PROGRAM INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Report No.:AB7145
Operation Name / PE First Social Inclusion DPLRegion / LATIN AMERICA AND CARIBBEAN
Country / Peru
Sector / Other social services (60%); General education sector (20%); Health (20%)
Operation ID / P131028
Lending Instrument / Development Policy Lending
Borrower(s) / Government of Peru
Implementing Agency / Ministry of Economy and Finance
Date PID Prepared / October 21, 2012
Estimated Date of Appraisal / October 22, 2012
Estimated Date of Board Approval / December 18, 2012
Corporate Review Decision / Following the corporate review, the decision was taken to proceed with the preparation of the operation.
I. Country and Sector Background
After nearly 25 years of economic stagnation, Peru has become one of the fastest growing economies in Latin America during the past decade, and the country’s macroeconomic policy stance is adequate for this operation. Growth has been strong, averaging 5.7 percent between 2000 and 2011. Peru’s growth performance is expected to remain robust at 6-6.5 percent during the projection period (2013-2015). Growth will continue to be mostly driven by a robust domestic demand (both consumption and investment), with external demand taking a less prominent role as the external environment is likely to remain weak. Thanks to a conservative fiscal stance, Peru has weathered the recent economic crisis very well, has a solid primary fiscal surplus and a low, declining public debt level. It also has ample fiscal space to respond to external shocks if needed. Peru’s prudent monetary and exchange rate policy are mutually reinforced by a well-balanced external account and an export base that is diversified with respect to commodity price shocks. The fiscal situation will remain strong, with a tendency to increase fiscal savings gradually, reaching an estimated 1.5 percent fiscal surplus by 2015. Total public debt will continue to decline at a fast rate, reaching an estimated 14.9 percent of GDP by 2015, with nearly equal levels of domestic and foreign debt. The current account of the balance of payments is expected to maintain a manageable deficit of 2.3 percent of GDP.
The effects of strong growth during the past few years have yielded an important decline in poverty rates. Between 2004 and 2011, poverty declined by 31 percentage points, from nearly 60 percent of the population to just over 28 percent. During the same period, extreme poverty was reduced by more than 60 percent, from 16.7 percent to 6.3 percent of the population.
Inequality fell slightly over the past decade, consistent with a proportional increase in consumption among the poor. Between 2004 and 2011, the expenditure-based Gini coefficient declined from 0.44 in 2004 to 0.38 in 2011
However, the Gini coefficient remains one of the highest in the Latin American Region—and signals that the country faces major challenges in reducing gaps in living standards for its population. Furthermore, major disparities in poverty rates have persisted over time. Specifically, in 2011:
· 56 percent of the rural population lived in moderate poverty as compared with only 18 percent of the urban population.
· Poverty reduction has also been uneven in the country’s regions. Despite poverty decreases in all regions, the percentage of people living in poverty (61%) in the Sierra Norte is more than double the national total for 2011. By contrast, the central coast and Lima have the lowest poverty rates (around 10%).
· Peru’s indigenous populations have a higher poverty rate than the non-indigenous population (based on the household head’s ethnicity). Despite the reduction of more than 30 percentage points between 2004 and 2011, the poverty rate remains 32 percent among indigenous populations compared with 20 percent for non-indigenous populations). Furthermore, in 2011, the rate of extreme poverty among the indigenous population was double that of the non-indigenous population.
Finally, and despite significant advances in recent years for Peruvian women’s social and economic inclusion – as in other countries of the region – gender gaps persist. In terms of endowments, women educational outcomes and health conditions have remarkably improved in Peru in recent years. In education, gender gaps have closed in primary and secondary education and even reversed in tertiary education. These advances were critical in the observed increases in the female labor force participation rates over the last decade. Nonetheless, this has not been fully translated in enhanced economic opportunities for women. In spite of higher levels of human capital, female workers have more difficulties to reach the top paid occupations and are more likely to be in low productive sectors than their male counterparts. Labor market segmentation and wage gaps still persist, controlling for education, age and sector of occupation. Moreover, differences are more acute in rural areas where teen pregnancy and violence against women remain obstacles to human capital formation for young women.
