaluation have been presented

Baseline data for the education and health sectors has been collected. However, no work has taken place to establish the “second” line data so that an impact evaluation is not yet possible. Resources (which were anticipated through the PHRD Grant) have not been made available for this task. This, combined with the lack of means and methodology to assure compliance, places further development of the cost, methodology and ultimate effectiveness of the BDH at risk.

For May 2004: The impact evaluation of the BDH is progressing adequately according to the implementation schedule agreed upon in May 2003

For May 2005:Changes in the design, budget and implementation of the BDH have been made following the recommendations from the impact evaluation, and improvements in schooling and health outcomes related to the BDH have been shown

The government has produced a methodology, and an implementation schedule for the impact evaluation of the PAE

No agreement has been reached on retargeting the PAE so that an evaluation of the impact of the retargeting has not begun, STFA has attempted to perform simulations of the possible impact of changes in targeting the program, but the management of PAE have not taken decisions based on these simulations.

For May 2004: The impact evaluation of the PAE is progressing adequately according to the implementation schedule agreed upon in May 2003

For May 2005: Changes in the design, budget and implementation of the PAE have been made following the recommendations from the impact evaluation

A legal framework for the “Ley Orgánica del Sistema Nacional de Salud” has been completed, including at least the following: (i) Stewardship functions of the Ministry of Health as expressed in the National Constitution; and (ii) an organic structure necessary to fulfill those functions

Regulations governing the implementation of the new Health System Law, passed in 2002, were published in January 2004. The work of developing the new Law involved a wide ranging consultative process, and build a consensus around the principles of decentralized operations of the health system, with the role of the Ministry defined in terms of providing strategic guidance and policy, facilitating financing, exercising supervisory rights. However, regulations were issued without a consultative process and there has been resistance and conflict among stakeholders concerning the content.

A new minister of Health has established a process for redrafting the regulatory framework. He has convened the National Health Council (CONASA) and provided it with a staff to re-examine operational needs in 9 areas covering all aspects of providing health services. A one-year work

The legal framework created in May 2003 is operational An improved regulatory framework would allow open access to information and greater public accountability for social sector costs and performance

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program has been developed. Work will overlap and be coordinated with other issue areas such as design of the AUS and the formulation of a CPB.

Initial consultations with key stakeholders covering program concept and first year steps has been concluded and a roster of interest groups has been established (determined as part of consultations covering the CAS)

Major efforts to promote a consultative process are being made in:

Health: centered on the development of a regulatory framework within the Organic Health Law

Education: focused on building a Third National Dialogue: Education for the 21st Century

Social Protection: assuring transparency and cultural sensitivity in the administration of the LMG.

STFS includes a social communications unit, recently re-staffed, whose work program for 2004 includes building awareness of the current situation with social service delivery, beneficiaries and costs. STFS communications strategy, under its new manager, is to facilitate and motivate information distribution and consultations with civil society by other agencies and ministries which are in direct contact with their respective constituencies.

For May 2004: (i) One key program in each of the social sectors (education, health, and social assistance) has been evaluated by civil society groups using a consultative process (scorecards or similar) and (ii) the results from the evaluation process have been incorporated into the respective programs, and the second phase of the evaluation is finalized.

For May 2005: Evaluation of first and second phase program results and framework for third phase actions in each sector has been concluded with adequate stakeholder consultation and participation

A framework for continuing sector reform has been concluded with adequate stakeholder consultation and participation, and the results of the evaluation of one key program in each social sector have been incorporated into the design of such programs

Civil society and beneficiaries of social programs would be empowered to define priorities and direct the provision of services

The separation of funds has been completed and validated by the Executive Committee of the IESS

IESS has taken steps to separate accounts established for to meet various objectives, and is following Ecuadorian law as it concerns having these accounts audited. It does not distribute or make public these audits however, owing to its character as an autonomous institution.

For May 2004: Balances for 2003 have been audited and published and the rules and procedures used have been verified independently

For May 2005: Balances for 2004 have been audited and published and the rules and procedures used have been verified independently

IESS would be a more accountable and auditable institution

Note: Conditions in bold represent Triggers