PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1523 Argentina: Institutional Strengthening of the National Social Project Name Security Administration (ANSES II) - Technical Assistance Loan Public Disclosure Authorized Region LATIN AMERICA AND CARIBBEAN Sector Central Government Administration (100%) Project ID P092836 Borrower(s) GOVERNMENT OF ARGENTINA Implementing Agency National Social Security Administration (ANSES) Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared May 26, 2005 Date of Appraisal May 16, 2005 Authorization Date of Board Approval July 5, 2005 1. Country and Sector Background Public Disclosure Authorized Argentina is recovering from its deepest political and economic crisis in generations, with GDP falling by 10.9 percent in 2002. The social impact of the crisis has been enormous. Poverty reached unprecedented high levels, growing by roughly 20 percentage points to 57 percent in 2002. Unemployment equally increased by more than 20 percent in 2002. Argentina’s economy started to rebound strongly in 2003. Sparked initially by increased exports and then by a gradual expansion of consumption spending from the very low points in mid-2002, recovery has been demand-led. GDP growth for 2003 reached a high 8.8 percent. Supported by prudent macroeconomic policies, this upturn has continued into 2004, with real GDP growing by 9 percent. While poverty has recently stabilized, at the end of 2004 it still persisted at a high level of 40 percent. Public Disclosure Authorized After the crisis, Argentina is facing the challenge of securing sustainable long-term growth for equitable economic and social development. Disciplined fiscal and monetary policies are needed to further stimulate growth and improve the investment climate. The sudden impoverishment after the crisis has called for greater social expenditure and specific interventions to support the economic recovery, assist employment creation and enhance living conditions. These challenges require effective governance, strong institutions and efficient and transparent management of public policy. If Argentina wants to sustain growth, spur investment, achieve the MDGs, and reduce poverty, it will have to enhance the efficiency and transparency of public management. Governance has been a key determinant in Argentina’s recent crisis. The Kirchner administration has expressed its commitment to strengthen governance and state modernization to help the state provide better services in a more efficient, transparent and accountable way. It has recognized Public Disclosure Authorized the need to restore the legitimacy and credibility of the public sector, which was seriously undermined as a result of the crisis. ANSES, the National Social Security Administration, as one of the largest public sector institutions in Argentina, both in terms of managing social expenditure and population coverage, presents a central target of state modernization. ANSES’s budget accounts for 37.4 percent of total federal government expenditure in 2005, representing about two-thirds of total federal social expenditure in Argentina. ANSES constitutes the administrative pillar of the social security system. Having a semi- autonomous status, as a decentralized institution,1 ANSES belongs functionally to the Ministry of Labor, Employment and Social Security. The Social Security Secretariat is a unit of said Ministry, which is responsible for designing and monitoring social security policies and programs, as well as supervising the agencies it oversees.2 The institutions also interact actively with the Federal Tax Authority AFIP, the National Civil Registry RENAPER and the SINTyS program which cross-checks beneficiary data. Charged with the management and payment of social security benefits, ANSES was created in 1991 with the fusion of six independent pension administrations and three family allowances agencies, among others. It has increasingly absorbed other pension funds and other social programs. Today, ANSES manages social programs for approximately 7 million citizens, covering about 20 percent of the population, through pensions, family allowances programs, unemployment and disability funds and other social protection programs for the poor, including the Heads of Household Program, Single System for Family Allowances (SUAF) and the Single System for Unemployment (SUDE).3 Most importantly, ANSES administers the public pension pillar, representing more than 60 percent its expenditure. Through its more than 7,000 staff, the institution provides services in a decentralized way through 230 service centers nationwide, at an average operational cost of only 1.48 percent of their total budget.4 Since its creation, ANSES has been managing an increasing number of social benefits. To support its institutional effectiveness and help ANSES address key challenges, such as efficiency and transparency, the Bank has supported the on-going project “National Pension Administration Technical Assistance Loan”, the so-called ANSES I,5 initiated in 1997. Its objectives were: • Fraud and Error Control to improve ANSES’ Granting and Payment Systems, • Provincial Pension Fund Transfer to absorb provincial pension funds • Improvement of Client Service Quality, to implement one-stop point of sale (Full Service Agencies, UDAIs), and • Institutional Strengthening, to improve ANSES’s vision and management. 1 Decree 2741 of 1991 established ANSES as a decentralized institution, part of the federal government. 2 ANSES; the Superintendency of the funded branch of the pension system, SAFJP; and the Superintendency of the work-place injury risk insurance system, SRT. 3 See ANNEX 1: ANSES administers different social security systems like pensions (Law Nº 24.241), unemployment benefits (Law Nº 24.013) and family allowances (Law Nº 24.714), among others. In some cases ANSES only transfers budgetary resources for social programs (e.g. Heads of Households Program), without actually managing these programs. In other cases, ANSES pays benefits on behalf of other public sector institutions at the federal level (e.g. pension funds for the judicial sector). 4 Operational costs have risen from 2002 onwards due to an expansion of pension payments to be managed by ANSES, infrastructure investments, salary increases and banking fees, but continue to be very low at 1.48 percent of total cost, compared to international standards. 5 National Pension Administration Technical Assistance Project, December 30, 1996. Under this loan, ANSES moved from an institution perceived as highly inefficient, nontransparent and poorly managed, to an institution perceived as having substantially improved social security administration, with important efficiency and transparency challenges nevertheless remaining. By virtue of its mandate, ANSES has absorbed about half of the provincial pension funds. It has implemented structures and systems fighting fraud and error. It has developed an organizational vision and mission for the institution, and has increased access to services. However, the project has also had to face significant obstacles and shortcomings. It has been extended four times, leading to an overall execution time of eight years, due to changes in political leadership, delays and obstacles in execution, and the impact of the recent crisis. There are also some perceptions that the selection of consultants financed under the project has not always followed competitive processes. Finally, there are perceptions that while impressive achievements has been made in reducing fraud and error in the institutions, there are still substantial challenges remaining. Overall, as the draft summary of an ICR in preparation shows, ANSES I has reached and in some cases exceeded its objectives. The project, which despite all the obstacles has always maintained a “Satisfactory” rating, can be seen as largely successful, particularly in its institutional modernization impact. Nevertheless, the significant need for greater advances in transparency and efficiency as well as in institutional effectiveness and service-delivery shows that there is still ample room for improvement. 2. Objectives Building on the achievements of the first operation, the project development objective is to enhance service-delivery by ANSES by improving its efficiency, effectiveness, transparency and accountability through institutional reengineering, fraud and error detection, change management and greater internal and external oversight, as well as institutional strengthening of the Social Security Secretariat. In particular, the proposed project will: (i) consolidate and expand selected organizational reforms of ANSES through business process reengineering, integration and automation of core processes, functions, and products, and ICT investments for continuous dynamic change with a view to improve the efficiency and effectiveness of service-delivery; (ii) support the institutional strengthening of the Social Security Secretariat to enhance its policymaking and oversight functions, strengthen the accountability of ANSES and other social security institutions, and promote outreach to other stakeholders; (iii)enhance access to information and exchange of information, help fraud and error detection in benefit determination and liquidation, and promote effective channels for citizens engagement and oversight, with a view to improve internal and external transparency and citizen participation; and (iv) promote change management, innovation,