Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 50885-SV

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$50.0 MILLION

TO THE

REPUBLIC OF EL SALVADOR

FOR AN

INCOME SUPPORT AND EMPLOYABILITY PROJECT

October 27,2009

Human Development Sector Management Unit Central America Country Management Unit Latin America and the Caribbean Region

This document has a ,restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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EL SALVADOR CURRENCY UNIT=US$

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS

AUP BCR CAS CCT CICSU CISPSU

CND’ CPS CQS CSR csu cv DA DGT DIGESTYC DPL EHPM FBS FGT FISDL

FM FMA GDP GGS GOES IBRD I C ICB IDA IDB IFR M E MSAFORP

IPSAS IRR ISA ISDS ISSS LAC LCS

Precarious Urban Settlements (Asentarniento Urbano Precario) Central Reserve Bank (Banco Central de la Reserva) Country Assistance Strategy Conditional Cash Transfer Inter-State Committee of “Comunidades Solidarias” (Comite‘ Interestatal de CSU, CICSV) Inter-Sectoral Committee of the SPSU (Comite‘ Inter-Sectorial de Proteccidn Social Universal) National Development Council (Consejo Nacional de Desarrollo) Country Partnership Strategy Selection Based on the Consultant Rural Communities (Com un idades Sol idar ius Rurales) Urban Communities (Comunidades Solidarias Urbanas) Curriculum Vitae Designated Account General Treasury Directorate Direcci6n General de Estadisticas y Censos Development Policy Loan Encuesta de Hogares de Propdsitos Mtiltiples Selection under Fixed Budget Foster-Greer-Thorbecke Social Investment Fund for Local Development (Fondo de Inversidn Social para e l Desarrollo Local) Financial Management Financial Management Assessment Gross Domestic Product Social Administration Cabinet (Gabinete de Gestibn Social) Government o f El Salvador International Bank for Reconstruction and Development Individual Consultant International Competitive Bidding International Development Association Inter American Development Bank Unaudited Financial Report National Institute o f Statistics Salvadoran Institute o f Professional Training (Instituto Salvadoreiio de Formacibn Pro fes ional) Cash Basis International Public Sector Accounting Standard Internal Rate o f Return International Standards on Auditing Integrated Safeguard Data Sheet Instituto Salvadoreiio de Seguridad Social Latin American and the Caribbean Least-Cost Selection

i

FOR OFFICIAL USE ONLY

L P G MINED MOE MTPS N C B NGO NLTA O M L PAC PAT1 PCN P I D P I U POA QCBS QCS RNE SAFI SBD SEPA SIL SOE SPSU SRFP ss STP TA TOR UFI UNDP U S A I D

Liquidity Program for Growth Sustainability Ministry o f Education(A4inisterio de Educacidn) Ministry o f Economy Ministry o f Labor (Ministerio de Trabajo y Previsidn Social) National Competitive Bidding Non-Governmental Organization Non-Lending Technical Assistance Labor Market Monitoring Unit (Obsewaforio del Mercado Laboral) The Anti-Crisis Plan (Plan Anti Crisis) Temporary Income Support Program (Programa de Apoyo Temporal a1 Ingreso) Project Concept Note Project Information Document Project Implementation Unit Plan o f Action Quality -and Cost- Based Selection Quality-Based Selection National Employment Network (Red Nacional de Empleo) Financial Management System (Sistema de Administracidn Financiera) Standard Bidding Documents Procurement Plan Execution System (Sistema de Ejecucidn Plan de Adquisiciones) Specific Investment Loan Statement o f Expenses Universal Social Protection System (Sistema de Proteccidn Social Universal) Standard Request for Proposals Sole Source Technical Secretariat o f the Presidency (Secretaria Te'cnica de la Presidencia) Technical Assistance Terms o f Reference Institutional Financial Unit (Unidad Financiera Institucional) United Nations Development Program United States Agency for International Development

Vice President: Pamela Cox Country Director: Laura Frigenti

Sector Director: Evangeline Javier Sector Manager: Helena Ribe

Sector Leader: Sajitha Bashir Task Team Leader: Edmundo Murrugama

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

REPUBLIC OF EL SALVADOR

INCOME SUPPORT AND EMPLOYABILITY

CONTENTS

Page

I . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 A . Country and sector issues ..................................................................................................... 1

B . Rationale for Bank involvement .......................................................................................... 5 C . Higher level objectives to which the Project contributes .................................................... 6

PROJECT DESCRIPTION .................................................................................................. 7 I1 . A . B . C . D . E .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Lending instrument .............................................................................................................. 7 Project development objective and key indicators .............................................................. 7 Project components .............................................................................................................. 8

Lessons learned and reflected in the project design .......................................................... 12

Alternatives considered and reasons for rejection ............................................................. 13

IMPLEMENTATION .................................................................. I ................................. $13 Partnership arrangements .................................................................................................. 13

Institutional and implementation arrangements ............................................................... -13

Sustainability ..................................................................................................................... 17

Critical risks and possible controversial aspects ............................................................... 18 Loadcredit conditions and covenants ............................................................................... 20

APPRAISAL SUMMARY .............................................................................................. 21 Economic and financial analyses ....................................................................................... 21

Technical ........................................................................................................................... 22

Fiduciary ............................................................................................................................ 23

Social ................................................................................................................................. 24

Environment ...................................................................................................................... 24

Safeguard policies .............................................................................................................. 25

Policy Exceptions and Readiness ...................................................................................... 25

Monitoring and evaluation o f outcomeshesults ................................................................ 16

... 111

Annex 1: Country and Sector o r Program Background .......................................................... 26

Annex 2: Major Related Projects Financed by the World Bank and/or other Agencies ...... 31

Annex 3: Results Framework and Monitoring ......................................................................... 33

Annex 4: Detailed Project Description ...................................................................................... 39

Annex 5: Project Costs ................................................................................................................. 53

Annex 6: Implementation Arrangements .................................................................................. 54

Annex 7: Financial Management and Disbursement Arrangements ..................................... 59

Annex 8: Procurement Arrangements ....................................................................................... 69

Annex 9: Economic and Financial Analysis .............................................................................. 74

Annex 10: Safeguard Policy Issues ............................................................................................. 78

Annex 11: Project Preparation and Supervision ...................................................................... 81

Annex 12: Documents in the Project Fi le .................................................................................. 83

Annex 13: Statement o f Loans and Credits ............................................................................... 84

Annex 14: Country at a Glance .................................................................................................. 85

Annex 15: Map IBRD 33401R .................................................................................................... 88

iv

REPUBLIC OF EL SALVADOR

Source Borrower International Bank for Reconstruction and

INCOME SUPPORT AND EMPLOYABILITY

Local Foreign Total 4.0 0.0 4.0

46.8 3.2 50.0

PROJECT APPRAISAL DOCUMENT

Development Total:

LATIN AMERICA AND CARIBBEAN

50.8 3.2 54.0

Date: October 27, 2009 Team Leader: Edmundo Murrugarra Country Director: Laura Frigenti Sectors: Public administration- Other social Sector ManagedDirector: Evangeline Javier services (70%); Vocational training (30%)

Themes: Improving labor markets (45%); Social safety nets (35%); Poverty strategy, analysis and monitoring (20%)

Project ID: P117440 Environmental category: B Lending Instrument: Specific Investment Loan Joint IFC:

Joint Level:

[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Borrower: Republic of: El Salvador San Salvador, El Salvador

Responsible Agency: Secretaria TCcnica de la Presidencia DIRECCION Alameda Dr. Manuel Enrique Araujo #5500 Carretera a Santa Tecla, San Salvador, El Salvador, CA. Telephone: (503) 2248-9235 Fax.: (503) 2248-9270

V

FY

Annual

201 1 2012 2013 2014 2015

8.8 21.2 17.1 1.9 1 .o

Expected effectiveness date: February 15,201 0 Expected closing date: December 3 1 , 201 4

Cumulative

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o

Does the Project depart from the CAS in content or other significant respects? Ref: PAD I.C. Does the Project require any exceptions from Bank policies? Ref: PAD I K G .

I s approval for any policy exception sought from the Board? Does the Project include any critical risks rated “substantial” or “high”? Ref: PAD IILE. Does the Project meet the Regional criteria for readiness for implementation? Ref: PAD I K G. Project development objective Ref: PAD II.B., Technical Annex 3

Have these been approved by Bank management? [ ]Yes [ IN0

30.0 47.1 49.0 50.0 8.8

The Project development objectives are to: (i) provide temporary income support to the urban vulnerable poor; (ii) improve the coverage o f labor intermediation and training services, to the urban vulnerable poor; and (iii) improve the institutional capacity o f the Borrower to develop an integrated social protection system.

Project description Ref: PAD ILC., Technical Annex 4

The Project would have three components: The design and implementation o f a temporary income support program (PATI) that would ensure that a number o f poor and vulnerable urban dwellers would receive benefits in exchange for their participation in a community activity and training.

The strengthening o f labor intermediation, information, and occupational training systems, by expanding the network o f intermediation services, and developing a national strategy for occupational training.

The design and development o f a universal social protection system (SPSU), by strengthening the organizational and technical capacity o f the Secretaria Te‘cnica de la Presidencia (STP).

.

. Which safeguard policies are triggered, if any? Ref: PAD I K F . , TechnicalAnnex 10 Environmental Assessment (OPBP 4.01).

vi

I Significant, non-standard conditions, if any, for: Re$ PAD III. F.

Effectiveness conditions

1. An Implementation Agreement has been executed on behalf o f the Borrower and FISDL (for Components 1 and 2).

2. An INSAFORP Agreement has been executed on behalf o f FISDL and INSAFORP (for Component 1.1).

3. In addition to the usual legal opinion required in the General Conditions, legal opinions confirming that: (a) the Implementation Agreement has been duly executed by the Borrower and FISDL and i s legally binding upon the Borrower and FISDL in accordance with i t s terms; and (b) the INSAFORP Agreement has been duly executed by the FISDL and INSAFORP and i s legally binding upon the FISDL and INSAFORP in accordance with i t s terms.

Disbursement Condition

No disbursements shall be made to finance PATI Grants and Management Expenses under Component 1.1 o f the Project unless FISDL has contracted with a financial institution, under terms and conditions acceptable to the Bank, to be in charge o f executing PATI Grants' payments.

Other Covenants

1. For purposes o f carrying out Components 1 and 2 o f the Project, the Borrower shall enter into the Implementation Agreement with FISDL under terms and conditions approved by the Bank.

2. The Borrower, through STP, shall maintain throughout Project execution key staff in numbers and with experience and functions satisfactory to the Bank.

3. The Borrower shall carry out the Project and cause the Project to be carried out in accordance with the Project Operational Manual, satisfactory to the Bank.

4. The Borrower shall ensure that any activity under the Project do not involve any Resettlement, the use o f pesticides or other agricultural chemicals listed in the Project Operational Manual, andor degrade natural habitats, or cause deforestation.

5 . The Borrower shall cause FISDL to carry out annual operational audits integrating the results o f the implementation o f Component 1.1 o f the Project and setting out the measures to ensure the adequate and efficient carrying out Component 1.1 o f the achievement o f the objectives thereof.

v i i

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

Overview

1. The substantial gains in poverty reduction and social areas in the last years are being challenged by the effects of recent food, fuel and international financial crises in El Salvador, showcasing the vulnerability o f the urban poor. Between 2001 and 2007, modest but sustained economic growth helped reduce poverty from 43.6 to 35.5 percent.’ Since 2005, these improvements were accompanied by an important Government effort, Red Solidaria, to target the poorest rural population through conditional cash transfers, which provided cash benefit to families in exchange for school enrolment and health care checkups o f their children. Important social gains observed until 2007 seem to have faded during the recent food price crisis and even worsened during the current financial crisis. By 2008, overall poverty had already increased to 42.3 percent, close to the levels observed back in 2001. The urban population i s being hurt by both the decline in remittances, reduction in employment, in a context characterized by high youth unemployment and urban violence (highest crime rate in Central America). In contrast to the poor population in rural areas covered by Comunidades Solidarias Rurales (former Red Solidaria), the urban poor are not covered by any intervention that would help them mitigate the impacts o f the crisis or cope with their effects.

2. In response to the multiple crises, the new Salvadoran administration that took office in June 2009, immediately launched a new Anti-Crisis Plan (PAC) which included interventions targeted to the vulnerable urban poor in a broader social protection strategy. Within three weeks o f assuming power, President Funes presented the government’s Anti-Crisis Plan with priority initiatives and actions to protect the most vulnerable individuals o f the population, while preparing for economic recoveryS2 The Government also announced i ts intention to prepare a long-term development policy with significant re-organization o f sectoral Ministries and the creation o f an institutional mechanism to develop social policy.

3. The proposed Project i s the World Bank’s response to the Government request to help implement a short-term intervention to mitigate the impact o f the crisis on the urban vulnerable poor while expanding services that enhance their employability in an articulated social protection system. The existing institutional capacity in the implementation o f social programs provides a solid ground for launching innovative interventions in El Salvador. The existing capacity ranges from policy coordination and planning to the implementation and evaluation o f programs in coordination with local governments. The Project builds on this capacity to implement an innovative .income support program that i s well articulated with medium term employability strategies for the vulnerable and poor in urban areas.

Recent Economic and Social Developments

4. Up until 2007, sustained economic growth in El Salvador has led to important socioeconomic progress and substantial reductions in poverty. Between 2000 and 2005, the

This document defines poverty as the percent ofpopulation living under the poverty line, although official statistics I

report poverty as a percent o f households under the poverty line. * Plan Global Anti Crisis. Secretaria TBcnica de la Presidencia. San Salvador, June 19,2009.

1

Salvadoran economy grew on average by 2.3 percent and accelerated to about 4.5 percent between 2006 and 2007. This brought sustained poverty reduction until 2006 and the rural-urban poverty gap reduced from nearly 16 percentage points to negligible differences in 2006. These improvements were accompanied by substantial gains in other socio-economic areas as well. More importantly, as some measures o f income inequality suggest, many o f the socio-economic gains went to worst-off departments, rural settlements and the poorest (World Bank, 2009a).

5. Nonetheless, sustained, though modest, growth has been insufficient in absorbing a large contingent o f new entrants into the labor market, keeping unemployment high among youth. While overall unemployment rates have been relatively stable around seven percent, among youth, the rate i s nearly at 12 percent. Every year, about 30,000 young Salvadorans enter the labor market for the first time and encounter scarce opportunities; of these new entrants, about 4,000 would not be able to find a job, and the majority who find jobs, would end up in informal low-productivity activities. Moreover, 40 percent (ages 18 to 25 years) would have completed at least primary education, while about 13 percent would have dropped out before completing secondary education. In this context, outmigration has represented an important opportunity for youth, especially during hard economic times when outmigration flows peaked (World Bank, 2009b).

6. The recent effects of the food, fuel, and international financial crises that have hit Salvadoran households have further increased these unemployment figures, affecting the gains achieved in the previous years. The impacts o f the crises on employment and incomes in El Salvador are coming through four different channels. First, there was an overall GDP deceleration from 4.7 percent in 2007 to 2.5 percent in 2008, and the current projections foresee a GDP growth decline o f about 2.5 percent in 2009 (during the first quarter o f 2009 GDP already declined by -1.5 percent). Second, exports shrunk by 16 percent in the first five months if 2009, and maquila exports, a sector that has contributed to some previous job creation, declined by 23.4 percent in the same period. Third, remittances, representing nearly 18 percent o f the Salvadoran GDP during 2005-2008, are expected to decline at least by 10 percent in 2009. Finally, fiscal revenues declined on a net basis by 10.9 percent through august 2009. As a result, the period 2007-2008 marked an evident reverse in poverty reduction gains (Figure 1). Between 2006 and 2008, the poverty headcount ratio increased 6.1 and 9.8 percentage points in urban and rural areas, respectively, due to the increase o f food prices, wiping out the gains since 2001. In 2008, the cost o f the urban consumption basket increased 17.0 percent and the rural increased 15.6 percent, while per capita income growth was only five percent, too modest to compensate for the increase in food prices.

7. I n contrast to other crisis scenarios, the current financial crisis i s also having a particular impact on urban areas due to the location o f export oriented industries and the share of remittances that go to urban areas. While poverty increased in 2008 due to higher food prices, the current financial crisis i s mainly affecting urban Salvadorans through declining labor and remittances incomes. The annual 2008 unemployment figures s t i l l show a decline from 6.3 percent in 2007 to 5.9 percent in 2008, but the effects o f the international crisis are evident in late 2008 and early 2009 since

2

more than 30,000 formal jobs were lost between September 2008 and April 2009, and other estimates suggest that employment losses could reach 90,000 in 2009 (OIT, 2009). Urban areas are not only facing a relatively larger impact o f the crisis, but also make up a high concentration o f El Salvador’s poor (58 percent).

Government Strategies

8 . Previous improvements in poverty reduction and human development have been the result o f well-targeted policies to improve the living conditions of the poor in El Salvador. Over the past decade, El Salvador has maintained i t s public expenditures in the social sectors and implemented programs aimed at expanding the coverage o f basic health and education services. The Government o f El Salvador’s (GOES) efforts in the health sector, for example, included the expansion o f health care coverage that resulted in improved coverage in the poorest rural municipalities. A key policy introduced in 2005 was the Conditional Cash Transfer (CCT) Program for rural areas, called Red Solidaria, which provided a cash benefit to program participants in exchange for a child’s school enrolment and regular health care checkup. This well-targeted program (IFPRI-FUSADES, 2009) was expected to cover families in the 100 poorest municipalities by 2009.

9. The implementation of the CCT Red Solidaria has played a critical role in building local capacity to manage integrated social interventions. The implementation o f the Red Solidaria, under the leadership o f the Technical Secretariat o f the Presidency (Secretaria Ticnica de la Presidencia, STP), involved the coordination o f many institutional actors, from the Social Fund (Fondo de Inversibn Socialpara e l Desarrollo Local, FISDL) to the Ministries o f Health and Education, to Municipalities. This inter-institutional coordination effort has been critical in defining the role o f the STP in articulating social policies in El Salvador. The financing o f Red Solidaria involved several donors and international agencies creating capacity to integrate and coordinate external aid as well.

10. FISDL has developed a strong capacity in the use of several instruments for social program management, like the use o f poverty maps for targeting, participant registries, transparent and auditable administrative and financial systems, among others. This strong capacity is not only evident in Red Solidaria, but also in FISDL’s long standing ability to work with local governments in major construction and social infrastructure projects (from school construction to roads). This capacity paid o f f in 2008 when Red Solidaria was expanded faster than planned to respond to the increasing food prices, mitigating some o f the impacts o f the food price increases in rural areas (de Brauwe et al., 2009). This operational capacity has become a critical asset in the current environment when rapid actions need to be deployed in coordination with municipalities.

11. On June 1, 2009, when the new administration took office, the impacts of the international financial crisis were already evident and, in response, the new Government launched a comprehensive Anti-Crisis Plan (PAC) to offset the impacts o f the economic slowdown. The P A C comprises a series o f short- and medium-term interventions in the following areas: (i) an income protection and employment generation program to protect vulnerable populations impacted by either j o b losses or lower remittances; (ii) the creation o f a comprehensive and universal social protection system; (iii) the strengthening o f public finances, including actions targeting revenue and expenditures to create fiscal space for priority spending; and (iv) the implementation o f a comprehensive consultative and participatory process underlying the preparation o f a National

3

Development Plan (NDP) and Sector Policy Strategies, which together will represent a road map for the country’s medium-term recovery and long-term development.

12. As part of the PAC, the GoES identified the need to develop a SPSU, which would bring a ‘rights-based approach’ to social policies and provide a minimum standard of social services and economic opportunities. The creation o f the Universal System o f Social Protection (Sistema de Proteccidn Social Universal- SPSU) is a medium-term objective that aims to provide a minimum standard o f social services and economic opportunities to al l Salvadorans. It i s based on the principles o f citizen’s rights and local governance, among other things. The core o f the initiative will be based on Comunidades Solidarias, a program which builds on the successful experience o f Red Solidaria, the conditional cash transfer (CCT) program for poor families in rural areas launched by the previous Government.

13. The Comunidades Solidarias goes beyond the CCT program and has four areas of intervention to strengthen local development: (i) human capital development; (ii) provision o f basic public services; (iii) income generation and productive development; and (iv) local governance. In rural areas, the Comunidades Solidarias Rurales (CS Rurales) focuses on the 100 poorest municipalities and will increase the benefits o f the current CCT program, encourage investment in basic infrastructure, provide basic pensions to the elderly, coordinate the implementation of the Programa de Vivienda Piso y Techo, and strengthen the governance capacity o f municipal authorities. The Comunidades Solidarias Urbanas (CS Urbanas) will introduce CCTs for human capital interventions as described below.

14. The GoES has launched a first pilot of CS Urbanas with interventions on basic social infrastructure and housing improvements, public safety, and income support. In order to examine the operational conditions for the CS Urbanas, the Government has identified three interventions that would be used in the pilots: an existing housing and neighborhood improvement project (Programa de Mejoramiento de Asentamientos Urbanos Precarios, funded by the IADB); an existing public safety initiative implemented in a coordinated local effort aimed at violence and crime prevention; and a temporary income support program (Programa de Apoyo Temporal a1 Ingreso, PATI), which this proposed Project would support. These areas - housing, security, and income - are considered critical in the current Salvadoran context with declining incomes, precarious dwellings and extremely high crime rates in urban settlements. Municipalities and urban settlements would be ranked using the urban poverty map developed by FLACSO-Censos-UNDP (2009) and supported by the GoES.

15. The GoES has identified a temporary income support program as an immediate policy priority within CS Urbanas. As part o f CS Urbanas, GoES identified the need to design and implement PATI, which would be capable o f reaching targeted areas in a very short period o f time, with interventions that would not require the lengthy procedures o f traditional infrastructure projects. Although temporary in nature, the Government objective i s that the P A T I would be a policy instrument available in the social protection ‘toolbox’ that would be readily available for future crisis.

16. The GoES has also defined a strategy for strengthening labor market intermediation, information and occupational training systems to provide better economic opportunities for the poor. This strategy developed by the Ministry o f Labor and Social Protection (MTPS), called Renacempleo, which i s committed to the creation o f employment, based on a productive and

4

competitive economy, respectful o f workers’ rights i s targeted towards the most vulnerable population (MTPS, 2009). The targeting o f poor and vulnerable groups i s in line with other initiatives that seek to articulate income support and employability interventions.

17. In order to help coordinate social policies, and design and launch the SPSU, the GoES has restructured the role o f the STP. The GoES has restructured the Presidential Office, including the STP, in order to streamline and enhance the coordination in the policy decision making process (GoES , 2009a). Furthermore, two additional Secretariats have been created in the Presidential Office, the Secretariat o f Social Inclusion and the Secretariat o f Strategic Affairs. The Government has also created a number o f coordinating entities that are chaired by the STP, l ike the Economic and Social Administration Cabinets and the Inter-Sectoral Committee for the SPSU. This Inter-Sectoral Committee would define the strategic vision for the Universal Social Protection System and would serve as an advisory group on social protection policies and programs.

B. Rationale for B a n k involvement

18. T h e proposed Project would address key priorities identified in the’ongoing W o r l d B a n k analytical w o r k on Human Development for Poverty Reduction. Previous analyses found that while poverty has been declining in El Salvador, household incomes are highly vulnerable to remittances and employment shocks, corroborated by the 2008 data and the limited 2009 evidence (World Bank, 2009a). It also identified that youth unemployment has been very sensitive to changes in economic activity compared to the more stable adult unemployment (World Bank, 2009b). In order to better manage these risks, the proposed Project aims to develop and strengthen the instruments and policies appropriate for short and medium term interventions and that can be articulated in a flexible way to respond to different crisis scenarios.

19. T h e proposed Project would focus on areas in which the W o r l d B a n k has expertise. These areas include income support and temporary employment programs, on-the-job training, skill- building, labor intermediation programs, and institutional capacity building. In Latin America and the Caribbean (LAC), for instance, the World Bank has supported the design o f and financed temporary employment, training, and labor intermediation programs in Argentina and Bolivia as well as most o f the CCT programs in the Region including El Salvador’s Red Soliduriu3 (World Bank, 2005). The World Bank also brings considerable global experience in supporting the strengthening of governments’ institutional capacity to design and implement national social policy, and the necessary tools such as the unified registration and monitoring and evaluation systems.

20. W o r l d B a n k involvement in the proposed Project builds on the GoES capacity and expertise developed in the last years. Since the signing o f the Peace Accords in 1992, the World Bank has been a key partner in El Salvador, working on reform and strengthening o f social sectors successive governments. Recent social sector support includes: (i) analytical work on Human Development for Poverty Reduction (to be delivered in FY 10); (ii) a Public Expenditure Review (to be delivered in F Y 10); (iii) a Public Finance and Social Sector Development Policy Loan (2009-20 1 1); (iv) a Hospital Reconstruction and Basic Health Services Project (2005-2009); (v) a Poverty Assessment (2005); (vi) support for the development o f a Poverty Map to improve poverty program

The World Bank helped in the design of the Red Solidaria and approved a loan to support i t s implementation (Report No. 32648-SV); however, the Loan was cancelled as it failed to receive approval by the Salvadoran Congress.

5

targeting (2005); and (vii) a non-lending technical assistance program to provide assistance to the implementation o f Plan 2021 (education) and support to the design and implementation o f Red Solidar ia (200 5).

21. This proposed Project would also complement the efforts carried out by the “Fiscal Management and Public Sector Performance” technical assistance loan (FMPSP TAL) currently under preparation (World Bank, 2009d). The FMPSP TAL supports, among other activities, the implementation o f an integrated national statistics system (Instituto Nacional de Estadistica, INE) to improve the GOES’ capacity to plan, monitor and evaluate policy interventions. Furthermore, it proposes the implementation o f a national transparency policy, increasing freedom o f public information on legislation. The proposed Project would complement these national efforts, in particular the implementation o f an integrated national statistics system, through strengthening the technical capacity o f MTPS’s ability to produce policy relevant labor statistics.

