Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 26527-AR INTERNATIONAL BANKFORRECONSTRUCTIONAND DEVELOPMENT PROGRAMDOCUMENT FORA PROPOSED PROVINCIALMATERNAL- CHILD HEALTHSECTORADJUSTMENT LOAN INTHEAMOUNT OFUS$750MILLION TO THE ARGENTINE REPUBLIC SEPTEMBER24,2003 HumanDevelopmentDepartment Argentina, Chile, Paraguay andUruguayCountryManagementUnit LatinAmerica and the CaribbeanRegion CURRENCY EQUIVALENTS Currency Unit:The Argentine Peso EXCHANGERATE ARS$2.91= USD$1 (Exchange Rate Effective 09/24/2003) FISCALYEAR January 1-December 31 ABBREVIATIONSAND ACRONYMS AARR Annual Reduction Rate ADD Acute Diarrhea Disease AIDS Acquired Immune Deficiency Syndrome ANMAT Administracidn Nacional Medicamentos, Alimentos y Tecnologi'as - National Administration of Pharmaceuticals APE Administracidn de ProgramasEspeciales - Special Programs Administration ARI Acute Respiratory Infection BCG Bacillus Calmette-Guerin Vaccine CAS Country Assistance Strategy CFAA Country Financial Management Assessment COFESA ConsejoFederal de Salud -Federal Health Council CPAR Country Procurement Assessment Report CPB Components of the Packageof Basic Interventions CPI Consumer Price Index CY Calendar Year DNU DecretoNacional de Urgencia - National Decree of Emergency DOTS Directly-observed treatment, short-course for Tuberculosis DPT Diphtheria and Tetanus Toxoids and Pertussi vaccine EPH EncuestaPermanentede Hogares -Current Households Survey ESW Economic and Sector Work FSR Fondo Solidario de Redistribucidn - Solidarity Redistribution Fund FY Fiscal Year GDP Gross Domestic Product GOA Government of Argentina HDI HumanDevelopment Index HIV Human Immune-Deficiency Virus HSRP Health Sector Reform Program IDB Inter-American Development Bank IFC InternationalFinance Corporation IF1 InternationalFinancingInstitution ILO InternationalLabor Organization IMF InternationalMonetary Fund IMR Infant Mortality Rate INDEC Instituto Nacional de Estadistica y Censos - National Institute of Statistics and Census INSSJyP Instituto Nacional de Seguridad Social de Jubilados y Pensionados National - Institute of Social Security for Pensions and Retirees FOROFFICIAL USEONLY MCHIP Maternal and Child Health Insurance Program MDGs Millennium Development Goals MMR Maternal Mortality Rate MMR Measles, Mumps and Rubella vaccine M O H Ministryof Health MSN Ministerio de Salud de la Nucion-NationalMinistry of Health NF!A Northeast Region of Argentina NOA Northwest Regionof Argentina OSN Obras Sociales Nacionales -National Social Health Insurance Organizations OSP Obra Social Provincial-Provincial Social Health Insurance Organizations PAM1 Instituto Nacional de SeguridadSocial de Jubilados y Pensionados - National Institute of Social Security for Pensions and Retirees PHO Pan American Health Organization PMCHIP Provincial Maternal-Child Health InvestmentProject PMO Programa Medico Obligatorio- Mandatory Medical Program PMCHSAL ProvincialMaternal-Child Health Sector Adjustment Loan PROAPS Primary Health Care Program REMEDIAR Programfor essential drugs to support the needs in Provinces RPR Rapid Plasma ReaginTest SAL StructuralAdjustment Loan SECAL Sector Adjustment Loan SIM-PLAC Comprehensive Health Information System SNSS Sistema Nacional de Seguro de Salud - National Social Health Insurance System WHO World Health Organization Vice President David de Ferranti Country Director Axel van Trotsenburg Sector Director Ana MariaAmagada Country Sector Leader Jesko Hentschel Sector Manager EvangelineJavier Task Team Leader Cristian C. Baeza This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without W o r l d Bank authorization. TABLE OF CONTENTS I. INTRODUCTION........................... .................................................................. 1 11. RECENT ECONOMIC AND SOCIAL DEVELOPMENTS ....................................... 3 A. RECENT ECONOMIC EVENTS 3 THE GOVERNMENT'SRESPONSE................................. ...................................................................... B. SOCIAL CRISIS AND ..8 C. THE HEALTHSECTOR..................................................................................... 12 111. ARGENTINE HEALTHSECTORPRIORITIES AND THE GOVERNMENT'S REFORM PROGRAM........ ................................................... 16 IV. THE WORLD BANK'SSTRATEGY,RESPONSETO THE CRISIS, AND EXPERIENCE IN THE HEALTH SECTOR.. .......................... 23 A. STRATEGY AND RESPONSE TO THE CRISIS ..................................................... 23 B. WORLD BANK SUPPORT OF THE HEALTH SECTOR AND LESSONS LEARNED ............25 V. PROPOSED LOANAND IMPLEMENTATION ARRANGEMENTS .............................. 27 A. THELOAN................................................................................................... 27 B. LOANCONDITIONS..................................................................................... 29 C. DESCRIPTION OF FINANCIAL ASSISTANCE..................................................... 32 D. 32 MONITORING ARRANGEMENTS AND EXPECTEDRESULTS............................... INSTITUTIONAL ARRANGEMENTS................................................................. E. 32 F. ENVIRONMENTAL AND SOCIAL ASPECTS....................................................... 33 G. FIDUCIARY ARRANGEMENTS....................................................................... 34 H. I. PROGRAMBENEFITS.................................................................................... 35 COORDINATION/COLLABORATIONWITH IMFAND OTHERPARTNERS ..............34 J. RISKS ....................................................................................................... .36 ANNEX 1: Letter of Development Policy (translated from official version) ANNEX 2: Letter of Development Policy (official version) ANNEX 3: Policy Matrix ANNEX 4: Poverty and Mortality inthe Northwest and Northeast Regions in Argentina ANNEX 5: PotentialImpact of the Maternal and Child InsuranceProgram ANNEX 6: Indigenous Peoples, Poverty and Health in Argentina: Targeting the Poorest of the Poor, The Cases of NOA and NEA Regions ANNEX 7: Matrix of MonitoringIndicators, Base Lines and Sources of Data ANNEX 8: Argentina Financial Position inthe IMF ANNEX 9: Statement of Loans and Credits ANNEX 10: Statement of IFC's Portfolio for Argentina ANNEX 11: Public InformationNotice (PINNo. 03/88) Fromthe IMF ANNEX 12: Country At A Glance This operation was prepared by a World Bank team led by Cristian Baeza (team leader) and including Marcel0 Becerra, FemandoLavadenz,Mariangeles Sabella, MarianaMontiel, DanielOks, Luis Perez, Nicole Schwab, Juan Pablo Uribe, Natalia Moncada, Robert Crown (Consultant), Femando Montenegro and Paula Giovagnoli. Valuable contributions were given by Evangeline Javier, Suzana de Campos Abbott, Ariel Fiszbein, Felipe Saez, Paul Levy and Jaime Jaramillo. Peer Reviewers were Robert Hecht, John Langenbrunner, and Armin Fidler. Maria Lourdes Noel, Maria Colchao, Santiago Scialabba, Martha P. Vargas andFebeMackey providedvaluable support for the preparation andprocessingof documentation. ARGENTINA k PROVINCIALMATERNAL-CHILDHEALTH SECTORADJUSTMENTLOAN PROGRAM SUMMARY Borrower: Republic of Argentina Implementing Agency: Ministry of Health Poverty Category: The proposed loan is directly focused on improving the health status of the poor. Amount: US$750 million, to bedisbursedinthreetranches first tranche US$450 million; second tranche US$150 million; third tranche US$150 million). Terms: Fixed SpreadLoan, 15 year maturity including three years grace, commitmentlinked, annuityprincipalrepayment. Commitment The Borrower shall pay to the Bank a commitmentcharge on the Charge: principal amount of the Loan not withdrawn from time to time, at a rate equal to: (i) eighty five one-hundredths of one per cent (0.85%) per annum from the date on which such charge commences to accrue in accordancewith the provisionsof Section3.02 of the General Conditions but not including the fourth anniversary ofsuch date; and (ii) seventy five one-hundredthsof onepercent (0.75%)per annumthereafter. Front-End Fee: One percent (1%) of the amount of the Loan. Objective: The poverty situation in Argentina has worsened radically due to the deep social and economic crisis that erupted in late 2001. Under this changed country context, the proposed Provincial Maternal-Child Health Sector Adjustment Loan (PMCHSAL) aims to: (a) respond to the urgent health needs of the poor, particularly uninsured mothers and children; and (b) simultaneously, assist the Government to modify the incentive framework for financing and delivery of health care services, starting in Argentina's poorestprovinces. The proposed PMCHSAL is part of the Bank's effort to help Argentina during the current transition`period. At the same time, it presents an opportunity to deepenneeded structural changes in the Argentine provincial-levelhealth sector. Description: In line with above objectives, the proposedPMCHSAL supports the Government'sHealth Sector Reform Program(HSRP),which aims to: (i) implement a Maternal-Child Health Insurance Program (MCHIP) at the provincial level (as provinces are responsible for ensuring health service for more than 50% ofArgentina'spopulation and the majority of the poor); (ii) revitalize andimprove the National-Provincial policy coordination;(iii) protectthe deliveryof priority public health programs 1 of particular importance to the poor today; (iv) enhance targeting, reduce leakage, and improve efficiency of public sector subsidies inreaching the poor; and (v) support the implementationof the Sexual and Reproductive Health Program in Argentina. The M C H P i s a unique national program that establishes a national-provincial conditional grant system with increasing co-financing by the provinces, for the provincial health systems to provide a specified package of health services targeted to uninsured mothers and children. The MCHIP lays the groundwork for a shift in the financing, organization and delivery of province-level health care services. It will link financial transfers with improving outreach to, and utilization of services by, the uninsured, thus reorienting incentives from inputs to performance. It would also shift public subsidies from the non-poor to the poor. PMCHSAL would pave the way for key policy and structural changes to be extended to the country's entire health system through a subsequent investment project, currently under preparation by the Government. Benefits: The proposed PMCHSAL would support necessary policy changes to support a Government program that will provide about three million poor mothers and children with increased access to basic health services when fully implemented by 2011. At the same time, it would help put in place a shift in the public financing, organization and delivery of health care services at the provincial level. The actions supported by the proposed PMCHSAL would help reverse the crisis-induced increase in infant mortality in 2002. If actions under the PMCHSAL are implemented as planned and then expanded to the entire country under a subsequent investment project as currently planned, estimates show a possible eventual reduction in infant mortality of up to 35% in the nine poorest provinces, and up to 29% in the country as a whole by 2011. The proposed operation supports a Government program with a strong poverty focus. First, the program aims to reach family members of uninsured households, which are generally unemployed or work in the informal sector. These groups have a much higher likelihood of being poor than the insured households. Second, the program is directed especially at mothers and children, which, among the uninsured, are the most vulnerable groups. Finally, in a first stage, the MCHIP will be implemented in Argentina's nine poorest provinces. These provinces also include 75% of Argentina's indigenous population--traditionally a poor and excluded group--and will include special outreach activities to target these groups. Risks: The risks for this program are high, Argentina's macroeconomic situation continues to be fragile, exacerbated by the economic slack in its neighboring countries and major trading partners. The positive initial steps of the new Government could be challenged by the needfor further definitions on a comprehensive development framework, with reforms on social protection, the reform of the financial system, public sector reform, reforms in federal-provincial fiscal relations, and the restructuring of public utilities. Thus, the risks to the recovery of .. 11 economic activity, and the fiscal stability of the public sector remain high and could affect the outcome of the proposed reformeffort. A continued world economic slowdown also presents serious risks, limitingeconomic growth. Attaining higher primary fiscal surpluses--as required for dealing with the debt problem and the current default status- -will demand political cohesion. The depth of the social crisis-- unemployment and poverty--and the pace of the required reforms may challenge the new government's ability to build a consensus behind a medium-term reformprogram. The proposed PMCHSAL financing would be crucial to help the Argentine economy stay afloat in the near term. Although the SECAL- supported program requires a modest fiscal effort from the federal and provincial Governments, even that level of fiscal financing might prove to be substantial for the start up of MCHIP, the central pillar of the operation. Given the priority of this program to the poor, and the fact that the deterioration of infant mortality rate has sent strong signals of the dire health situation in the poor provinces, the Government has assured the priority allocation of fiscal resources to the MCHIP and to other essentialpublic health programs inArgentina. In addition to the fiscal situation, the reform program faces other implementation risks. First, the nation-province health policy dialogue, specially on financing co-participation - i s at an incipient stage. Also, there may be substantial change in the provincial leadership as elections are in the next four months. The San Nicolas Accord signed on March 2003, between the Provincial Ministers of Health and the National Ministry of Health a recent breakthrough -- would mitigate this political risk. The Accord may provide the cornerstone for a stronger and productive revitalization of the Consejo Federal de M u d (COFESA), and a framework for further improvements in the nation-province relations. Second, the weak institutional capacity of provincial health ministries, combined with the demanding technical requirements for the implementation of MCHIP, poses an important risk. The capacity of the health ministries in the nine northern provinces i s especially low, as they have historically been the poorest in the country. Yet, implementing explicit guaranteed benefit packages and public provider payment reforms within the public health sector (through the MCHIP) has been complex and demanding even for stronger Governments of other countries. These reforms imply movingaway from the traditional historic supply side financing towards performance-based financing for public providers. To mitigate this risk, the follow-up investment operation will include a significant Technical Assistance component to help these provinces with the technical, institutional and implementation aspects of the reform program. Indeed, the investment operation accompanying this PMCHSAL would be crucial to ensure the implementation and medium-termsustainability of the policy decisions/actions supported by ... 