To address the above disparities, Peru has made considerable progress in its social policy agenda, by increasing social spending and expanding social programs. The GoP introduced several initiatives designed to improve the living standards of the most vulnerable populations. These initiatives include, among others, the creation, in 2005, of the Juntos program, a conditional cash transfer (CCT) program, which has the objective of protecting the basic living standards and human capital of households in the poorest districts in the rural highlands of the country; and the Gratitud pilot program in August 2010. The objective of the Program was to provide a basic monthly income (US$100) to people over age 75 living in extreme poverty in three departments and Metropolitan Lima.
However, these social programs were isolated and fragmented, with limited institutional coherence. Peru’s social programs were largely characterized by their heterogeneity in terms of goals, target populations, institutional cultures, targeting criteria and eligibility rules, and coverage rates. In short, while the GoP implemented social programs and reforms that sought to mitigate poverty and improve access to social services, these efforts lacked a solid institutional framework upon which to build a coherent reform of social policy and programs.
To create an institutional framework that fosters greater inclusion, improves the coherence and effectiveness of social programs, and enhances mechanisms for better access to basic services, the Government created a new institution, the Ministry of Development and Social Inclusion, MIDIS, on October 20, 2011. Under this institutional framework, the GoP has placed special emphasis on three broad social inclusion policy areas for which Bank’s collaboration has been requested. These areas correspond to the three main Policy Areas of the proposed Social Inclusion DPL series, as outlined below.
II. Operation Objectives
The proposed Social Inclusion DPL1 is the first in a two-part programmatic DPL series whose overarching goal is to enhance the inclusiveness, performance and overall results-orientation of MIDIS programs and policies. The proposed US$45 million Social Inclusion DPL1 will focus on the framework for and establishment of MIDIS reforms. As mentioned in Section IV, DPL1 is accompanied by a Social Inclusion Technical Assistance Loan (TAL), both of which will be submitted simultaneously for Board approval. The second phase of the MIDIS reform program, which focuses on the consolidation of the reforms, will be supported by DPL2 expected to be submitted to the Board during the first half of calendar year 2014.
Consistent with the above context and GoP’s request, the Social Inclusion DPL Series has three main development objectives: (i) supporting the institutionalization of the stewardship of the social inclusion agenda under MIDIS; (ii) laying the foundations for improving the inclusiveness and effectiveness of key MIDIS social programs; and (iii) developing adequate systems for targeting, monitoring and evaluation, and overall coordination. In terms of the programs mentioned under (ii) above, the operation specifically focuses on improving the effectiveness of three social protection programs: the CCT Program Juntos; the social pension program Pension 65, and the school feeding program Qali Warma.
Policy Areas and Prior Actions (for DPL1). The proposed Social Inclusion DPL series includes three Policy Areas, which are summarized below. Prior actions for DPL1 will be revised and discussed during appraisal, and after corporate review.
The first policy area relates to the consolidation of the institutional framework for the stewardship of the social inclusion agenda under MIDIS, including: (i) the consolidation of the new Ministry itself, which was created by Law in October 2011 but only begun to operate in January 2012. In a very short period, MIDIS has been tasked to organize itself based on the principles established by the law, while generating a radical shift from programs working as “isolated islands” to an integrated policy and operational platform; and (ii) the progressive set-up of its organizational models at sub-national level, with a view to operate effectively and maximize synergies across programs on the ground.
The prior action for this Policy Area would be:
· The GoP has approved the legal and institutional framework required for the stewardship of the social inclusion agenda under MIDIS.
By the end of the series, the expected results would be:
· MIDIS stewardship of the social inclusion agenda is institutionalized, as measured by the establishment of legal and organizational rules at central level and the operation of local integrated units in all regions.
The second policy area focuses on improving the inclusiveness and effectiveness of key MIDIS social programs with a special focus on: (i) the expansion of coverage of the CCT Program Juntos and the improvement of the support to users through its social promoters; (ii) the establishment of the social, non-contributory pension program Pension 65, which represents a major achievement in the GoP’s efforts to provide income support for the elderly living in poverty; (iii) the reform of the GoP’s food-based programs, with the path-breaking decision to initiate an ambitious school feeding program, Qali Warma.