22. Finally, the proposed Project would support the Sustaining Social Gains for Economic Recovery Development Policy Loan (SSGER DPL) that would strengthen the fiscal and institutional capacity of the GoES to sustain social sector activities. I t s specific objectives include: (i) protecting fiscal space for social expenditures; (ii) protecting the income and consumption of the vulnerable population; and (iii) strengthening institutional capacity for policy formulation and implementation in the social sectors for economic recovery (World Bank, 2009e). This D P L supports the creation o f the policy framework for the Temporary Income Support program, while this Project supports and finances i t s operational design and implementation. Further, the SSGER supports the re- organization o f the STP to coordinate social policy, while this Project finances the strengthening of i t s technical and organizational capacity.

C. Higher level objectives to which the Project contributes

23. As part o f the GoES comprehensive social strategy, the proposed Project aims to support the GoES in bridging short-term responses to the crisis and medium-term interventions. The Project plans to articulate both short-term needs for income support and medium-term objectives for enhanced employability through improved labor market intermediation and training programs. Within this context, the proposed Project contributes to the design o f the CS Urbanas by developing the “income and employment” pillar. Furthermore, the proposed Project would be articulated in collaboration with local governments, supporting the GOES’S principle o f local governance (Le., territorialidad). This intervention would be implemented in parallel to the other pillars o f CS Urbanas interventions, including public safety and dwelling improvements.

24. This Project supports the proposed World Bank Group’s Country Partnership Strategy for the Republic of El Salvador (CPS) 2009-2010 (Report No. 50642-SV). The Project’s objectives reflect the CPS’s (World Bank, 2009c) approach, which has identified three strategic objectives: (i) to strengthen fundamentals for economic recovery by addressing macro and institutional vulnerabilities; (ii) to strengthen delivery o f social services; and (iii) to increase economic opportunities, particularly for the poor. This Project directly addresses the second and third objectives o f the Strategy through the articulation o f a temporary income support program for the urban poor and the design o f the SPSU. More specifically, the proposed Project also addresses the third objective through the extension o f coverage o f labor training programs.

6

11. PROJECT DESCRIPTION

A. Lending instrument

25. This proposed Loan is a Specific Investment Loan (SIL) and would finance investments in programs and capacity that complement policies supported by the “Sustaining Social Gains for Economic Recovery” DPL.

B. Project development objective and key indicators

26. The proposed Project aims to support the Government o f El Salvador in i t s short-term response to the crisis, while at the same time contributing to the establishment o f an integrated social protection system. Within this context, the Project development objectives are to: (i) provide temporary income support to the urban vulnerable poor; (ii) improve the coverage o f labor intermediation and training services to the urban vulnerable poor; and (iii) improve the institutional capacity o f the Borrower to develop an integrated social protection system.

27. The performance o f this Project would be monitored by a comprehensive set o f indicators further elaborated in Annex 3. A selected l i s t o f indicators is included below:

Key hdicators: Baseline Target Outcome - 40,000 P A T I participants received their income support NA 40,000

output - Percent o f households in the targeted settlements that are NA 25%

- Percentage o f female P A T I participants NA 60 Yo - Percentage o f young P A T I participants (1 6-24 years old) NA 40 %

covered by P A T I (coverage)

Outcome - Participation o f 18-25 year old individuals without secondary 3,700 1 1,000

education in the RNE increases by 200 percent nationwide output

- A Labor Market Monitoring Unit i s up and running NA Yes

- 66 BoZsas de EmpZeo are operational and connected to the RNE 8 66 - National Strategy for Occupational Training approved by MTPS None Yes

- Approval o f a regulatory framework for the institutional None Yes Outcome

coordination o f SPSU output

- A Unif ied Registration System o f participants i s designed None Yes - A Monitoring and Evaluation System o f the SPSU i s designed None Yes

The expected coverage i s 40,000 individuals out o f 112,000 households in those settlements.

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C. Project components

28. The Income Support and Employability Project would have an estimated cost of US$54.0 million, including US$4.0 million o f counterpart funds, and it would be implemented over a period of five years. It consists o f the following components:

29. Support the Design and Implementation o f the Temporary Income Support Program (Programa de Apoyo Temporal a1 Ingreso, PATI) (US37.3 million IBRD, USS3.2 million GoES). This Component supports the GoES in the implementation o f the PATI program, which provides six-month temporary income support to individuals living in precarious urban areas who participate in approved PATI subprojects. The PATI Program i s implemented through subprojects at the municipality level that include community and training activities. Community Activities would be small scale, simple, labor-intensive activities suitable and accommodating to a majority o f unskilled labor, youth, and women, many o f whom, have been disproportionately affected by the financial crisis. Most PATI community activities would be related to social and community services (e.g., childcare, sports and youth activities, improvement o f public spaces) and would not involve any substantive infrastructure activities. Training activities would be designed to increase the employability o f PATI participants in the labor market. This Component would finance temporary income support and training for participants in approved PATI subprojects, advisory services and training for FISDL for implementing, supervising and monitoring the PATI, and technical assistance to municipalities to design and implement PATI subprojects.

Component 1.

30. number o f people living in precarious settlements (as identified by the aforementioned urban poverty map with additional adjustments made by the STP based on the GoES crime indicators). These municipalities cover about 56 percent o f the country’s total urban population, which include the 548 most precarious communities (asentamientos con niveles de precariedud extrema y alta) and are not covered by the Government’s ongoing CCT program (CS Rurales, formally known as Red Solidaria). Over a period o f two years, the Program i s expected to have approximately 40,000 participants. During this period, the Government intends to complete the design o f the CS Urbanas as part of i ts universal social protection system.

The PATI program would be implemented in 43 urban municipalities that include the largest .

3 1. As delegated by the Government’s Inter-Sectoral Committee for the Universal Social Protection System, the STP i s responsible for the strategic direction and coordination o f the CS Urbunus program, where the PATI i s a building block for i t s income and employment pillar. Component 1 would be implemented by FISDL through agreements with municipalities for the development o f PATI subprojects and implementation o f community activities, and with the Salvadoran Professional Training Institute (Instituto SulvudoreAo de Formaci6n Profesional, INSAFORP), which would arrange for training activities to program participants. Municipalities would prepare PATI subprojects and implement Community Activities. This Component has four subcomponents :

32. Subcomponent 1.1. Financing Transfers of the Temporary Income Support Program (PATI) (US$26.5 million IBRD, US$2.7 million GoES). This Subcomponent would provide PATI grants to PATI Participants and management expenses to Eligible Municipalities. Municipalities prepare PATI subproject proposals for submission to FISDL, comprising a description o f a community activity, the

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training activity, the expected number of participants, the subproject’s expected duration, and the municipalities’ co-participation (e.g., materials, tools, or other skilled labor). Each activity would have between 30 and 50 participants. After FISDL approves the PATI subproject, it selects participants based on a quantitative index o f socioeconomic characteristics associated with poverty and vulnerability and that prioritizes unemployed participants in precarious settlements, specifically targeting youth and female heads-of-household. FISDL then signs an agreement with each participant that stipulates that he/she would receive a monthly grant o f US$lOO contingent on an individual’s compliance with obligations set forth in the agreement. This monthly grant i s well below the minimum wage (US$173 as o f January 2009, MTPS 2008) and the urban poverty line (US$165.7 in August 2009; DIGESTYC , 2009) and would not discourage potential participants from seeking employment elsewhere.

33. Using Government financing, the GoES started implementing the PATI in two pilot municipalities (Le., Ahuachapan and San Martin) in late September 2009, following the same procedures established in the agreed Operational Manual. Lessons from this first stage o f the implementation in the two municipalities and a process evaluation wi l l provide a valuable experience and information for Program improvements that would enable a smooth star t o f the Project’s implementation. At the same time, it would assess Program design and implementation features before scaling it up to additional municipalities. The GoES wi l l start implementation of the Program in a limited number o f Municipalities in the f i rst semester o f 201 0, and expand i t s coverage during 201 1.

34. Subcomponent 1.2. Training delivery for PA T I participants (US$6.2 million IBRD, US$O.5 million GoES). This Subcomponent would finance the provision o f training to PATI participants, including, among other things: (a) the assessment o f training needs; (b) the design o f appropriate training components for the PATI subprojects; (c) the delivery o f training Activities; and (d) the monitoring o f PATI Participants’ assistance to the Training Activities. Each PATI subproject proposal would include a training activity for participants, identified with assistance from INSAFORP. Once FISDL approves a subproject and selects participants, INSAFORP would enter into a contract with local training providers to adapt and design their training modules and provide training to participants.

35, Subcomponent 1.3. Institutional strengthening of FISDL (US$2.4 million IBRD, US$O.O million GoES). The objective o f this Subcomponent i s to strengthen FISDL’s capacity to manage the PATI Program by, among other things, supporting the evaluation and redesign o f FISDL’s current M&E systems. Among other things, this Subcomponent would finance the following activities: (i) the design and coordination o f the PATI subproject cycle; (ii) the supervision o f the implementation o f the PATI subprojects including participants’ compliance with commitments; (iii) the design and use o f instruments and mechanisms to facilitate social monitoring and to validate the targeting effectiveness o f the PATI; and (iv) the evaluation and redesign o f FISDL’s current monitoring and evaluation system. This last activity would be articulated as part o f the overall M&E system being developed by the STP for social programs in the country.

3 6. Subcomponent 1.4. Institutional strengthening of Municipalities (US$2.2 million IBRD, US$O. 0 million GoES). The objective o f this Subcomponent i s to strengthen eligible Municipalities’ institutional and technical capacity to design and implement PATI Subprojects, through the provision o f technical assistance, equipment and training o f Eligible Municipalities’ personnel to identify, prepare and submit for approval o f PATI Subprojects, among other things. Crucial to PATI’s success i s municipalities’ ability to identify and formulate subprojects and to supervise their implementation.

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37. Component 2. Strengthening of labor intermediation, information, and occupational training systems (US$10.3 million IBRD, US$0.6 million GoES) This Component would strengthen the GoES’ capacity to provide labor intermediation and training services, especially to the urban vulnerable poor. Specifically, the proposed Component would improve: (i) the coverage o f labor intermediation institutions in local markets, especially in those Municipalities identified by the urban poverty map; (ii) the quality o f the labor market information that guides the policy formulation process; and (iii) the coordination 6 f the current occupational training system in addressing labor market needs. The MTPS i s responsible for this Component and would be supported by FISDL for procurement and financial management. This Component is made up o f three subcomponents:

3 8. Subcomponent 2.1. Strengthening the Labor Intermediation System (US$7.2 million IBRD, US$0.3 million GoES). This Subcomponent would strengthen the National Employment Network (Red Nacional de Empleo, RNE) by expanding the geographical coverage o f the Bolsas de Empleo Program through, among other things, the provision o f specialized technical assistance, training, equipment and software for MTPS. This would be achieved by supporting the expansion o f the RNE in municipalities without coverage, especially those with larger numbers o f urban vulnerable and poor, through the local Employment Offices (Bolsas de Empleo, formerly known as OJicinas Locales de Gestibn de Empleo) located in many Salvadoran Departments.

39. The labor intermediation system o f Bolsas de Empleo, which provides information on j ob vacancies, has historically served individuals who have completed secondary or university education, and i s s t i l l limited in ~overage .~ The current institutional arrangements o f the RNE also appear to have impaired i t s performance since some Bolsas de Empleo are funded out o f municipal resources, and do not regularly report to MTPS. As a result, this Subcomponent aims to: (i) expand the geographical coverage o f the RNE in districts where they currently do not operate, to cover at least the 14 urban including those targeted by the PATI; (ii) provide technical assistance to assess the role and services provided by the local Bolsas de Empleo; (iii) provide training to Bolsas de Empleo personnel to increase their adequacy and effectiveness in delivering services to the population from vulnerable settlements; (iv) establish coordination mechanisms with municipalities through local social promoters (promotores sociales) that would help identify employment opportunities through a more effective interaction with the labor needs o f local enterprises and municipalities; and (v) support a coordination mechanism with training institutions. For this new role and target coverage o f the RNE, the Subcomponent seeks to provide trained human resources, equipment, and technology that would raise the performance, efficiency and effectiveness o f the system. It would also strengthen the monitoring system, analysis, and evaluation o f the RNE, through a set o f indicators that would systematically assess the results and impact.

40. Subcomponent 2.2. Strengthening Labor I n formation System and Statistics (US$l. 5 million IBRD, US$0.2 million GoES). This Subcomponent would finance the provision of technical assistance, necessary goods equipment and training to strengthen MTPS’ capacity to compile and systematize statistical labor market information, through the creation o f a National Labor Market Observatory (Observatorio Nacional del Mercado Laboral, ONML) , The O N M L would be created on the basis o f the current.activities performed by the Labor Statistics Unit and the Research Division o f

Oficinas Locules de Gestidn de Empleo (OLGEs) are physically present in just 28 out o f 262 municipalities, corresponding to eight o f the 14 departments o f El Salvador.

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the RNE. It would aim to strengthen i ts capacity to analyze and monitor labor market indicators that serve as critical inputs in the formulation o f labor market policies.

41. Specifically, the Subcomponent would: (i) support the establishment o f the ONML to compile and systematize statistical information from MTPS , other government agencies, and the private sector, to enrich the policymaking process o f MTPS; (ii) provide technical assistance to design and implement the quarterly Labor Market Indicators System publication, and other special studies that use information from activity (i); and (iii) to strengthen the technical and research capacity o f the ONML personnel, expanding the coverage, frequency and dissemination o f MTPS activity reports and special studies. These activities would require investment in technological inputs, training o f human resources, and improving the coordination channels with the institutions that are responsible for collecting, monitoring, analyzing and producing labor market statistics in a timely and reliable way.

42. Subcomponent 2.3. Strengthening the Occupational Training System (US$I.5 million IBRD, US$O.l million GoES). This Subcomponent would support the development o f a National Strategy for Occupational Training (NSOT) through, among other things, the provision o f technical assistance, equipment and software for MTPS, and training for MTPS, MINED, and INSAFORP’s personnel on employment training for vulnerable groups. The labor market in El Salvador has a range of skill profiles, and a myriad o f training institutions that deliver a large number o f training programs o f uneven quality and unclear impact. The current institutional setting for the occupational training system provides l i t t le information on the quality and adequacy o f existing training programs, limiting the efforts o f better matching existing skil ls and those needed in the market. This Subcomponent would be led by MTPS, in coordination with other relevant government agencies such as the Ministry o f Education (MINED) and INSAFORP among others.

43. In particular, this Subcomponent would provide technical support and advisory services to the development o f the NSOT by: (i) assessing the quality and relevance o f sk i l ls formation institutions, including INSAFORP; (ii) developing programs to address training needs by specific groups such as the youth and the self-employed, among others; and (iii) improving the coordination within the occupational training system and with upper secondary education. This Subcomponent proposes, therefore, to develop and carry studies and the associated technical dialogue to achieve (i-iii).

44. Component 3. Support the design and development o f the Universal Social Protection System (SPSU) (US%2.4 million IBRD, US%0.2 million GoES). This Component would support the improvement o f the organizational and technical capacity o f the STP to design, articulate, monitor, and evaluate social interventions as part o f the SPSU. Specifically, this Component would finance technical assistance including training, technological support, and exchanges o f international experiences through two main subcomponents: (i) improvement o f the institutional capacity o f the STP for managing the SPSU; and (ii) development o f technical instruments needed for the design and evaluation o f social interventions.

45. Subcomponent 3.1. Improvement of the STP’s Institutional Capacity (US$I.l million IBRD,, US$O.I million GOES). This Subcomponent would finance the strengthening o f the STP’s institutional capacity to implement SPSU through, among other things, the following activities: (a) the preparation o f an assessment o f STP’s institutional capacity to implement the SPSU, including a diagnostic o f the organizational structure of the coordinating entities and o f the technical capacity o f the current staff; (b) the development of the regulatory framework for the institutional coordination o f the SPSU; (c) the

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carrying out o f training activities for STP’s personnel, specifically concerning results based management, and analytical tools for policy planning in social areas; and (d) the development o f a communications strategy for the SPSU and i t s components, starting with Comunidades Solidarias, to ensure transparency in program design and outcomes and political sustainability o f the SPSU . The STP i s the institution responsible for inter-sectoral coordination and for the articulation o f social development interventions. Implementation o f the SPSU requires professional staff in the STP capable of managing processes related to social policy planning such as design, piloting, implementation, and monitoring and evaluation. The STP requires also an internal organizational structure that facilitates coordination with other government agencies, as well as an internal structure that facilitates the roles o f the STP itself.

46. Within the context o f the SPSU, other donors and international organizations may provide additional technical assistance and financial support under the overall coordination o f the STP to ensure full consistency and coordination o f efforts.

47. Subcomponent 3.2. Design and Implementation of key tools for the development of social protection policy design (US$1.3 million IBRD, US$O.l million GOES). This Subcomponent would finance the provision o f technical assistance and the acquisition o f equipment for the design and implementation o f key tools for the development o f social protection policies. This Subcomponent will support the following instruments: (i) a Unified Registration System o f participants o f all social programs, involving the development and utilization o f an unified integrated model for geographic targeting and the integration o f the participant databases across social programs; (ii) a Monitoring and Evaluation System o f social programs that are part o f the SPSU, to measure the performance o f social development policies and to enhance the accountability o f public social spending; and (iii) a Social Information System for citizens that includes a system o f public information on al l social interventions, allowing citizens to access al l the necessary information o f this offer. The implementation o f these instruments i s essential for the development o f an articulated social protection system in that they provide informational criteria for policy design, monitoring and evaluation, and policy decision-making to restructure existing programs.

D. Lessons learned and reflected in the project design

48. The World Bank was a key partner in the design and implementation o f Red Solidaria, the CCT program launched by the previous administration. The World Bank provided technical support for institutional design and sustainability, for sharing international best practices on CCTs and strengthening the development o f impact evaluation to make program adjustments as needed. There is wide consensus that Red Solidaria fulfilled i t s main objectives, and an independent evaluation found that i t s targeting is among the best in the region (IFPRI-FUSADES, 2009).

49. Several lessons were drawn from the World Bank’s involvement in the Red Solidaria program. These lessons, which have been incorporated in the design o f this new operation, include:

Analytical work should be considered an extremely critical tool for identifying gaps, informing stakeholders, building consensus while preparing the groundwork for future engagement. New operations need to be designed based on an assessment o f the capacity to implement the Project in the country and to consider the country’s political economy, building particular a political consensus among different stakeholders.

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0 Complexity in design, particularly the involvement o f multiple implementing agencies, should be reduced to the extent possible.

0 The World Bank should develop an information, communication, and education strategy to inform the country’s legislative branch o f government and other key stakeholders on the Project.

E. Alternatives considered and reasons for rejection

50. The proposed Project examined alternative interventions to offset the impact of the food price increases and the international financial crisis. First, the potential expansion o f the rural- focused CCT Red Solidaria to urban areas was ruled out due to i t s different target population (i.e., rural), eligibility criteria (i.e., all those in targeted municipalities), and readiness. The urban expansion o f CCTs in Mexico (Oportunidades) has shown the limitations o f expanding successful rural CCTs to urban areas. Targeting effectiveness o f urban CCTs has been a challenge given the heterogeneous nature o f urban settlements, which has resulted in unsatisfactory outcomes. Moreover, the GoES has just started a process o f developing CS Urbanas as an expansion o f the rural CCT with support from other donors and international organizations including the World Bank. ’

51. Given the large increase in unemployment in the country, workfare programs were also considered. However, several features o f traditional workfare programs were not desirable in the Salvadoran context. First, the complementary large financial efforts required in traditional workfare construction efforts would only add to the Program’s costs. Second, existing contracting procedures would not maximize the ‘labor income’ impact on the targeted communities. Furthermore, workfare programs have been found to have a short-term impact, with showing little impact after the intervention. Given the nature o f the proposed Project, a traditional workfare program was considered an inadequate intervention.

111. IMPLEMENTATION

A. Partnership arrangements

52. T h e proposed Project foresees no formal co-financing agreements with other donors o r organizations. Nonetheless, the World Bank has established an ongoing dialogue with a number o f international agencies to ensure that Project preparation responds to the GoES’ priorities, avoiding overlap, and that implementation would follow adequate coordination mechanisms. Among these agencies the World Bank has contacted: (i) the UNDP, given their role in managing the Government o f Luxemburg funds for the development o f the urban poverty strategy; (ii) the IADB in the preparation o f an operation to support the implementation o f the CS Urbanas; and (iii) the OIT that supports the strategic planning o f MTPS. These coordination activities are led by the corresponding agencies o f the GoES and the STP, in particular.

B. Institutional and implementation arrangements

53. T h e S T P would be responsible for the overall coordination o f this project. The STP i s responsible for the strategic direction and the coordination o f El Salvador’s Universal Social Protection System, through the Government’s Inter-Sectoral Committee o f the Universal Social Protection System (CISPSU), which STP chairs. The STP led the development o f the concept for this Project and would be responsible for coordinating monitoring and evaluation o f Project’s progress.

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Furthermore, STP would lead discussions with the World Bank on overall project progress and would help in developing possible options at the strategic level for adjustments to address any shortfalls in targets.

54. In accordance with their government functions, three different agencies would be responsible for the specific outcomes under each o f the three project components. FISDL would be responsible for agreed outcomes under Component 1, The Inter-Sectoral Committee (CISPSU) has approved the PATI program concept, which would be supported by this project, and has delegated: (i) the final approval o f the program’s technical design and implementation oversight to the STP; and (ii) program implementation, including technical and financial administration o f the PATI to the Social Investment Fund for Local Development (FISDL). The GOES and FISDL would sign the implementation agreement for carrying out Component 1. As part o f this agreement, FISDL would be accountable for the implementation o f the PATI Program. Participating municipalities and the Salvadoran Professional Training Institute (INSAFORP) would also play key roles in the PATI program as described in paragraphs 56 and 57. The Ministry o f Labor (MTPS) would be responsible for outcomes under Component 2 in accordance with i t s l ine functions and FISDL would carry out the financial management and procurement activities. Finally, STP would be responsible for Component 3.

55. Under Component 1 , participating municipalities would be responsible for the identification, and design of PATI subproject proposals and for implementation and supervision of the PATI subprojects approved by FISDL. In order to perform these activities, municipalities would receive technical support from FISDL and a set fee to cover the Management Expenses as explained in Subcomponent 1.4 (Annex 4). The technical support, provided by FISDL, would start at the time o f subproject preparation and would continue throughout the participation o f the municipality in the PATI program. Municipalities would report participants’ attendance in community activities implemented through the PATI program to FISDL on a monthly basis. FISDL would then approve monthly payments to participants through a financial agent, which would be contracted by FISDL, for that function. FISDL would sign inter-institutional agreements with each municipality, first to initiate their participation in the Program (the framework agreement), and subsequently, if applicable, to implement the relevant PATI subproject (the PATI Subproject Agreement). FISDL would also sign agreements with each participant enrolled in the PATI subproject stipulating that he/she would receive a monthly transfer o f US$ 100 provided that the individual has complied with the obligations set forth in the agreement. Pro-forma agreements have been included in the Operational Manual.

56. Also under Component 1, the Salvadoran Institution of Professional Training (INSAFORP) would support municipalities by arranging training for the PATI subprojects. INSAFORP would be responsible for identifying local trainers and suitable training modules, adapting them as needed, and then implementing the training package included in each approved subproject. These activities are financed under Subcomponent 1.2. INSAFORP would coordinate with the municipalities who would finalize subproject proposals and oversee implementation o f approved community activities. Furthermore, the training institute would report to FISDL the attendance o f PATI participants in training activities, which i s required to receive PATI income support. FISDL would establish an inter-institutional agreement with INSAFORP that would outline the specific obligations

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57. FISDL would evaluate and approve the PATI subproject proposals according to the Operational Manual. Once the subprojects have been approved, the implementation process o f the PATI subproject would begin. To strengthen i ts evaluation and monitoring capacity, FISDL would contract staff, under Subcomponent 1.3,

58. Under Component 2, MTPS would implement the proposed activities, and FISDL would be responsible for the financial management and procurement processes. More specifically, MTPS would carry out activities that improve and extend coverage o f intermediation systems, particularly the National Employment Network; design and develop the National Labor Market Observatory; and develop and implement a National Strategy for Occupational Training. MTPS would also define the TORS for the contracting o f training and advisory services required for the activities.

59. FISDL would carry out procurement and financial management activities on behalf of MTPS, who, in turn would define the goods and services and timing o f the acquisitions. MTPS would present a l is t o f goods and services to FISDL that are needed for the preparation o f the procurement plan for the activities in Component 2. Furthermore, MTPS would discuss and agree with FISDL on the timing o f the procurement processes in order to comply with the procurement and financial management regulations o f the overall Project. As previously defined, though, FISDL would be responsible for the financial management and procurement processes for Component 2.

60. The MTPS would carry out the activities o f Subcomponent 2.3 in coordination with other relevant agencies. MTPS would coordinate, through STP , with other agencies including MINED, MOE, and INSAFORP among others, the articulation o f technical inputs for the development and implementation o f the National Strategy for Operational Training.

61. Finally, the STP would be responsible for all aspects of Component 3, including the administration, financial management, and procurement activities. The STP would contract technical support to strengthen i ts institutional and organizational capacity for the creation and development o f the SPSU.

62. Since this Project includes activities with different timelines and institutional processes which can operate independently in support o f the overall project objectives, the Project i s designed so that each component can operate in parallel. For example, annual operating plans for each component can be approved independently; effectively buffering each component from possible delays in other components. There will be one procurement plan for each executing agency to ensure efficiency. However, FISDL will be able to propose up-dates to i t s procurement plan at any time to reflect advances or new developments in component 1 or 2 independently.

