World Bank Document

Report No. PID8277 Project Name Lao-La-Social Fund Region East Asia and Pacific Region Sector Social Funds & Social Assistance Project LAPE65884 Public Disclosure Authorized Borrower LAO PDR Implementing Agency Lao PDR Social Fund Date PID Prepared October 8, 1999 Projected Appraisal Date January 18, 2000 Board Date June 6, 2000 1. Country and Sector Background Social indicators in Lao PDR are among the worst in the world, far closer to Public Disclosure Authorized the average for Sub-Saharan Africa than to the East Asian region. This is demonstrated in two ways: through the indicators themselves (which demonstrate high rates of maternal and child mortality and illiteracy) and through the poor coverage and inferior quality of basic health and education services. While Government expenditures on education and health have increased, they remain the lowest in East Asia, are heavily dependent upon donor financing, and often have limited impact. Issues of language, culture, gender, ethnicity and residential patterns further complicate efficient and effective service delivery. The recent financial crisis and attendant triple digit inflation have brought further stress to these systems by pushing the salaries of teachers and health care workers below a living wage. Athough the responsible ministries are striving - with IDA assistance -- to reach greater Public Disclosure Authorized numbers with a better quality of service, progress has been slow and the gap between the expressed goal of approaching the ASEAN standard and the extant reality remains large. The private sector has been slow to become involved in service provision and, when they do, the beneficiaries are usually the better- off elements of Laotian society. For the social sectors and the rural poor therefore, fundamental issues remain: access to and quality of services, infrastructure, and clean water, physical wellbeing, food security, and sustainable and appropriate alternatives to subsistence farming. The Government of Lao PDR has expressed determination to develop an economic and social profile more like that of its ASEAN partners and leave the ranks of the "least developed" nations by 2020. It intends to alleviate poverty through socioeconomic development programs that pay particular attention to rural and multi-ethnic areas, infrastructure, and human resource development. The National Socioeconomic Development Plan for 1996-2000, and the recent Public Disclosure Authorized Policy Framework Paper emphasize eight priority programs that directly support these objectives: (i) food production; (ii) stabilization/reduction of shifting cultivation; (iii) commercial production; (iv) infrastructure development; (v) improved socioeconomic management and foreign economic relations; (vi) rural development; (vii) human resource development; and (viii) service development. Recognizing the importance of local authorities in achieving development impact, the Government also has fostered a stronger role for the provinces and placed greater emphasis on decentralized project implementation. 2. Objectives Within the overall context of poverty reduction, the main development objective of the Lao PDR Social Fund is changing behaviors among the rural poor. If the project is successful, changed behaviors will result in: (i) improved family health and nutrition practices that especially increase the wellbeing of women and children; (ii) increased primary school attendance and completion; (iii) enhanced village food security; and (iv) enhanced opportunities for income generation among women. The proposed project would be designed as a Social Fund with an accompanying Social Services component. It would combine demand-driven, small scale sub-projects in infrastructure, equipment and skills development (financed through grants from the Social Fund) with mandatory packages of health, education, and nutrition activities (supported through the Social Services component). All project activities, but especially the social services package, target the most vulnerable groups in Laotian society, namely, rural women and children living at or below the poverty line. The proposed project is innovative in a number of respects. First, it would introduce the concept of a social fund in Laos, where it has never been tried before. Second, it would be based on and expand upon tested and successful family development programs supported by UNICEF since 1992. Third, by combining a social fund with social services, it would attempt a 'dual approach' to channeling resources to and changing behavior at the community level. Given the experimental nature of the project, a Learning and Innovation Loan (LIL) of US$5.0 million equivalent is proposed as the financing instrument. 3. Rationale for Bank's Involvement Choice of a Social Fund Mechanism. The provision of social and economic infrastructure could be achieved through sectoral ministries using standard sector investment loans. However, to date, Government's poverty reduction efforts have been severely constrained by a complex interaction of social- linguistic, ethnic, and residential factors which inhibit the efficient and effective delivery of social services. Moreover, on account of physical isolation, social exclusion, or gender and ethnic barriers, the poor, and more specifically women and children, are not benefiting from alternative government programs. There is evidence of both financing and delivery problems in rural areas where public social service programs show major deficiencies in terms of access, utilization, quality, and impact. Rural women -- regardless of their ethnic affiliation or patterns of residence -- are most affected by poverty. The ethnic and cultural diversity characterizing Laotian society indicates the need to move toward a flexible and demand driven approach to community development which emphasizes substantial local participation. The increased village level capacity resulting from social fund activities provides the foundations for future development at the community level. Other developing countries faced with similar problems have successfully -2 - adopted a social fund financing approach to local development. Social funds can channel large amounts of resources to depressed rural communities and do so with greater speed, efficiency and impact than traditional channels. Social funds have been highly successful in reaching the poor as well as physically or socially isolated communities. In addition, a well-designed social fund allows fine-tuned targeting of population groups that may not have access to services or credit due to gender or ethnic barriers. Alternative Institutional Frameworks. Alternative institutional frameworks for the Project have been considered. For purposes of benefiting from existing institutional capacity, the possibility of selecting a Ministry to be responsible for project implementation has been considered. However, World Bank global experience with social funds reveals the importance, in terms of success, of establishing an autonomous institution. Another alternative considered was the establishment of a social fund at provincial levels in one or several targeted provinces, (depending on their capacity) and jointly responsible for project implementation. Other alternatives, mainly variations of the above, were considered, but final preference was given to an autonomous national institution under the Prime Minister's Office due essentially to the pilot nature of the Project and potential for future expansion of activities to all provinces. Alternative Project Designs. In terms of design, two options were considered: (i) expanding the UNICEF program to additional provinces; (ii) following the example of other countries in the region (i.e., Thailand and Philippines), and replicating the Cambodia Social Fund I project. However, two factors guided the design of the Project and its dual approach (i.e. combining a social fund with a social services component): (i) poverty indicators for Lao PDR stress the critical importance of addressing illiteracy and the causes of malnutrition and mortality; and (ii) the complementary nature of the services to be provided by the social fund sub-projects (e.g., access to safe water, sanitation, increases to food security) and the benefits of the health, education, nutrition compulsory packages. 4. Project Description Component I: Health, Education, Nutrition Prototype Packages This component will provide a set of mandatory health, education and nutrition prototype packages to accompany sub-projects financed by the Social Fund. The primary purposes of these packages are to: (i) reinforce good nutritional, early child development (ECD) and health practices in villages where capacity already exists; (ii) create awareness of a need for such practices in villages with a weak knowledge base; and (iii) build capacity and technical competence of village and district workers in these areas. The prototypes would be developed on the basis of ongoing assistance by UNICEF in these areas and beneficiary assessment conducted in cooperation with local technical staff during project preparation. Component II: Demand-Driven Sub-Projects This component will create a Social Fund to provide grant financing for small- scale, community-based and demand-driven sub-projects in the areas of social and economic infrastructure. Initial targets for Social Fund grants will be rural poor, especially village women and children. Financing will be provided on a grant basis to applicant villages or groups

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