111 this adjustment loan, especially under the debilitatedeconomic and social conditions of the new Argentina". " FinancingPlan: Not Applicable NetPresent Not Applicable Value: ProjectID PO72637 Number: Map: IBRD29348 iv REPUBLICOFARGENTINA PROVINCIAL MATERNAL-CHILD HEALTH SECTOR ADJUSTMENT LOAN (PMCHSAL) PROGRAMDOCUMENT I.INTRODUCTION 1. The Argentine economy i s emerging from the deepest recession in generations, with its GDP having fallen by 20% in the last four years, including by 10.9% in 2002. Combined with the strong depreciation of the Argentine peso, the economic decline had left per capita income at US$2,695 (in 2002), down from over US$8,000 in the 1997198 period' Poverty has increased to 55% with indigence levels affecting 26.3% of the population or about nine million people. Unemployment, although below its peak, i s still high at 21.4% - excluding the effects of the large Heads of Households workfare program. 2. This memorandum describes the Government of Argentina's program of health sector reforms and actions aiming to improve availability and effectiveness of public resources and services in reaching the poor at the provincial level and proposes a three tranche, US$750 million Provincial Maternal-Child Health Sector Adjustment Loan (PMCHSAL) to the Republic of Argentina in support of this program. 3. At the core of Argentina's health policy challenge inthe short and medium term i s the urgency to ensure access to basic health services by the poor and the excluded while, simultaneously, introducing needed structural system changes with medium- and long- term effects. In Argentina, the provincial level i s responsible for ensuring access to health care for more than 50% of the population and for the vast majority o f the country's poor. B y encompassing a national program that simultaneously allows the Government to respond to the urgent needs of poor mothers and children while laying the groundwork for a shift in the financing, organization and delivery of health care services in the public sector, the proposed PMCHSALprogram addressesboth of the country's main short- and medium-term policy challenges in the health sector. The proposed loan would support the Government's Health Sector Reform Program (HSRP), which comprises an integrated package of complementary policy reforms and actions that aim to increase the availability and effectiveness of public subsidies in improving the health status of the poor. The HSRP comprises a set of well-defined actions to: (i) implement the Maternal and Child Health Insurance Program; (ii) help provinces reorient their focus from inputs to outcomes; (iii) a major effort to reach both the lowest income provinces and initiate the poor in Argentina; (iv) shift public subsidies from the non-poor to the poor who are largely uninsured; (v) improve the National-Provincial policy coordination essential to ensure ownership by the provinces and to improve country level public health policy and equity; (vi) protect the delivery o f priority public health program affected during the According to the Bank's Atlas methodology, per capita GNI in 2002 declined to US$4,060 from US$8,030 in 1998. I recent economic crisis; (vii) improve targeting, reduce leakage and improve efficiency of public sector subsidies in reaching the poor; and (viii) support the implementation of the Sexual and ReproductiveHealth Program inArgentina. 4. The center pillar of the HSRP, supported by the proposed loan, i s the launching of the Seguro Materno Infantil, a national, publicly-financed Maternal and Child Health Insurance Program (MCHIP). The MCHIP will be implemented by the public health sector at the provincial level and will link the National Ministry of Health's financial transfers to the provincial level for improvements in outreach and utilization of services by the uninsured. Rather than a contributory health insurance arrangement, the program i s a targeted transfer mechanism built around a defined package of health services. 5. The HSRP focuses on improving the health status of the poor. First, the program aims to reach family members of uninsured households, which are generally unemployed or work in the informal sector. These groups have a much higher likelihood of being poor than the insured households. Second, the program i s directed especially at mothers and children who, among the uninsured, are the most vulnerable groups. Finally, in a first stage, the MCHIP will be implemented in the poorest nine provinces in Argentina. These provinces also include 75% of Argentina's indigenous population--traditionally a poor and excluded group--and will include special outreach activities to target these groups. 6. The Government i s currently preparing a follow-on investment project, expected to be submitted to the Bank for consideration in the near future. This project would finance the implementation of the MCHIP, extend it to the remaining provinces, and provide technical assistancefor its implementation to participating provinces. 7. The Government's HSRP, supported by the PMCHSAL would put in place the reforms needed to regain momentum in reducing maternal and child mortality, which slowed considerably over the last two years and likely increased in 2002 as a result of the economic crisis. The PMCHSAL together with the Government's follow on investment project would help reverse the increase in infant mortality and reduce infant mortality by a targeted 35% in the nine poorest provinces in Argentina by 2011 and be expected to achieve a overall 29% reduction inArgentina's infant mortality b y then. 2 11. RECENTECONOMIC AND SOCIALDEVELOPMENTS A. RECENT ECONOMIC EVENTS 8. Economic Crisis. The culmination of this crisis i s associated with the collapse of the Convertibility Plan.2 Compounding the collapse was the declaration of default on Argentina's public debt, the ill-prepared devaluation, the freezing in pesos of most public utility tariffs, and growing uncertainty about the enforceability of commercial contracts. The Argentine banking system was significantly weakened, first by the massive withdrawal of deposits in 2001, and second by the loss of confidence resulting from the partial freeze of bank accounts, the forced conversion of dollar deposits, and associated policy decisions (asymmetric pesification, preferential treatment of debtors, etc.). Depositors suffered significant losses, and access to the remaining deposits was circumscribed. The financial intermediation process was severely disrupted with the stock of credit declining 40% in real terms during 2002 alone and a further 13% in the first half of 2003. In addition, during the first half of 2002, a number of financially stressed provinces issued quasi-monies, thereby endangering monetary unity of the country. These developments and policies undermined macroeconomic management, the viability o f the financial system, credibility of Government action, and the rule of law. 9. Government Response. The former and new Governments have made important strides in confronting some of the negative impacts of the crisis under very difficult social and political conditions. First, key to these achievements has been the pursuit of a prudent monetary policy inthe face of a severe credit crunch. Second, Government made a substantial fiscal effort with income tax collection in 2003 exceeding the targets specified inthe program with the International Monetary Fund. Third, exchange controls were eased, and banking deposits liberalized. Between the beginning o f the year and August, 2003, the peso appreciated by 11%, and international reserves increased further and reached about US$13.5 billion. Lastly, the Government i s committed to improve fiscal performance in the provinces and has launched a program to reestablish monetary unification. The circulation of provincial quasi-monies has been reduced by more than 60% as of early September, 2003.3 10. These emergency policies were successful--the Argentine economy i s growing again. After an initial period of heightened economic, social, and political uncertainty, the Argentine economy displayed signs of bottoming out around the middle of 2002. Since then, an economic recovery has been under way, based on improved consumer sentiment and import substitution. Quarterly GDP grew by 6.4% in the first half of 2003 (compared to the same period in 2002). Similarly, industrial production was 16.6% For an evaluationof the causes of the Argentine crisis see "Argentina: A RetrospectiveReview", Report SECM2002-364,distributedto the Board inJuly 2002. So far the Government rescued AR$4,8OO millions of quasi-monies out of a total of AR$7,700 millions. The rescue of quasi-monies was a key element under the "Argentina Economic and Social TransitionStructural Adjustment Loan", (Report No: 25860-AR). 3 higher in July 2003 than in July 2001L4 Cumulative inflation for the January-July period was 2.5% and the trade balances exhibited large surpluses, averaging US$1.5 billion per month in 2003 thus far. 11. Remaining Reform Agenda. There remains, however, a broad and substantial agenda o f reforms needed to ensure that the recent signs o f economic improvement can be sustained and accelerated. The Bank has discussed with the Government specific proposals for addressing the economic, social and governance challenges Argentina faces at this point. First, an agreement for a comprehensive restructuring of Argentina's international debt would need to be reached, which would allow the country access to the international financial markets again. The Government has started to reach out to international creditors and intends to present a proposal for comprehensive debt restructuring during the Annual Meetings in Dubai. However, the process of debt renegotiation promises to be long, complex and arduous, and some creditors have initiated legal action to attach Argentine assets abroad. 12. A Second, closely linked priority i s a sustainable resolution to the banking crisis. Many banks continue to suffer operational losses and remain technically insolvent. Similarly, the weakness of the banking system, and the continuous decline in credit associated with significant contraction of investment, are limiting factors to a sustained economic recovery of domestic demand. With over 50% o f bank assets currently held in the form of Government bonds, the future viability of the banking system depends, among other factors, on the outcome of the public debt workout, and valuation of such bonds. 13. A third set of challenges includes critical structural reforms in the public utilities sectors as well as with respect to corporate structuring, fiscal relations with the provinces, and public sector management. A major improvement in the investment climate will be essential to induce private investors to return to Argentina. 14. Outlook and IMF Relations. In 2003, Argentina's economy i s set to grow b y about five percent and the prospects for maintenance o f fiscal stability as well as monetary prudence are currently good. The projected economic expansion in 2003 reflects the depth of the output decline over the last four years, as well as the economic stabilization measures adopted, and the opportunities provided by the sharp devaluation of the currency. With the reduced scope for a further aggregate demand impact from import substitution, sustaining the recovery beyond 2003 will require further export and investment growth - necessitating the fundamental structural reforms outlined above. 15. An eight-month US$2.9 billion arrangement was approvedby the International Monetary FundBoard on January 24,2003. Access was broadly equivalent to obligations (including charges) falling due during January 24-August 31, 2003. The economic program focused on core fiscal, monetary, and banking policies for the first half of 2003. The fourth and final purchase under the Stand-By Arrangement for There was nonethelessa decelerationin month-to-month industrial activity growth inthe second quarter of 2003. 4 Argentinawas approvedon August 27, 2003. The expectationfor this transitional programwas that it wouldbe succeededby a multi-year arrangementwith the new Government, electedinMay 2003. Such an agreement was reachedon September 11, 2003, [withthe IMFBoardapprovinga three year programduringthe Annual Meetings on September20,20031. 5 Table 1 Argentina: Macroeconomic Indicators 1998 1999 2000 2001 2002 2003Est. EconomicAchity GDP at cunerdPriceSbillionpesos 1/ 299 284 284 269 313 362 GDP at currerdPriceq billionus ddars I/ 299 284 284 269 102 125 GDP per capit4 US dollars I/ 8275 7751 7675 7169 2695 3258 red growfhr d e s f i ) GDP atmarketprices 3.9 -3.4 -0.8 -4.4 -10.9 5.o GDP per capita I/ 2.6 -4.6 -2.o -5.6 -12.1 2.9 Consumption 3.1 -2.6 0.2 -4.4 -13.5 6.2 Imestmmt 6.5 -12.6 -6.8 -15.7 -36.1 10.0 Prices year-over-yea chnge fi) Consumer Price Index 2/ 0.7 -1.8 -0.7 -1.5 41.0 8.O Wholesale Price Index 31 -3.3 -1.2 3.7 -2.o 78.3 -5.3 FinancialSystem year-over-year chanp m values in local cwrexcy BroadMoney(M2) 10.5 3.9 1.7 -19.4 -58.4 Total Credit 15.3 0.3 -0.4 -6 .5 -7.5 Total Deposits 14.5 4.6 5.3 -19.2 -2.3 F k a lAccounts s h e s fo GDP 1%) FederalGovernmentOverallBalance, cashbasis -1.4 -2.5 -2.4 -3.7 -1.5 0.1 Federal GovernmentOverall Balance, accrual basis4/ -1.3 -2.6 -2.7 -4.0 -5.8 -9.7 FederalGovernmentPrimatyBalance 0.9 0.4 0.9 0.1 0.7 2.2 Consolidated Public Sector, cashbasis -2.2 -4.1 -3 6 -6.5 -2.8 -0.4 ConsolidatedPublic Sector Overall Balance, accrual basis4/ -2.1 -4.2 -3.9 -6.8 -10.6 -12.1 ConsolidatedPublic Sector Primary Balance 0.5 -0.8 0.1 -1.4 0.5 2.6 ExternalAccounts billion USdoffars Exparts o f goods mdservices 31.1 27.9 31.1 30.9 28.6 31.1 Imports of goods andsewices 38.7 32.8 32.9 27.5 13.0 17.2 Trade Balance -7.5 -4.9 - 1.8 3.5 15.6 13.9 CurrentAccount B a l m e -14.5 -11.9 -8.8 -4.5 9.6 7.8 Stock of IrdemationalReserves 24.9 26.4 25.1 14.5 10.5 s h e s fo GDP CurrentAccount Balance I/ -4.9 -4.2 -3.1 -1.7 9.4 6.3 Stock dIniemational Reserves 1/ 8.3 9.3 8.8 5.4 10.3 NominalExchange Rate, pesosper US dollar 51 1.o 1.0 1.o 1.o 3.3 Total External Debt, hillionUSD 6/71 141.9 145.3 146.6 140.2 134.2 Total External Debt, as a share ofGDP (Yo) 1/6/ 47.5 51.2 51.6 52.2 131.4 TotalPublicDebt, billionUSD 6 181 112.4 121.9 128.O 144.5 138.1 TotalPublicDebt, a s a h e o f G D P l / ( % ) 61 37.6 43 .o 45 .o 53.8 135.2 1/Estimatefor2003 isbased onrealGDP gowthof5Yo 2 lAccumulatedCPI mflationinthe penodJwuaty-July2003 is 2 5% 3/AccumulatedWPI mflaboninthe penodJwuary-July2003 is -2 5% 4/In2002 md2003 includes irderests on a n accrual bass Includes eshmated capitalization ofinterestsforAR$ 1429 bnin2001 (0 5% dGDP), AR$ 27075 in2002 (8 5% ofGDP) andAR$46935 m2003 Q 6% ofGDP) asesbmatedbyIMF staff 5/En& &penod value 6IEstimates for 2002 lnclude debt lnarrears 7 /Stock o f external debt as of end2002 Source MuystryofEconomy, ArgeAna 8 /Esbmate as of end2002 Source MinistrydEconomy, Argerdina 6 Figure 1 Economic Indicators IndustrialProduction FederalGovernmentFiscal Accounts (OctOl-J~I03) (Jun02-Ju103, millionpesos) -...__ O y - 0 - y %change, left axis Total Revenues -PrimaryExpenditures Index 1997=100, right ms - - PnmaryBalance -OverallBalance -2000 ?:I r- Jun Jul Aug Set Oct Nov Dec Jan Feb Mar Apr May lun Jul 02 02 02 02 02 02 02 03 03 03 03 03 03 03 Peso-Dollar ExchangeRate Consumer and Wholesale Prices (Jan01-Aug03) (Jan01-Ju103, y-0-y % change) CPI Inflation- Wlinflation 140 1 3i 120 - 2.5 - 100 - 2 - 80 - 1 5 - 60- 40 - 20 - InternationalReserves Deposits inthe FinancialSystem (US$billion,Jan01-Aug03) - - - (AR$ million,JanOO-Ju103) Domeshc Currency -Foreign Currency 80.000 70.000 I .' 