Basis for selection of Institutional Arrangements

63. The STP and FISDL have the capacity to perform their respective roles under the Project. Both agencies have a strong track record in implementation o f social programs, including fiduciary aspects. Moreover, the successful experience in the design, implementation, and monitoring El Salvador’s flagship CCT program CS Rurales (formerly Red Solidaria) shows that these agencies are the appropriate institutions for the new roles proposed in this Project.

64. In particular, the STP i s the appropriate entity for the coordination and evaluation of the proposed Project. The STP has historically been a key entity for the coordination and evaluation o f

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social policies in El Salvador, and has defined appropriate institutional and implementation strategies for social programs. Furthermore, with the recent restructuring o f the STP and the creation o f the Inter-Sectoral Committee, the STP, as the legal coordinator o f this Committee i s in a unique position to harmonize the efforts o f the proposed Project as part o f the creation o f the SPSU.

65. Similarly, FISDL's strong operational capacity to implement interventions in close coordination with local governments makes it a qualified ' implementing agency. As aforementioned, FISDL has had a long-standing relationship with local governments in major construction and social infrastructure projects. In terms o f the proposed Project, this experience has shown FISDLs capacity to work closely with local governments in the implementation o f programs of similar design including the conditional cash transfers associated with Red Solidaria.

66. In addition, the institutional capacity o f the STP and FISDL are also being strengthened in order to respond to the new roles assigned under the new administration. After redefining the roles of the STP (GOES , 2009), additional personnel were incorporated from' other Government units. Likewise, FISDL has improved the capacity o f i t s technical staff in order to manage social and economic interventions. To help sustain these efforts, the Project would continue the process of enhancing the ability o f these agencies through technical assistance to bolster staffing and training in fiduciary and technical issues.

67. The Training Institution, INSAFORF', has experience in financing and managing training services. Concretely, in relation to the targeted population in the proposed Project, the training program Habilitacidn para e l Trabajo i s a short training course aimed at unemployed, under- employed and vulnerable groups. This experience has provided important lessons in terms o f the design o f specific training modules appropriate to the vulnerable population.

68. Historically, the Municipalities have collaborated with various agencies including FISDL, the Vie-Ministry o f Housing (VMDVDU), and other Government entities to implement local development programs including' infrastructure projects. On the whole, however, municipalities require further strengthening to administer different types o f programs. Under the proposed Project, FISDL would enhance the Municipalities capacities in order to support the identification, preparation, implementation, and supervision processes o f the PAT1 local activities.

69. Finally, MTPS's capacity to support the National Employment Network (RNE) through the local Employment Offices (Bolsas de Empleo), a central activity in the proposed project, makes it an appropriate institution for the execution o f the activities in Component 2. FISDL would support this intervention by administering the financial and procurement processes for the proposed activities under Component 2.

C. Monitoring and evaluation o f outcomes/results

70. The overall monitoring and evaluation of the Project will be consolidated by the STP. The monitoring o f outcomes and outputs o f each o f the Components will be monitored by the participating agencies. Under Component 1, al l participating municipalities, INSAFORP and FISDL would collect information on the component's progress and results-based outputs. MTPS and other related agencies would be the primary entities responsible for collecting and monitoring information and results generated under Component 2. Finally, the STP would be responsible for tracking progress

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o f Component 3. On the whole, the STP would be responsible for consolidating the results in a timely manner to track the Project’s overall progress. The Operational Manual would describe the mechanisms to ensure that the Project, as well as the program that i t supports, are well tracked.

71. Components:

In order to carry out monitoring and evaluation various tools would be used in different

The Monitoring and Supervision System (M&S): Under Component 1 , FISDL would monitor and supervise the results o f the PATI, while INSAFORP would monitor the attendance o f PATI participants in the training, and the municipalities would monitor the attendance o f PATI participants in the Community Activities. The STP would supervise the results o f Component 3. Program Administrative Data: Municipalities would be responsible for completing progress reports on the PATI subprojects, and providing participants’ attendance records. The National Employment Network ( W E ) , under MTPS , would incorporate the information o f new RNE participants, including those who graduate from the PATI program. Process, Midterm and Impact Evaluations: Coordinated by the STP and contracted to an external firm, impact evaluations would assess the implementation arrangements o f the PATI program and the impact on participants. Process evaluations would analyze the effectiveness o f the training and other activities and outcomes. Midterm evaluations would examine the methodology on the effectiveness o f targeting.

72. M o r e specifically, the impact evaluations would measure the impact o f the PATI temporary income support program as part o f the broader CS Urbanas on some dimensions o f participants’ welfare and access to labor market services. The evaluation design would exploit some o f the PATI implementation features, such as the quantitative prioritization index used to select Program participants from the pool o f eligible applicants, to implement rigorous methodological impact evaluation strategies.

73. Process and midterm evaluations for the PATI would also help analyze the operational aspects and identify the possible implementation bottlenecks o f the proposed Program. Prior to Project implementation, the GoES would implement the PATI program in two municipalities (expected November 2009). The process evaluations would analyze the implementation o f PATI, the training activities, the usefulness o f the PATI subprojects, and outcomes. Results o f the process evaluation would offer specific lessons on the management and coordination mechanisms used in the Project, as well as on operational aspects related to the management o f complaints and disputes. In addition, once the PATI program i s implemented under the proposed Project, a midterm evaluation on the effectiveness o f the targeting methodology would be completed. The Project i tself would also support measures to increase transparency and facilitate social monitoring by providing information on the submission and approval o f subprojects and selection o f participants.

D. Sustainability

74. Since the start o f Project preparation, the GoES has shown strong political support and ownership. Given the framework o f the Government’s Anti-Crisis Plan, the new administration requested financial support for a temporary income program in the short-run, and the development and design o f the SPSU in the medium term. The latter would begin with the implementation o f CS Urbanas, especially in‘component 3 in terms o f the income generation and employability. Given the rapid preparation o f the Project, the Government and corresponding agencies full involvement and

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production o f several technical inputs showing support for the Project. Still, the political context in El Salvador would require further discussions on the benefits o f the Project and i t s components to ensure a broader support in the medium-term and approval by the Congress.

Risk Factors Macro instability arising from fiscal pressures

75. The institutional sustainability o f the Project i s supported by recent strengthening o f the STP. The new administration assigned the STP additional roles in coordinating social policies in El Salvador, like the CS Urbanas and the PATI. Although the STP i s s t i l l limited in i t s staffing, its technical capacity and role in policy direction has demonstrated a strong capacity in coordinating several Ministries and agencies during the preparation o f this Project. The Project would also support the STP in these roles (Component 3) by strengthening i t s coordination mechanisms and technical capacity for social policy planning.

Risk Description of Risk Residual risk Substantial Fiscal pressures are likely to emerge fiom the sharp decline in current

revenues associated with the economic slowdown and the rising public wage bill. Fiscal revenues between January and May 2009 fe l l by 1 1.7 percent compared to the same period last year. The fiscal deficit i s expected to reach 5.1 percent by the end o f 2009.

Moderate

76. The Project design has included adequate and timely mechanisms to measure and assess the Program’s impact and progress and to ensure that future decisions about its sustainability incorporate analytical and transparent information. As explained before, the Project involves a process evaluation o f the institutional arrangements during the first stage o f the P A T I and a thorough impact evaluation to measure the impact o f the P A T I intervention on households’ incomes. The process evaluation would provide timely information about the Program which would provide analytical ground for defining the measures that improve its functioning. The monitoring mechanisms would provide accurate information o f the financial flows and actual expenditures to track project progress. These monitoring and evaluation mechanisms used in Colombia and Mexico have been useful in strengthening the functioning o f the programs but also in providing support through different political cycles.

77. in C Y 2014.

The Project would be implemented over a five-year period, beginning in C Y 2010 and ending

E. Critical r i s k s and possible controversial aspects

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Risk Factors Approval process of World Bank loans in Congress

Risk I Description of Risk Residual risk High I The new administration does not have the required majority to approve Substantial

Mitipation measures

Risk Factors Evolving institutional framework may create delays

- The approval o f the Bank and IDB loans in late 2008 indicates that there i s room for collaboration in the current environment. The Government and the Bank \ave engaged in a dialogue and consensus-building processes, including the involvement o f the opposition in defining fiscal priorities and providing the opportunity to comment on project design. In addition, this loan i s being presented with the CPS and a package o f loans to be approved by Congress which represent a carefully selected program focused on priorities where there i s Broad support. This approach will aim to minimize the chance that individual loans are captured in a political debate.

Risk Description of Risk Residual risk Substantial Institutional framework. The Presidential Office introduced a Moderate

number of internal reforms to streamline its functioning and improve social policy coordination. During the preparation o f the Project, these reforms were implemented and the coordination mechanisms are now better defined.

Institutional complexity may delay implementation

Substantial The Project entails a number of government agencies (FISDL, STP) and government levels which may cause delays in implementation because entities may not be clear about their specific roles and accountabilities. This may cause delays on the implementation as well as the diffusion o f responsibilities amongst them.

Moderate

Institutional Substantial Municipalities have limited experience in the service-oriented capacity of municipalities

activities proposed in the PATI. This may delay PATI Subproject preparation and implementation since municipalities have to formulate community activities. Municipalities may not have the capacity to fully monitor and report participants’ attendance to community activity.

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Moderate

Political manipulation of the participants

Mitigation measures The Project preparation has supported the design o f an individual targeting instrument that will be further refined during the revision o f the Operation Manual in December 2009. The World Bank has also included operational audits for the PATI grants to ensure these are carried out following the guidelines in the Operational Manual. The Operational Manual also includes mechanisms for complaints and disputes at different levels o f implementation (individuals, municipal).

Moderate There i s likely to be pressure to include non-eligible individuals or exclude eligible ones, as i s usually the case in social programs. This may lead to mishandling of data, thus creating political controversy and debate.

Moderate

Financial management and disbursement

Oversight over cash transfers. As with most income support programs, the large number o f payments and their geographical spread pose significant FM implementation challenges. Capacity to administer and monitor Project funds. There i s a risk that project fiduciary staff would not have the capacity to determine/prevent: (i) the spending o f project funds on programs or activities not directly related to the PDO; and (ii) financing project related activities already funded by other projects/donors (a.k.a. duplicate funding).

Substantial Substantial

Overall Risk (including Reputational Risk)

Substantial

F. Loan conditions and covenants

Effectiveness conditions

78. There are two effectiveness conditions, namely, that: (a) An Implementation Agreement has been executed on behalf o f the Borrower and FISDL (for Components 1 and 2); and (b) an INSAFORP Agreement has been executed on behalf o f FISDL and INSAFORP (for Component 1.1). In addition to the usual legal opinion required in the General Conditions, legal opinions are required confirming that: (a) the Implementation Agreement has been duly executed by the Borrower and FISDL and i s legally binding upon the Borrower and FISDL in accordance with i t s terms; and (b) the INSAFORP Agreement has been duly executed by the FISDL and INSAFORP and i s legally binding upon the FISDL and INSAFORP in accordance with i t s terms.

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Disbursement Condition

79. N o disbursements shall be made to finance PAT1 Grants and Management Expenses under Component 1.1 o f the Project unless FISDL has contracted with a financial institution, under terms and conditions acceptable to the Bank, to be in charge o f executing P A T I Grants' payments.

Other Covenants

80. the Implementation Agreement with FISDL under terms and conditions approved by the Bank.

For purposes o f carrying out Components 1 and 2 o f the Project, the Borrower shall enter into

8 1. and with experience and functions satisfactory to the Bank.

The Borrower, through STP shall maintain throughout Project execution, key staff in numbers

82. with the Project Operational Manual, satisfactory to the Bank.

The Borrower shall carry out the Project and cause the Project to be carried out in accordance

83. The Borrower shall ensure that any activity under the Project do not involve any Resettlement, the use o f pesticides or other agricultural chemicals listed in the Project Operational Manual, andor degrade natural habitats, or cause deforestation.

84. The Borrower shall cause FISDL to carry out annual operational audits integrating the results o f the implementation o f Component 1.1 o f the Project and setting out the measures to ensure the adequate and efficient carrying out Component 1.1 o f the achievement o f the objectives thereof.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

85. This section summarizes the economic analysis o f the impact o f Component 1. Two outcomes are analyzed: the income effect and the effect employability (see complete analysis in Annex 9). Overall, the income transfer effect is l ikely to be positive. The analysis showed that the urban poverty headcount is expected to fal l five percent due the income transfer, and that the poverty gap would be reduced in eight percent.6 In relation to urban extreme poverty, the Project would have an expected impact reducing it by 14 p e r ~ e n t . ~ These direct income transfer effects are clear in their effects, but do not consider other positive externalities that may be created within the targeted communities.

86. The impact o f the Program on employability improvements is measured as the labor income gains due to the program participation. Under the program, future incomes o f potential participants are estimated assuming that participants I would have an income premium o f five percent and their probability o f being employed would be increased by six percent during four years after the training. Using a 10 percent internal rate o f return and the assumptions stated before, the cost-benefit flows show that the Project would have an expected net social revenue that exceeds the US$40 million.

A poverty severity index, FGT(2), which i s sensitive to the distribution among the poor as more weight i s given to the lower tail o f the income distribution would fall by 11 percent. ' FGT( 1) and FGT(2) measures will go down by 17 and 18 percent respectively.

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B. Technical

87. International evidence o f programs with similar design has shown its potential in mitigating the impact o f economic crisis on urban households. Most crisis related programs either transfer income or provide temporary employment to vulnerable households. The Trubujur workfare program in Argentina provided a temporary employment and was quickly downsized as the number o f participants decreased, once the economy recovered. Other programs were able to effectively deliver income support if a targeting mechanism was already in place, like in the CCTs in Brazil, Mexico, and Jamaica. In the case o f El Salvador, such targeting mechanisms are not in place in urban areas.

88. The PATI exploits the combined features o f CCTs and workfare within. a social fund mechanism. The PATI resembles a CCT in that both demand and supply interventions are combined. The proposed PATI i s a targeted income transfer made in exchange for training instruction and community activity participation (demand) with complementary support to municipalities to strengthen local community capacity and labor intermediation services (supply). Given the targeting challenges in urban areas, the Program combines both geographic targeting (settlements) and self- selection (income support) to reach the urban vulnerable and poor. The international experience on these features provides a strong support for their use. The combined use o f these program characteristics, however, i s a novel arrangement that would be subject ,to close monitoring to ensure i t s operational relevance.

89. The design o f the main component o f the Project, the PATI, responded to the diagnostic o f the problem and the specific institutional capacity needed to deliver specific interventions. The resulting design o f the PATI exploits the self-selection features o f workfare programs that have been extremely valuable in urban contexts. During the f i rst phase o f the Project, financed by the Government, the PATI Operational Manual would be adjusted to reflect the role o f existing local capacity in the Project implementation.

90. The PATI draws on the CCT experience of creating incentives for building human capital by conditioning the income support on training participation. Typical training programs, as well as other labor market interventions, have rarely targeted the vulnerable and poor population. This program addresses this by including incentives to training in the target population. International experience has shown that the design o f training activities i s as essential as the incentives themselves, so the Project draws on INSAFORP experience to design training activities with the duration and format that respond to the socioeconomic conditions o f the targeted population (that may include youth, single mothers, among others).

91. This Project also exploits the strong experience of FISDL. The strong capacity o f the Salvadoran social fund, FISDL, to work with Municipalities i s intensively used in the implementation o f the Project, emphasizing and developing the role o f local governments in social programs.

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C. Fiduciary

92. As noted before, the Project would have two main agencies responsible for the administration of the proposed Project, FISDL and STP. As such, FISDL and STP would be expected to manage the Financial Management and Procurement aspects o f the proposed Project.

Financial management

93. The financial management responsibilities to be carried out in parallel by STP and FISDL would include the following activities: (i) budget formulation and monitoring; (ii) cash f low management (including managing the DAY processing payments and submitting grant withdrawal applications to the World Bank); (iii) maintenance of accounting records (including administration and maintenance o f an inventory o f project assets); (iv) preparation o f in-year and year-end financial reports; (v) administration o f underlying information systems; and (vi) arranging for execution o f external audits.

94. The proposed FM arrangements are adequate for the needs of the proposed Project and the fact that both entities have prior and ongoing experience managing projects financed by the World Bank. In both agencies, staff capacity, administrative structure and systems are adequate for project FM purposes. Both executing agencies have prior and ongoing experience managing projects financed by the World Bank, for which they have implemented suitable administrative structures and systems which puts them in an advantageous position to carry out, with relative ease, the financial management tasks associated with the proposed Project.

95. Cash transfers to PATI participants would be made by FISDL using an intermediary agency. An intermediary institution would be contracted by FISDL to make the payments to P A T I participants and the FMA identified that this institution should be contracted and operational before disbursements can be initiated for Subcomponent 1.1. The FM team has assessed the Project’s FM risk as Substantial, due to the cash transfer component and the decentralized aspect o f the Project and the participation o f the municipalities. Additional information can be found in Annex 7.

96. The World Bank would finance up to a maximum o f 20 percent o f the loan for eligible expenditures incurred after November 15, 2009, but no more than one year prior to signing the Loan Agreement.

Procurement

97. The procurement functions for the Project would be integrated within the respective procurement units of FISDL (Components 1 and 2) and the STP (Component 3). Other ministries and agencies would provide technical support to FISDL, including in the preparation o f operational and procurement plans, technical design and supervision.

98. The Project’s Operational Manual has a dedicated procurement section that includes general procurement procedures, as well as detailed procedures for every method for the procurement o f goods and services, and for the selection and employment of consultants. The Project treats the procurement plans for each agency as distinct from one another to facilitate efficient project implementation.

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99. Both institutions would use the World Bank’s Procurement Plan Execution System (SEPA) as a management system for procurement aspects of this Project. The World Bank would organize and carry out procurement and SEPA workshops to strengthen both agencies’ procurement staff capacity in specialized issues (Le., procurement o f goods and non-consulting services, selection and employment o f consulting f i r m s and individual consultants and SEPA).

D. Social

100. The Project does not trigger the World Bank social safeguard policies. Component 1 would not involve any substantive infrastructure activities and hence no involuntary resettlement i s expected. In fact, P A T I activities would be ineligible if they imply involuntary physical resettlement o f individuals, families or businesses.

10 1. During Project preparation the population target has already been clearly identified and no further social assessment would be required. Since the Project i s focused in urban settings only, OP/BP 4.10 (Indigenous Peoples Policy) would not be triggered. This policy applies to urban areas only exceptionally, whenever there i s an indigenous community l iv ing in a project area; however i t i s not triggered by the presence o f indigenous individuals living in urban locations.

E. Environment

102. None o f the Project supported activities are expected to lead to any significant adverse environmental impacts. Under Component 1 o f the Project, small community activities listed on the positive l i s t o f eligible P A T I activities (See Annex 4) would be supported under the Project. This l i s t includes rehabilitation o f social infrastructure (e.g. school painting, and small works) but the Bank loan does not finance those works or materials. As a result, the Project i s rated as environmental risk Category B to ensure that such PATI activities take adequate measures to comply with FISDL’s existing Environmental Guidelines (in the Operational Manual), which have been assessed as adequate by the World Bank.

103. N o eligible expenditure would require environmental assessment under national or local regulations and as a result no stand-alone environmental analysis i s being required for individual PATI activities. Nevertheless, it i s expected that as part o f FISDL project cycle, environmental considerations would be fully embedded within the sub-project screening process. Each sub-project proposal would be screened against a simple checklist to ensure that no adverse impacts environmental are associated with any proposed sub-project.

104. N o PATI activities which adversely affect natural habitats would be eligible for financing nor would activities which require the use of pesticides or pest management and control. Other P A T I activities might require simple environmental agreements. For example, P A T I activities related to garbage collection would need to provide assurances that trash removed would be disposed in appropriate, approved locations. Basic sanitation services would to be designed in accordance with appropriate technical guidelines. FISDL would carry out these reviews as part o f the subproject appraisal process.

105. As part o f project supervision, it i s expected that a sample o f approved PATI activities would be reviewed annually by FISDL to ensure that PATI activities are not leading to any

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unexpected adverse impacts. Adjustments to eligibility and review criteria would be made on the basis o f such reviews. In the event that any PATI activities require specific environmental measures, FISDL would arrange for periodic supervision o f any contractual obligations or other commitments such as ensuring appropriate trash disposal.

F. Safeguard policies

106. Environmental issues were flagged as potentially risky in the project implementation and the GoES has an adequate environmental framework to address these risks. The implementation o f the Project, particularly the PATI activities in Component 1 , could represent minor environmental risks at the community level. The Environmental Framework to be used by the FISDL i s adequate and effective and has been publicly disclosed.

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OPBP 4.01) [ XI [I Natural Habitats (OPBP 4.04) [I [X 1 Pest Management (OP 4.09) [I [X 1 Physical Cultural Resources (OPBP 4.11) [I [X 1 Involuntary Resettlement (OPBP 4.12) [I [X 1 Indigenous Peoples (OPBP 4.10) [I [X 1 Forests (OP/BP 4.36) [I [X 1 Safety o f Dams (OPBP 4.37) [I [X 1 Projects in Disputed Areas (OPBP 7.60). [I [X 1 Projects on International Waterways (OPBP 7.50) [I [X 1

G. Policy Exceptions and Readiness

107. No policy exceptions are envisioned.

108. The GoES’ readiness to implement the Project i s well advanced. To date, the Government has established Comunidades Solidarias, o f which the PATI i s a part of, and set forth the legal and operational framework for i t s implementation. Furthermore, the GoES has prepared an Operational Mahual for the Project that i s adequate for project implementation. Finally, two pilots o f the PATI have been launched in the Municipalities o f Ahuachaph and San Martin. This has allowed for the testing o f several instruments including the registration o f PATI participants, coordination with INSAFORP, and the identification and development o f appropriate PATI subproject Community Activities. The results o f the pilots will be beneficial in the implementation o f the PATI in additional Municipalities.

109. Borrower and FISDL (for Components 1 and 2) and the INSAFORP Agreement between FISDL and INSAFORP are signed. Delays in effectiveness, however, are not anticipated because draft agreements have been prepared.

Prior to effectiveness, the Project requires that the Implementation Agreement between the

* By supporting the proposedproject, the World Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas.

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Annex 1: Country and Sector o r Program Background

EL SALVADOR: Income Support and Employability

Country and sector issues

I. El Salvador experienced a notable economic performance after the end of the civil war in the early 90s which led to important socioeconomic progress and substantial reductions in poverty. Real income per capita, for instance, increased by nearly 40 percent whereas the incidence of poverty fell by 39 percent (from 58 to 35.5 percent) between 1991 and 2007. These improvements were accompanied by substantial gains in other socioeconomic areas as well. Indicators such as school enrollment, infant and maternal mortality, infant malnutrition, access to health services and coverage of other basic services such as water, sanitation and electricity show remarkable advances. More importantly, as some measures o f income inequality suggest, many o f the socioeconomic gains went to worst-off departments, rural settlements and the poorest.

2. Still, with the exception of 2006 and 2007, growth has been rather modest. The economy grew on average by 2.3 percent between 2000 and 2005 and later accelerated to about 4.5 percent in the period 2006-2007. In 2008, due to the effects o f the international crisis, growth slowed down to 2.5 percent. The leading economic sectors, measured by their share o f total output, have been industry, retail, restaurant and hotels, and other services. When looking at their contribution to employment, services, retail and agriculture account for almost three quarters o f all jobs in the country. Overall, aggregate labor market indicators (i-e., labor force participation, employment, and unemployment) have been fairly stable, with unemployment oscillating around seven percent. As for education, progress has been achieved by increasing coverage o f middle education. In general, however, several challenges remain to extend the gains o f economic progress to other regions and groups o f Salvadorans.

3. Until 2006, economic growth was accompanied by sustained poverty reduction and a reduction of the poverty gap between rural and urban areas. From 2001 to 2006, this figure fe l l 8.6 percentage points. The gap between rural and urban poverty was almost closed in those years. Rural poverty fe l l by 17 percent in the period 2001-2006, from 52 to 35 percent. The reduction o f poverty in urban El Salvador in the 2000s has been more modest: 3.4 percentage points. As a result o f these trends, the incidence o f poverty was almost identical in rural and urban areas by 2006.

4. Improvements achieved since early 90s, however, were insufficient to absorb a large contingent of new entrants into the labor market. Every year, about 30,000 new young Salvadoran enter the labor market for the f i rst time and face scarce economic opportunities. Only 3,000 o f them obtain jobs, and most o f them in informal, low-productivity activities, in services, and other activities. In this context, outmigration has represented an important opportunity for youth and Salvadorans in general during hard economic times (World Bank, 2009b). Despite limited economic opportunities, the country’s sustained economic growth raised the importance o f labor incomes, currently representing three quarters o f the average Salvadoran household. Sustained outmigration has positioned remittances as the second largest income source for households, after labor incomes. In

26

rural areas, remittances represent almost 15 percent o f income with about 30 percent o f households in both urban and rural areas receiving some remittances.

5. Since 2007, however, the food, fuel, and international financial crisis have been hitting Salvadoran households, reversing the gains achieved in previous years with adverse impacts on employment and incomes. First, there is an overall GDP deceleration from 4.7 percent in 2007 to 2.5 percent in 2008, and the current projections foresee a GDP growth decline o f about 2.5% percent in 2009 (during the f i rs t quarter o f 2009 GDP already declined by -1.5 percent). Exports shrank by 16 percent in the f i rst five months if 2009, and maquila exports, a sector that led some job creation, declined by 23.4 percent in the same period. Remittances, representing almost 18 percent o f GDP during the 2005- 2008 period, are expected to decline between 10 and 13 percent in 2009, and the first two quarters showed worrying signals o f fast reductions (-7.5, -1 2.6, respectively). Finally, fiscal revenues declined by 1 1.7 percent between January and May 2009.

6. As a result, the period 2007-2008 marked a reverse of the positive economic trend caused by the international food crises. Between 2006 and 2008, the poverty headcount ratio increased 6.1 and 9.8 percentage points in urban and rural areas, respectively. The reason for this reversal was the rise in food prices. In 2007 the price o f the official urban consumption basket grew six percent, whilst the rural increased 11 percent. Then, in 2008, both baskets increased 17 percent with the preceding two years o f high food prices increases without precedent in the decade. However, income growth was too modest to compensate the rise o f food prices. Per capita income grew five percent while CPI increased more than three times in 2008 and the gap between rural and urban poverty grew wider.