The prior actions for this Policy Area would be:
· The GoP has approved the expansion of coverage of Juntos to the districts where SISFOH has carried out a socio-economic evaluation and where the poverty levels are between 40-50% of the population;
· MIDIS has enhanced the terms of reference to be used for the recruitment of 1000 new local promoters for Juntos in order to improve family support to households;
· The GoP has approved the expansion of coverage of Pension 65 nationwide; and,
· The GoP has created the National School Feeding Program, Qali Warma, to ensure food service delivery to children enrolled in public pre-schools (ages 3 and over) and primary schools.
By the end of the series, the expected results would be:
· At least 150,000 new users enrolled in Juntos in districts where the program is not yet operational;
· At least 90% of local promoters trained in family support methodology;
· At least 85% of elderly men and women living in extreme poverty receive Pension 65;
· At least 70% children attending public pre-school and schools are served by Qali Warma; and,
· At least 40% of districts where Qali Warma operates include mechanisms for transparency and civil society oversight.
The third policy area deals with reforming social inclusion policy approaches and systems, which involves: (i) the overhaul of the Household Targeting System SISFOH, so that MIDIS can function more effectively with a clear, transparent and technically sound system to identify social programs’ beneficiaries; (ii) the progressive establishment of a National System of Monitoring and Evaluation for Social Policy, known as Evidencia, in order to improve the effectiveness of social inclusion policies and programs through timely evidence-based decision-making; (iii) the development and implementation of the GoP’s National Social Inclusion Strategy “Growth for Inclusion” (Crecer para Incluir), which the Government has defined as the axis for the inter-sectoral coordination in the field of social inclusion. In addition to this policy platform, MIDIS will need to ensure the day-to-day organization, coordination, and functioning for the institutional platform that underpins MIDIS’ coordination role, the National System for Social Development and Inclusion (SINADIS).
The prior actions for this Policy Area would be:
· The GoP has started to develop the new institutional framework for SISFOH under MIDIS;
· The GoP has taken measures to update the General Household Registry;
· MIDIS has approved guidelines (Lineamientos) for the development of a monitoring and evaluation system for results-based policy formulation and management in the social inclusion sector; and,
· MIDIS has approved guidelines (Lineamientos) for inter-sectoral and inter-governmental coordination to reduce chronic malnutrition, identifying priority districts where effective interventions will be implemented.
By the end of the series, the expected results ( indicators and targets to be confirmed) would be:
· At least 90% of poor households, as estimated by INEI, have their socio-economic information (Ficha Socio-economica Unica) updated by SISFOH within a period not exceeding three years;
· At least 40% of the recommendations generated through the M&E system implemented by MIDIS Programs; and,
· Increased coverage of effective interventions defined in the chronic malnutrition guidelines in at least three regions.
III. Rationale for Bank Involvement
The rationale for Bank’s involvement is strong:
· While MIDIS only started operating in January 2012, tremendous progress has already been made in the reforms that would be supported by this operation and the broader DPL series. Of the 9 critical prior actions that have been agreed upon, 8 have already been met and the final action is expected to be met by project negotiations.
· As described in Section I, the macroeconomic performance is supported by sound policies.
· This operation is fully consistent with the Bank’s Country Partnership Strategy 2012-2016 that was approved by the Board on November 15, 2011 (Report # 66187-PE). The CPS calls for supporting the Government’s plan of “growth with social inclusion to overcome social gaps and boost productivity”. In particular, the reforms targeted by this Social Inclusion DPL series align with the First Strategic Objective of Increased “Access and Quality of Social Services for the Poor,” and specifically with the first Result Area of “a more inclusive and effective social protection system.”
The World Bank collaborates closely with the IMF. The two institutions have worked jointly on fiscal decentralization. The IMF has taken the lead on legislation and design of tax reform, while the Bank has focused on the social sectors and pro-poor policies. A joint Financial Sector Sustainability Assessment (FSAP) was completed in 2001 and updated in April 2011.