60,000 50.000 40,000 . *.'I 30.000 -* ~ 5 - 20.000 7 B. THE SOCIAL CRISIS AND GOVERNMENT'S RESPONSE 16. Poverty and unemployment. The social impact of the crisis has been devastating (see Figure 2 and Table 2). Registeredunemployment reached 21.5% in 2002--a record high in Argentina. Since then, the large Heads of Households workfare program has provided subsidies and work to about 6% of the labor force. The share of the population living in poverty increased by almost 20 percent points between May 2001 and May 2003. A crisis monitoring survey implemented by the Bank revealed that, during 2002, almost 17.5% of all Argentine households reported that one or more household members had been hungry at least at some time during the previous year due to inadequate food availability. The incidence of hunger was even higher for households with children. Figure2:Argentina hlutionofUnemploymentand - PowrtyRates(inpercent) 70 r 60 0 Unemploymentrate 50 Poverty (population) 40 30 20 10 0 Table 2. Argentina: Social Indicators 1997 1998 1999 2000 2001 2002 2003 Population Poverty 28.5 28.6 29.6 31.8 37.0 38.3 53.0 57.5 54.7 Extreme poverty 7.5 7.9 7.8 9.0 12.8 13.6 24.8 27.5 26.3 Households Poverty line 21.1 20.8 21.3 23.2 27.3 28.0 41.4 45.7 42.6 Extreme poverty line 5.6 5.4 5.5 6.4 9.53 9.4 18.0 19.5 17.9 Unemployment rate 13.7 12.4 13.8 14.7 16.4 18.3 21.5 17.8 15.6 (without PlanJefes)l/ ... ... ... ... ... ... 23.6 21.4 Informal workers .. ... ... ... 39.0 38.8 38.4 44.2 45.1 Source: Official HouseholdSurvey, Encuesta Permanentede Hogares. 1/ Official estimationconsideringas unemployedall employedwhose main activity is provided by PlanJefes 8 17.. Utilization and Quality of Social Services. The economic crisis had a strong negative impact on the access and use of health and education services and there i s growing evidence of the deterioration in service delivery and key indicators of well- being. While there i s no evidence of a significant increase in school drop-out rates, nearly three-quarters of all households with school-aged children had to reduce purchases of school materials. Almost all Argentines in the poorest quintile reduced such expenditures. Further, due to lack of funds at the provincial level, seven provinces experienced school closings during 2002, reducing effective teaching time between 10 and 40%. Many teachers reported not receiving their salaries on time, triggering protests organized by teachers' unions, and strikes in several provinces. 18. Inthe health sector, the deep economic crisis further hampered the functioning of facilities at the national and provincial levels and, at least until early 2002, reduced the population's access to essential drugs and services. Due to rising unemployment and falling real wages during the crisis, roughly 12% of individuals with formal health insurance either discontinued, or reduced their coverage. The trend has contributed to an increase in the use of already financially strapped public hospitals and health centers, the traditional providers for the uninsured. Even despite the increased use of public health facilities, about one quarter of Argentine households had at least one member experiencing a lack of medical attention when needed in early 2002-largely because households could not afford the necessary medicines, transportation costs or fees. The incidence of insufficient health attention was higher for households with children under the age of twelve: more than one third o f all parents in these households reported that they reduced the frequency of seeking medical attention for their children. 19. Troublesome signs and symptoms were observed in core public health programs, in access to and delivery of individual health care services (of all complexity levels), and in the coverage and effectiveness of the various health insurance systems. Critical national health programs including immunizations, tuberculosis (TB), maternal and child health (MCH) and HIV-AIDS, suffered major deterioration during 2001 and early 2002, precisely in a moment of soaring needs. Preliminary data suggest that the infant mortality rate has increased by up to 2% in 2002 as a result of the economic crisis. 20. Vaccine and essential medical distribution also suffered during the crisis. During 2001, vaccine distribution by the national Government to the provinces was highly irregular. Furthermore, during early 2002, there were delays in the acquisition of vaccines. Consequently, effective immunization levels most probably were lost in various regions of the country. Also during early 2002, stocks of anti-TB medications in many provinces fell to zero for several months, while an increasing demand for antiretroviral therapy accumulated waiting for proper response. In many provinces, the distribution of fortified milk, a key element of the child health program, was interrupted. The delivery of individual clinical and preventive services was also affected in the public hospital network, main provider for the poor uninsured. At all levels of care--from primary health centers to high-complexity hospitals--services were at some point during 2002 interrupted, postponed or cut back due to lack of essential inputs and medicines. 9 This situation was aggravated by an increasing number of uninsured citizens5 and a shrinking citizens' capacity for out-of-pocket expenditures. As expected, the poorest families were particularly affected by this situation. 21. Government response. Recognizing the seriousness of the social situation, the Government has moved decisively to expand key safety net programs and focusing on actions in education, temporary work and income support, nutritional assistance and health. Specifically: Emergency education programs seek to guarantee the provision of education services and facilitate access o f poor children through: (a) the use of school lunches and scholarships for secondary students to encourage attendance; (b) the provision of basic learning materials, which may otherwise be out of reach of poor families; (c) and the upgrading o f school facilities inpoor localities; Temporary work and income support programs are the cornerstone of the Government's new anti-poverty strategy. The Heads of Household program (Jefes de Hogar) provides unemployed heads of households with children a monthly cash-benefit conditional on participation in eligible work and training programs; Nutritional assistanceprograms, are designed to help meet the nutritional needs of children and poor families. In most of these programs, benefits are conditional on school attendance or participation in preventive health activities, and are designed to complement similar provincial programs and federal health and education programs; and Community development programs use the institutional capacity of NGOs and community-based groups to maintain social capital and implement self-help and sustenance programs. These programs focus on the establishment of community kitchens and projects for upgrading poor neighborhoods. These community groups are playing an increasing role in monitoring the execution of the emergency programs. 22. With respect to the health sector, The National Ministry of Health initiated inlate 2002 a series of emergency acquisitions, benefiting from a special increase in budgetary allocations. These emergency purchases included 20 million doses of vaccines, increasing immunization coverage of children to 87% and ending the suspension of the vaccination program, which had taken place in several provinces during the height of the crisis. In 2003, the approved national budget guarantees sufficient resources for the effective functioning of the priority public health programs, including immunizations, infant and maternal health, HIV-AIDS, and control and prevention of priority infectious diseases. Further, and in continuation of the 2002 emergency efforts, vaccines for the The 2002 crisis exacerbated structural problems in the social health insurance sector, as it resulted in an increase in the number of formal workers losing their jobs, a deepening of the financial imbalances of the different insurers, an increase in the level of debts and a rupture in the chain of payments to the final providers, in many cases causing the suspension of services or the lack of basic inputs. 10 immunization program have been procured and a national vaccination campaign that took place in April 2003, i s expected to have brought coverage back to levels above 95%. Antiretroviral therapies have been secured for roughly 20,000 HIV-positive patients, maintaining the level of service provision, which had been achieved prior to the crisis. Similarly, laboratory inputs for screening pregnant women at the public hospital network are now in place. Stocks of tuberculosis medications have been ensured, and the percentage o f patients treated with Directly Observed Treatment, short-course for Tuberculosis (DOTS) i s increasing. 23. During the crisis, particularly in early 2002, lack of access to essential drugs became a critical problem for the population in general, but particularly for the poor. In part, this was due to highprices of drugs while family incomes were declining rapidly. A key determinant of the high price was the generalized custom by medical personnel of prescribing brand name medications instead o f the prescription by generic name. To address this problem, the Government enacted, in August 2002, the "Generic Name Prescription Law". Results of this program are spectacular: one year after enacting the law, more than 57% of all prescriptions in the country are made on the basis of the generic name of the medication, a very significant increase from the negligible levels before the law was enacted. This has modified substantively the pharmaceutical market in the country and the variety of medications offered, as well as resulted in substantial reduction inprices. 24. In addition to enacting the "Generic Name Prescription Law", in October 2002, the Government also launched the "REMEDIAR' program, a nationally-financed program supported by the Inter-American Development Bank (IDB) that distributes free, essential medications to all low-income households. In its first ten months, the program distributed more than 50,000 essential drugs packages (botiquines), each of them including more than 300 complete treatment protocols for the most prevalent health problems in the country. This allowed mostly the provincial health systems to provide more than 15 million basic treatments to more than 11million fully-identified users of the public health system. 25. In addition, the recent creation of the National Coordination Council for Social Policies constitutes an important step in the direction of improving the effectiveness of social policies, as it allows for better coordination among the various actors at the national level and between different jurisdictions. 26. World Bank Response. The noted increase in spending on targeted and priority social programs was supported strongly (accompanied by a growing share of financing) from the World Bank. After the crisis, the Bank carried out a thorough review of its portfolio and identified existing loans that could be utilized to finance elements of the social emergency program for an amount o f approximately US$270 million. On this basis, financing under ongoing loans was provided to: (a) reduce the deleterious effects of reduction inpublic finances on public health programs, which ensure the health and well- being of the general public (e.g. vaccines); (b) ensure the services offered by primary health care clinics for basic maternal and child health, while reinforcing those services, 11 which are most likely to be strained because of the current crisis; (c) facilitate the learning processes of children by providing basic school supplies whose costs may otherwise be out of reach of poor families; and (iii) expand feeding programs for poor, vulnerable groups while sustaining the institutional capacity o f NGOs and community- based groups to mobilize self-help, provide sustenance and maintain social capital. In addition, on January 28, 2003, the Board of Executive Directors approved a US$600 million loan to support the Jefes de Hogar program described above. c. THE HEALTH SECTOR^ Sector Description 27. Health outcomes. Even before the economic and social crisis, Argentina's health system did not deliver what Argentines needed to maintain good health status andor to be protected from the costs of sickness. Throughout the 1990s, health outcomes in Argentina did not match the historically high spending levels and the country's significant installed capacity in the sector. According to the World Health Organization (WHO) data, only 17 countries in the world reported higher spending levels relative to GDP than Argentina in 2000. The number of physicians and hospital beds per capita were comparable to those in developed countries. However, wide differences in health status existed between provinces, with the poorest regions in the country experiencing a significantly higher incidence of maternal and child pathologies and infectious diseases. 28. Maternal and child health present a particular challenge today. Even though infant mortality rates have fallen by 50% over the last 20 years, their level have historically remainedhighrelative to countries such as Chile, Costa Rica or Uruguay with similar levels of economic development that spend less on health. Furthermore, the reduction in infant mortality rates appears to have stagnated in the last years before the crisis. Similar trends are observed in the case of maternal mortality. Also, disparities between provinces are high: Corrientes and Formosa have an infant mortality rate three times higher than the City o f Buenos Aires, and Jujuy has a maternal mortality five times higher than NeuquCn (Figure 3). This sectiondraws significantly from "The HealthSector inArgentina: Current Situationand Options for ImprovingHealthSector Performance", (Report No. 26144-AR), dated July 21, 2003. 12 Figure3 Infant (IMR) and Maternal Mortality Rate (MMR)by Province, Argentina 2001 35 25 30 20 25 P 4 n 4 Q 15 8 2o c 9" h a 15 z 10 g I 10 3 5 5 0 , - , , , , , , , , , , , , , 0 29. Access to quality health services. The relatively unsatisfactory health indicators are evidence that too many Argentines (with and without insurance coverage) are not receiving the type of health services they need. Two out of four Argentines--mostly poor--do not have health insurance coverage and rely almost exclusively on the services provided by provincial public health facilities. However, installed public sector capacity (e.g. hospital beds and doctors) i s unequally distributed in the territory with a relatively high concentration in richer jurisdictions and those in which the private supply is the largest. At the same time, effective provision of services through the public network i s limited by inefficiencies within the public system. 30. Health care, especially for the poor, i s costly for the Argentine population. Among the insured, co-payments tend to be high. Although Argentina has a mandatory health insurance package for the social security system (Programa Medico ObZigutorio- PMO), in practice, there are significant differences in the actual package of services (and co-payments) between different insurers, which result in high out-of-pocket expenses. On average, Argentine households spend 7% of their income on health. This proportion i s higher for lower income families and constitutes a serious barrier to access, even for many with insurance coverage. 