7. I n 2009, the unemployment continues to rise in El Salvador. 2008 unemployment figures show a downward tendency but the effects o f the international crisis are showing in 2009. Although updated labor force surveys are not available, other indicators show worrying signals o f j ob losses. Between September 2008 and April 2009 more than 30,000 formal jobs were lost in El Salvador (Le., number o f Social Security contributors) while other estimates suggest that employment losses could reach 90,000 jobs in 2009 (OIT, 2009). Only in the maquila sectors, there would be an estimated 25,000 jobs lost.

8. In contrast to other crisis scenarios, the current crisis i s having a specific impact on urban areas due to the location o f export-oriented industries (maquila) and the high share o f remittances that benefit urban areas (58 percent). Urban areas are not only facing a relatively larger impact o f the crisis but also concentrate about 58 percent o f the poor in El Salvador (in 2008).

9. I n this context, the GoES i s responding with a comprehensive Anti-Crisis Plan (Plan Anti Crisis, PAC) to offset the impact o f the economic slowdown. This Anti-Crisis Plan represents a substantive fiscal effort that seeks to: protect the vulnerable population from the negative impacts o f the crisis, with a particular focus on the poor and socially-excluded population; protect existing jobs and create new employment opportunities; start the implementation o f a universal social protection system; and exploit the crisis to develop inclusive policies on economic and social issues (GoES, 2009b). These PAC objectives are being addressed through four pol icy areas: (i) a program to support production and income generation; (ii) a universal social protection system; (iii) stronger public finances; and (iv) State Policies for Development.

27

10. As part o f the PAC, the GoES identified the need to develop a SPSU, which would bring a ‘rights-based approach’ to social policies and.provide a minimum standard of social services and economic opportunities. The creation o f the Universal System o f Social Protection (Sistema de Proteccidn Social Universal, SPSU) i s a medium-term objective that aims to provide a minimum standard o f social services and economic opportunities to all Salvadorans. It is based on the principles o f citizen’s rights and local governance, among other things. The core o f the initiative will be based on Comunidades Solidarias, a program which builds on the successful experience o f Red Solidaria, the conditional cash transfer (CCT) program for poor fami l ies in rural areas launched by the previous Government.

11. The Comunidades Solidarias goes beyond the CCT program and has four areas of intervention to strengthen local development: (i) human capital development; (ii) provision o f basic public services; (iii) income generation and productive development; and (iv) local governance. In rural areas, the Comunidades Solidarias Rurales (CS Rurales) focuses on the 100 poorest municipalities and wil l increase the benefits o f the current CCT program, encourage investment in basic infrastructure (water and sanitation, electrification, schools, and health centers), provide basic pensions to the elderly who are more than 70 years old, coordinate the implementation o f the Programa de Vivienda Piso y Techo, and strengthen the governance capacity o f municipal authorities. The Comunidades Solidarias Urbanas (CS Urbanas) will introduce CCTs for health and education in urban areas, activities for prevention o f youth violence and increasing security, improvement o f social infrastructure in the communities with high concentration o f poverty, worker training, micro-credit and a temporary income support program for unemployed persons.

12. The GoES has launched a first pilot o f CS Urbanas with interventions on basic social infrastructure and housing improvements, public safety, and income support. In order to examine the operational conditions for the CS Urbanas, the Government has identified three interventions that would be used in the pilots in chosen select group o f Municipalities: an existing housing and neighborhood improvement project (Programa de Mejoramiento de Asentamientos Urbanos Precarios, funded by the IADB); an existing public safety initiative implemented in a coordinated local effort aimed at violence and crime prevention; and a temporary income support program (Programa de Apoyo Temporal a1 Ingreso PATI), which this proposed Project would support. These areas - housing, security, and income - are considered critical in the current Salvadoran context with declining incomes, precarious dwellings and extremely high crime rates in urban settlements. Municipalities and urban settlements would be ranked using the urban poverty map developed by FLACSO-Censos-UNDP (2009) and supported by the GoES.

13. The GoES has identified a temporary income support program as an immediate policy priority within CS Urbanas. As part o f CS Urbanas, the GoES identified the need to design and implement PATI, which would be capable o f reaching targeted areas in a very short period o f time, with interventions that would not require the lengthy procedures o f traditional infrastructure projects. Although temporary in nature, the Government objective is that the P A T I would be a policy instrument available in the social protection ‘toolbox’ that would be readily available for future crisis.

14. The GoES has also defined a strategy for strengthening labor market intermediation, information and occupational training systems to provide better economic opportunities for the poor. This strategy developed by the Ministry o f Labor and Social Protection (MTPS), called

28

RENACEMPLE0,8 which is committed to the creation o f employment, based on a productive and competitive economy, respectful o f workers’ rights, and targeted towards the most vulnerable population. The targeting o f poor and vulnerable groups is in line with other initiatives that seek to articulate income support and employability interventions. The GoES has strengthened the role o f the Presidential Office to better articulate these new policies and approaches. The GoES has restructured the Presidential Office, including the Secretaria Ticnica de la Presidencia (STP), in order to streamline and enhance the coordination in the policy decision-making process (GoES , 2009). Additional Secretariats have been created in the Presidential Office such as the Secretariats o f Social Inclusion, and Strategic Affairs. This restructuring process i s s t i l l being finalized and may define new procedures for coordination on social policy-making.

15. In sum, the critical conditions in El Salvador, accentuated by the current international financial crisis, demand a combination o f fast crisis responses and medium-term policies. The impacts of the crises demand rapid interventions to mitigate their effects on Salvadoran households, especially those in urban areas. Short-term interventions must be accompanied by medium-term policies that enhance economic opportunities o f Salvadoran households both by increasing their employability and by developing integrated interventions that provide households with better instruments to manage shocks. These policy imperatives face a simultaneous process o f organizational streamlining, and the GoES i s aiming to exploit the current context to develop a more effective public policy action.

Rationale for Bank involvement

16. The proposed Project i s a response to a request from the GoES, initiated when the new authorities took office in June, 2009, and i s consistent with the proposed World Bank Group’s Country Partnership Strategy (CPS) 2009-201 0 (Report No. 50642-SV). The CPS identifies as priorities the support to the GoES to mitigate short-term social impacts o f the crisis and the creation o f a permanent

a universal social protection system.

17. The Project would address key priorities identified in the ongoing Human Development for Poverty Reduction analytical work. Previous analysis found that while poverty had been declining in El Salvador, household incomes are very vulnerable to remittances and employment shocks. In fact, data from 2008 showed increases in poverty due to the increasing food prices, and projections for 2009 suggested further increases in poverty (World Bank, 2009). In addition, unemployment i s much higher for youth than for adults, and very sensitive to changes in economic activity. The emerging strategy i s to develop a universal social protection system to better manage these risks and the proposed Project would support the development and strengthening o f instruments to manage the risks associated with unemployment and remittances decline.

18. The Project would focus on areas in which the World Bank has expertise. These areas include income support and temporary employment programs, on-the-job training, skill-building, labor intermediation programs, and institutional capacity building. In the Latin America Region, for instance, the World Bank has financed temporary employment, training and labor intermediation programs in Argentina, Bolivia, Dominican Republic, Honduras, and Jamaica, as well as most o f the CCT programs in the Region. The World Bank has recently completed a regional study on social

MTPS (2009).

29

protection and social assistance systems in L A C that underpins the design o f World Bank operations in these areas, and i s developing a sub-regional AAA on Central American labor markets to be delivered in FY 10.

19. World Bank involvement in the Project i s the next step in a broad process initiated several years ago and consisting o f various elements. The World Bank has been a key partner to successive governments in El Salvador in the reform and strengthening o f social sectors since the Peace Accords o f 1992. Recent social sector support includes: (i) analytical work on Human Development for Poverty Reduction (to be delivered in FY 10); (ii) a Public Expenditure Review (to be delivered on FY 10); (iii) a Public Finance and Social Sector Development Policy Loan (2009-20 1 1); (iv) a Hospital Reconstruction and Basic Health Services Project (2005-2009); (v) a Poverty Assessment (2005); (vi) support for the development o f a Poverty Map to improve poverty program targeting (2005); and (vii) a non-lending technical assistance (NLTA) program to provide assistance to the implementation o f Plan 2021 (education) and support to the design, implementation and sustainability o f Red Solidaria (2005).

20. The World Bank i s supporting the GoES with a Development Policy Loan (DPL) that would strengthen the fiscal capacity to sustain social sector activities. This new DPL “Sustaining Social Gains for Economic Recovery” for FY 10 would aim to close fiscal gaps while protecting social expenditures and policy actions in the education, health, and social protection sectors. I t s specific objectives include: (i) protecting fiscal space for social expenditures; (ii) protecting the income and consumption o f the vulnerable population (e.g., school feeding programs, health and income support); and (iii) strengthening institutional capacity for policy formulation and implementation in the social sectors for economic recovery. In particular, the second objective i s related to Component 1 o f the proposed Project, which aims to design and implement a temporary income support program.

21. Finally, this proposed Project would also complement the efforts carried out by the “Fiscal Management and Public Sector Performance” technical assistance loan (FMPSP TAL) currently under preparation (World Bank, 2009d). The FMPSP TAL supports the GoES in the implementation o f an integrated national statistics system (Instituto Nacional de Estadistica, INE) to improve the GoES’ capacity to plan policies, and monitor and evaluate policy interventions. Furthermore, it proposes the implementation o f a national transparency policy, increasing freedom o f public information on legislation. The proposed Project would complement these national efforts, in particular the implementation o f an integrated national statistics system, through strengthening the technical capacity o f MTPS’s ability to produce policy relevant labor statistics.

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Annex 2: Ma jor Related Projects Financed by the World Bank and/or other Agencies EL SALVADOR: Income Support and Employability '

World Bank

Financed

Related Projects Financed by the World Bank in El Salvador

Sector Issue Project Project Name Status Addressed ID

Central Government Administration, Other Social Services, Health, General Education

IBRD

IBRD

IBRD

IBRD

P118036

Population, Health and Nutrition

Education: Public Administration, Law and Justice

Sector Public I PO95314

PO67986

P114910

Administration, Law and Justice

I

Sustaining Social Gains for Economic Recovery

Fiscal Management and Public Sector Performance Technical Assistance Loan Earthquake Emergency Reconstruction and Health Services Extension Project Public Finance and Social Sector Development Policy Loan

Board Date: November 24,2009

Board Date: November 24,2009

Ongoing

Ongoing

Latest Supervision (PSR) or OED Ratings (Bank Financed

Projects Implementation Progress (IP)

MS

HS

M y ) Development

Objective (DO)

MS

S

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Related Projects by other Agencies in El Salvador

Other Agencies IDB

Sector Issue Addressed Social Investment

Policy Support Program (Policy Base Loan) . Liquidity Program for Growth Sustainability (LPG)

Program o f employability, competitiveness and promotion of micro enterprises (Technical Cooperation) Support for the Design o f Social Public Program (Technical

IDB

Ongoing

Ongoing

Ongoing

Spanish Agency for International Development Cooperation (AECID), European Union

Government o f Luxembourg

(W,

IDB

IDB

Reform/Modemization o f the State, Public Sector support Social Protection

Capital Markets, Financial Market Development Microenterprise Development

Project ID 2070/OC-ES

Cooperation) Programa Red Solidaria

2 IOUOC-ES

Ongoing

~~

ATNME- 1 1409- ES

ATNME-10959- ES

Project Name I Status Reformulation o f the Social I Ongoing

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Annex 3: Results Framework and Monitoring

EL SALVADOR: Income Support and Employability

1. Each component has its own results-monitoring mechanism, and the outcomes and outputs of this Project would be consolidated by the STP. Under Component 1, al l participating municipalities, INSAFORP and FISDL would collect information on the component’s progress and results-based outputs. MTPS and other related agencies would be the primary entities responsible for collecting and monitoring information and results generated under Component 2. Finally, the STP would be responsible for tracking progress o f Component 3. On the whole, the STP would be responsible for consolidating the results in a timely manner to track the Project’s overall progress. The Operational Manual would describe the mechanisms to ensure that the Project, as wel l as the program that it supports, are well tracked.

2. and impact o f the proposed Project. Various tools would be used to monitor the Project’s progress:

A comprehensive monitoring and evaluation scheme has been identified to measure the results

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3.

The Monitoring and Supervision System (M&S): Under component 1 , F ISDL would monitor and supervise the results o f the PATI, while INSAFORP would monitor the attendance o f P A T I participants in the training, and the municipalities would monitor the attendance o f PATI participants in the Community Activities. The STP would supervise the results and outcomes o f Component 3, Program Administrative Data: Municipalities would be responsible for completing progress reports on the PATI subprojects, and providing Participants’ attendance records. The National Employment Network (RNE), under MTPS, would incorporate the information o f new RNE participants, including those who graduate f rom the P A T I program, into its employment system. Process, Midterm and Impact Evaluations: Coordinated by the STP and contracted to an external firm, impact evaluations would assess the implementation arrangements o f the P A T I program and the impact on participants. Process evaluations would analyze the effectiveness o f the training and other activities and outcomes. Midterm evaluations would examine the methodology on the effectiveness o f targeting.

Process evaluations for the PATI would help Project Management to understand the operational aspects and possible implementation bottlenecks o f the Program. The P A T I would be subject to an evaluation to assess the efficiency o f implementation arrangements and the quality o f management information systems and benefits’ delivery. The process evaluation would be carried out after the f i rst stage o f the Program. The PATI’s processes would be evaluated when the first two municipalities have been incorporated in the Program and participants are regularly receiving benefits. The report would describe how the sites’ similarities and differences, the f low o f participants through the Program, participants’ characteristics, training and other activities received, problems encountered and their resolution, promising practices, outcomes to date, and suggestions for program adjustments. A supplementary participant assessment would provide information about participants’ perceptions o f the PATI, including community activities, training, changes in quality o f life, &d other benefits. The evaluation would inform the Program’s expansion to the remaining 13 municipalities scheduled for the f i rs t phase o f the Program.

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4. Furthermore, an impact evaluation o f the PATI would measure the impact of the temporary income support program on participants’ welfare and employability, as well as the additional impact o f an extended labor-market soft-skills training module on those outcomes. The impact evaluation efforts are supported b y both the design o f the PATI program as well as the information collection effort carried out in the program implementation itself. On the P A T I design, the quantitative prioritization index used to select program participants from a pool o f equally eligible applicants provides the basis for a rigorous evaluation. Second, the information system to register participants collects information on a range o f issues and would provide an excellent source for the evaluation.

5. The impact evaluation would consider heterogeneity o f Program impacts by age, gender, and duration of participation in the Program, Program impacts may vary between men and women, as well as between younger and older participants, The hypothesis i s that returns to additional labor- market experience and training would be higher for younger and female participants with lower work experience and education. The Salvadoran Government i s also very interested in using P A T I to explore gender equity initiatives, especially when most income support programs have been targeted to predominantly male participants. In addition, the Salvadoran Government has a strong interest in identifying policies that generate employment for young people with limited work experience. Finally, given that P A T I community activities would start at different times across settlements, the evaluation strategy would also explore heterogeneity o f Program impacts by time o f participants in the program.

6. Finally, the impact evaluation would provide a basis for policy recommendations at the national and international level. The new Salvadoran Government would develop a new urban intervention, CSU, and P A T I would pilot the local capacities to carry out CSU activities related to income and labor markets. Lessons from the evaluation would inform the design o f future phases of PATI, as well as new national social protection programs currently in the pipeline. The evaluation is also highly relevant from an international perspective as little is known about channels through which short-term income support programs can yield to medium-term gains in low-income settings, By disentangling the impact o f the income support program and labor market soft-skills training in the context o f the current crisis, the evaluation would provide invaluable evidence to enhance the design of social protection and labor-market interventions.

7. Evaluations would be contracted out to specialized firms by the STP in coordination with FISDL. The f i rms would insure that capacity i s built within the GOES for further evaluation o f its social programs, building on previous efforts such as the impact evaluation o f the Red Soliduria program. The effort o f building local capacity for designing and implementing an impact evaluation o f social programs i s a critical element also supported by Component 3 o f the Project.

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Results Framework

PDO Outcome Indicators Use of project Outcome I n forma tioo

Provide income support to the urban vulnerable poor

Improve labor market intermediation and training services, especially to the urban vulnerable poor

Improve the institutional capacity o f the GOES to develop an integrated social protection system.

Component 1. Support the Design and Implementation of the Temporary Income Support Program Temporal income protection for the I Percentage o f the population o f the

40,000 PATI participants received their income support during their stay in the program program

Participation o f 18-25 year old individuals without secondary education in the RNE increases by 200 percent nationwide Approval o f a regulatory framework for the institutional coordination o f SPSU

Assess the effectiveness o f the temporary income support

Assess inclusiveness o f the vulnerable population in MTPS interventions

Assess extent to which the institutional capacity for social policy-making i s enhanced

poor-urban population identified urban settlements that receives temporal income and training

Percentage o f PATI participants that complete the activity and training requirements o f the Program

Rate o f young people participating in the Program

Rate o f female participation in the Program

I Component 2.Strengthening of labor intermediation, infor frequency and reliability o f

labor market indicators Labor Market Monitoring Unit i s up and running

Improvement in performance o f the educational and occupation training systems in the employability o f graduates

National Strategy for Occupational Training completed and adopted by MTPS

1. " Assess the extent to which the PATI reaches the targeted population as well as the completion o f participation by participants

rational training systems Identify shortcomings in the availability o f labor market indicators for public policy formulation Assess performance and impact o f the formal education and occupational training systems on employability

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toolsfor the development o f the SPSU; Strengthen the organizational structure and the technical capacity o f the social protection staff at the STP to increase their leadership and administration skills for the development o f social policies in the country, specifically the implementation o f the SPSU

regulations approved and implemented STP to develop and implement the SPSU

Registration System

Percentage o f programs of Comunidades Solidarias which incorporate their programmatic offer into the Social Information System of the SPSU

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Annex 4: Detailed Project Description EL SALVADOR: Income Support and Employability

1. The proposed project aims to support the Government o f El Salvador in i t s short-term response to the crisis, while at the same time contributing to the establishment o f an integrated social protection system. Within this context, the Project development objectives are to: (i) provide temporary income support to the urban vulnerable poor; (ii) improve the coverage o f labor intermediation and training services to the urban vulnerable poor; and (iii) improve the institutional capacity o f the Borrower to develop an integrated social protection system.

2. Component 1 - Support the Design and Implementation o f the Temporary Income Support Program (Program de Apoyo Temporal al Ingreso, PATI) (USS37.3 million IBRD funds, USS3.2 million GoES). This Component aims to support the GoES in the implementation a six-month income support Program (PATI) for vulnerable individuals living in precarious urban areas, in exchange for their participation in approved P A T I subprojects that include community and training activities. These vulnerable individuals are not covered by the GOES’ ongoing CCT program which i s focused exclusively in rural areas. The training activities would be designed to increase the employability o f P A T I participants in the labor market. This Component would finance temporary income support and training for participants in approved P A T I subprojects, advisory services and training for FISDL for implementing, supervising and monitoring the PATI, and technical assistance to municipalities to design and implement P A T I subprojects. T h i s Component would be carried out by the Social Investment Fund (Fondo de Inversidn Social para e l Desarrollo Local, FISDL), which i s already managing the CCT program Comunidades Solidarias Rurales (formerly Red Solidaria). This temporary program would last 24 months and serve two purposes: to provide temporary relief to poor families, not covered by the CCT program, and, simultaneously, it would provide sufficient time to design the expansion and start the implementation o f CCTs in urban areas, within a broader framework o f an integrated social protection system. Experiences in other countries in the Lat in America Region (e.g., Mexico and Colombia) have demonstrated that the process o f moving CCT programs focused in rural areas to urban areas i s not a straight forward step and that a careful adaptation o f designs and a complex planning process are required.

This Component has four subcomponents:

3. Financing transfers of the Temporary Income Support Program (PATI) (US$26.5 million IBRD, US$2.7 million GoES). This Subcomponent would provide P A T I grants to P A T I Participants and management expenses to Eligible Municipalities. Specifically, this Subcomponent would finance grants (income transfers) under the P A T I to participants in return for their participation in the PATI subproject (community and training activities). Targeting o f the P A T I Program would be based on a recently developed urban poverty map (FLACSO/Censo MINECLJNDP, 2009) and additional adjustments made by the STP. The poverty map has identified 43 municipalities, covering 56 percent o f the country’s total urban population that include 548 extremely poor communities (asentamientos); roughly 1 12,000 households. The Program expects to reach about 40,000 participants, representing over 30 percent o f households living under extremely precarious conditions in the 43 selected municipalities.

Subcomponent 1.1.

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4. Municipalities would submit a P A T I subproject proposal describing the nature of the community activity, the number o f participants, the type o f training activity, i t s expected duration, and the municipalities’ co-participation (e.g., materials, tools, or other skilled labor). Each activity would include between 30 and 50 participants and would be implemented over a period o f six months. An agreement would be subscribed with each participant stipulating that he/ she would receive a monthly transfer o f US$lOO provided that he/she has complied with the obligations set forth in the agreement. This level o f monthly transfer i s well below minimum wage (US$173 as o f January 2009; MTPS 2008) and the urban poverty l ine (US$165.7 in August 2009; DIGESTYC, 2009) and would not discourage potential participants from seeking employment elsewhere.

5. Each municipality can participate in up to four rounds o f submissions o f P A T I subprojects. The community activities in the PATI would be small in scale, simple, labor-intensive, and suitable for a majority o f unskilled labor. P A T I community activities would be primarily related to social and community services (e.g., childcare, sports and youth activities, improvement o f public spaces, etc.) and are not expected to involve any substantive infrastructure activities. Given the focus on urban areas, no issues related to indigenous populations are expected. The typology o f eligible community activities includes those that would be particularly suitable for youth and women heads-of-household. The Government i s interested in providing opportunities to female heads o f household that may have been disproportionally affected by the economic slowdown. This Component would be managed by FISDL in partnership with participating municipalities which play a role in validating the selection of participants and in overseeing local P A T I community activities. An agreement would be signed with each participating municipality and a transfer would be included as a contribution to the extra costs involved in managing P A T I activities o f about US$2,500 per P A T I subproject.

6. Using Government financing, the GoES started implementing the P A T I in two pi lot municipalities (Le., Ahuachaph and San Martin) in late September 2009, following the same procedures established in the agreed Operational Manual. Lessons from this first stage of the implementation in the two municipalities and a process evaluation will provide a valuable experience and information for Program improvements that would enable a smooth start o f the Project’s implementation. At the same time, it would assess Program design and implementation features before scaling it up to additional municipalities. The GoES will start implementation o f the Program in a limited number o f Municipalities in the first semester of 201 0, and expand i t s coverage during 20 1 1.

7. Targeting. P A T I activities would be implemented in 43 o f the poorest urban municipalities (as identified by the aforementioned urban poverty map and with additional adjustments made by the STP based on crime indicators). These municipalities cover about 56 percent o f the country’s total urban population, which include the 548 most precarious communities (asentamientos con niveles de precariedud extrema). “Precariousness” criteria is based on the incidence o f houses with overcrowding, lacking access to drinkable water, lacking access to sanitation, and lacking o f minimum infrastructure conditions o f floor, roof, and walls. This geographical approach provided the first step to targeting households that could become potential participants o f a temporary income transfers program. The second step for targeting participants i s based on a self-targeting mechanism. The Government wants to provide opportunities to female heads-of-household that may have been disproportionally affected by the financial crisis. Once municipalities identify P A T I community activities with the input o f communities, potential participants would be registered by FISDL to apply for the Program. FISDL then selects participants based on a quantitative scoring mechanism that reflects individuals’ and households’ socioeconomic conditions. This scoring instrument gives

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preference to individuals from targeted communities, women heads-of-household, and youth. Municipalities then validate the selection o f participants.

8. Eligible PATI community activities. A positive l i s t o f eligible PATI community activities i s included in the Operational Manual and i s related to social and community activities and would not involve any substantive infrastructure activities. The basic criteria used for preparing this typology consider that PATI community activities should be small scale, simple, labor-intensive, easily replicable, and suitable for a majority o f unskilled labor. Community activities suitable for youth and women are important considerations given that the Government wants to provide opportunities to female heads-of-household that may have been disproportionally affected by the financial crisis. Subprojects would involve between 30 and 50 participants and last up to six months, including time for training before, during or after the subproject i s implemented.

9. The positive l i s t for eligible PATI community activities includes:

.

.

Municipal services (e.g., garbage collection, parks maintenance, road signaling). Community services (e.g., basic sanitation, small sidewalks, trenches, slope protection, etc.). Art-related (e.g., murals, acting, dancing, music). Small undertakings (e.g., gardening, plumbing, masonry, tailoring, bakery, hairdressing, etc.). Tourism-related (e.g., preparing sites, access to camping facilities, tour guides). Education support (e.g., after school care). Sports and recreation (e.g., camps, coaching, tournaments). Environment (e.g., cleaning o f ditches, forestation, recycling). Small agricultural (e.g., hydroponics, vegetable gardens, plant nurseries). Training in Trades (e.g., gardening, plumbing, electrical work, tailoring, bakery, hairdressing). Small infrastnicture (e.g., cleaning o f public sites, repair or paint work in schools).

10. The Operational Manual also includes a l i s t o f ineligible PATI subprojects. This l i s t refers specifically to PATI subprojects, which would require the displacement o f people or which could have a negative impact on the environment.

