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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-6759-PAN MEMORANDUMAND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN OF US $35.0 MILLION TO Public Disclosure Authorized THE REPUBLIC OF PANAMA FOR A BASIC EDUCATION PROJECT FEBRUARY 29, 1996 Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS US 1.00 = 1.00 Balboa (B) FISCAL YEAR January 1 - December 31 SCHOOL YEAR March-December GLOSSARY OF ACRONYMS CEFACEI Family and Community Center for Initial Education (Centro Familiar y Comunitario de Educaci6n Inicial) FES Social Emergency Fund (Fondo de Emergencia Social) IDB Inter-American Development Bank IFARHU Institute for Training and Progress in Human Resources (Instituto para la Formaci6n y Aprovechamiento de Recursos Humanos) MOE Ministry of Education (Ministerio de Educaci6n) PAU Project Administration Unit UNDP United Nations Development Programme FOROFFICIAL USE ONLY PANAMA BASIC EDUCATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Government of Panama (GOP) Implementing Agency: Ministry of Education (MOE) Poverty: Program of Targeted Interventions. The project will target the poorest 185 townships (corregimientos) in the country as defined by housing, education, health and nutrition indicators. Beneficiaries: Not applicable Amount: US$ 35.0 million. Terms: Standard amortization term, grace period, and interest rate for fixed-rate US dollar single currency loans with an expected disbursement period of 3-6 years. Commitment Fee 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan: See Schedule A. Net Present Value: Not Applicable. Staff Appraisal Report: Report No. 15109. Map IBRD No. 27496 Project ID: PA-7832 This document has a restricted distribution and may be used by recipients only in the performance of their ofTicialduties. Its contents may not otherwise be disclosedwiihout World Bank authorization. I I MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PANAMA FOR A BASIC EDUCATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Republic of Panama for US$ 35.0 million to help finance a Basic Education Project. The loan would be at the Bank's standard amortization term, grace period, and interest rate for fixed-rate US dollars single currency loans, with an expected disbursement period of 3-6 years. The total project cost is estimated at US$ 58.0 million. 2. Background. The Panamanian economy is among the more prosperous and stable in Central America, with relatively high socioeconomic indicators. Its two percent annual population growth rate and fertility rate of 2.9 percent are the lowest in the region, and GDP per capita is high, at US$ 2,600. But these statistics mask a highly inequitable income distribution. In 1989, the poorest 20 percent of the population received just two percent of national income, the lowest share in Latin America. This group has seen its relative position worsen since 1980, when it received nearly four percent of national income. The economy is highly segmented, between the dynamic, internationally-oriented service sector, which generates about 75 percent of GDP, and the domestically-oriented sector, characterized by policy-induced rigidities and low productivity. While Panama's wealth has cushioned it from the worst economic consequences of its failure to undertake structural adjustment, the country is paying for economic mismanagement in the forrn of missed opportunities. 3. Generally good indicators for basic education hide a skewed expenditure pattern and management shortcomings evident in poor quality and inadequate coverage. Basic education is defined as two years of preschool, primary (grades 1-6) and lower secondary (7-9) cycles. The gross enrollment rate at the primary level is 105 percent, but only 28 percent in preschool and 77 percent at the lower secondary level (grades 7-9). Sectoral spending has been consistently high in recent decades, and continues to be high today, at 5.1 percent of GNP and 16.4 percent of total public expenditures. But public resource allocation for education has the effect of heightening disparities in income distribution. Higher education serves ten percent of all students, but it receives almost one third of public education resources, while the 1.7 percent of education expenditures allocated to the pre-primary level is far below international levels (Costa Rica spends 3.6 percent, and Mexico spends 6.1 percent). This is a common issue in many countries in the region where a fixed share of budget resources is constitutionally mandated for higher education. The Bank has started a policy dialogue with the Government to search for a more rational allocation of budget resources among the different levels of education. 4. Problems of educational quality are not as obvious as they are in many other countries in the region. Panama has a well qualified teaching force, and a relatively low student-teacher ratio of 25:1. Good textbooks are available in the market, and teachers can select and recommend to their students those that are most suitable for the curriculum. But the quality of education is not even. Students in the low-income brackets cannot 2 purchase their books and usually do not find them in school libraries. Multigrade classes are taught by teachers without specialized training in the methods of multigrade teaching. Since multigrade classes are typical of remote rural communities, it is generally the children of the poor who attend such classes and receive an education of lesser quality. This results in low efficiency of basic education, where it takes an average of 13 years to complete the nine-year cycle. Little infonnation is available on student achievement, and consequently, there is no sound basis on which to identify needs for change. The Government thus plans to provide textbooks for poor students, and specialized training and teaching materials for multigrade teachers. It will also develop a student achievement evaluation systemi. 5. Inequities also exist in the availability of educational benefits for the poor. Enrollment rates are high at the primary level, but very few children have access to pre- school services, even though early educational experiences have long been recognized as improving student performance at the primary level. Pre-school education promotes school readiness, lowers repetition and dropout rates, and improves development of academic skills in primary school. Pre-primary education is offered mainly in kindergarten classes attached to primary schools. A non-formal program, the Community and Family Centers for Initial Education (CEFACEI), has been started by the Government on a small scale, using community volunteers as educators and facilities available in the community. Non-formal models of preschool education have been proven to be highly effective, at a considerably lower cost than the formal models, But the CEFACEIs lack an appropriate curriculum adapted to the culture of the disadvantaged. The kindergarten curriculum is not easily handled by unqualified community educators, and it does not provide for parental involvemrentin the early development of the child. The Government has requested the Bank's assistance to provide low cost pr -school education services targeted to the poor, and the project will expand the CEFACEI system of pre-school education and provide it with child-centered developmental activities, adequate educational materials, and practical training for tihe conmunity educators. 6. Children in rural areas are often forced to drop out of school at the end of the primary cycle, unless their parents can send them to the nearest town for the upper grades of basic education (grades 5-9). While it is the Goverrunent's policy for all children to complete the basic cycle, many are effectively denied access because of poverty. The Government operates a program of scholarships for primary and secondary students through the Instituto para la Formaci6n y Aprovechamiento de Recursos Humanos (IFARHU), and has decided to establish a new budget line for scholarships entirely targeted to the poor. 7. The Ministry of Education (MOE) has an adequate institutional structure for administration and supervision of the public school system, at the central, provincial and district levels. However, it lacks a robust information system, and its capacity for planning and policy-making is poor. A proposed reform of the education system has been in preparation since 1979, when a Commission was created for that purpose by the National Assembly. In June 1995, the National Assembly passed the Education Law which would: (a) reinforce MOF's role in defining educational policy; (b) create an advisory body to the MOE, conposed of representatives of parents, the Catholic church, MOE and the teachers union; (c) extend provision of free education to two years of pre-school; and, (d) provide 3 a framework for strengthening the role of the community in education and deconcentrate some of MOE's functions. These provisions are fully consistent with recommendations reflected in the Bank's sector report (Report No. 13701-PAN, March 17, 1995) discussed with the Government in May 1995. The Government has requested the Bank's assistance in strengthening its planning and policy-making capacity through the financing of a series of policy studies to support the medium- and long-term reforms. 8. Primary school infrastructure compares favorably with that of many other Latin American countries, but maintenance has been neglected. At the primary level, about 350 classrooms are severely deteriorated and need to be replaced. About 1,700 classrooms need varying degrees of repair or rehabilitation.