31. Most public financing i s allocated to tertiary health facilities today. Although numbers vary by province, in general, no more than 8% of the total spending in health i s dedicated to the first level of assistance--out o f which only part of the actions included 13 correspond to promotion and prevention. Additionally, this spending i s usually tied to specific programs with little innovation in their internal management or their distribution. The greater fraction of public spending on health i s used for covering the labor costs of higher complexity hospitals, independent o f the quantity and quality of the services provided. Some key characteristics in the management of public hospitals limit their ability to ensure an effective service delivery to the non-insured population. A lack of performance incentives, a minimum level of autonomy, governance and accountability, weak management and poor articulation with social security are key factors preventing effective delivery systems. I Box 1:Maternal and Child Health I Most infant (neonatal and post-neonatal) and maternal deaths in Argentina could be avoided through timely prevention, diagnosis and treatment. O f the 7,650 neonatal deaths in 2000 (representing two thirds of all infant deaths in the country that year), 60% were considered avoidable mostly through adequate controls during pregnancy. O f the almost 4,000 post-neonatal deaths during the same year, 57% could have been avoided through prevention and timely treatment. If Argentina were able to avoid half the avoidable infant deaths, it would approach an infant mortality rate of 12 per one thousand life births. Abortions explain at least 29% of the approximately 300 maternal deaths that took place in 2001. Other factors associated with high maternal mortality are the quality of health facility-based deliveries and the incidence of teenage pregnancy, particularly in the northern provinces. Furthermore, teenage pregnancies are strongly associated with low weight at birthand higher infant mortalitv. 32. Institutional fragmentation. The institutional fragmentation of the system limits the ability to reverse its weak performance. The health sector in Argentina i s highly fragmented, with little articulation between its different sub-systems: social security covers slightly over 40% of the population, the private sector covers slightly over 10% o f the population, and the public sector covers the remaining 50% of the population. The social health insurance system (see Box 2) is further fragmented into hundreds of insurers, not all of them regulated by the Health Superintendency-which, by law, has no regulatory power over private health insurers. This fragmentation contributes to generate inequities, inefficiencies and governance problems in the system, which limits the ability to reverse the negative outcomes referred to before. The fragmentation makes it extremely difficult to develop stable redistributive mechanisms to ensure equity in financing. The dispersion of the population among too many small insurers reduces the size of risk pools, increases administrative costs and tends to generate persistent deficits that, often, require official bailouts. 14 I Box 2. Social Health Insurance inArgentina I Argentina's social health insurance sector suffers from various critical problems. First, it is inequitable: that is, it falls short of securing essential health services and sufficient financial protection to a large and increasing number of citizens, mostly poor. Its model of organization, based on formal employment, leaves too many working families out of the system. Poor enforcement, lack of innovative and flexible arrangements for including the informal economy leave today's health insurance coverage roughly at 40% of the population, and falling. Additionally, the sector lacks effective financial redistribution mechanisms and maintains regressive (and inefficient) cross-subsidies that further erode the provincial public health systems' already limited budgets. Second, under its current institutional arrangements and incentives, the social health insurance sector i s also highly inefficient: it is highly fragmented in various subsystems and hundreds of insuring agents. Often poorly identified beneficiaries are dispersed in hundreds of small risk pools, with high levels of intermediation (and administrative costs) and persistent financial imbalances resulting in chronic deficits and requiring expensive periodic bailouts. Structural reforms to improve the efficiency of mechanisms such as the "Administracio'n de Programas Especiales" APE (in charge of reimbursing insurers for high complexity pathologies inthe national health insurance system) need to be consolidated. 33. Fragmentation also creates opportunities for non-transparent cross-subsidies between sub-systems--for example, when public hospitals do not recover costs of services from health insurers. Between 20% to 40% of those receiving treatments at public facilities are covered by social or private health insurance, but only a very small fraction of the costs o f providing such services i s recovered from the respective health insurance organization. For example, in 2002 only AR$2 million per month were recovered by public hospitals while it i s estimated that, if systems, procedures and norms were to work efficiently and expeditiously, cost recovery could have amounted to about AR$70 million per month. Key factors contributing to these results are (i) the difficulties in identifying beneficiaries, given the lack of an updated and consolidated registry other than the OSN registry; (ii) high complexity of the cost recovery process, (iii) the inconsistencies in the nationally determined reimbursement rates; (iv) lack of incentives resulting from fixed public financing of public providers regardless of performance or the amount of eligible beneficiaries they provide care for; and (iv) low management capacity inpublic hospitals. 34. Argentina's federal structure, which determines that almost all health sector responsibilities (operational and on policy) reside at the provincial level, poses a unique and complex challenge for the Government to overcome the current level of fragmentation. Historically, there has been little or no effective health policy and health program coordination between the national and the provincial level, as the national Government level has only limited legal and administrative influence over provincial health sector policy. Common health targets, quality standards or regulations for the establishment of new facilities have not been defined as a national standard and adhered to by all provinces. This lack o f leverage and coordination has severely hampered the effectiveness of national programs and projects, as it i s difficult to ensure ownership by the provinces. Only during the last year has there been a major effort to revitalize the Federal Health Council (COFESA) as an institution facilitating the policy dialogue and coordinationboth among provinces and between the national and the provincial level. 15 111. ARGENTINE HEALTHSECTOR PRIORITIESAND THE GOVERNMENT'SREFORMPROGRAM 35. The Government has identified five critical issues in the health sector, and has designed a sectoral reform program, the HSRP, that addresses those issues in a comprehensive manner. The Government's HSRP, to be implemented over the ten years, is outlined in a Letter of Development Policy (Annex l), dated September 5, 2003, which was prepared in the context of preparation o f the proposed PMCHSAL. World Bank technical advice in the form of two analytical studies, completed in 2003, supported the design of the Government's program: a Health Economic Sector Report7 and a Public Expenditure Review, to be distributedto the Board shortly. 36. The HSRP, developed by the Ministry o f Health in close consultation with all provinces through COFESA, recognizes that the institutional, financial and economic crisis has fundamentally changed the realities facing the country and with that, the priorities in the health system. The uninsured, mostly the poor, have increased strongly in2001 and early 2002, while healthoutcome indicators are stagnating or worsening with wide health disparities among provinces, The complex political and institutional history of reforms in the social health insurance system and the significant reduction of its coverage have resulted in the greatly increased responsibility for service delivery b y provincial health systems. This in turn has accentuated the need to improve the efficiency of those provincial health systems focused on delivering services to those who are uninsuredtoday. 37. B y centering around the definition o f a defined package of guaranteed services and payment systems that reward performance, the HSRP aims to alter fundamentally the delivery mechanism of health services in Argentina. The planned introduction of a provincial level MCHIP focused initially on the poor and uninsured in the poorest provinces i s at the core of the reform. The MCHIP would help provinces to reorient their focus from inputsto performance, and through its poverty focus make public subsidies in the health sector significantly more progressive. 38. Estimates show that upon full implementation, the HSRP could reduce infant mortality by 35% in the nine poorest provinces in Argentina, and, as a result, achieve a 29% overall reduction of infant mortality rate in the nation over the next 10years. Annex 5 summarizes the analysis on the HSRP's potential impact on infant and maternal mortality. 39. Policv Priorities. The policy priorities in Argentina's health sector include the need to: (i)increase access to basic health care by the uninsured, especially mothers and children, through defining and delivering a basic health package; (ii) provide improved, effective national-provincial health policy coordination; (iii) protect priority health expenditures; (iv) formulate a national policy for sexual and reproductive health; and (v) ' "The HealthSector inArgentina: Current SituationandOptionsfor Improvement:" ,(ReportNo. 26144-AR),datedJuly 21, 2003. 16 shift public subsidies to the poor from the non-poor through effective regulation and consolidation of key aspects of the reform of the social health insurance system. These policy priorities, together with the Government's program of reforms to address those priorities, are described indetail below. 40. Delivering a Package of Basic Health Care. Issue: The Government's highest health policy priority is to guarantee access to a package basic health care to the uninsured, especially mothers and children. To do this, the Government will need to transform the existing institutional arrangements for service delivery in a manner that will allow it to efficiently and effectively address the health needs of the poor and the under- served or under-covered. With about three fourths of the poor depending on public service delivery (in contrast to being affiliated with a social insurance system or relying on private providers), delivery of basic health care i s largely a provincial responsibility. Meeting that challenge will require practical, concrete means to guarantee access to basic services. Conceptually, this will involve the definition of such guarantees, the establishment of necessary financing mechanisms and setting up of incentives to provincial health service purchasing agencies and providers to act accordingly. Provincial health systems will have to be at the forefront o f this transformation-with support and facilitation from the national Government. 41. The provision of maternal and child health i s at the very top of the Government's priorities, as these groups represent the most vulnerable among the poor and uninsured. Thus, the establishment of a maternal-child health insurance is seento be the first priority ina process geared towards (i) improving, in a sustainable way, access to essential health services and drugs for the uninsured poor; (ii) modifying resource allocation and service delivery incentives in favor of enhanced equity and efficiency; and (iii) reducing health outcome disparities across regions. 42. GovernmentProgram: TheMaternal-Child Health Insurance Program (MCHIP) is the central pillar of the Government's Health Sector Reform Program. The MCHIP will be financed by the national Government as a conditional grant with increasing counterpart financing from participating provincial Governments, and service delivery will be the responsibility of provincial health system. The MCHIP will allow provinces to provide uninsured mothers and infants with a package of essential prevention, diagnostic and treatment health services. Enrollment in the MCHIP will be available, on a voluntary basis, to all children up to their sixth birthday, to all pregnant women, and to all mothers for up to 45 days past their date of delivery or unintended abortion (mothers after the 45`h day after pregnancy will then be referred to the Sexual and Reproductive Health Program, which i s another integral component of the Government's HSRP). 43. The provinces will play a central role in the implementation o f the MCHIP, with the National Ministry of Health having a supporting stewardship, financing and technical advisory role. To promote efficiency, financial transfers from the national to the provincial Governments under the MCHIP will be linked with improvements in outreach and utilization of services by the uninsured. The national Ministry of Health will transfer resources for acquiring the defined maternal and child health service package directly to 17 the provinces who would then purchase the corresponding services from accredited public and private health services providers. Financing from the national Ministry of Health will be on a capitation basis. The actual cash flow will be adjusted according to the achievement of agreed levels of coverage for a few (4-5) key interventions closely related to the main causes of avoidable infant mortality. Participating provinces will sign an umbrella agreement with the National Ministry of Health, that will serve as an accord between the National Health Ministry and the respective province, defining the rules for both participants regarding the administration, financing, monitoring, auditing and other specific requirements with which the province would need to comply to participate in the program. Participating provinces will also sign an annual performance agreement, which will specify the yearly results and enrollment goals, and corresponding yearly expected budget. Throughout the program, the national Ministry o f Health will provide technical assistance for implementing the MCHIP to the participating provinces. 44. Notwithstanding the national Ministry of Health's stewardship role, provinces would enjoy sufficient autonomy to set contractual and payment mechanisms with accredited public and private providers. The only restriction will be that all payment mechanisms between the provinces and the provincial providers will need to be based on actual delivered interventions to the target population rather than on the basis o f financing inputs. 45. The MCHIP's benefit package was designed by the national Ministry of Health and includes almost 100 cost-effective interventions, including those that target the main causes of infant mortality (diarrheas and acute respiratory diseases as well as malnutrition and inadequate perinatal care) and maternal mortality (hemorrhage and infections linked to unsafe deliveries and complications from unsafe abortions). The benefit package also includes cost-effective interventions for primary health care promotion and prevention, as well as reproductive health after deliveries. Table 3 summarizes the main components of the Package of Basic Interventions (CPB). The inclusion o f outreach activities especially designed for indigenous populations and the adaptation o f service delivery to the special needs of indigenous mothers and children i s a special feature of the CPB that i s of particular importance for Argentina's nine northern provinces, where most of the country's indigenous population resides. 