1 1. PATI subproject Cycle. The PATI subproject cycle would include the following activities:

Call for proposals o f subproiects. FISDL would request eligible municipalities to put forth proposals for a PATI subproject, including proposed community activities from the eligible l i s t o f activities and associated training activities for participants. FISDL would disseminate information to each municipality on the subproject cycle, eligible community activities, selection o f participants, subproject preparation, and subproject management. Each municipality would be expected to participate in four rounds o f calls for proposals every six months. Preparation. Municipalities, with community participation, would identify subprojects suitable for the PATI. FISDL would assist municipalities in the preparation o f PATI community activity proposals while INSAFORP would define the associated PATI training activity (including identification o f training providers and training modules). Proposals would include a PATI community activity description with technical specifications o f the work to be carried out and inputs required; an implementation program including number o f participants, and a training activity.

.

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m

12.

Appraisal. FISDL would appraise the P A T I subprojects submitted based on technical solutions adopted, availability o f tools and materials, feasibility o f the implementation plan, and compatibility with the training activity offered. An environmental assessment would be carried out whenever relevant. Approval. FISDL would approve proposals based on evaluation criteria outlined in the Operational Manual. Proposed P A T I subprojects would be evaluated according to: (i) appropriateness o f community activity: small scale, simple, labor-intensive, easily replicable, and suitable for a majority o f unskilled labor; and (ii) training activity. The evaluation process would be further detailed in the Operational Manual. Implementation. Once approved, implementation o f a P A T I subproject begins, which includes the selection o f participants as described below. FISDL would work with the municipality to establish the subproject implementation cycle. Once the subproject begins, FISDL would make transfers to municipalities to pay for management expenses. Municipalities would be responsible for monitoring Participants’ involvement in the PATI community activity and INSAFORP would be responsible for monitoring participation in training activities. FISDL would make periodic visits to supervise the subprojects’ progress and ensure participants have been fulfilling their obligations. FISDL would also carry out internal audits o f payments to participants, submission o f reconciled financial documents, and Program effectiveness based on outcomes. Evaluation. Once subprojects are completed, FISDL would prepare an ex-post assessment recording the results achieved, problems encountered, solutions found, and lessons learned.

Selection o f Participants, FISDL would be responsible for registering all. interested participants. Once the registration process i s complete, FISDL would rank and select al l possible eligible participants based on criteria defined in the Operational Manual. A key feature is that participants must be older than 16 years o f age, having resided in the municipality for at least six months, unemployed, and not attending school or a training program fulltime during working days. Priority would be given to al l applicants living in a household located in one o f the targeted communities, particularly to women heads-of household and persons between 16 and 24 years old; the number o f unemployed people living in the household would be taken into account as well. Once eligible participants have been identified, the municipality would verify the l ist o f eligibility. This participant selection process i s currently being tested in two municipalities.

13. Implementation Arrangements. Annex 6 summarizes implementation arrangements for the preparation, implementation and evaluation o f the P A T I Program. Basic interrelations among key actors can be seen in Box 1 in Annex 6. The STP would be responsible for overall policy direction and coordination through the Government’s Inter-Sectoral Committee o f the Universal Social Protection System (CISPSU), a Ministerial level committee chaired by STP. The STP would coordinate the technical aspects o f this Program through a Technical Committee (Comitk Tkcnico), which the Government has proposed for future creation. P A T I Program implementation i s carried out by FISDL, which would establish inter-institutional arrangements with INSAFORP and the participating municipalities. FISDL would also have agreements with the institution responsible for transferring the P A T I income support to participants, and the participants.

14. Subcomponent 1.2. Training delivery for PATI participants (US$6.2 million IBRD, US$O.5 GOES). This Subcomponent would finance the provision o f training to P A T I participants, including, among other things, (a) the assessment o f training needs; (b) the design o f appropriate training

42

components for the PATI subprojects; (c) the delivery o f training Activities; and (d) the monitoring o f PATI Participants’ assistance to the Training Activities. In contrast to typical workfare programs that solely focus on temporary employment, the PATI i s aimed at providing income support conditional on complying with participation in training activities, in addition to the participants’ services in the community activity. PATI participants would take part in specific training modules while in the Program in order to enhance their employability after they leave the Program. Each PATI subproject proposal would include a training activity for participants, identified with assistance from INSAFORP. Once FISDL approves a subproject and selects participants, INSAFORP would enter into a contract with local training providers to adapt and design their training modules and provide training to participants. INSAFORP training specialists would support the identification o f a training package. The training component in each PATI activity proposal would be flexible in i ts content and format to adjust to participating individuals’ specific characteristics, type o f activity, and municipality strategy. This Subcomponent would cover financing o f the training modules provided to participants by INSAFORP through training providers.

15. INSAFORP. An autonomous institution, financed through a payroll tax, managing training programs for workers from the private sector and public autonomous institutions who contribute to i t s financing. The institution also runs training programs in basic labor sk i l ls for vulnerable groups, unemployed and young people seeking employment for the first time. I ts board o f directors i s composed o f representatives from Government, private sector employers, and workers’ unions. I N S AFORP prepares curricula for training programs that are delivered by private providers including NGOs. Most o f the institution’s efforts are concentrated on lifelong learning schemes that during 2008 were provided to about 175,000 participants, representing some 80 percent o f the total training recipients. Training in basic ski l ls consists o f short programs ranging from 40 to 260 hours o f training, focused on 26 different trades that in 2008 were provided to about 45,000 participants. Programs for young people are much smaller and cover longer periods (six months to two years) and also include internships in private companies, covering only some 250 participants during 2008. INSAFORP brings both the expertise to design programs for vulnerable populations and i ts capacity to articulate providers for different types o f training.

16. Typology o f programs. INSAFORP would adapt training modules for the PATI based on existing programs for vulnerable groups, the unemployed and young people, such as Habilidades para e l Trabajo. Most training modules would be between 20 and 60 hours and would be expected to cover some 12 different trades that are currently in demand by the labor market or are particularly suitable for self-employment schemes.

17. Training providers. Training modules would be delivered by training institutions retained by INSAFORP with some o f them being established training centers run by NGOs that cover some 10 municipalities included in the PATI Program.

18. Agreement with FISDL. A framework agreement would be signed between FISDL and INSAFORP specifying the obligations o f INSAFORP to identify training providers, adapt training modules, provide design and carry out training for participants within the context o f each PATI subproject. A fee for INSAFORP services would be stipulated in training agreements based on the applicable unit costs o f the training delivered. A specific protocol would be entered for the training to be provided to participants in each municipality including training modules, implementation scheme, and costs.

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19. Subcomponent 1.3. Institutional strengthening of FISDL (US$2.4 mill ion IBRD, US$O. 0 GoES). The objective o f this Subcomponent is to strengthen FISDL’s capacity to manage the P A T I Program by, among other things, the evaluation and redesign o f FISDL’s current M&E systems. Among other things, this Subcomponent would finance: (i) the design and coordination o f the P A T I subproject cycle; (ii) the supervision o f the implementation o f the P A T I subprojects including participants’ compliance with commitments; (iii) the design and use o f instruments and mechanisms to facilitate social monitoring and to validate the targeting effectiveness o f the PATI; and (iv) the evaluation and redesign o f FISDL’s current monitoring and evaluation system. This last activity would be articulated as part o f the overall M&E system being developed by the STP for social programs in the country. Although FISDL has notable experience in managing programs with municipalities and communities, these new activities would require strengthening the capacity of FISDL in order to manage the PATI in a transparent and accountable way.

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Subcomponent activities in greater detail include:

Evaluation and Redesign o f FISDLs M&E System. Design and Coordination o f P A T I subproject cycle. Supervision o f Implementation o f P A T I subprojects. Design and use o f instruments and mechanisms to facilitate social monitoring. Consultancy services to provide support to municipalities in project identification, preparation o f project profiles, coordination with training programs, and supervision o f P A T I activities under implementation. These consultants would coach municipalities’ permanent staff and consultants retained to strengthen these functions. Supervision o f Program execution: FISDL would retain consultants to strengthen its ability to supervise P A T I activities and training carried out within municipalities. Monitoring o f program management. Contracting out the adaptation o f systems currently being used by FISDL to monitor the management and results o f its own programs. Additionally, FISDL would contract out the design and implementation o f the PATI’s impact evaluation. Participant Assessments would also be contracted out after each project cycle i s completed by the municipalities.

Subcomponent 1.4. Institutional strengthening of municipalities (US$2.2 million IBRD, US$O. 0 GOES): The objective o f this Subcomponent i s to strengthen eligible Municipalities’ institutional and technical capacity to design and implement P A T I Subprojects, through the provision o f technical assistance, equipment and training o f Eligible Municipalities’ personnel to identify, prepare and submit for approval o f P A T I Subprojects, among other things. Crucial to PATI’s success i s municipalities’ ability to identify and formulate subprojects and to supervise their implementation. Municipalities would be required to train their staff on project preparation, implementation and monitoring. In addition, the Subcomponent would provide technical assistance to manage the process o f identification o f initiatives that may be suitable for a P A T I activity, including aspects o f community participation. Additionally, social scientists would be retained to support the Project identification process using mechanisms for community involvement.

22. Component 2 - Strengthening of labor intermediation, information, and occupational training systems. (US$10.3 million IBRD funds, US$0.6 million GoES). This Component would strengthen the GoES’ capacity to provide labor intermediation and training services, especially to the urban vulnerable poor. Specifically, the proposed Component would improve: (i) the coverage o f

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labor intermediation institutions in local markets, especially in those Municipalities identified by the urban poverty map; (ii) the quality o f the labor market information that guides the policy formulation process; and (iii) the coordination o f the current occupational training system in addressing labor market needs. The MTPS i s responsible for this Component and would be supported by FISDL for procurement and financial management.

23. The activities to be financed under this Component have been identified in the Ministry o f Labor’s (Ministerio de Trubujo y Previsibn Social, MTPS) strategy for strengthening intermediation, information, and occupational training system, RENACEMPLEO. This strategy i s committed to the creation o f employment on the basis o f a productive and competitive economy, respectful o f workers’ rights, and focused towards the most vulnerable population. It also aims to better articulate the role of different relevant labor market stakeholders, including central and local governments, employees, and unions, to enhance the performance o f labor markets. The RENACEMPLEO strategy has been developed in harmony with other principles guiding the GoES especially that o f territoriality, defined as strengthening the role o f local governments in the formulation o f public policies.

24. The activities in this Component would be implemented in a five-year period, starting in 2010 and ending in 2014. Activities under this Component would be implemented by MTPS. For the implementation o f the Subcomponent 2.3. MTPS would coordinate the participation o f other actors through with STP.

25. FISDL would be responsible for the financial management and procurement processes. FISDL has the capacity to execute external financing projects, and has a special project implementation unit dedicated to this purpose. FISDL would also be responsible for preparing the Component’s Operating Manual and Procurement Plan for the f i rst 18 months o f the loan, in close coordination with MTPS.

26. In the case o f Subcomponent 2.1 (National Employment Network), other IFIs and donors are playing an important role i s helping the Government operationalize the RENACEMPLEO strategy. For instance, the Spanish Cooperation Agency for International Development (AECID) and the German Agency for Technical Cooperation (GTZ) have been supporting the labor intermediation activities o f MTPS and INSAFORP for a long time, including technical assistance, equipment, and network registry, training courses, and participation in regional meetings for the National Employment Network staff. The World Bank’s support to the RENACEMPLEO strategy would ensure close coordination with other institutions willing to participate in strengthening the role o f MTPS.

This Component has three subcomponents:

27. Subcomponent 2.1. Strengthening the Labor Intermediation System (US87.2 million IBRD, US$O. 3 million GoES). This Subcomponent would strengthen the Red Nacional de Empleo (WE) by expanding the geographical coverage o f the Bolsus de Empleo Program through, among other things, the provision o f specialized technical assistance, training, equipment and software for MTPS. This would be achieved by strengthening the National Employment Network (Red Nacional de Oportunidudes de Empleo, RNE) in municipalities without coverage, especially those with large numbers o f large numbers o f urban vulnerable and poor, through local employment offices (Bolsus de Empleo, formerly known as Oficinus Locules de Gestibn de Empleo, OLGEs) in many Salvadoran Departments. The labor intermediations system o f Bolsus de Empleo, which provides information on job vacancies, has been serving primarily population with secondary or university education, and i s

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s t i l l limited in c ~ v e r a g e . ~ Current RNE institutional arrangements also appear to have impaired i t s performance with, for example, some Bolsas de Empleo being funded out o f municipal resources without regularly reporting on their activities to MTPS,

28. Among other things, this Subcomponent aims to: (i) expand the geographical coverage o f RNE in districts to where Bolsas de Empleo currently do not operate to cover at least the 14 urban departmental capitals, and reach a total o f 66 municipalities including those targeted by the PATI; (ii) provide technical assistance to assess the role and services provided by the local Bolsas de Empleo; (iii) provide training to Bolsas de Empleo personnel to increase their adequacy and effectiveness in delivering services to the population from vulnerable settlements; (iv) establish coordination mechanisms with municipalities through local social promoters (promotores sociales) that would help identify employment opportunities through a more effective interaction with the labor needs o f local enterprises (of all sizes) and municipalities; and (v) support a coordination mechanism with training institutions. These efforts are expected to be the first step in a long-term strategy where Bolsas de Empleo provide a range o f other services such as specialized training programs, counseling to micro entrepreneurs, and other services. For this new role and target coverage o f the RNE, the Subcomponent seeks to provide trained human resources, equipment, and technology that would raise the performance, efficiency and effectiveness o f the system; it would also strengthen the monitoring system, analysis, and evaluation o f the RNE through a set o f indicators that would systematically assess the results and impact generated.

29. This Subcomponent would finance:

Technical assistance for a diagnosis and impact assessment o f the RNE, and a proposal to reform i t s activities, roles, and institutional arrangements. Physical investment in 66 Bolsas de Empleo across the country including investments in furniture, equipment, and the organization o f technical discussions. Workshops and training courses for the RNE staff, and financing o f technical consultants to work in labor mediation in the Bolsas de Empleo and the National Direction o f Employment. Technical assistant for a diagnosis and reform o f the data-collection instrument for an effective RNE labor market intermediation role, including a review o f the registration information and cards, and the possibility o f online registration to the network v ia internet. Technical assistance to revise the methodology for organizing j o b fairs, support for greater dissemination o f activities, strengthening l i n k s with the private sector, and organization o f two annual fairs with national coverage. Technical assistance for the design o f a systematic methodology for identifying opportunities for productive employment, self employment, and job training opportunities in operating Bolsas de Empleo, and design o f an early warning system and development o f proposals for employment assistance in periods o f decline in local labor demand. A national campaign to disseminate the work o f the RNE in the media and in municipal educational establishments. Redesign o f MTPS website to reflect the activities and statistics o f the RNE, enable online registration for users, and publication o f j o b offers on the Internet.

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OLGEs are physically present in just 28 out o f 262 municipalities, corresponding to eight o f the 14 departments o f El Salvador.

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30. The RNE i s a labor intermediation strategy administered by MTPS in coordination with municipalities, universities, and NGOs. The program i s implemented across the country in eight MTPS Regional Offices, and 20 additional Bolsas de Empleo (OLGEs). Each Regional Office and OLGE collects information on job openings and posts job opportunities online for job seekers to apply, matching labor demand needs from the private sector with a registry o f unemployed population. The RNE constitutes the entry point for interested unemployed participants who want to seek labor intermediation services from MTPS.

31. So far, the role o f the Regional Offices and OLGEs i s to capture labor demand needs from formal f i r m s (those paying taxes), but not from informal small and medium enterprises due to legal restrictions. In terms o f self-employment, there have been experiences in the past with orientation courses for those interested in starting their own business, but they are not offered on a regular basis. The Regional Offices also offer participants short motivational and advisory talks to help them in their job search process.

32. The labor intermediations system o f Bolsas de Empleo has been serving primarily the population with secondary or university education, and i s s t i l l limited in coverage. The current institutional arrangements o f the RNE also appear to have impaired i ts performance. Until 2008, the Program had helped 89,486 individuals to find jobs (9,225 in 2008), 69 percent o f them being 18-30 year-olds. Most the individuals trained have been employed in the manufacturing, public administration, hotels and restaurants, and retail and trade sectors. In general, successful participants have either complete bachelor or tertiary degree.

33. The Regional Offices and OLGEs regular interventions in the job matching process are complemented by several employment fairs organized each year by MTPS. Between 2000 and 2007, MTPS organized 200 employment fairs that helped find employment to 53,851 individuals out o f a total o f 136,505 participants. In other words, 39 percent o f the participants in employment fairs were able to find a job. In contrast, in the 46 employment fairs organized in 2008, 9,018 individuals out o f 43,710 participants were successfully employed, which represents a decline in the success rate from 39 to 21 percent.

Red Nacional de Oportunidades de Empleo (2000-2008) Employment Fares OLGES

2000-2007 Participants Employed Percentage Employed 2008 Participants Employed Percentage Employed

Participants Employed Percentage Employed 34.9% 25%

2000-2008

Source: Ministerio de Trabajo y Previsibn Social (2008).

136,505 53,85 1 39.4%

43,710 9,O 18 20.6%

180,215 62,869

d a 21,959

d a

d a 4,658

d a

106,540 26,617

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34. Subcomponent 2.2. Strengthening Labor Market Information System and Statistics (US$l. 5 million IBRD, US$0.2 million GoES). This Subcomponent would finance the provision o f technical assistance, necessary goods equipment and training to strengthen MTPS’ capacity to compile and systematize statistical labor market information, through the creation o f a National Labor Market Observatory (Observatorio Nacional del Mercado Laboral, ONML) , The ONML would be created on the basis o f the current activities performed by the Labor Statistics Unit and the Research Division o f the RNE, to strengthen i ts capacity to analyze and monitor labor market indicators that serve as critical inputs in the formulation o f labor market policies. The creation o f an ONML reflects the need to strengthen the organizational structure and management, and a readjustment o f MTPS role for an effective response to demands for information from various agents, with criteria, quality and timeliness.

35. Specifically, the Subcomponent would: (i) support the establishment o f the ONML to compile and systematize statistical information from different areas and units in MTPS , other Government agencies (e.g., DIGESTYC, INSAFORP, ISSS, Central Bank o f Reserve, Ministry o f Agriculture, Superintendence o f Pensions), employers, trade unions, and academic institutions, to enrich the policymaking process o f MTPS; (ii) provide technical assistance to design and implement the quarterly Labor Market Indicators System publication, that uses information from (i) and (iii) strengthen the technical and research capacity o f ONML personnel, expanding the coverage, frequency and dissemination o f MTPS activity reports and special studies. These activities would require investments in technology, training o f human resources, and improving the coordination channels with the institutions that are responsible for collecting, monitoring, analyzing and producing labor market statistics in a timely and reliable way.

36. #

#

37.

This Subcomponent would finance: Technical assistance for a diagnosis o f the activities in the Labor Statistics Office o f MTPS, and the Research Division o f the RNE, including a review o f their current capabilities to collect information and prepare periodic reports and investigations. Technical assistance for the creation o f a new unit called ONML, emerging from the current experiences o f the Labor Statistics Office o f MTPS, and the Research Division o f the RNE, including the design and implementation o f a comprehensive Labor Market Indicators System o f quarterly report, the formation o f a new research plan, and a proposal for technology upgrading and human resource training o f personnel from the new ONML. Computer equipment and software licenses for the implementation o f ONML activities. Human resource training and workshops for ONML personnel, for a consolidation o f labor statistics with other institutions producing statistical inputs. National campaign to disseminate the activities o f the ONML, including a redesigning o f MTPS website to incorporate regular statistics and research produced by ONML staff. Technical assistance for the design, production, and pilot implementation o f a new survey o f Labor Statistics from information supplied by a panel sample o f employers surveyed monthly that would feed into the Labor Market Indicators System.

Subcomponent 2.3. Strengthening the Occupational Training System (US$l. 5 million IBRD, US$O. 1 million GoES). This Subcomponent would support the development o f a National Strategy for Occupational Training (NSOT) through, among other things, the provision o f technical assistance, equipment and software for MTPS, and training for MTPS, MINED, and INSAFORP’s personnel on employment training for vulnerable groups. The labor market in El Salvador has a range o f skill

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profiles, and a myriad o f training institutions that deliver a large number o f training programs o f uneven quality and unclear impact. The current institutional setting for the occupational training system provides l i t t l e information on the quality and adequacy o f existing training programs, limiting the efforts o f better matching existing skil ls and those needed in the market. This Subcomponent would be led by MTPS, in coordination with other relevant government agencies such as the Ministry o f Education (MINED) and INSAFORP among others.

3 8. This Subcomponent, among other things, would provide technical support and advisory services to the development o f the NSOT by: (i) assessing the quality and relevance o f skills-formation institutions, including INSAFORP; (ii) developing programs to address training needs by specific groups such as youth and the self-employed, among others; and (iii) improving coordination within the occupational training system and with upper secondary education. This Subcomponent proposes, therefore, to develop and carry out a set o f surveys and studies and the associated technical dialogue to achieve (i-iii). This Subcomponent would be led by MTPS, in coordination with other relevant Government agencies such as MINED, MOE, and INSAFORP, among others.

39. The labor market in El Salvador has a range o f skill profiles resulting from uneven quality schools, and socioeconomic backgrounds. About 18 percent o f students dropped out o f school after ninth grade, missing the last two years o f secondary education (Bachillerato). O f those who finished secondary education about 40 percent did not continue on to higher education and they either sought to enter the labor market or to enroll in professional training institutions. As a result, the education background o f youth ranges from secondary school dropouts (1 8 percent) to those with completed secondary education (2 1 percent), and those who with post-secondary education (1 3 percent). In addition, a myriad o f non-university post-secondary training institutions deliver a large number o f training programs o f uneven quality and unclear impact.

40. The current occupational training system provides l i t t le information on the quality and adequacy o f existing training programs, limiting the efforts o f better matching existing skil ls with sk i l ls needed in the market. Whi le Subcomponent 2.2 would improve the information on skil ls supply and demand, Subcomponent 2.3 would provide technical support and advisory services to strengthen the occupational training system by: (i) assessing the quality and relevance o f skills-formation institutions; and (ii) developing a policy design process to target vulnerable groups.

41, Among other activities, the Subcomponent would undertake an overall study o f El Salvador’s National Professional Training System (Sisternu National de Formacicin Profesional, SNFP) which would include among others: (i) a brief presentation (i.e., snapshot) o f the main features o f the Salvadoran SNFP and i t s relation with the education system and the labor market; (ii) a review o f the legal, regulatory, and normative rules governing the SNFP, including the current system to accredit service providers and to monitor the quality o f service provision in training institutions; (iii) an identification o f all the professional training service providers legally operating in El Salvador, sorted by the type o f institution, trainingskill course provided, length o f studies and economic sector; (iv) a review o f the financing framework, including an analysis o f costs by type o f service provider, courses and sources o f funding, both private and public; and (v) an assessment o f SNFP and service providers’ services and modalities to help graduates enter the labor market, including partnerships between training institutions and the private sector (e.g., apprenticeship: school-based and work-based learning), and information available to training institutions and to INSAFORP on labor market needs.

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42. This Subcomponent would also conduct an external efficiency evaluation o f both the education and the training systems to determine if secondary education and SNFP graduates’ skills and competencies match employers’ needs and the development needs o f the economy. To better understand the education system’s external efficiency, the evaluation would focus on two student populations: (a) students with completed middle school (Le., equivalent to nine-years o f education who then le f t the formal education system; and (b) students who completed high school in both general and technical streams. In each case, the evaluation would determine what students do after leaving school, the number o f students who advance their education, in what types o f institutions and areas o f studies, and at what level. For students who tried to enter the labor market directly out-of- school: what type o f careers and jobs were available; the time it took to get a job; the job’s relation with the highest level o f education achieved; and the average income received. O n the professional training system’s external efficiency, the study would target students who acquired a professional qualificatiordcertification from a training institution. Similar questions about the integration in the labor market would be asked to SNFP graduates but more directly linked to the type and adequacy o f professional training received to effectively support the transition o f SNFP graduates in the labor market.

43. This Subcomponent would finance: . Technical assistance for an assessment o f the national system o f occupational training, including training institutions, programs (i.e., coverage, impact, cost), and labor regulations, and that provide policy recommendations. Technical assistance to support the formulation o f training interventions for specific groups including the youth. Workshops and training courses for the GoES staff to learn from international experiences in employment training for vulnerable groups (Le., women and youth). An evaluation o f the external efficiency o f both education and training systems to determine if,

’ the ski l ls and competencies secondary education and training institution graduates, match employers’ needs and the development needs o f the economy.

.

.

. 44. Component 3 - Support the design and development o f the Universal Social Protection System (SPSU)Support to the Design and Development o f the SPSU (US$2.4 million IBRD, USS0.2 million GoES). This Component would support the improvement o f the organizational and technical capacity o f the STP to design, articulate, monitor, and evaluate social interventions as part o f the SPSU. Specifically, this Component would finance technical assistance including training, technological support, and exchanges o f international experiences through two main subcomponents: (i) improvement o f the institutional capacity o f the STP for managing the SPSU; and (ii) development o f technical instruments needed for the design and evaluation o f social interventions.

45. The SPSU is a social policy strategy which the Government has defined in order to achieve the articulation and integration o f the social development interventions focusing on a human rights-based approach and the increased participation o f local governments known as ‘eje territorial’. I t seeks to guarantee the population o f El Salvador, especially the poor and extremely poor, a ‘basic social level’ o f well-being through the definition o f general and focused policies and programs. This implies an integral reform concerning the way in which the social development policies o f the GoES are coordinated, administered and implemented starting with the ruling entities o f the Executive Branch. In this respect, World Bank could share experiences with social protection systems in Latin America,

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lessons learned, and the technical and institutional capacities required to implement a SPSU in El Salvador.