46. The MCHIP has a strong poverty focus. First, the program aims to reach family members of uninsured households, which are generally unemployed or work in the informal sector. These groups have a much higher likelihood o f being poor than the insuredhouseholds. Second, the program i s directed especially at mothers and children, which among the uninsured are the most vulnerable groups. Finally, in a first stage, the MCHIPwill be implemented in nine provinces of northern Argentina that are the poorest in the country. These provinces include 75% of Argentina's indigenous population-- traditionally a poor and excluded group--and will include special outreach activities to target these groups. Inits first stage, the MCHIP will be implemented initially on a pilot basis in two of the nine selected provinces, and then scaled up after a planned evaluation at the end of the first year of implementation to cover all nine northern provinces. In a 18 subsequent stage the Government plans to expand the program's implementation to all of Argentina's 24 provinces and the City of Buenos Aires. 47. The MHCIP i s expected to produce significant efficiency gains. In the short run, it is expected to result ina reducedunit cost for a significant number of interventions that will no longer be treated through the health system's high-cost hospital level. Inthe long run, the planned prevention and low-cost ambulatory care interventions are expected to lead also to significant unit cost reductions compared to the current high cost of treating complications of chronic diseases in hospitals. The financial analysis makes a conservative assumption of 5% savings in the overall provincial health budget over the duration o f the HSRP. Table 3. Packageof BasicInterventionsto besupportedbytheBankProgram Interventions children under 6 Interventions pregnant women Neonate Asphyxia Pre and postnatal care Localbacterial infections (babies < 2 months) Deliveries (including induction and Cesarean Regular vaccination (MMR, BCG, DPT, Polio) sections) Severe bacterial infections (Sepsis, Meningitis, Pre-eclampsia/ eclampsia Pneumonia, Dysentery) Hemorrhage in the 1st half of pregnancy (prevention Acute respiratory diseases andcare) Diarrhea Hemorrhage in the 2nd halfo f pregnancy Nutrition and development (anemia, parasitism) Puerperal hemorrhage and infections Other neonatal interventions Sepsis Perinatal care including, as vertical transmission o f HIV Interventions after pregnancy and after unintended Laboratory analyses and other servicesduring the abortion pregnancy Blood group and Rh, complete hemogram, urine Family planning counseling analyses, baciloscopy (tuberculosis), Glicemia, Treatment of STDs (syphilis, gonorrhea, clamidia, Creatinine, Bilinubina, Transaminasas, triconomiasis and candidiasis) Proteinuria, RPR (Syphilis), HIV Echography Incubator Other Activities covered Indigenous population Programming the primary health interventions Visits by specially trained health personnel to Supervision and monitoring o f health interventions indigenous families and communities without access to health facilities 48. Strengthening; Effective National-Provincial Health Policv Coordination and Regulation. Issue: Closer coordination between the national and theprovincial levels is essential to implement the improved overall public health policy development in general, and the implementation of the MCHIP in particular. The establishment of a maternal and child insurance centered around the definition and delivery of a basic health service package will require revitalizing the role o f the Federal Health Council, COFESA, which coordinates national and provincial health policies. COFESA, founded in 1981 and 19 comprising representatives of all provincial Ministers of Health andthe national Ministry of Health, has, until recently, played a relatively minor role in shaping health policy in Argentina. Given that provinces would be at the core of the health delivery reforms, it i s essential that COFESA regains its role of coordinating effectively national andprovincial health policies. 49. Government Program: The Government has taken important action to revitalize national-provincial policy coordination and reach consensus on the need for developing and implementing the MCHIP. Specifically, COFESA has reached an important accord, the San Nicolas Accord signed inMarch 2003, which by its role in coordinating national- -provincial policy dialogue and in generating consensus for health policy among all provinces and between the provinces and the national Ministry of Health, i s considered fundamental for its ability to implement the MCHIP. The federal nature o f Argentina and the constitutional mandate that all health service responsibilities reside at the provincial level makes it essential, for the feasibility of any national level initiative, to ensure ownership, active participation and consensus with the provinces. Without it, MCHIP implementation would be unfeasible. The Government has also assigned a stronger role for COFESA, as evidenced by the San Nicolas Accord and by national Government regulation that self impose on the national level the obligation to distribute important national programs such as milk, essential medications and contributions from international donors on the basis of allocations unanimously agreed by COFESA in 2003. Under the Government program, COFESA would play an increasingly central role in health policy determinationin the coming years. 50. Protecting Priority Health Expenditures. Issue: Given the social ramifcations of the recent crisis and the lowered ability of poorer groups in society tofinance essential health services, the protection of key public health programs from expenditure cuts is paramount. Protecting essential national programs is a priority to secure sufficient funding and proper management at the national level for immunizations, epidemiological surveillance, HIV/AIDS, TB, prevention of other communicable diseases, nutrition, sexual and reproductive health, and maternal and child health. 51. Government Program: The Government assigns high priority to protecting essential national programs and is committed to allocating necessary funding together with proper management at the national level to ensure immunizations, epidemiological surveillance, HIV/AIDS, TB, prevention of other communicable diseases, nutrition, sexual and reproductive health, and maternal and child health programs. The Government's 2004 budget proposal includes allocations that will protect the implementation of the above priority programs. The list of programs, their coverage and benefits are summarized in Table 4. 20 Table 4 Protected Priority Public Health Programs, Annual Coverage and Beneficiaries r Population Program Coverage Quantity 300,000 children under 2 9 million kg milk years old accination 4,7 millionchildren under 29 million vaccine doses 6 years old of Tuberculosis 12,000 infectedpatients 12,000 Treatments IV/AIDS I" 23,600 beneficiaries 23,600 retroviral treatments IV/AIDS 500,000 diagnostic test for pregnant women million diagnostic kits Sanitary Emergency 7 millionpublic sector 156thousand "botiquines" beneficiaries 52. Formulating a National Policy for Sexual and Reproductive Health. Issue: A national program for sexual and reproductive health that would address the disproportionate burden of disease of women and infants of poor families throughout Argentina is needed to complement the provincial level health initiatives. The implementation of the Sexual and Reproductive Health Law, enacted in 2002, and national program designed to support its implementation i s essential to complement the implementation of the MCHP. The program will provide reproductive health services, including family counseling and family planning to all uninsured women in Argentina. In order to be effective, however, this program will require strong efforts in the areas of coordination across Government agencies, enforcement, and monitoring and evaluation. 53. Government Program: The Government's HSRP fully supports the implementution of the recently approved Sexual and Reproductive Health Law. Specifically, it requires (i)enacting resolutions (by August 2003) that further defined the coverage and implementation of the Sexual and Reproductive Health Law; (ii) coordinatingjoint efforts across various social ministries (e.g. health and education); (iii) assigning sufficient resources inthe budget for its annual action plan (inputs, services and technical assistance); (iv) ensuring compliance with the law both in the public and social health insurance system; and (v) defining and implementing a monitoring and evaluation system. 54. Regulating and Continuing the Reform of the Social Health Insurance System. Issue: Actions at the provincial level need to be complemented with an egective regulation of Social Health Insurance System to shift public subsidies to the poor from the non-poor. 21 55. Today, Argentina's health system i s characterized by a significant leakage of public subsidies to the non-poor. There are two main problems determining the leakage: (i) lackofcostrecoveryfromHealthInsuranceOrganizations(Social Securityand the private insurance) by provincial public providers; and (ii) the migration of OSN beneficiaries to the provincial health system as a result of a dysfunctional Solidarity Redistribution Fund(Fondo Solidario de Redistribucio'n-FSR). 56. Provincial public hospitals do not recover costs of services from health insurers. Between 20% to 40% of those receiving treatments at public facilities are covered by social or private health insurance, but only a very small fraction of the costs of providing such services i s recovered from the respective health insurance organization. Key factors contributing to these results are: (i) the difficulties in identifying beneficiaries, given the lack o f an updated and consolidated registry other than the OSN registry; (ii) the high complexity o f the cost recovery process; (iii)inconsistencies in the nationally determined reimbursement rates; (iv) lack of incentives for public hospitals to charge users of OSN resulting from fixed public allocations regardless of production or eligibility of beneficiaries they provide care to; and (v) low management capacity inpublic hospitals. 57. Social Insurance Organizations have a strong incentive to reduce access to high riskhigh cost social security beneficiaries, implicitly inducing them to migrate to the provincial health systems ("risk dumping"). These incentives are mainly an old legal design that results in ineffective redistribution mechanisms in the Solidarity Redistribution Fund (Fondo Solidario de Redistribucidn-FSR). The FSR i s the institutional arrangement by which all OSN beneficiaries contribute to a common fund and then redistribute the proceeds of the fund to the OSN system. The main purpose of the new (and agreed with the current Superintendency) redistribution mechanism would compensate for income and risk differential among the system's beneficiaries to improve equity and reduce incentives to expel high riskhigh costs beneficiaries. The current redistribution mechanism of the FSN, a flat non-risk adjusted capitation system, does not solve the problem. 58. The implementation o f the MCHP will require both an increase in cost recovery as a source of revenue to finance the program, as well as assurance that the grants from the national level will be well targeted to the uninsured poor and not leaked to the non- poor. 59. Government Program: The Government's program with respect to the social health insurance system includes actions to consolidate the regulatory gains of the last decade and advance the regulatory agenda to avoid undesirable leakage of public subsidies. 60. Considering the priority being given to the uninsured population and accounting for the progress made during the 1990s on reforming the social security system, the Government's strategy with respect to the social health insurance system intends mostly to consolidate the regulatory gains o f the last decade and particularly of the last year 22 while advancing the regulatory agenda to avoid undesirable leakage of public subsidies to the non-poor. The Government's program will address the two main causes of the leakage. Specifically, it aims to: (i) support public provincial hospitals to increase cost recovery from health insurers; and (ii) introduce a much more effective risk adjustment mechanism to the FSR. IV. THE WORLD BANK'S STRATEGY, RESPONSETO THE CRISIS, AND EXPERIENCEINTHE HEALTHSECTOR A. STRATEGYAND RESPONSETO THE CRISIS 61. The last Country Assistance Strategy (CAS) Report for Argentina was discussed at the Board on June 27, 2000 and was subsequently updated in a CAS Progress Report dated October 1, 2001. The overall strategy set out in those documents has largely been superseded by the crisis that erupted in end-2001 and its drastic impact on the prevailing economic, political, and social conditions.. The Bank has since then adjusted its proposed strategy to respond to the needs emerging from the acute increase in poverty and indigence levels and to support the transition towards the normalization of economic and social conditions. Staff have regularly briefed the Board'. on Argentina's latest developments and on the Bank's financial and technical assistance in support of the country's efforts to normalize economic and social conditions. 62. The Bank's response to the crisis situation has included three major steps: (i) during the course of 2002, US$270 million were re-allocated from existing projects to emergency social programs in the areas of nutrition, health, and education (as described in Section 2B above); (ii) January 2003, the Board approved a US$600 million loan to in finance the Heads of Household Program aimed at assisting the unemployed, and benefiting about two million households; and (iii) in May 2003, the Board approved a US$500 million Economic and Social Transition loan that, among other measures, has supported the recovery of the quasi-moneys issued by the provinces and ensured continued execution of programs dealing with the provision of essential social services.' 63. In addition, the Bank has made intensive efforts to improve performance of its investment portfolio, which includes a total of 29 projects with an undisbursed balance o f about US$1.3 billion. Despite these efforts, implementation progress i s rated unsatisfactory for half o f the projects and the pace of disbursements has continued to slow down despite relative improvements in Government budgetary allocations and the resolution of some operational problems emerging from the crisis. Better progress has 8Briefingsincluded:OralBriefing on Argentina (1/24/2003), BoardHeadof Households(Jefesde Hogar) -Firstitem((1/28/2003),OralBriefingtoEds(2/6/2003),InformalBoardMeetingUpdateonArgentina 'and"Argentina Uruguay (3/6/2003), ArgentinaSAL -BoardMeeting(5/22/2003), Argentina Brief with the Board (6/24/2003)and CDF & Conflict -affected CountriesMeeting. Social Emergency Program Loan" (R2002-0189); "Argentina: Jefes de Hogar Program Loan" (Report No: 23710-AR); "Argentina: Economic and Social Transition Structural Adjustment Loan", (Report No: 25860-AR). 23 been made in the case of the adjustment portfolio where an amount of US$622 million had remained undisbursed in early CY2003 corresponding to a Structural Adjustment Loan and three Provincial Reform Loans to the provinces of Santa Fe, Cordoba, and Catamarca. After a process of renegotiation of these operations to adjust them to post- crisis conditions, a total of US$375 million had been disbursed until September, 2003. The remaining balance i s expected to be disbursed inthe course of the coming months. 64. The Inauguration on May 25, 2003 of Nestor Kirchner as the democratically elected president ended the political transition period that started with President de la Rua's resignation in December 2001. The new administration faces as one of its key challenges the design of a long-term development agenda that puts the country on a path of sustainable growth, social inclusion and improved governance. The definition of a comprehensive long-term development strategy i s ongoing. 65. The Bank has engaged in policy discussions with the Governments on the country's policies, institutions and developmental issues and our dialogue has focused on three areas-the economy, governance and social issues. In addition, the Bank has prepared economic and sectoral reports in a number of areas, focusing primarily on the themes of economic growth and poverty reduction. Reports just completed include a Public Expenditure Review, a Health Sector Strategy and a Poverty Update. All these reports have been delivered to the relevant sectors and are at various stages of review and comment by the Government. 66. These documents are expected to be an important input in the preparation of a new Country Assistance Strategy. Staff have begun a series of consultations with civil society and private sector groups as well as discussions with Government officials at the federal and provincial levels. These consultations will continue in the months ahead and provide the foundations for the discussions with the core economic authorities of the Bank's business strategy for the period 2004-2007. The new CAS i s currently expected to be submitted for Board consideration close to the end of this calendar year. Support in the social sectors i s expected to be one of the key pillars of the new CAS. Work has also begun to identify and prepare a possible adjustment operation aimed at consolidating the incipient economic growth and improving competitiveness and the prevailing investment environment. 67. The proposed Provincial Maternal Child Health Adjustment Loan i s fully consistent with the priorities and directions of the present country assistance framework. It also reflects and builds on the recommendations arising from the Bank's recent analytical work, and it fits squarely with the health sector reform priorities of the new Administration. Management has briefed the Board about the broad content and design of the proposed operation inthe course o f the periodic briefings". loBoard Meeting (5/22/2003), Argentina Brief with the Board (6/24/2003) and CDF & Conflict-affected CountriesMeeting 24 B. WORLD BANK SUPPORT OF THE HEALTH SECTOR AND LESSONS LEARNED 68. Inthe second half of the 1990s and inline with the Government policy prevailing at that time, the Bank supported Argentina's health policies with a mix of adjustment and investmentlending supporting three different strategic axes. First, and most important in our lending activities, were the reform of the national social health insurance system through adjustment and technical assistance support. Second, the Bank supported provincial health insurance reforms by incorporating the sector in a number of Provincial Reform Loans as well as in the Provincial Health Sector Development Project. Third, two investment operations targeted maternal and child care, including child nutrition, attention to reproductive health of mothers, and early childhood development, through financing investments in selected provinces. 69. Reforming the National Health Insurance. The main focus of health policy in Argentina during the last decade was on the formal social health insurance system, particularly on the National Social Health Insurance (Obrus Sociules Nucionules). The expectations o f a booming economy in the 1990s, the increasing formalization of the economy coupled with an already high coverage o f the social health insurance system (50% of the population in 1997) made most policymakers believe that the health insurance needed to have an even larger role in providing services to the Argentine population. To play a more inclusive and comprehensive role, the social health insurance system needed urgent structural reforms to improve efficiency and equity, and to extend lending accompanied this reform. its coverage to the self-employed11 and other groups. Adjustment and technical assistance 70. The reforms of the national health insurance proved significantly more difficult than envisioned and were only moderately successful, but some important gains were achieved as a result of the program such as the OSN beneficiary data base as well as the introduction of the mandatory benefit package for all OSNs (Progruma Medico Obligatorio-PMO). The insurance reform agenda was moderately completed by the closing of the projects in 200112and outstanding issues relate to the need to consolidate progress rather than modify policies. In contrast, the much-needed reforms at the provincial level were only marginally addressed. It was expected that after the successful completion of the OSN reforms, the Government and the Bank would address the challenging structural problems of provincial health systems. Unfortunately the crisis and the inherent difficulty of the issue prevented the Government from addressing these reforms at that time. l1 "Argentina: Health Insurance Reform Loan" (Loan 4002-AR and Loan 4003-AR); supported by "Argentina: HealthInsuranceTechnicalAssistanceProject, Loan4004-AR). l2 HealthInsuranceTechnical AssistanceProject, Ln4004-AR; ImplementationCompletion(Report No. 24326-AR),June 2002. 25 71. Provincial Reforms. The Bank supported several provincial health system reforms through support provided to the health sector under provincial development projects and reforms 10ans.l~ Despite the technical robustness in the design of these reforms, the results proved incomplete and insufficient to resolve the structural problems of the provincial health sector and to improve its perf~rmance.'~Two reasons are responsible for this result: (i) provincial Governments lacked commitment to programs and reforms largely designed and managed by the national Government; and (ii) the focus of the national Ministry of Health on the OSN reform demanded most of its political and managerial capacity, marginalizing the provincial health reforms inthe national agenda. 72. Provincial Investments for Maternal and Child Health Care. The Bank has also financed two investment projects to improve maternal and child health in selected provinces; one completed in 2000 and one closing at end 2004.15 The support comprised assistancefor largely supply side interventions, including the financing of investments for facilities and for basic supplies, which were managed directly by the central Government national Ministry of Health. While physical works have proceeded well under both projects, the projects could have been more effective if they had included a stronger link to necessary provincial-level policy changes, including the introduction of an incentive environment for purchasers and providers. The ongoing project contains the pilot testing of well-integrated health care delivery model inmaternal and child health in a number of provinces but lessons are still outstanding. 73. Lessons Learned. Three main lessons of experience can be drawn from the Bank's support for Argentina's health sector over the past years, which are important in the design of this adjustment operation. First, focusing reform on the national social health insurance system proved difficult and insufficient to address the health problems of the poor. While structural reforms were moderately successful, coverage of the uninsured did not expand significantly. The Government's HSRP and the proposed PMCHSAL that supports it therefore focuses on establishing a mechanism o f health care coverage for the uninsured directly and providing incentive systems for provinces to deliver a package of basic health care to the most vulnerable groups among the uninsured. Reaching the uninsuredbecame an even higher priority given the effect of the economic crisis, which caused 12%of the insured to loose their health coverage. 74. Second, the projects and reforms did not reach the poorest provinces where most of the uninsured live. The Government strategy for introducing the MCHP, supported by the proposed adjustment operation, therefore prioritizes reforms in the poorest nine provinces in the north-east and north-west regions o f Argentina, which include a very highpercentage of the uninsured. 13 Argentina Provincial ReformsLoans SantaFe (Loan 4575-AR); Catamarca(Loan 4578-AR), Cordoba (Loan4634-AR), Rio Negro (Loan 4218-AR), Salta (Loan 4219-AR), San Juan (Loan 4220-AR); and Tucuman (Loan 4221-AR). See also "Argentina Provincial Health Sector Development Loan (Loan 3931-AR). l4 "Argentina: Implementation Completion Report for Provincial Health Sector Development Loan" (ReportNo.: 24325-AR). Maternal and Child Health and Nutrition Project; Ln 3643-AR (1994); Second Maternal and Child HealthandNutrition Project,Ln4164-AR (1997). 26 75. Finally, the Bank's experience in supporting Argentina's health policy reform points to the necessity to closely link policy-based lending with investment and technical assistance support. The Government shares this view and i s therefore preparing for future Bank consideration a follow-on Maternal-Child Health Investment Project, which would provide technical assistance at the provincial level and scale-up the pilot experiences to the entire country. V. PROPOSEDLOANAND IMPLEMENTATION ARRANGEMENTS A. THELOAN 76. Obiectives. The main objective of the proposed Provincial Maternal Child Health Sector Adjustment Loan (PMCHSAL) i s to respond to the urgent health needs of the poor, particularly the uninsured mothers and children, while simultaneously, assisting the Government to modify the incentive framework for financing and delivery of health care services starting in Argentina's poorest provinces. The proposedPMCHSAL supports the Government's program of health sector reform, outlined in Section IIIabove, which emphasizes the provinces' crucial task of ensuringservice delivery to the poor since more than three quarter of the poor depend on provincial public services. The proposed PMCHSAL i s part of the Bank's effort to help Argentina during the current economic transition period. At the same time, the proposed loan presents an opportunity to support the Government in initiating much-needed structural changes inthe Argentine provincial- level health sector by the carrying out of its HSRP that prioritizes service delivery in the country's nine poorest provinces. 77. Program Supported by the Loan. The proposed PMCHSAL would support the five pillars of the Government's HSRP, and includes assistance to: (i) implement the Maternal-Child Health Insurance Program; (ii) revitalize and improve national-provincial coordination of health policy; (iii)protect essential priority health programs; (iv) implement the Sexual and Reproductive Health Law and program; and (v) consolidate social health insurance regulation to ensure better targeting of public subsidies to the poor. 78. The Bank strategy for assisting the Government in the implementation of its HSRP in FY04 would include the proposed PMCHSAL, which, as described in this Program Document, supports the efforts to introduce key policy reforms, especially the launching of the Provincial Maternal-Child Health Insurance Program. The Bank is working closely with the Government to prepare an investment project, , which would help support the implementation of the policy reforms under the PMCHSAL through technical and financial assistance scaling up the MCHIP to the entire country. It is expected that an investment projectcould be ready for consideration by the Bank's Board of Directors inmid 2004. 27 79. The proposed loan requires that a satisfactory macroeconomic policy be maintained as evidenced, for example, by a disbursing IMF program that remains on track. The specific reforms supported by the proposed PMCHSALare summarized below and presented indetail in the Policy Matrix (Annex 3). Implementingthe Maternal-ChildHealthInsuranceProgram 80. At the center of this reform strategy is the Provincial Maternal-Child Health Insurance Program, which will guarantee the delivery of a pre-defined package of health services to eligible mothers and children inthe northeast and northwest provinces through a payment systems that will reward performance. This payment system will function as a conditional grant targetedto obtain health results for the poor, thereby radically changing the national-provincial relationship in the sector, on the one hand, and the relationships between purchasers (provinces) and health providers, on the other. After completion of the necessary policy changes and implementation of the insurance program as envisaged in the Government's HSRP, the provinces would be able to provide a highly effective package of basic health services to more than three million poor uninsured mothers and children, including almost 200,000 of the indigenous population by 2011. RevitalizingandImprovingthe National-ProvincesCoordinationfor HealthPolicy 81. The proposed loan would support the revitalization o f the role o f tha national- Provincial Health Council (COFESA) to improve the coordination between the national and the provincial level, essential for the implementation o f the MCHIP. The PMCHSAL would also support the consolidation of this mandate more precisely in areas where COFESA should be coordinating policy (allocation of national resources, formulation and consensusbuildingamong provinces on a national health plan, for example). Finally, COFESA would establish information policy that allows stakeholders open access to national health policy discussions. Protectionof EssentialPublicHealthPrograms 82. The proposed PMCHSAL would support Government plans to protect the budget allocation of core health programs since adequate financing and operation of essential public health programs has a significant impact on millions of children and patients with HIV/AIDS, tuberculosis, children and pregnant women. Likewise, the success of the Government's HSRP hinges critically on budget availability to launch the Maternal-Child Health Insurance Program in 2004. 28 Implementingthe SexualandReproductiveHealthLaw andNationalProgram 83. The implementation of the Sexual and Reproductive Health Law i s an essential complement to the Provincial Maternal-Child Health Insurance. This program, non- existent until early 2003, needs to complement provincial level health initiatives to address the disproportionate sexual and reproductive health related burden of disease o f women and infants of poor families throughout Argentina. SustainingNationalObrasSociales SystemReformsto Avoid Leakages 84. Consolidating the progress made in reforming the health social security system i s essential not only to ensure sustainability of a more transparent and equitable system but also to reduce negative spillovers on the provincial health systems. For example, consolidation of the regulation for establishing an up-to-date registry of beneficiaries of the social health insurance system, through more stable and permanent regulation, i s essential to avoid leakage of public subsidies to those beneficiaries of Obras that do not fulfill their obligation to provide adequate access to health services. To achieve this, the program would include verification that the OSN beneficiaries' data base i s available to provincial health providers on a permanent basis. Further, the program would ensure that operating procedures for OSN to reimburse provincial providers have been put inplace. B. LOANCONDITIONS The Programi s centered around the following major actions, which have been agreed with the Argentine authorities as the Loan Conditions. Annex 3 summarizes loan conditions and output and outcome indicators. Annex 7 summarizes monitoring indicators, baselines for output and outcome indicators and sources of data for monitoring. 