46. This Component would be executed in a five year period (2010 to 2014) by the STP. The STP has the capacity to execute projects with external financing and has a Procurement and Contracts Unit (UACI). Consequently, the STP would be in charge o f the financial administration and the contracting and procurement. In addition, the STP would be responsible for elaborating an Operational Manual o f the Component’s Procurement Plan for the f i rs t 18 months o f the Project. This Component has two subcomponents :

47. Subcomponent 3.1. Improvement of the STP’s Institutional Capacity (US$l. 1 million IBRD, US$O. 1 million GoES). This Subcomponent would finance the strengthening o f the STP’s institutional capacity to implement SPSU through, among other things, the following activities: (a) the preparation o f an assessment o f STP’s institutional capacity to implement the SPSU; (b) the development o f the regulatory framework for the institutional coordination o f the SPSU; (c) the carrying out o f training activities for STP’s personnel; and (d) the development o f a communications strategy for the SPSU and i ts components. The STP i s the institution responsible for inter-sectoral coordination and for the integration o f social development interventions. The implementation o f the SPSU requires professional staff in the STP capable o f managing processes related to social policy planning such as design, piloting, implementation, and monitoring and evaluation. The STP requires also an internal organizational structure that facilitates coordination with other Government agencies, as well as an internal structure that facilitates the roles o f the STP itself.

48. This Subcomponent would finance:

Diagnosis o f the organizational structure o f the inter-institutional coordinating entities involved in the SPSU. In addition, the drafting o f a Manual o f the Organizational Structure of the Committees that defines the SPSU and the proposed organizational structure o f each entity, and their functions. Development o f the regulatory framework for the institutional coordination o f the SPSU, including the rules for the functioning o f each o f the coordinating entities. Diagnosis o f the institutional capacity o f the STP to implement the SPSU, i t s technical staff, and staff training requirements. This would entail an analysis o f staff and functions to: (i) diagnose the unit’s organization and i t s capacity and needs to design and implement the SPSU; (ii) recommend organizational and staff changes; (iii) diagnose staffs technical and analytical skil ls to identify training, technical assistance, and exchange o f experience that would ensure the GoES will be able to implement social development policies in the short and long terms. Implementation o f knowledge and training activities to increase the technical capacity o f the STP, specifically concerning results based management, processing and analysis o f statistical information for policy purposes, and on designing and implementing financial and environmental feasibility studies for social programs. Development o f a communications strategy for the SPSU, starting with Comunidudes Solidurius, to ensure transparency in program design and outcomes and i t s political sustainability .

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49. Within the context o f the SPSU, other donors and international organizations may provide additional technical assistance and financial support under the overall coordination o f the STP to ensure full consistency and coordination o f efforts.

50. Subcomponent 3.2. Design and Implementation of key tools for the development of social protection policy design (US$l. 3 million IBRD, US$O. 1 million GoES). This Subcomponent would finance the provision o f technical assistance and the acquisition o f equipment for the design and implementation o f key tools for the development o f social protection policies. This Subcomponent will support the following instruments: (i) a Unified Registration System o f Participants o f al l social programs, involving the development and utilization o f a unified model for geographic targeting (e.g., poverty maps) and the integration o f the participant databases o f all social programs; (ii) a Monitoring and Evaluation System o f social programs that are part o f the SPSU, to measure the performance o f social development policies and to enhance the accountability o f public social spending; and (iii) a Social Information System for citizens that includes a system o f public information on all social interventions, allowing citizens to access all the necessary information o f this offer. The implementation o f these instruments i s essential to the development o f an articulated social protection system in that they provide informational criteria for policy design, monitoring and evaluation, and policy decision-making to restructure existing programs.

5 1. The World Bank’s international experience on social protection systems shows that there are three essential tools essential to al l social protection systems to ensure strategic information on which to make decisions, policies, programs, and projects:

a. A unified registration system o f participants in al l social programs: The use o f one unified model o f geographic focus (poverty maps) and a unified model o f household targeting as well as the integration o f the participant databases for al l social programs.

b. A Monitoring and Evaluation System o f all programs that i s part o f the SPSU: Needed to measure the performance the GoES social development policy and providing accountability to all citizens o f public social spending. In addition, the system must generate follow-up mechanisms and recommendations resulting from evaluations and determine an annual evaluation plan for al l social programs, including management and outcome indicators, and expected results.

c. A Social Information System for citizens which includes the programmatic offer o f all SPSU social programs and projects, allowing citizens to access al l the necessary information about social programs.

52. This Subcomponent would finance: . Technical Assistance and equipment for the social protection unit at the STP to support the design and implementation of: (i) a Unified registration system for participants; (ii) a Monitoring and Evaluation System for the SPSU; and (iii) a Social Information System for citizens. The conceptualization, design and regulation o f each system have to be presented to the CISPSU for i t s approval and implementation. Resources for equipment and related training. .

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Annex 5: Project Costs EL SALVADOR: Income Support and Employability

Component 1 1.1. PATI Grants to Participants 1.2. PATI Training design and delivery 1.3. Institutional strengthening o f FISDL

Subtotal: 1.4. Institutional strengthening o f Municipalities

29.2 26.5 6.7 6.2 2.4 2.4 2.2 2.2

40.5 37.3 Component 2 2.1. Labor Intermediation System 2.2. Labor Information System and Statistics 2.3. Occupational Training Strategy Subtotal: Component 3

3.2. Design and Implementation o f Tools for SPSU Subtotal: Total Baseline Cost

3.1, Strengthening STP Organizational Structure

I Phvsical Contingencies

7.5 7.2 1.8 1.5 1.6 1.5

10.9 10.3

1.2 1.1 1.4 1.3 2.6 2.4

54.0 50.0

1 Front-end Fee

Price Contingencies Total Project Costs Interest during project implementation

1 0.125 I 0.125 1

54.0 50.0

I Total Financinp Reauired

FY 201 1 FY 2012 FY 2013

Loan Amount US$ $8,800,000

$17,100,000 $2 1,200,000

FY 2014 FY 2015 Total Credit

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$1,900,000 $1,000,000 $50,000,000

Annex 6: Implementation Arrangements EL SALVADOR: Income Support and Employability

1. The STP would be responsible for the overall coordination of this project. The STP i s responsible for the strategic direction and the coordination o f El Salvador’s Universal Social Protection System, through the Government’s Inter-Sectoral Committee o f the Universal Social Protection System (CISPSU), which STP chairs. The STP led the development o f the concept for this project and would coordinate the monitoring and evaluation o f Project’s progress through a Technical Committee (Cornire‘ Te‘cnico), which the Government has proposed for future creation. Furthermore, STP would lead discussions with the World Bank on overall project progress and would help in developing possible options at the strategic level for adjustments to address any shortfalls in targets.

2. In accordance with their assigned Government functions, three different agencies would be responsible for the specific outcomes under each of the three project components. FISDL would be responsible for agreed outcomes under Component 1. The Inter-Sectoral Committee (CISPSU), has approved the PATI program concept, which would be supported by this project, and has delegated (i) the final approval o f the program’s technical design and implementation oversight to the STP; and, (ii) program implementation, including technical and financial administration o f the PATI to the Social Investment Fund for Local Development (FISDL). The GOES and FISDL would sign the implementation agreement for carrying out Component 1. As part o f this agreement, FISDL would be accountable for the implementation o f the PATI Program. Participating municipalities and the Salvadoran Professional Training Institute (INSAFORP) would also play key roles in the PATI program as described in Annex 4. The Ministry o f Labor (MTPS) would be responsible for outcomes under Component 2 in accordance with i ts l ine functions and FISDL would carry out the financial management and procurement activities. Here FISDL would help MTPS to administer the financial management and procurement activities. Finally, STP would be responsible for Component 3.

Component 1

3. Under Component 1, participating municipalities would be responsible for the identification, and design of PATI subproject proposals and for implementation and supervision of the PATI subprojects approved by FISDL. In order to perform these activities, municipalities would receive technical support from FISDL and a set fee to cover the Management Expenses as explained in Subcomponent 1.4 (Annex 4). The technical support, provided by FISDL, would start at the time o f subproject preparation and would continue throughout the participation o f the municipality in the PATI program. Municipalities would report participants’ attendance in subprojects implemented through the PATI program to FISDL on a monthly basis. FISDL would then approve monthly payments to participants through a financial agent, which would be contracted by FISDL, for that function. FISDL would sign inter-institutional agreements with each municipality, f irst to initiate their participation in the Program (the framework agreement), and subsequently, if applicable, to implement the relevant PATI subproject (the PATI Subproject Agreement). FISDL would also sign agreements with each participant enrolled in the PATI subproject stipulating that he/she would receive a monthly transfer o f US$lOO provided that the individual has complied with the obligations set forth in the agreement. Pro-forma agreements have been included in the Operational Manual.

4. Also under Component 1, the Salvadoran Institution of Professional Training (INSAFORP) would support municipalities by arranging training for the PATI subprojects.

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INSAFORP would be responsible for identifying local trainers and suitable training modules, adapting them as needed and then implementing the training package included in each approved subproject. These activities are financed under Subcomponent 1.2. INSAFORP would coordinate with the municipalities who would finalize subproject proposals and oversee their implementation. Furthermore, the training institute would report to FISDL the attendance o f PATI participants, which i s required for participants to receive PATI income support. FISDL would establish an inter- institutional agreement with INSAFORP that would outline the specific obligations.

5. FISDL would evaluate and approve the PATI subproject proposals according to the Operational Manual. Once the subprojects have been approved, the implementation process o f the PATI subproject would begin (see Box 1 for a detailed description o f the PATI sub-project cycle). To strengthen i ts evaluation and monitoring capacity, FISDL would contract staff, under Subcomponent 1.3.

Box 1. PATI Subproject Cycle

1 " I

s (. 5 E t

3 Exteriial evaluation E

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Component 2

6. Under Component 2, MTPS would implement the proposed activities, and FISDL would be responsible for the financial management and procurement processes. More specifically, MTPS would realize activities that improve and extend coverage o f intermediation systems, particularly the National Employment Network (WE) and the Bolsas de Empleo; design and develop the National Labor Market Observatory; and develop and implement a National Strategy for Occupational Training. It would also define the TORS for the contracting o f training and advisory services required for the activities.

7. FISDL would carry out procurement and financial management activities on behalf o f MTPS, who, in turn would define the goods and services and timing of the acquisitions. MTPS would present a l i s t o f goods aid services to FISDL that are needed for the preparation o f the procurement plan for the activities in Component 2. Furthermore, MTPS would discuss and agree with FISDL on the timing o f the procurement processes in order to comply with the procurement and financial management regulations o f the overall Project, As previously defined, though, FISDL would be responsible for the financial management and procurement processes for Component 2.

8. Finally, MTPS would carry out the activities o f Subcomponent 2.3 in coordination with other relevant agencies. MTPS would coordinate, through STP , with other agencies including MINED, MOE, and I N S A F O W among others, the articulation o f technical inputs for the development and implementation o f the National Strategy for Operational Training.

Component 3

9. Finally, the STP would be responsible for all aspects o f Component 3, including the administration, financial management, and procurement activities. The STP would contract technical support to strengthen its institutional and organizational capacity for the creation and development o f the SPSU.

10. Since this Project includes activities with different timelines and institutional processes which can operate independently in support o f the overall project objectives, the Project i s designed so that each component can operate in parallel. For example, annual operating plans and procurement plans for each component can be approved independently; effectively buffering each component f rom possible delays in other components.

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Overview of implementing arrangements for each subcomponent I Component I Implementation I Overall supervision I Procurement and 1

and coordination

Basis for selection of Institutional Arrangements

11. The STP and F I S D L have the capacity to perform their respective roles under the Project. Both agencies have a strong track record in implementation o f social programs, including fiduciary aspects. Moreover, the successful experience in the design, implementation, and monitoring El Salvador’s flagship CCT program CS Rurales (formerly Red Solidaria) shows that these agencies are the appropriate institutions for the new roles proposed in this Project.

12. In particular, the STP i s the appropriate entity for the coordination and evaluation of the proposed Project. The STP has historically, and continues to be a key entity for the coordination and evaluation o f social policies in El Salvador. I t has exhibited the capacity to define appropriate institutional and implementation strategies for social programs, establish coordinating mechanisms with other Government agencies, and direct the activities associated with monitoring and evaluation. Furthermore, with the recent restructuring o f the STP and the creation o f the Inter-Sectoral Committee, the STP, as the legal coordinator o f this Committee i s in a unique position to harmonize the efforts o f the proposed Project as part o f the creation o f the SPSU.

13. Similarly, FISDLs strong operational capacity to implement interventions in close coordination with local governments makes it a qualified implementing agency. As aforementioned, FISDL has had a long-standing relationship with local governments in major construction and social infrastructure projects (from school construction to roads). This has been most evident in the 2008 expansion o f the former Red Solidaria. In terms o f the proposed Project, th is

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experience has shown FISDLs capacity to work closely with local governments in the implementation o f programs o f similar design including the conditional cash transfers associated with Red Solidaria.

14. In addition, the institutional capacity o f the STP and FISDL are also being strengthened in order to respond to the new roles assigned under the new administration After redefining the roles o f the STP (GOES, 2009), additional personnel were incorporated from other Government units, l ike the National Development Council (Consejo Nacional de Desarrollo, CND), to strengthen the STP. Likewise, FISDL has improved the capacity o f its technical staff in order to identify, design and implement social and economic interventions. To help sustain these efforts, the Project would continue the process o f enhancing the ability o f these agencies through technical assistance to bolster staffing and training in fiduciary and technical issues.

15. The Training Institution, INSAFORP, has experience in financing and managing training services. Concretely, in relation to the targeted population in the proposed Project, the training program Habilitacibn para el Trabajo i s a short training course aimed at unemployed, under- employed and vulnerable groups. This experience has provided important lessons in terms o f the design o f specific training modules appropriate to the vulnerable population.

16. Historically, the Municipalities have collaborated with various agencies including FISDL, the VMDVDU, and other Government entities to implement local development programs including infrastructure projects. On the whole, however, municipalities require further strengthening to administer different types o f programs. Under the proposed Project, FISDL would enhance the Municipalities capacities in order to support the identification, preparation, implementation, and supervision processes o f the PAT1 local activities.

17. Finally, MTPS’s capacity to support the National Employment Network (RNE) through the local Employment Offices (Bolsas de Empleo), a central activity in the proposed project, makes it an appropriate institution for the execution o f the activities in Component 2. FISDL would support this intervention by administering the financial and procurement processes for the proposed activities under Component 2.

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Annex 7: Financial Management and Disbursement Arrangements

EL SALVADOR: Income Support and Employability

Summary Conclusion of Financial Management Assessment

1. As part o f the preparation o f the Project, a Financial Management Assessment (FMA) for the Income Support and Employability Project was carried out on site from August 24 to 28, 2009. The FMA was accomplished in accordance with OPBP 10.02 and the FM Manual “Financial Management Practices in World Bank Financed Investment Operations” approved by the Financial Management Sector Board and published on November 3,2005.

2. The Income Support and Employability Project would have two main implementing agencies responsible for fiduciary activities (FISDL and STP) with STP providing overall coordination and strategic direction for the proposed project. Component 1, which would finance cash benefits for participants in the Temporary Income Support Program (PATI), would be implemented by the FISDL. Component 2, which would finance activities to strengthen the labor market information, intermediation and training systems, would be implemented by FISDL in coordination with MTPS where MTPS would be responsible for the technical design, programming and supervision o f al l the activities. The administration o f this Component would be carried out by FISDL. And, Component 3, which would finance activities for the support to the design and development o f the universal social protection system, would ,be implemented by STP.

3. following conclusions:

(i)

On the basis o f the assessments performed, the financial management team presents the

The fact that both entities (FISDL and STP have experience managing projects financed by the World Bank, for which they have implemented suitable administrative structures and systems, puts them in an advantageous position to carry out, with relative ease, the financial management tasks associated with the proposed Project.

(ii) In both FISDL and STP, staff capacity, administrative structure and systems are adequate for project FM purposes.

(iii) However, the FMA identified specific conditions necessary for the implementation o f the proposed Project: the payment agent for transfers to participants o f the PATI program should be contracted and operational before disbursements can be initiated for the related subcomponent.

Country Issues

4. The CFAA and most recently the PEFA mention that the government o f El Salvador has built strong foundations for a well-functioning budget management system and that the integration o f the financial management system (SAFI) has helped the production o f timely, reliable and fairly complete information on government spending and audit trails. External funding has been effectively incorporated into the budget management system, but executing entities usually st i l l maintain separate

59

subsidiary accounts for loan and grant funds (mainly to meet specific reporting requirements o f donors).

Risk

5 . As reported in the CFAA, the existence o f separate bank accounts i s allowed in El Salvador for internationally funded projects, but the Treasury i s generally assigned the responsibility o f managing these accounts. Therefore, while executing entities generally maintain separate subsidiary accounts for loan and grant funds, the transfers from treasury (DGT) follow the same mechanism used for local funds. In terms o f financial administration, the arrangements generally differ from entity to entity, and from project to project. For some projects, the UFI plays a major role in the administration o f project funds, while for others the administration o f project funds i s performed by the project implementation unit.

Risk Risk Mitigating Measures Incorporated into Condition of NegotiationsB3oard or Rating Project Design Effectiveness (Y/N)?

Risk Assessment Summary

6. The FM risk for this Project has been assessed as Substantial, mainly due to the cash transfer component and the complexity o f implementation arrangements, and once there i s evidence that the mitigating measures have been implemented and are working as intended, the level o f FM risk for this Project would be re-assessed and revised accordingly. The following table presents the risk assessment, as well as the risk mitigating measures incorporated into the design o f the Project and the financial management implementation arrangements.

Level

Level

Level I

FISDL and STP have ongoing experience managing projects financed by the World Bank, for which they have implemented suitable administrative structures and systems. This puts them in an advantageous position to carry out, with relative ease, the financial management tasks associated with the proposed Project.

Staff capacity, administrative structure and systems are adequate for Project FM purposes.

Strong coordination among the implementing and participating agencies has been included in the design o f the Project. Given the cash transfer component, the Project would take into account lessons learned and best practices for F M in CCT programs.

It i s important to note that FISDL has ongoing experience with CCTs due to the Program Comunidades Solidarias Rurales formerly Red Solidaria), as well as experience in working with municipalities.

Negotiations: Operational audit TORS agreed with the World Bank and included in the Operational Manual. (completed)

Payment agent contracted and implemented before disbursements start on transfer subcomponent (condition o f disbursement). (completed)

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Risk

Control risk Budgeting, Accounting, Internal Control

Funds Flow

Financial Reporting, Auditing

Risk Risk Mitigating Measures Incorporated into Condition of Negotiations/Board or Rating Project Design Effectiveness (Y/N)?

The Project would implement a robust payment system for the transfer component and operational audits will be required.

FM Risk

S

M

M

s

I t i s important to note that FISDL already has in place a CCT system (for the Red Solidaria), as well as mechanisms to monitor fiduciary activities at the Municipal level

Specific FM processes and procedures are being designed in order to guarantee that project fbnds are used economically and efficiently. These processes and procedures will be reflected in the Operational Manual

The Project would use the established processes and procedures for monitoring the activities at the municipal level A customized SOE format for Transfers would be developed The format o f the IFR i s being developed. Each entity would prepare i ts respective IFR

External financial and operational audits would be contracted

Negotiations: Draft Operational Manual reviewed by and acceptable to the World Bank (completed)

Negotiations: design of customized SOE format for the transfer component (completed) Negotiations: Agreed format for the IFR (completed)

Negotiations: Audit TORS agreed with the World Bank and included in Operational Manual (completed)

An acceptable audit fm selected six month after effectiveness (completed) Substantial

Weaknesses and Action Plans Key actions have been defined and agreed with each o f the participating entities to strengthen FM arrangements and are detailed below. FM processes and procedures have been reviewed in the Operational Manual.

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Action FISDL 1. Contracting o f the payment agent by FISDL for the cash transfer component o f the Project (including payment scheme and reconciliation)

3. Finalization o f the specialized SOE statement for the cash transfer component 4. Finalization o f the format for unaudited financial reports (IFRs), in coordination with STP 5. Finalization o f the TORs for the operational audit in relation to the

6. Finalization o f the TORs for the annual financial audit for the Project in coordination withSTP 7. Incorporation o f the Project in 20 10 budget

cash transfer component o f the Project

I2010 8. Providing training in F M and disbursement I W B 1 By February 24,

Responsible Entity Completion Date'"

FISDL Before disbursements can begin on the sub component

(completed )

(completed )

2010

(completed)

FISDL By negotiations

FISDL/STP By negotiations

FISDL By February 24,

FISDWSTP By negotiations

FISDL By February 24,

S'I'P 1. Incorporation o f comments and finalization o f the Operational Manual 2. Finalization o f the format for unaudited financial reports (JFRs), in coordination with FISDL 3. Finalization o f the TORs for the annual financial audit for the Project in coordination with FISDL 4. Incorporation of the Project in 2010 budget

5. Providing training in F M and disbursement

Implementing Entity, Organizational Arrangements, and Staffing

STP By negotiations

STPFISDL By negotiations

STPFISDL By negotiations

STP By February 24,

WB By February 24,

(completed)

(completed)

(completed)

2010

2010

7. FISDL was created in 1990 in an effort to eradicate' extreme poverty in El Salvador, through the implementation o f social and productive investments, as well as the promotion o f sustainable'local development. . FISDL i s currently implementing the Program Comunidades Solidarias Rurales formerly Red Solidaria) and has extensive experience with project implementation and management of donor-financed projects - it had been selected to implement the Social Protection project, and has successfully implemented World Bank and IDB projects. It has an established structure, which includes an institutional Financial Unit (UFI). The UFI is fully staffed and has experience managing fiduciary aspects o f donor-financed projects. For components 1 and 2 o f the Project, the UFI would be directly responsible for: (i) budget formulation and monitoring; (ii) cash f low management (including processing payments and submitting loan withdrawal applications to the World Bank); (iii) maintenance o f accounting records (including the administration and maintenance o f an inventory o f project assets); (iv) preparation o f in-year and year-end financial reports; (v) administration o f underlying information systems; and (vi) arranging for execution o f operational and financial audits.

lo This column solely presents the estimated completion date, not necessarily an indication o f legal conditions.

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The UFI’s capacity i s adequate for managing the FM aspects o f the proposed Project and no additional staff is expected to be needed for the proposed Project.

8. STP coordinated the implementation o f the Red Solidaria. STP has extensive experience with project implementation and management o f donor-financed projects - it i s currently managing two World Bank trust funds, TF056579 and TF092367 and has successfully implemented IDB projects. It has an established structure, which includes an institutional Financial Unit (UFI). The UFI is fully staffed and has experience managing fiduciary aspects o f donor-financed projects. For Component 3 o f the Project, the UFI would be directly responsible for: (i) budget formulation and monitoring; (ii) cash f low management (including processing payments and submitting loan withdrawal applications to the World Bank); (iii) maintenance o f accounting records (including the administration and maintenance o f an inventory o f project assets); (iv) preparation o f in-year and year-end financial reports; (v) consolidation and presentation o f periodic unaudited financial report; (vi) administration o f underlying information systems; and (vii) arranging for contracting and execution o f financial audits. The UFI’s capacity i s adequate for managing the FM aspects o f the proposed Project and no additional staff is expected to be needed for the proposed Project.

Planning, Budgeting and Financial Reporting

Planning and Budgeting

9. The preparation o f the annual program and budget would fo l low local regulations established by the Ministry o f Finance, and specific regulations and instructions that may be issued by the implementing institutions. During the second quarter o f each year, each implementing entity would prepare i t s tentative investment program for the next year. The Program would be incorporated into the public investment information system and once approved would be reflected in the annual budget proposals for each implementing agency. These budgets, in turn, would be incorporated into the national budget for the President’s submittal to the National Assembly in September.

10. counterpart funding estimates.

The Loan Agreement and project cost tables would be the main inputs for project budgets and

11. project annual work (POA) and procurement plan, which would be reviewed by the World Bank.

O n the basis o f the approved budget, each implementing entity would adjust as needed its

Accounting; Policies and Procedures

12. The main FM regulatory framework for the Project would consist of: (i) the Financial Management L a w (Ley AFI) which governs the formulation, approval, execution and monitoring o f the budget, the treasury system operations, the government accounting system and the investment and public credit functions; (ii) the annual Law o f the General Budget o f the State; (iii) the Ministry o f Finance regulations and manuals; (iv) FISDL’s manual o f financial procedures and practices; and (v) STP’s financial manual.

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13. Project-specific FM arrangements that are not contemplated in the documents cited above would be documented in a concise FM section o f the Project’s Operational Manual. Among others, specific reference would be made to: (i) the internal controls appropriate for the Project; (ii) the formats o f project financial reports; (iii) auditing arrangements; and (iv) payment mechanism for cash transfers to participants o f the PAT1 program.

Information Systems

14. FISDL would record financial transactions using its robust integrated information system, which includes budgeting, treasury, and accounting. It would be adapted to extract data f rom the accounting system so as to prepare project financial Statements.

15. STP would record financial transactions directly into the Government’s integrated financial management system (SAFI), as well as the existing administrative system for loan agreement control and to prepare project financial statements.

Financial Reports

On a semi-annual basis, for monitoring purposes only, each entity would prepare for i t s respective component an unaudited interim financial report (IFR) containing at least: (i) a statement o f sources and uses o f funds and cash balances (with expenditures classified by subcomponent); (ii) a statement o f budget execution per subcomponent (with expenditures classified by the major budgetary accounts); and (iii) a reconciliation o f the advance to the Designated Account. STP would be responsible for consolidating the information and submit the consolidated interim reports to the World Bank not later than 45 days after the end o f each semester.

16. On an annual basis, each o f the entity would prepare for its respective component project financial statements including cumulative figures, for the year and as o f the end o f that year, o f the financial statements cited in the previous paragraph. The financial statements would also include explanatory notes in accordance with the Cash Basis International Public Sector Accounting Standard (IPSAS), and the entity’s assertion that credit funds were used in accordance with the intended purposes as specified in the Loan Agreement. These financial statements, once audited, would be submitted to the World Bank no later than six months after the end o f the Government’s fiscal year (which equals the calendar year).

17. Working papers for the preparation o f the semi-annual and annual financial statements would be maintained in the Unit’s premises, and made easily accessible to World Bank supervision missions and to external auditors.

Flow o f Funds - Disbursement

FISDL

World Bank Disbursement Methods

18. by FISDL to withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment.

Considering the results o f the assessments, the following disbursement methods may be used

64

World Bank Designated Account

19. Under the advance method and to facilitate project implementation, FISDL would have access to a Designated Account (DA) in U S dollars which would be opened by the General Treasury Directorate (DGT) in the Central Reserve Bank (BCR) to be used exclusively for deposits and withdrawals o f loan proceeds for eligible expenditure. Funds deposited into the DA as advances would follow World Bank’s disbursement policies and procedures, as described in the Disbursement Letter and Disbursement Guidelines.

20. As needed, FISDL would send periodic requirements to the DGT for transfers from the Designated Account to the Project’s operational account maintained by FISDL in a commercial bank. FISDL would issue checks or make deposits to providers for eligible expenditures from this account. FISDL would also make transfers to municipalities to finance payments to participants from this account.

21. The ceiling for advances to be made into the FISDL DA would be US$4,000,000. The reporting period to document eligible expenditures paid out o f the DA i s expected to be on a quarterly basis.

22. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e.g. copies o f receipts, invoices) for payments for consultant services against contracts valued at US$50,000 or more for firms, and US$20,000 or more for individuals; for payments for goods against contracts valued at US$50,000 or more. For all other expenditures below these thresholds, supporting documentation for documenting project expenditures would be Statements o f Expenditures (SOEs). A customized SOE would be used for the benefits (cash transfers) to eligible participants (i.e., participants in the PAT1 program).

23. for up to one year after the final withdrawal from the credit account.

All consolidated SOEs documentation would be maintained for post-review and audit purposes

24. Direct Payments supporting documentation would consist o f records (e.g. : copies o f receipts, supplier/ contractors invoices). The minimum value for applications for direct payments and reimbursements wi l l be US$l ,000,000.

Payments o f Benefits

25. The Payment mechanism for cash transfers to participants i s in the process o f being fully defined by FISDL. A pilot with government funds would take place in September/October 2009, during which time an analysis o f the payment mechanism would be possible.

26. The payment mechanism for cash transfers i s detailed in the Project’s Operational Manual. In brief, i t i s expected that FISDL would contract a payment agent to deliver the payments to participants. According to a monthly payroll, FISDL would advance the amounts to an operating account opened by the contracted payment agent. The payment agent would be responsible for distributing cash transfers to participants either via the banking system or directly. Upon completion o f the payment process, the payment agent would present the supporting documentation to FISDL to

65

“clear” the advances. Only payments actually made to participants would be considered documented expenditures. Funds advanced that do not get paid would most likely be deducted from the next advance. During implementation, FISDL would be responsible for carrying out reconciliations between the payment information presented by the payment agent and the participant database. I t is important to note that FISDL has extensive experience working with cash transfers programs, as FISDL i s responsible for the implementation o f the Comunidades Solidarias Rurales formerly Red Solidaria) which distributes cash transfers to participants. Also, FISDL has in place a management information system which would form the basis for the system used in the proposed Project.

27. A critical action would be the contracting o f the payment agent, which would have to be happen and be made operational before disbursements on cash transfers can be initiated (Subcomponent 1.1).

World Bank Disbursement Methods

28. by STP to withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment.

Considering the results o f the assessments, the following disbursement methods may be used

World Bank Designated Account

29. Under the advance method and to facilitate project implementation, STP would have access to a Designated Account (DA) in US dollars which would be opened by the General Treasury Directorate (DGT) in the Central Reserve Bank (BCR) to be used exclusively for deposits and withdrawals of’loan proceeds for eligible expenditures. Funds deposited into the DA as advances would fol low the World Bank’s disbursement policies and procedures, as described in the Disbursement Letter and Disbursement Guidelines.

30. As needed, STP would send periodic requirements to the DGT for transfers from the Designated Account to the Project’s operational account maintained by STP in a commercial bank. STP would issue checks or make deposits to providers for eligible expenditures from this account.

31. period to document eligible expenditures paid out o f the DA i s expected to be on a quarterly basis.

The ceiling for advances to be made into the STP DA would be US$150,000. The reporting

32. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e.g. copies o f receipts, invoices) for payments for consultant services against contracts valued at US$50,000 or more for f irms, and US$20,000 or more for individuals; for payments for goods against contracts valued at US$50,000. For al l other expenditures below these thresholds, supporting documentation for documenting project expenditures would be Statements o f Expenditures (SOEs).

33. for up to one year after the final withdrawal from the credit account.

All consolidated SOEs documentation would be maintained for post-review and audit purposes

66

34. Direct Payments supporting documentation would consist o f records (e.g., copies o f receipts, supplier/ contractors invoices). The minimum value for applications for direct payments and reimbursements would be US$50,000.

Disbursement Deadline Date

35.

Retroactive Financing

36. incurred after November 15,2009, but no more than one year prior to signing.

Disbursement Schedule

Four months after the closing date specified in the Loan Agreement.

The World Bank would finance up to a maximum o f US$10,000,000 forel igible expenditures

Category

(1) PATI Grants and

Amount of the Loan

(expressed in Dollars)

Percentage of Expenditures to be

(inclusive of Taxes) Allocated financed

26,500,000 100%

67

(2) Goods, Non-Consultant Services, consultants’ services, Operating Costs, Training, and PATI Training under Part A o f the Project

(3) Goods, Non-Consultant Services, consultants’ services, Operating Costs, and Training under Part B of the Project

(4) Goods, Non-Consultant services, consultants’ services, Operating Costs, and Training under Part C o f the Project

(5) Front-end Fee (6) Unallocated

TOTAL AMOUNT

10,700,000 100%

10,200,000 100%

2,300,000 100%

125,000 175,000

50,000,000

Audit Arrangements

Audit Report 1) Project specific financial statements (including on the

Internal Audit

Due Date June 30

37. In the course o f i t s regular internal audit activities v i s - h i s the institutional budget, internal auditors from the implementing entities may include project activities in their annual work plans. If such audits occur, the implementing entity would provide the World Bank with copies o f internal audit reports covering project activities and financial transactions.

2) SOE

External Audit

June 30

38. Each implementing entity would prepare the annual project financial statements for i t s respective component, which would be audited following International Standards on Auditing (ISA), by an independent firm and in accordance with terms of reference (TORS), both acceptable to the World Bank. The audit opinion covering project financial statements would contain a reference to the eligibility o f expenditures. A single audit firm would be hired which would audit each component o f the Project and provide separate reports. Each individual report will be required to include a section on the state o f the internal control in each o f the implementing entities. Each entity would submit i t s corresponding report to the World Bank no later than six months after the end o f the fiscal year.

39. The audit work described above can be financed with loan proceeds. STP would arrange for the contracting o f the first external audit within six months after Loan Effectiveness. The first external audit contract would be expected to cover at least two years.

40. preparation, payment and clearance o f cash transfers to participants.

In addition to the annual financial audit, FISDL would contract an operational audit on the

41. World Bank FM Supervision Plan. A World Bank Financial Management (FM) Specialist may perform a supervision mission prior to effectiveness to verify the implementation o f FM arrangements. After effectiveness, the FM Specialist must review the annual audit reports, should review the financial sections o f the semi-annual IFRs, and should perform at least two supervision missions per year.

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Annex 8: Procurement Arrangements

EL SALVADOR: Income Support and Employability

A. General

1. Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the World Bank project team in the Procurement Plan. The Procurement Plan would be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. in the proposed Project.

Procurement of Works: N o works contracts are foreseen to be financed with Loan proceeds

3. Procurement of Goods: Goods procured under this Project would include I T equipment and furniture included for institutional strengthening o f the Social Investment Fund for Local Development (FISDL), the Ministry o f Labor (MTPS) and the Presidency’s Technical Secretariat (STP). Procurement o f goods would be done using World Bank’s SBD for al l ICB processes; procurement o f goods under NCB and Shopping procedures shall be done using SBD agreed with, or satisfactory, to the World Bank. Such SBD would be included as annexes in the Project’s Operational Manual.

4. Procurement o f Non-consulting services: Non-consulting services for the Project would include logistics for capacity-building events, printing o f training materials, media campaigns, and related services for institutional strengthening components. Procurement would be done using SBD and simplified formats agreed with, or satisfactory, to the World Bank for ICB or NCB and Shopping procedures, respectively. Said SBD and simplified formats would be part o f the Project’s Operational Manual.

5. Selection and employment o f consultant f i rms and individual consultants would be needed to: (i) provide technical support to Municipalities, MTPS and STP to help them achieve project objectives; (ii) design and develop instruments for data collection and reporting; (iii) design and develop relevant systems; (iv) generate analytical capacity to better use the available information and to draft policy regulation and briefs; and (v) provide training activities for participants on PAT1 programs, Municipalities staff and technical MTPS staff. Short l is ts o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Regardless o f the method used or the estimated cost o f the contracts, selection and contracting o f consultant f i r m s would be done using the World Bank’s Standard Request for Proposals (SRfP). Selection and contracting o f Individual Consultants would be done using a simplified request for curriculum vitae (CVs) and a contract model agreed with, or acceptable, to the

Selection of Consultants:

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World Bank. Such documents shall be part o f the Project’s Operational Manual. Training activities would be managed by the Instituto SalvadoreAo de Formacibn Profesional, INSAFORP- through institutional agreements with FISDL.

6. Operational Costs: Operating costs refer to the incremental expenses incurred on account o f Project implementation, including office ,equipment and supplies, vehicle operation and maintenance, communication and insurance costs, office administration costs, utilities, travel, per diem, and supervision costs o f locally contracted employees. All these activities would be procured using the implementation agencies’ administrative procedures, which were reviewed and found acceptable to the World Bank.

7. Others: Conditional cash transfers to finance the Temporary Income Support Program (PATI) under Subcomponent 1.1 o f the Project would fol low the conditions set on the related Operational Manual, and World Bank’s procurement procedures do not apply.

B. Assessment o f the agency’s capacity to implement procurement

8. Procurement activities for components 1 and 2 o f the proposed Project would be carried out by FISDL and by STP for Component 3. In both cases, the procurement function for the Project would be integrated within the respective procurement uni ts of the aforementioned institutions.

9. Full assessments o f the capacity o f the Procurement Institutional Units o f FISDL and STP to implement procurement action for the Project have been carried out by Alvaro Larrea on August 2009.

10. FISDL: (i) has previous experience using World Bank’s procurement guidelines, procedures and standard documents; (ii) has developed integrated systems that link effectively the planning, procurement and financial functions; (iii) has an Institutional Procurement and Contracting Unit (UACI) that i s staffed with one manager and seven well qualified procurement specialists, who have vast previous experience applying World Bank’s Guidelines; (iv) has developed manuals, guidelines and related instruments to manage the procurement function in an adequate manner; and (v) makes a customarily and adequate use o f Procurement Plans. FISDL would exercise i t s procurement responsibility for Subcomponent 1.1 in a decentralized fashion through Municipalities, although, i t would remain fully in charged with the fiduciary responsibility, and FISDL’s Municipal Advisors would have to accompany and approve every single procurement process carried out at the Municipal level. Procurement for the rest o f Component 1 and for Component 2 would be carried out at FISDL central level, and in the case o f Component 2, FISDL would have to closely coordinate activities with MTPS.

11, STP: (i) has previous experience using World Bank’s procurement guidelines, procedures and standard documents; (ii) has an Institutional Procurement and Contracting Unit (UACI) that is staffed with one manager and two well experienced procurement specialists, who have large previous experience using World Bank’s Guidelines; (iii) has developed manuals, guidelines and related instruments to manage the procurement function in an adequate manner; and (iv) makes a customarily and adequate us o f Procurement Plans, STP would be responsible to carry out the procurement function for Component 3 o f the proposed Project, which would mostly comprise selecting and contracting consulting firms and individual consultants.

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12. In both institutions, most o f the staff, including procurement staff, i s working under contracts that expire on December 31, 2009. Given the recent change o f the governing political party in El Salvador, said situation i s foreseen as a potential risk. In case that a substantial change o f staff occurs in any o f the procurement units, the World Bank shall reassess the capacity and propose an action plan according to the new circumstances.

13. A dedicated procurement section i s part o f the Project’s Operational Manual. This section shall include general procurement procedures, as well as detailed procedures for every method for the procurement o f goods, and for the selection and employment o f consultants. Acceptable SBD and simplified formats for: (i) the procurement o f goods and non-consulting services using NCB and Shopping procedures; and (ii) for the selection and employment o f individual consultants; and a formal guideline for record-keeping and filing, should be included as Annexes o f the aforementioned Manual.

14. It was agreed with both institutions that the World Bank’s Procurement Plan Execution System (SEPA) should be implemented for the proposed Project. The World Bank would organize and carry out Procurement and SEPA workshops to strengthen both agencies’ procurement staff capacity in specialized issues (procurement o f goods and non-consulting services, selection and employment o f . consulting f i rms and individual consultants and SEPA).

15. procurement staff o f any o f the executing agencies shall trigger a risk reassessment.

The overall project risk for procurement i s Moderate but, as stated before, any change on the

C. Procurement Plan

16. Both implementing agencies have developed a detailed Procurement Plans for the first 18 months for each o f the Project components’ implementation; said Plans would provide the basis for the use o f different procurement methods, and for the World Bank’s review process. These plans have to be agreed between the Borrower and the Project Team before negotiation o f the Loan’s Legal Agreement. As soon as the Project i s declared effective, both Procurement Plans would be available at the SEPA’s portal; the Plans would also be available in the Project’s database and on the World Bank’s external website. The Procurement Plans would be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. All Specific Procurement Notices and Requests for Expressions o f Interest shall be published in COMPRASAL, system which i s recognized as the “electronic portal with free access” referred at the World Bank’s Procurement and Consultants Guidelines.

D. Frequency o f Procurement Supervision

17. In addition to the prior review supervision to be carried out from World Bank offices, the capacity assessment o f the Implementing Agencies has recommended annual supervision missions to visit the field to carry out post-review o f procurement actions. One out o f every 10 contracts should be post-reviewed when applicable.

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E. Details o f the Procurement Arrangements Involving International Competition

Estimated Value Contract Threshold Goods and Non-consulting Services: >=US$250,000

18. World Bank prior review are given in Table A8.1,

Thresholds for the use the different procurement methods and recommended thresholds for

Procurement Method

ICB

World Bank Prior Review

Individual Consultants: Any Estimated Cost >=US$50,000

<US$250,000 and >= US$25,000 <US$25,000 Any estimated Cost ConsultinP Firms: Any Estimated Cost >=us$200,000

CQS

ss IC

NCB Shopping Direct Contracting

ss QCBS, QBS, FBS, LCS, CQS QCBS, QBS, FBS, LCS,

All First Two First Two

All All

First for each method

All All First Two, others agreed in the PP <US$50,000 1 IC

ICB = International Competitive Bidding. NCB = National Competitive Bidding. SS = Sole Source. QCS = Quality-Based Selection LCS = Least-Cost Selection IC = Individual Consultant. Qualifications

QCBS = Quality- and Cost-Based Selection FBS = Selection under Fixed Budget CQS = Selection Based on the Consultant’s

19. The Procurement plan would define the contracts that are subject to World Bank prior review based on the recommended thresholds given in Table A8.1. Such recommended thresholds could be revised at every update o f the Procurement Plan.

20. procedures:

The following i s the l is t o f contract packages identified to date to be procured following ICB

72

21. short-lists composed o f international f i rms:

The following i s the list of Consultant services identified to date that would be selected with

Review by World Bank (Prior / Post)

Prior

Ref. No.

Expected Proposals Submission Date

Mar 201 1 1 Evaluation o f the Education National System Design o f a Mechanism for Seed Capital Distribution Assistance to SPSU o f STP Program’s Impact Evaluation

2

200,000

1,500,000

250,000 900,000

3

QCBS

4

Prior Sep 20 10

Description of Assignment

QCBS QCBS

Estimated Cost(US$)

Prior Apr 2010 Prior Apr 2010

Selection Method

QCBS

22. Short-lists composed entirely of national consultants: Short lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

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Annex 9: Economic and Financial Analysis

EL SALVADOR: Income Support and Employability

1. This Annex presents the Project’s economic and financial analysis. It is organized in three parts. The first section presents an analysis o f the estimated impact o f the Component 1 on poverty and inequality. In the second section the potential effect o f the training and community activities i s presented. Later on, the cost-benefit analysis shows the feasibility o f the Project. Finally, this annex concludes with a brief description o f the fiscal sustainability.

2. Within the Component 1, the Project would finance income transfers under the PATI to selected participants in return for their participation in community projects and training activities. Targeting o f PATI activities i s based on a recently developed urban poverty map (UNDP, 2009) and additional adjustments made by the STP. The poverty map has identified 43 municipalities, covering 56.4 percent o f the country’s total urban population, that include the 548 most precarious communities. The P A T I program would target these communities and i s expected to reach about 40,000 participants within a two year period.

3. Two outcomes are expected from this intervention: an income effect and increased employability o f participants. Nevertheless, there are several limitations to measure the potential economic impact o f those effects. The following paragraphs present the economic analysis:

4. Regarding components 2 and 3, at least at this stage, it is difficult to estimate their potential impact. Strengthening labor market information, intermediation and training systems, while supporting the design and development o f the SPSU, would lead to several positive outcomes described above. However, those results cannot be estimated in advance.

Income effect

5. The Temporary Income Support Program aims to provide a temporary income transfer to targeted individuals in exchange for their participation in community activities and in training programs. One o f the main objectives i s that the US$lOO monthly income transfer would mitigate the impact o f the economic slowdown on the targeted population.

6. This section presents the analysis of the potential impact of the Program in poverty and inequality outcomes. These effects can be modeled on the basis o f the household survey Encuestu de Hogures de Prophitos Mziltiples (2008). The estimation uses the survey’s data, to select the eligible participants. Second, the income effects are modeled by simulating the poverty rate before and after those established participants receive the benefit. This kind o f analysis has obvious limitations.

7. According to those calculations, urban poverty headcount would fall five percent due to the income transfer. However, this indicator does not completely show the poverty effects, because some participants would s t i l l be below the poverty line, although they would be less poor. Thus, the effects on poverty are measured using the change in the Foster-Greer-Thorbecke (FGT) indices before and after the transfer. The FGT (0) is the poverty headcount, the FGT (1) measures the poverty gap (how far below on average the poor are from the poverty threshold), and the FGT (2) i s a severity index that is sensitive to the distribution among the poor as more weight i s given to the poorest below the poverty threshold. The simulation shows that the FGT (1) would fal l by eight percent while the FGT (2) would decline by 11 percent.

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Figure A9.1. Before and after transfer urban Der caDita income and FGT

/ 0 50 ICQ 150 Mo 2 jo

incornecao

/ - Pre-tranderfocorne - Pod-transfer income

40 0

35 0

30 0

25 0

20 0

15 0

10 0

5 0

0 0 FGT (0) FGT(1) FGT (2)

Source: Own estimations using Encuesta de Hogares de Propdsitos Mdtiples 2008.

8. Inequality would also be reduced due to this intervention. After the simulated transfer, the urban Gini coefficient fel l 1.7 percent. Furthermore, as youth and female headed households would have priority when selecting the participants, inequality between these groups and the rest i s also likely to decrease.

Employability effect

9. Another main goal o f the Project i s to increase participants’ employability. The targeted population would participate in training programs and participate in community activities that would enhance their sk i l l s and, therefore, their chances o f being employed. Measuring future returns o f training i s not easy. However, using the Encuesta de Hogares de Propdsitos Multiples those effects can be simulated.

10. Expected direct benefits consist o f increased earnings and enhanced employability because training can address skill-mismatches between job offer and demand. Training and community activities would also generate important private and public benefits: (i) reduce labor underutilization; (ii) reduce costs related to crime; (iii) accelerate poverty reduction and enhance equity; and (iv) benefit the community with the activities o f the selected PAT1 activities. However, this analysis considers only benefits derived f i om increased earning capacity and employability taking into account regional experiences which show that training and labor market insertion programs generally have a positive impact on these variables. Following similar analysis done in other countries, it is assumed that participants would have a permanent income premium o f five percent and their probability o f being employed would be increased by six percent during four years after the training.

11. The simulation consists basically in measuring the participant’s future earnings in two scenarios. In the f i rs t one, the counterfactual, targeted population has no sk i l ls improvement. This scenario i s mainly established to estimate future earnings without skills improvement. In relation to the second one, future incomes o f the potential participants are estimated. As stated before, a permanent income premium o f five percent and an increase o f the probability o f being employed are considered. The results show that future earnings o f participants would be higher than those o f non-participants. This difference would be even more pronounced four years after the training. Below, in the cost- benefit analysis section, the social benefits are presented.

75

Figure A9.2. Future Incomes (density and by age)

0 500 1 wo 1500 2ow

[---Future mome of non-parkipanis -Future income d partwarns 1 income

Source: Own estimations using Encuesta de Hogares de

Project costs

Cost-benefit analysis

12. Table A9.1 summarizes th

0 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R M X W R 4 W a 1 4 5 7 f 5 3 P M a I I ~ ~ ~

-Fulure incomesol non-panidpants -Future lneomeaof parhapanla

rop6sitos Mtiltiples, 2008.

Project’s m de an asurable benefits and costs. Benefits inch estimation o f participant’s future income growth, due to the increase in both employability (higher chances o f being hired) and earnings (better salaries). The cash transfers that participants would receive and that would help them to cope with the effects o f the crisis are also considered. In relation to the costs, the total cost o f implementing Component 1 i s estimated at US$40 million.

13. These flows result in 10 percent IRR o f the project, which i s the standard discount rate used in these kinds o f projects. Benefits are calculated until the year 2033, even when they might be longer- lasting for some participants (i-e., 20 years old participants would be 41 years old in 2030, and would enjoy the employability improvement for a longer period than the one calculated). Finally, the Project has estimated o f US$41,582,000 net social revenue.

76

Table A9.1. Project Costs, Benefits and Internal Rate o f Return (US% Thousands)

Benefits A Project Revenue Social

Social

(A-B) Transfers costs (B) t - t i benefits Period

20 10-20 12 - 16,000 0 24,000 40,000 201 3-201 5 24,371 24,37 1 0 0 201 6-20 18 12,43 1 12,43 1 0 0 20 19-202 1 6,794 6,794 0 0 2022-2024 5,105 5,105 0 0 2025-2027 3,835 3,835 0 0 2028-2030 2,881 2,881 0 0 203 1-2033 2,165 2,165 0 0 Total 41,582 57,582 24,000 40,000

Financial and Fiscal analysis

14. The economic performance o f the country has been significantly affected by the global crisis. As a result, since the beginning o f the current year the fiscal situation has deteriorated. Fiscal revenues during the first half o f 2009 have declined by almost 10 percent compared with the same period o f the previous year. It i s expected that the Non-Financial Public Sector deficit for 2009 would reach levels similar to the ones reported at the beginning o f the decade (around five percent o f GDP). Despite parallel efforts by the Government to generate fiscal savings driven by the targeting o f public subsidies, a tax reform proposal, and i t s austerity plan, it i s expected that this situation could remain until 2011 especially given the high estimated costs o f the Government anti-crisis plan (around US$572 million).

15. During recent years total public debt has shown a stable trend, declining from levels o f 42 percent o f GDP in 2003 to 38 percent in 2007. However, due to the global crisis, in 2008 it increased to 39 percent and given the financial needs o f the Government it i s expected that public debt would reach 45 percent o f GDP in 2009. On the other hand, it i s expected that between 2010 and 2014 service payments for the Non-Financial Public Sector debt would reach at least US$750 mill ion per year. In addition, by 201 1 El Salvador would need to refinance the US$650 million Eurobond which i s due in 201 1.

16. Despite the slowdown o f the economy, the country has solid economic fundamentals that would allow the Government to face this period until recovery starts. Given the Government priority to implement the Project, it i s expected that the GOES would ensure enough counterpart resources to cover i ts obligations during the implementation o f the Project. The first Component o f the Project represents more than 60 percent o f the total Loan amount and i s expected to be implemented in two years with an estimated counterpart amount o f US$2.7 million.

77

Annex 10: Safeguard Policy Issues EL SALVADOR: Income Support and Employability

Introduction

1. The following Annex summarizes the main issues pertaining to environmental concerns under the Project. I t includes a description o f the likely risks o f the Project; the safeguards policies which apply to the Project; the main actions already implemented by the executing agencies to mitigate and/or eliminate the risk; and how the Project would contribute to ensure environmental guarantees.

Environmental Risk Associated with the Project

2. Under Component 1 o f the Project, small community activities listed on the positive l i s t o f eligible P A T I activities (See Annex 4) would be supported under the Project. Due to the very small scale nature o f these interventions, the Project i s not expected to present significant environmental impacts or implications. Small scale community infrastructure would be financed by the Project but these would not be o f a nature or scale which would require stand alone environmental impact assessments. Typical investments under this Component would include construction o f sidewalks, neighborhood solid waste collection, tree planting, rehabilitation o f community centers, etc. Many o f the eligible P A T I activities would have local environmental benefits and should contribute to improving the livability and quality o f l i f e in local neighborhoods.

3. To the extent that there would be any adverse environmental impacts they would be those normally associated with small community works such as: management o f construction site waste, noise control, handling o f construction materials and access to construction sites. The guiding principle o f the Project i s to incorporate environmental criteria into the community subproject selection and decision process, primarily through the use o f positive eligibility lists as well as through, simple screening used during the subproject selection process itself. In addition, any construction contracts would include appropriate requirements for contractors to manage construction activities. For the purposes o f the environmental risk category, this Project i s a considered to be a Category B project . Applicable Safeguards Policies

4. “Environmental Assessment” (OPBP 4.01).

The Wor ld ’ Bank Safeguard policy applicable to this Project i s the one dealing with

5. None o f the P A T I activities would require land acquisition or involuntary physical resettlement o f individuals, fami l ies or businesses. Subproject eligibility criteria would exclude any P A T I activities which affect natural habitats, forests, or projects involving the use o f pesticides or other agricultural chemicals.