85. First-TrancheReleaseConditionsMetBeforeBoard Regarding the implementation of the maternal-childhealth insurance program, the Government has provided to the Bank a copy o f (i) a Presidential Decree creating the Provincial Maternal-Child Health Insurance Program; (ii)a Ministerial Resolution launching the initiative with its financing and operational features; and (iii)evidence (letters from the provincial Ministries of Health) showing that at least eight of nine of the eligible provinces from the northeast and northwest regions have expressed their interest and commitment to participate in the program. 0 With respect to revitalizing and improving the national-provinces coordination for health policy, the Government has provided the Bank with: (i) evidence of a consensus accord of COFESA elaborating on the improvement and consolidation of its role in the National-Provincial coordination of health policy, including the agreement on the creation and implementation of a province- based Maternal and Child Health Insurance Program; and (ii)a national Ministerial Resolution mandating the use of COFESA-agreed rates for the distribution under key 29 national programs such as those for milk, essential drugs, international donations and other; 0 Concerning the protection of essential public health programs,the Government has already provided evidence that the 2004 budget proposal contains an amount of AR$583.3 million allocated for essential health and nutrition programs (HIV/AIDS, tuberculosis, maternal and child health, sexual and reproductive health, nutrition supplement, essential drugs), which includes an amount of AR$20 million for the launching and pilot testing of the Maternal-Child Health Insurance Program; In reference to the implementing the Sexual and Reproductive Health Law and National Program, the Government has provided evidence that the Law has been published and that all required regulations (reglamentos) for the full implementation of the Sexual and Reproductive Health Law, including the creation of the National Sexual and Reproductive Programhave been issued; To sustain the national Obras Sociales system reforms to avoid public subsidy leakages, the Government has provided evidence that the changes made in the regulation of the health social security system have been maintained, including norms for: (i) updating mechanisms and obligations for the beneficiary database of ANSS ("agentes del seguro nacional de salud" including OSN), which i s essential for provincial public providers to identify OSN beneficiaries and be able to bill them for their services; (ii) the per-capita distribution o f the Solidarity Redistribution Funds (FSR); (iii) the permanent elimination of all "subsidios institucionales" for the health security system from APE (Administration of Special Programs for OSN); (iv) the crisis procedures are being applied to the Obras System; and (v) a system to expedite charges from provincial public providers (hospitals and other) to the SNSS (when appropriate) through the SNSS Superintendence or other appropriate federal level agency i s inplace. 86. Second Tranche Release Conditions 0 Regarding the implementation of the maternal-child health insurance program, conditions comprise (i) a National Minister o f Health resolution approving of the final Operational Manual, agreeable to the Bank, for implementation o f the insurance program; (ii) organizational implementation and staffing (including issuance of relevant legal instrument) of the Maternal-Child Health Insurance management unit in at least four o f the nine eligible provinces, in accordance with the Operational Manual; (iii) approval and pilot implementation of an affiliation and identification system, agreeable to the Bank, for uninsured women and children; 0 With respect to revitalizing and improving the national-provincescoordination for health policy, the proposed PMCHSAL would seek assurances that the action taken prior to Board approval are being implemented fully and strengthened; 0 Concerning the protection of essential public health programs, the Government would provide evidence that at least AR$548 million, including AR$20 million for the pilot implementation of the MCHIP, will have been incorporated in the National Budget law for 2004, to be approved by legislature at the end of 2003. 30 Inreference to the implementing the Sexual and ReproductiveHealthLaw and National Program, the Government would provide evidence of the inclusion of the Sexual and Reproductive Health law services inthe Mandatory Benefit Package of the Social Health Insurance System (ProgramMkdico Obligatorio-Pit40 for the Obras Sociales System). To sustain the national Obras Sociales system reforms to avoid leakages, the Government has provided evidence that (a) the changes made inthe regulation of the health social security system are inplace, including norms for: (i) updating mechanisms and obligations for the beneficiary database of ANSS ("agentes del seguro nacional de salud" including OSN), which i s essential for provincial public providers to identify OSN beneficiaries and be able to billthem for their services; (ii)the per-capita distribution of the Solidarity Redistribution Funds (FSR); (b) A presidentialdecree has been issued and it is effective for the permanent suspension (elimination) o f all so called "subsidios institucionales" from APE; (c) at least 3 out of 5 largest hospitals in at least 4 out of the 9 eligible provinces (12 hospitals) have a functioning up-to-date OSN and OSP beneficiary data base at the admission points of the hospitals; (d) a system to expedite charges from provincial public providers (hospitals and other) to the SNSS (when appropriate) through the SNSS Superintendence or other appropriate federal level agency i s fully functional in at least 5 of the 9 eligible provinces.. 87. ThirdTrancheReleaseConditions Regarding the implementation of the maternal-child health insurance program, conditions comprise, conditions include (i) organizational implementation and staffing (including issuance of relevant legal instrument) of the management units in at least five of the nine eligible provinces, in accordance with the Operational Manual; and (ii) fully functional operation of the Maternal-Child Health Insurance program in at least two of the nine eligible provinces as set forth in the Operational Manual, including the enrolment and of at least 2,000 eligible beneficiaries ineach province.; With respect to revitalizing and Improving the National-Provinces Coordination for Health Policy, the proposed PMCHSALwould seek assurancesthat the action taken prior to Board approval are being implemented fully and strengthened; Concerning the protection of essential public health programs, the Government would provide evidence that budgetedfunds have been released to the Ministry of Health, including funds for the pilot implementation of the MCHIP; Inreference to the implementing the Sexual and Reproductive HealthLaw and National Program, maintenance o f the program would be required; To sustain the national Obras Sociales system reforms to avoid leakages, the Government has provided evidence that (a) the changes made in the regulation of the health social security system are in place, including norms for: (i) updating mechanisms and obligations for the beneficiary database o f ANSS ("agentes del seguro nacional de salud" including OSN), which is essential for provincial public providers to identify OSN beneficiaries and be able to bill them for their services; (ii)the per-capita distribution o f the Solidarity Redistribution Funds 31 (FSR); (iii) permanent suspension (elimination) of all so called "subsidios institucionales" from APE; (b) at least 3 out of 5 largest hospitals in at least 5 out of the 9 eligible provinces (15 hospitals) have a functioning up-to-date OSN and OSP beneficiary data base at the admission points of the hospitals; (c) a system to expedite charges from provincial public providers (hospitals and other) to the SNSS (when appropriate) through the SNSS Superintendence or other appropriate federal level agency is fully functional in at least 6 of the 9 eligible provinces; (d) the introduction of a risk-adjusted capitation system for the FSR, essential for reducing the incentives to the OSN to shift the treatment of high risk (and high cost) beneficiaries to public providers. C. DESCRIPTION OF FINANCIALASSISTANCE 88. The proposed US$750 million PMCHSAL forms part of the Bank support for Argentina's recovery program. The loan has three tranches. The three tranche design aims to align program implementation with program funding. The Government expects to implement the program over the next year and is firmly committed tothe planned policy steps ineach tranche. Tranche amounts are asfollow: first tranche US8450 million, second tranche US8150 million, and third tranche US$150 million. D. INSTITUTIONALARRANGEMENTS. 89. The Government's HSRP supported by this loan will be coordinated on behalf of the Government by the national Ministry of Health, in close collaboration with the Ministry of Economy and the Ministry of the Presidency. Representatives of these three ministries have formed a Steering Committee to oversee and monitor the achievement of the program's objectives and compliance with tranche conditionality. This Committee will be the point of contact for World Bank supervision of the loan. 90. Regular coordination of the program will be carried out by the Seguro Materno infantil Unit, a special high-level unit depending on the Cabinet of the Minister of Health. Given the program's strategic importance and its innovative nature, the Government has decided to give it a very high political and managerial profile. The unit is already created and headed by a professional from the cabinet of the Minister, who will also be responsible for coordinating at the highest level of the Provincial Maternal-Child Health Insurance Program, with the participation of senior members of technical departments related to the achievement of technical aspects of the program (mother and child insurance, reproductive health, finance and administration, provincial relations). This unit will provide periodic reports on the HSRP's achievement and compliance with tranche conditionality for further consideration by the Steering Committee. E. MONITORING ARRANGEMENTS AND EXPECTEDRESULTS. 91. Design andimplementation of the proposed operation provide for close monitoring of theHSRP.In addition to monitoring and verification of the completion of tranche conditions, intermediate benchmarks and expected outputs have been specified. These will be tracked and monitored closely as a basis for gauging the overall outcome and impact of the program supported by the proposed operation over time. Such monitoring 32 impact of the program supported by the proposed operation over time. Such monitoring will also include tracking of the collection of baseline health data where such information does not exist today. This would, for example, hold for the health status of the indigenous population. 92. Expected key results and benchmarks are set out inthe final column o f the policy matrix (annex 3). Annex 7 includes a description of monitoring indicators, outputs and outcomes, and the corresponding source of data as well as baselines. These indicators will be measured, during the execution and immediately after the end the proposed PMCHSAL. Lessons learned from this initial support would be utilized during preparation and implementation of the future phases o f the program to be supported underthe investment project beingprepared by the Government. Monitoring of program actions will rely significantly on information and reports to be generated b y the implementation units o f two ongoing World Bank-financed health investment projects, the Second Maternal and Child Health Nutrition Project (regarding the collection of data on maternal and child health) and the Public Health Surveillance and Disease Control Project (regarding collection of data on essential public health services, HIV/AIDS and vaccinations). Both projects have established a comprehensive Health Information system (SIM-PLAC) that would allow for a close monitoring of most components of the Program. The data collected will be consolidated by the Seguro Materno Znfantil Unit, which will be responsible for providing periodic reports on the program's progress, and for informing the Government and the Bank on progress and other issues during the implementation of the supported program. 93. Monitoring and evaluation of the implementation of the social health insurance regulation component will rely mainly on a comprehensive monitoring and information system already existing and fully functional at the Superintendency of Health Services, which has a functioning system for monitoring the billing and payment from public hospitals to the OSN system, as well as the Solidarity Redistribution Fund. F. ENVIRONMENTAL AND SOCIAL ASPECTS 94. Environmental Classification. The proposed PMCHSAL has been classified as a "C" category operation. 95. Poverty and Social Impact Analysis . The preparation of the Government's HSRP has benefited substantially from recent Bank analytical work included in the Health Economy Sector Work. This work concluded that addressing mother and child mortality and morbidity i s of highest importance in Argentina, especially given the high likelihood of uninsured mothers and children being poor. Based on the characteristics of this particular group of the uninsured, the analytical work also suggested a specific package of basic health care o f highest priority in reducing mother and child mortality and morbidity and thereby contributed greatly to the Government's HSRP supported by the proposed loan, especially regarding the target group, eligibility criteria, the delivery mechanism of basic health services, and the selection of priority provinces to be included 33 in the program. See annex 6 for information on how this program addresses indigenous people needs). G. FIDUCIARY ARRANGEMENTS 96. Flow o f Funds Arrangements. Disbursement arrangements will follow the simplified procedures for SALsBECALs approved by the Board on February 1, 1996. The Borrower will open a specific separate account in the Central Bank of Argentina. Once the Bank formally notifies the Borrower that a tranche i s available for withdrawal, the Borrower may submit a withdrawal application so that the proceeds o f the tranche i s deposited by the Bank in this specific account to be used in accordance with the Loan Agreement. 97. Financial Management. The Argentina Country Financial Management Assessment (CFAA) was completed in 2002. On the basis of this assessment and updates from the review of project financial management and input gathered during the Argentina PER chapter on budgeting, an "average" financial management risk rating i s assigned to National Government's central administration where the proceeds of the loan will be disbursed. 98. Procurement. Following the recommendations of a Country Procurement Assessment Report (CPAR) completed in 2001, Argentina has amended its Procurement Law to incorporate elements to improve transparency and competition in public sector tendering. The Procurement Law also provides a point of reference for provincial procurement laws. The Bank i s assisting procurement modernization in Argentina through the State Modernization Project (Loan 4423-AR) focusing on regulation as well as on development and implementation of an e-procurement system. Also, considerable assistance was provided for restructuring of ongoing contracts in the aftermath of the financial crisis. Overall the procurement risk inArgentina i s assessedas "average". H.COORDINATION/COLLABORATIONWITHIMFAND OTHER PARTNERS 100. This program has been developed and coordinated very closely with Argentina's other internationalpartners, including the IMFand the Inter-American Development Bank. The Argentine Government and the IMF signed a three-year agreement on September 11,2003, with the IMFBoard approving such agreement duringthe Annual Meetings on September 20,2003.. 