78

Environmental Analysis Prepared for the Project,

6. Specific environmental studies have not been carried out at this time since site-specific investments in community infrastructure has not yet been identified. As previously mentioned, only P A T I activities types listed on a positive l i s t o f eligible P A T I activities would be supported under the Project. The final eligibility l i s t would be confirmed with the counterparts and would be reflected in the final Operational Manual for the PATI, part o f the Project’s Operational Manual with more specific description o f the Project objectives, types o f community project to be financed, review procedures and justification for the Project rating). As part o f the Operational Manual a br ief Environmental Management Framework (EMF) would describe the agreed procedures for review and evaluation o f proposed P A T I activities and how these would be incorporated into the overall subproject planning procedure.

7. Given that none o f the activities supported by the Project are expected to lead to any significant adverse environmental impacts, there are no safeguards-related r isks which would require systematic consideration o f alternatives to minimize adverse safeguards-related impacts. N o r i s there a need for additional consultations with, and participation of, various affected groups and other stakeholders o n the environmental implications o f this Project. Nevertheless, it i s expected that as part o f FISDL project cycle, environmental considerations would be fully embedded within the subproject screening process. Each subproject proposal would be screened against a simple checklist to ensure that no adverse impacts environmental are associated with any proposed subproject.

8. The mitigation plan(s) to avoid, minimize and mitigate the potential adverse impacts o f the Project are simple and straight forward. While many o f the eligible P A T I activities would have direct, local environmental benefits, any subproject involving some construction (e.g., sidewalks) i s expected to have a minor impact. Nonetheless, such P A T I activities would need to ensure general construction site cleanliness and appropriate disposal o f waste materials, as part o f any community activity proposal prepared by the Municipality.

9. N o PATI activities which adversely affect natural habitats would be eligible for financing nor would activities which require the use o f pesticides or pest management and control. Other PATI activities might require simple environmental agreements. For example, P A T I activities related to garbage collection would need to provide assurances that trash removed would be disposed in appropriate, approved locations. Basic sanitation services would to be designed in accordance with appropriate technical guidelines. Tree planting or reforestation works would need to be reviewed by technically competent specialists to ensure appropriate choice o f species, planting technique or landscape design. FISDL would carry out these reviews as part o f the subproject appraisal process.

79

Institutional Capacity

10. An assessment o f the capacity and commitment o f the institutions responsible for implementing and monitoring the agreed plans has been carried out during project preparation. FISDL, as the executing agency responsible for the implementation o f the PATI and for entering into agreements with municipalities, has ample experience in the implementation o f P A T I activities, including infrastructure projects. In addition, FISDL and the STP are fully committed to ensure environmental safeguards.

1 1. None o f the eligible expenditures would require environmental assessment under national or local regulations and as a result no stand-alone environmental analysis would be carried out by local authorities for individual P A T I activities,

12. References to the mitigation plans in the Project legal agreement, including appropriate covenants and conditionality. FISDL already incorporates the capacity to assess potentially adverse environmental impacts and has strengthened the Operational Manual o f the P A T I and its standard contract agreements with the municipalities with: (i) a positive list o f eligible projects that can be funded under the PATI, complemented with a negative l i s t o f activities ineligible for financing; (ii) infrastructure contracts that incorporate a set o f responsibilities by service providers @e., infrastructure and construction) with regards to any potentially adverse environmental risk (e.g., noise mitigation, disposal o f materials, site cleanliness); and (iii) payment o f contracts conditional on carrying out steps to mitigate to acceptable levels or eliminate potential environmental risks, as stipulated in the contracts. In addition, where P A T I activities with potential environmental risks exist, FISDL would consult with the participant communities and integrate it into the decision-making process through an open and transparent process.

Monitoring and Supervision Arrangements

13. Mechanisms to monitor the implementation o f the agreed plans and arrangements, including staffing and resources, for supervising the implementation o f the agreed plans would be included as part o f the Project implementation plan, The World Bank would ensure that the selection process o f PATI activities, the Operational Manuals for the P A T I and the Project and that FISDL standard contracts be integrated into FISDL’s standard modus operandi with provisions that guarantee environmental risks are either avoided, mitigated to acceptable levels, and/or eliminated altogether.

14. As part o f project supervision, i t i s expected that a sample o f approved P A T I activities would be reviewed annually to ensure that P A T I activities are not leading to any unexpected adverse impacts. Adjustments to eligibility and review criteria would be made on the basis o f such reviews. In the event that any P A T I activities require specific environmental measures, FISDL would arrange for periodic supervision o f any contractual obligations or other commitments such as ensuring appropriate trash disposal.

80

Annex 11: Project Preparation and Supervision

EL SALVADOR: Income Support and Employability

Planned Actual PCN review 08/06/2009 08/06/2009 Initial PID to PIC 09/30/2009 09/30/2009 Initial ISDS to PIC 09/30/2009 09/30/2009 Appraisal 10/15/2009 10/14/2009 Negotiations 10/19/2009 10/19/2009 Board/RVP approval 11/24/2009 11/24/2009 Planned date o f effectiveness 02/15/2010 Planned date o f mid-tern review 03 /O 1 /20 1 2 Planned closing date 12/3 1/20 14

Key institutions responsible for preparation o f the Project: STP, FISDL, MSTP, INSAFORP

World Bank staff and consultants who worked on the Project included:

Name Title Unit Edmundo Murrugarra Task Team Leader LCSHS Lerick Kebeck Maria Concepcion Steta Jorge Barrientos Barbara Hemetsberger Alvaro Larrea Fabienne Mroczka Alejandro Yepes Sarah Berger Laura Sanchez Puerta Nurys Matos-Smith Rodolfo Beazley Alejandro Alcala Jimena Garrote Jania Ibarra Alejandro Cedeno Monica Lehnhoff Albert0 Leyton Glenn Morgan Alonso Zarzar Michael Drabble Patricia de La Fuente Hoyes Hideki Mor i Diego Angel-Urdinola Cem Mete T i n a Haaue

Sr. Program Assistant Sr. Social Protection Advisor Consultant Jr. Professional Officer Procurement Specialist Financial Mgt. Analyst Program Officer ET Consultant Labor Market Economist Team 'Assistant Jr. Professional Associate Sr. Counsel ET Consultant ET Consultant Sr. Communications Officer Procurement Analyst Representative Lead Environmental Specialist Sr. Social Scientist Sr. Education Specialist Sr. Finance Officer Program Manager - Peer Reviewer Economist-Peer Reviewer Sr. Economist-Peer Reviewer Lead Economist-Peer Reviewer

LCSHS LCSHS LCSHS LCSHS LCSPT LCSFM LCSHD LCSHS HDNSP LCSHS LCSHS LEGLA LEGLA LCSPS LCREA LCSPT LCCSV LCSEN LCSSO LCSHE CTRFC HRSYP ECSH4 SASSP

MNSHH

81

World Bank funds expended to date on project preparation: 1. World Bank resources: US$208,466 2. Trust funds: d a 3. Total: US$208,466

Estimated Approval and Supervision costs: Remaining costs to approval: US$30,000 Estimated annual supervision cost: US$l 00,000

82

Annex 12: Documents in the Project File EL SALVADOR: Income Support and Employability

Brauw, A., and E. Murmgarra (2009). How CCTs Help Sustain Human Capital During Crises? Evidence f iom Red Solidaria in E l Salvador During the Food Price Crisis. Paper presented at the World Bank.Economists’ Forum April 27th, 2009. Mimeo.

Economia - Direcci6n General de Estadistica y Censos. Available at: http://www.digestyc.gob.sv/BoletinIPC/IPCAGOST02009.pdf.

DIGESTYC, 2009. hdice de Precios a1 Consumidor de E l Salvador. Agosto 2009. Ministerio de

FISDL, 2004, Manual de Procedimientos y Prdcticas Financieras del FISDL. San Salvador: FISDL. FISDL, Guia de Transferencia y Administracidn de Fondos. San Salvador: FISDL. FLACSO/Censo MINECAJNDP, 2009. Mapa de Pobreza y Exclusidn Social Urbana en E l Salvador.

San Salvador. GoES (2009a) Decretos N o 1 , 4, 5. June 1 , 2009. In Diario Oficial. Decreto No. 1. - Reformas a1

Reglamento Interno del Organo Ejecutivo. Decreto No. 4.- Cre‘ase e l Gabinete de Gestidn Social. Decreto No. 5.- Cre‘ase e l Gabinete de Gestidn Econbmica.

GoES (2009b) “Certificacih Punto del ComitC Intersectorial del SPSU” that approves the PAT1 and delegates to the STP further changes to the Operational Guide (September 17,2009).

IFPRI-FUSADES, 2009. Evaluacion de Impact0 Externa de la Red Solidaria. Informe de Impactos a1 afio de Implementacidn. January 27,2009.

Ley de Formacion Profesional, 1993. Decreto No. 554, July 29, 1993, Ministerio de Trabajo y Prevision Social de El Salvador, 2008. Decretos N o 134, 135, 136. December

Ministerio de Trabajo y Prevision Social de El Salvador, 2009. Fortalecimiento del Sistema de

STP, Manual de Operaciones Administrativas, Financieras y de Control Interno. San Salvador: STP. World Bank, 2009a. Income, Vulnerabilities and Poverty in El Salvador. Social Protection Policy

Note. Washington, D.C. World Bank, 2009b. Youth Employability and Economic Opportunities in El Salvador, Social

Protection Policy Note. Washington, D.C. World Bank, 2009c. Country Partnership Strategy for the Republic of El Salvador. Report No. 50642-

SV.Centra1 America Country Management Unit. Latin America and Caribbean Region. Washington, D.C.

World Bank, 2009d. Fiscal Management and Public Sector Performance Technical Assistance Loan. Project Appraisal Document. Report No. 50869-SV. Central America Country Management Unit. Latin America and Caribbean Region. The World Bank. Washington, D.C.

World Bank, 2009e. Sustaining Social Gains for Economic Recovery. Project Appraisal Document. Report No. 50382-SV. The World Bank Group. Washington, D.C.

World Development Report, 2007. The World Bank Group. Washington, D.C.

22,2008. In Diario Oficial.241 Tom0 281.

Intermediacidn, Estadistica y Formacion Laboral.

83

Annex 13: Statement of Loans and Credits

EL SALVADOR: Income Support and Employability

~~

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project FY Purpose IBRD IDA SF GEF Cancel Undisb. Orig. Fflll. 1D Rev'd

PO92202 2006 SV GEF Land Admin and 0.00 0.00 0.00 5.00 0.00 3.8 3.4 1.8

PO64919 2003 SV JUDICIAL 18.20 0.00 0.00 0.00 0.60 5.1 5.1 5.1 Protected Areas

MODERNIZATION PROJECT

EMERGENCY REC. & HEALTH SER

Sector DPL

PO67986 2002 SV-EARTQUAKE 142.60 0.00 0.00 0.00 0.00 22.0 22.0 22.0

PO67986 2009 SV Public Finance and Social 450.0 0.00 0.00 0.00 0.00 248.9

Total: 610.80 0.00 0.00 5.00 0.00 279.80 30.50 28.90

EL SALVADOR STATEMENT OF IFC's

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed and Disbursed Outstanding investment Portfolio As of 9/30/2009

(in USD Millions)

Committed Disbursed Outstanding

Partici - FY - Loan E 'GTIRM 9 - Loan E 'GTIRM 3 Commitment ComDanl

2005 AAH 30.0 0.0 0.0 0.0 0.0 8.2 0.0 0.0 0.0 0.0 2004/09 Banco Agricola 29.4 0.0 0.0 5.0 0.0 29.4 0.0 0.0 5.0 0.0 2002 CAESSlEEO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2003/04/09 CALPiA 5.0 0.0 3.7 0.0 0.0 0.0 0.0 3.7 0.0 0.0 2004/05 La Hipotecaria 20.0 0.0 0.0 0.0 0.0 20.0 0.0 0.0 0.0 0.0 2004 Metrocentro 17.2 0.0 0.0 0.0 0.0 17.2 0.0 0.0 0.0 0.0

Total Portfolio: 101.6 0.00 3.7 5.0 0.0 74.8 0.0 3.7 5.0 0.0

Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.

84

Annex 14: Country at a Glance

EL SALVADOR: Income Support and Employability

El Salvador a t a glance 9124108

Key Development l nd l ca to r r

72007)

Population, mid-year (millions) Su!facearaa(thousandsq. km) Population growth(%) Urban population (%of total population)

GNI (Atlas method, US$ billions) GNI percepila (Atlas method, Us$) GNIpercapite (PPP,intemational$)

GDP growth (%) GDP parcapita growth (%)

(mos t racenf est imate, 2000-2007)

Poverty headcount ratio at $125 a day (PPP, Yo) Poverty headcount ratio at $2.00 a day(PPP, %) Life eqectancy at birth (years) Infant mortality (par 1000 live births) Chiid malnutrition (%of children under 5)

Adult literacy, mala (%of ages 15 and older) Adult literacy,female (%of ages 15 and older) Gross primaryenrolimenl,male(%of agegroup) Gross primary enrollment. female (%of age group)

Access l o animprovedwatersource(%of population) Access l o improved sanitation facilities (%of population)

El Salvador

8.9 21 13 60

13.5 2.850 4,840

4.7 3.3

72 22 6

82 79 t6 m

84 e8

Latin America a Carib.

563 20,421

12 78

3.16 5,540 9,320

5.7 4.5

8 6

73 22

5

91 89 0 0 16

81 78

Lower middle

income

3,437 35.50

to 42

6.485 1887

4,544

9.7 8.6

69 41 25

93 85 10 0 9

88 54

Net A l d F l o w .

(US$ millions) Nat ODA and official aid Top 3 donors (in 2006):

Spain Japan United States

Aid(%of GNI) Aid per capita (US$)

Long-Term Economlc Trends

Consumer prices (annual %change) GDP implicit deflator (annual %change)

Exchange rate (annual average, local par US$) Terms of trade index (2000 = 00)

Population. mid-year (millions) GDP (US$ millions)

Agriculture Industry

Services

Household final consumption evenditure General gov't final consumption expenditure Gross capital formation

Eqor ts of goods and services Imports of goods and services Gross savings

Manufacturing

1980

96

0 43

2.8 21

17.4 7 . 0

10

4.6 3,574

718 14.0 0 . 3

342 332 12.3

1990

347

3 8

247

7 4 88

24.0 4.7

10 MI

5.1 4.801

2000

8 0

22 67 37

14 29

2.3 3.2

10 w

6.2 0.04

(%of GDP) 7.4 0 5

272 316 22.1 24.7 55.3 57.9

88.9 87.9 9.9 0.2

0.9 6 . 9

8 .6 27.4 312 42.4 6.3 0 . 7

2007 '

157

44 30 25

0.9 23

4.9 4.0

to 90

6.9 20,215

D.7 29.0 22.1 80.3

93.4 11 1

6.2

26.3 47.0 n 4

Age dlrtr lbutlon, 2007

75-70

8064

45dQ

3044

15-10

0 4

15 10 5 0 5 10 15

p e r 4

Under-6 mortallty rate(per 1,000)

1

1090 1005 2000 2008

.El Salvador .Lab" Amensa 8 me C m b h a n

Growth of GDP and GDP per caplta (YO)

d -c W P - ODP per c.p,t.

1980-90 1990-2000 2000-07 (average annualgmwih 964

t l 19 14 4.8 2.7 0.2

-1 1 0.2 4.1 0.7

12 2 7 5 1 2 3 5 2 2 4 4 0 2 9

0.8 5.3 3.3 0.1 2.8 17 2.2 7.1 2.5

3 .4 0 . 4 4.9 0.4 116 4.9

Note Figures in italics are for years otherthan those speciflad 2007data are preliminary indicates data are not available a Aiddataarefor2WX

Development Economics. Development Data Gro_up (DECDGL- - . - 85'

El Salvador

Balance o f Payments and Trade

(US$ millions) Total merchandiseexports (fob) Total merchandise imports (cif) Net trade in goods and services

Wrkers' remittances and compensation of employees (receipts)

Current account balance as a %of GDP

Reserves, including gold

Central Government Flnance

(%ofGDPj Current revenue (including grants)

Cunent evnditure

Overall surplusldeficit

Highest marginal taxrate(%)

Taxrevenue

individual Corporate

External D e b t and Resource F l o w

(US$ millions) Totaldebt outstanding and disbursed Total debt service Debt relief(HIPC,MDRI)

Totaldebt (%of GDP) Totaldebt service(%of exports)

Foreign direct investment (net inflow) Portfolio equity(net inflow)

2000

2,963 4,947 -1975

1765

429 -3.3

2,033

12.1 0.2 118

-2.3

30 25

4,467 369 - 34.0 6.8

7 3 0

2007

3,722 7.890 4 7 7

3,695

-863 4 .8

2,097

*.4 0.3 #. 1

-2.3

25

9,D6 I a3 - 49.0 a. 7

204 0

Composltion oftotal external debt, 2006

P r i v a t e S e c t o r Development 2000 2008

Time required to start a business (days) - n Cost to start a business (%of G ~ ~ p e r c a p i t a ) - 496 Time required to register property(daysJ - 31

Ranked as a major constraint to business 2000 2 0 0 7

Cnme 49 0 44 5

(%of managers surveyed Hhlo agreed)

Anticompetitive or informal practices

Stock market capitalization (%of GDP) 155 334 Bank capital to asset ratio (%) 8 8 n 6

Governance indicators, 2000 and 2007

Technology and Infrastructure 2000 2007

Paved roads (%of total) Fixed line and mobile phone

High technoiogyexports subscribers (per I000 people)

(%of manufactured exports)

B.8

22 0 5

6.0 2.8

E n v l r o n m i n t

Agricultural land (%of land area) 81 82 Forest area (%of land area) 15.6 M.4 Nationally protected ereas (%of land area) .. 19

Freshwater resources per capita (cu. meters) .. 2,669 Freshwaterlhithdrawal (%of Internal resources) 7.2

C02 emissions per capita (mt)

GDP perunit ofenergyuse

0.93 0.94

(2005 P P P S per kg of oil equivalent) 6.5 6.4

Energyuse per capita (kg of oil equivalent) 658 694

,World B a n k Group portfgll

(USS millions)

IBRD Total debt outstanding and disbursed 309 401 Disbursements 34 35 Pnncipal repayments n 51

24 24 Interest payments

ID A Total debt Outstanding and disbursed 6 Q Disbursements 0 0 Total debt servlce 1 1

IFC (fiscalparJ Total disbursed and outstanding partfolio 73 m

of Hhlich IFC o w account 45 m Disbursements for IFC ow account t? 23 Portfolio sales, prepayments and

repayments for IFC ow account 4 30

M G A Gross exposure 0 5

Note: Figures initalics arefor years otherthan thosaspecified. 2007 dataareprelimlnary ..indicates data are not available. -indicates observation is not applicable.

9/24/08

86

Millennium DeveloDment Goals El Salvador

Education Indicators (%)

with selected targets to achieve between 1990 and 2015 (esfirnafe closesf l o dafe shown, 6/- 2yearsj E l Sa lvad

Measles lmmunlzatlon (% of 1-yaar olds)

G o a l 1: halve the rates f o r oxtreme poverty and malnutr i t ion Poverty headcount ratio at 8125 a day (PPP, %of population) Poverty headcount ralio at nationalpoverly line (%of population) Shareof incomeorconsumption to thepoorest qunitile (%) Prevalence of malnutrition (%of children under5)

1990

2.4 nr

G o a l 2: ensura that children are able to complete primary school ing Primary scho 01 enro Ilm ent (net, %) Primarycompletionrate (%of relevant age group)

Youth literacyrate(%of paopleages 15-24) 85

75

Secondaryschool enrollment (gross, %) 25 58

G o a l 3: ellmlnate gender dlsparlty In educat ion and empower women Ratio of pirls to boys in primaryand secondaryeducation (%) UlDmen employed in the nonagncultural sector (%of nonagricultural employment) Proportionof seats held byvmmen innational parliament (%)

u 2 32 a

Goal 4: reduce u n d e r 4 mortal i ty by two-thirds Under-5 mortalityrate (per 1000) Infant mortalityrate (per 1000 live births) Measles immuniration(proportionof one-yearolds immunized %)

G o a l 6: raduce meternal mortal i ty by three-fourths Maternal mortalityratio (modeled estimate, per 00,000 live births) Births attended by skilled healthstaff (%of total) Conlraceptive prevalence (%of vmmen ages 15-49)

60 47 98

52 47

G o a l 8: halt and begin t o rovers). tho spread o f H lV lA lDS and o ther major diseases Prevalenceof HIV (%of population ages 1549)

Tuberculosis cases detected under DOTS (96) Incidence of tuberculosis (per W,OW people) W

G o a l 7: halvo the proport lon o f peoplo without sustainable access t o basic needs Access to an improvedwatersource (%of population) 69 Access to improved sanitation facilities (%of population) 73 Forest area(%of total landarea) 8 1 Nationally protected areas (%of total lend area) C02emissions (metric tons percapita) 0 5 GDP perunit ofenergyuse(constant2005PPP $ perkgof oilequivalent) 6 7

G o a l 8: develop a global partnership f o r development Telephone mainlines (per W people) Mobile phonesubscribers (per Wpeople) Internet users (per 0 0 people) Personalcomputers (per00people)

100

75

50 50

25 25

2000 2002 2004 2 m

I I 1 1990 1995 2WO 2001

I -Ratio ofgids lo toys In p m a v 6 secondary I I .El Salvador .Latin Amensa h lhe CadMaan

2 4 0.0 0.0

1996

50 6 3 7

7 2

71

31 n

46 37 93

51 53

80 46

74 77

0 9 6 6

5 1 02

0 1

2000

37 2 2 8

89 88 54

96 35 n

35 29 97

60

0 8 65 57

79 82

156

0 9 6 5

0 1 PO

11 19

‘ J

2007

6 1

94 68 65 88

99 35

7

25 22 98

770 92 67

0 8 50 61

84 86

# 4 19

0 9 6 4

158 89 6 u4 5 2

ICT indicators (per 1,000 people)

100 lZ5 I 75

50

25

0

2000 2002 2004 2m

0Flx.d + mobile w b 8 c d t e D minternet u w m

Note Figures in italics are for years otherthanthose specdied Indicates data are not available 9/24/08

Development Economics Development Data Group (EECDG) - -

87

La Libertad

Acajutla

La Hachadura

Armenia

Chalchuapa

Metapán

Aguilares

Ilobasco

Olocuilta

San Luis

Tecoluca

Ciudad Barrios

La Herradura Jiquilisco

Intipuca

Santa Rosade Lima

NuevaEsparta

Osicala

Jocoaitique

Santiagode María

Suchitoto

NuevaConcepción

Tejutla

La Palma

Candelaria dela Frontera

Izalco

NuevaSan Salvador

Chalatenango

Sensuntepeque

Cojutepeque

San Vicente

Zacatecoluca

Usulután

San Miguel

San Francisco(Gotera)

La Unión

Sonsonate

Ahuachapán

SantaAna

SANSALVADOR

Paz

EmbalseCerrón Grande

Lago deIllepango

Laguna deOlomega

Lago deCoatepeque

Lago deGüija

Lempa

Lem

pa

Jiboa

Lempa

Torola

Goa

scor

án

Grande de San Miguel

L APA Z

S A NV I C E N T E

U S U L U T Á N

S A N M I G U E L L AU N I Ó N

M O R A Z Á N

C A B A Ñ A S

C H A L AT E N A N G O

S O N S O N AT E

SAN

TA A

NA

A

H U A C H A P Á N

CU

S CA

T L ÁN

SA

N S

ALV

AD

OR

L AL I B E R TA D

La Libertad

Acajutla

La Hachadura

Armenia

Chalchuapa

Metapán

Aguilares

Ilobasco

Olocuilta

San Luis

Tecoluca

Ciudad Barrios

La Herradura Jiquilisco

Intipuca

Santa Rosade Lima

NuevaEsparta

Osicala

Jocoaitique

Santiagode María

Suchitoto

NuevaConcepción

Tejutla

La Palma

Candelaria dela Frontera

Izalco

NuevaSan Salvador

Chalatenango

Sensuntepeque

Cojutepeque

San Vicente

Zacatecoluca

Usulután

San Miguel

San Francisco(Gotera)

La Unión

Sonsonate

Ahuachapán

SantaAna

SANSALVADOR

HONDURASGUATEMALA

L APA Z

S A NV I C E N T E

U S U L U T Á N

S A N M I G U E L L AU N I Ó N

M O R A Z Á N

C A B A Ñ A S

C H A L AT E N A N G O

S O N S O N AT E

SAN

TA A

NA

A

H U A C H A P Á N

CU

S CA

T L ÁN

SA

N S

ALV

AD

OR

L AL I B E R TA D

PACIFIC OCEAN

Golfo deFonseca

Bahía de

La Unión Bahía de Jiquilisco

Paz

EmbalseCerrón Grande

Lago deIllepango

Laguna deOlomega

Lago deCoatepeque

Lago deGüija

Lempa

Lem

pa

Jiboa

Lempa

Torola

Goa

scor

án

Grande de San Miguel

To Quezaltepeque

To Nueva

Ocotepeque

To Jutiapa

To Jalpatagua

To Taxisco

To Marcala

To Nacaome

To Ipala

Volcán deVicente

(2,182 m)

Volcán deSan Miguel(2,130 m)

CerroEl Pital

(2,730 m)

Volcán deSanta Ana(2,365 m)

90°W

90°W

89°W 88°W

89°W 88°W

13°N

14°N14°N

EL SALVADOR

0 10 20 30

0 2010 30 Miles

40 Kilometers IBRD 33401R

NO

VEM

BER 2006

E L SALVADORSELECTED CITIES AND TOWNS

DEPARTMENT CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

PAN AMERICAN HIGHWAY

RAILROADS

DEPARTMENT BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.