101. The other key multilateral organization providing technical and financial assistance to Argentina's health sector i s the Inter-American Development Bank (IDB). In March 2002, the IDB reformulated its social sector portfolio to support the Government's social emergency plan, redirecting US$694.2 million from low performing operations of lesser priority in the context of the social and economic crisis to the Argentine Government's Social Emergency Plan for social protection and containment programs, particularly food, medicines, and education. Under this reformulation, the Primary Health Care Program (PR0APS)--Loan 1193/OC-AR--is now focused mainly on 34 the `REMEDZAR' program, a US$103.5 million program dedicated to provide free essential medicines to users of the public health sector in the entire country. This program also i s supporting the development and implementation of Primary Health Care inthe Provinceof Cordoba. 102. In February 2003, the IDB approved an emergency loan (AR-0295), of almost US$1.5 billion aimed at protecting social expenditures and mitigating the impact of the crisis on the poor during 2003. This loan i s being disbursed in two tranches. The program's objective i s to provide fast-disbursing funding to support measures to be taken by the Argentine Government to preserve macroeconomic stability and ensure that key public spending on poverty-targeted national social service programs i s maintained at adequate levels during 2003. 103. The Bank and IDB coordinate health sector strategies closely. IDB and Bank assistance, including the proposed PMCHSAL, are complementary. IDB adjustment operations have focused on protecting essential health programs in 2003. The IDB supported restructuring of PROAPS, which finances essential drugs, serves as a bridge financing untilthe MCIHP can be scaled up to the national level. I.PROGRAMBENEFITS 104. The proposed PMCHSAL would support necessary policy changes to support a Government program that will provide about three million poor mothers and children with increased access to basic health services when fully implemented by 2011. At the same time, it would help put in place a shift in the public financing, organization and delivery o f health care services at the provincial level. The actions supported by the proposed PMCHSALwould help reverse the crisis-inducedincrease ininfant mortality in 2002. If actions under the PMCHSAL are implemented as planned and then expanded to the entire country under a subsequent investment project as currently planned, estimates show a possible eventual reduction in infant mortality of up to 35% in the nine poorest provinces, and up to 29% inthe country as a whole by 2011. 105. The proposed operation supports a Government program with a strong poverty focus. First, the program aims to reach family members o f uninsured households, which are generally unemployed or work in the informal sector. These groups have a much higher likelihood o f being poor than the insured households. Second, the program i s directed especially at mothers and children who, among the uninsured, are the most vulnerable groups. Finally, in a first stage, the MCHIP will be implemented in Argentina's nine poorest provinces. These provinces also include 75% of Argentina's indigenous population--traditionally a poor and excluded group--and will include special outreach activities to target these groups. 106. In terms of intermediate outcomes and outputs, the proposed PMCHSAL would contribute the following: First, it would help strengthen the coordination between the National and the Provincial level, through the National Health Council (COFESA), which i s essential to ensure ownership by the provinces o f the MCHIP. Second, it would 35 protect essential priority public health programs, such as a basic nutrition program (milk), vaccination, HIV/AIDS and others, that were severely damaged, some even discontinued altogether during the worst moments of the crisis in early 2002. Protecting priority programs would ensure, inter alia, nutritional supplements (milk) for 1.3 million children under two years old, vaccine program coverage for 4.7 million children under 6 years of age, treatment for 12,000 patients with tuberculosis and treating more than 23,000 HIV/AIDSpatients during 2004. Third, it would start up the MCHIPinthe nine poorest provinces, later on to be scaled up for implementation throughout Argentina. Finally, it would improve the regulatory framework of the social health insurance system thus, reducing leakage of public health subsidies. J. RISKS 107. The risks for this program are high.Argentina's macroeconomic situation continues to be fragile, exacerbated by the economic slack in its neighboring countries and major trading partners. The positive initial steps of the new Government could be challenged by the need for further definitions on a comprehensive development framework, with reforms on social protection, the reform of the financial system, public sector reform, reforms in federal-provincial fiscal relations, and the restructuring of public utilities. Thus, the risks to the recovery of economic activity, and the fiscal stability of the public sector remain highand could affect the outcome o f the proposed reform effort. 108. A continued world economic slowdown also presents serious risks, limiting economic growth. Attaining higher primary fiscal surpluses--as required for dealing with the debt problem and the current default status--will demand political cohesion. The depth of the social crisis--unemployment and poverty--and the pace of the required reforms may challenge the new government's ability to build a consensus behind a medium-termreform program. 109. The proposed PMCHSAL financing would be crucial to help the Argentine economy stay afloat in the near term. Although the SECAL-supported program requires a modest fiscal effort from the federal and provincial Governments, even that level of fiscal financing might prove to be substantial for the start up of MCHIP, the central pillar of the operation. Given the priority of this program to the poor, and the fact that the deterioration of the infant mortality rate has sent strong signals of the dire health situation in the poor provinces, the Government has assured the priority allocation of fiscal resources to the MCHIP and to other essential public health programs inArgentina. 110. In addition to the fiscal situation, the reform program faces other implementation risks. First, the nation-province health policy dialogue, especially on financing co- participation - i s at an incipient stage. Also, there may be substantial change in the provincial leadership as elections are in the next four months. This political risk would be mitigated by the San Nicolas Accord signed on March 2003, between the Provincial Ministers of Health and the National Ministry of Health, which represents a recent breakthrough. The Accord may provide the cornerstone for a stronger and productive 36 revitalization of the Consejo Federal de Salud (COFESA), and a framework for further improvements inthe nation-province relations. 111. Second, the weak institutional capacity of provincial health ministries, combined with the demanding technical requirements for the implementation of MCHIP, poses an important risk. The capacity of the health ministries in the nine northern provinces i s especially low, as they have historically been the poorest in the country. Yet, implementing explicit guaranteed benefit packages and public provider payment reforms within the public health sector (through the MCHIP) has been complex and demanding even for stronger governments of other countries. These reforms imply moving away from the traditional historic supply side financing towards performance-based financing for public providers. To mitigate this risk, the follow-up investment operation will include a significant technical assistance component to help these provinces with the technical, institutional and implementation aspects of the reform program. Indeed, the investment operation accompanying this PMCHSAL would be crucial to ensure the implementation and medium-term sustainability of the policy decisions and actions supported by this adjustment loan. 37 ANNEX 1. LETTEROF DEVELOPMENTPOLICY (Translated from official version) %l?nisterof !Eonomy andTroduction BuenosAires, September 5,2003 Mister James D.WOLFENSOHN PRESIDENTOF THE WORLD BANK Washington.D.C. Re: StructuralAdjustmentProject - HealthSector Dear Mr.WOLFENSOHN: Since the beginning of 2002, the Government of the Argentine Republic has faced the enormous challenge of rebuilding social peace and trust in its institutions. Its primary commitment has been and is to redesign a capable sustainable macroeconomic framework, in the medium term, to lead the economy toward sustained growth, guaranteeing an orderly transition and giving priority to social cohesion. We believe that our country is solving the crisis in different dimensions, whose real cause is of a social nature, making it distinct and different from other recent crises in Argentine economic history and in the international scenario. The economic, political, and social collapse that took place in our country, together with noncompliance of the contracts derived from the previous model, continues to test the resilience and responseof the democratic institutions. The Government has made major efforts to mitigate the crisis. Through the comprehensive economic policy, the implementation of the Social Emergency Plan, and the implementation o f protection programs to confront unemployment we have achieved the first results in reversing the trend of increased poverty, unemployment, and inequity in income distribution. Inthe period May 2002 and May 2003, 1,223,000 new jobs were created, o f which 608,000 were originated in the Heads of Households Program and 615,000 came from the labor market itself. Based on the increase in the economically active population (463,000 people), unemployment diminished by 763,000 people (-25.7%). In other words, unemployment fell from 21.5% to 15.6%, causing in addition a moderate average real increase in salaries of 1.9% and 2.0% in the 1st and 2nd quarter of 2003, with respect to the previous quarter in each case. This proves not only the absolute priority, but also the effectiveness and efficiency for the construction of a basic social safety network. In addition, the Government notes with growing concern the fact that despite the important investments made in the health services delivery system in the past decade, the recent economic and social crisis has had a negative impact, among others, on the levels of maternal and child morbidity and mortality, which are still above the levels expected for countries with similar economic development. Furthermore, even though Argentina has substantially diminished the maternal and child mortality rates in the past twenty years, this trend toward improvement of the health situation of the population not only seems to have stopped but even indicators such as the maternal mortality rate have begun to increase again in the most deprived provinces of our country and, accordingly, to show clear symptoms that the health levels of important sectors of the population have deteriorated in the past two years. 38 If this trend persists, the health status of our population could become a clear obstacle in reestablishing economic growth and achieving our poverty eradication objectives, as well as maintaining the political and social stability necessary for the implementation of sustained economic development models. The Government believes that the current situation points to problems of a structural nature requiring an important change in the health model adopted by the country, in particular with respect to the maternal and child population of the poorer sectors. To insist in working exclusively within the current health care parameters is not only unsustainable, but is not enough to address the existing problems of inequity in the health sector. The recent economic and social crisis of Argentina has changed the country and with it the priorities and challenges in the health sector. The ethical, political, and technical challenges of the new health policy are compounded by the urgency of ensuring decent and quality services to the poorer and excluded sectors of the nation. At the same time, however, the urgency should go hand-in-hand with strategic actions that make it possible to solve in the medium and long terms the problems of equity and efficiency in the Argentine health system, particularly in the public system that has the responsibility of ensuring access to the vast majority of the most deprived population. Inlight of this the Government is actively engagedinreducingthe existing gaps and inequities in the levels of maternal and child morbidity and mortality among different provinces and even within each province in the poorer sectors of the population and the rest of society. Within this framework, the Government requests the financial support of the World Bank to cope with the crisis, with a view to consolidate the achievements made and to strengthen the policy lines that guide its action and that tend to relieve the most vulnerable homes from the dramatic life circumstances in which this crisis submerged them. I.DIAGNOSISOFTHEECONOMICANDSOCIALCRISIS 1.1 The macroeconomic imbalances that generated the policies implemented in the 1990s explain the exorbitant indebtedness, high fiscal deficits, fall in production, and the social crisis. The end of the economic model in force for over ten years was the result of the application of an economic plan that, although it proved to be a successful program for short-term stabilization, was erroneously continued as an economic transformation and growth program. 1.2 The change in the external conditions rapidly showed the characteristic limitations of the economic program and its visible paradigm, the Convertibility system. Its consequences have been: regressive income distribution, growing structural unemployment, insecurity, and unprecedented social division. 1.3 External shocks, an expensive fiscal policy, and a monetary policy external to the local business cycle deteriorated our currency. The tax reductions of capital assets imports that favored capital-intensive investments-at the expense of labor-introduced an enormous bias in the road to growth, explaining the increase in the unemployment rate even in the initial years of strong economic activity growth. The high public indebtedness used to finance the increase in the recurrent cost ended up igniting an explosive combination that, sooner or later, was condemned to explode. 1.4 Argentina had to face up to an exit of the model with substantially greater economic and social costs than those that it would have had to bear had the decision been taken on time. The collapse o f the Convertibility system was the unavoidable result of the characteristic limitations of such system. This is the situation the transition Government had to deal with upon assuming power, in the midst of a serious political-institutional crisis. 39 11. THE IMPACT OF THE CRISIS ONTHE ECONOMIC STRUCTURE AND ITS SOCIAL ACTORS 2.1 B y December 2001, the Argentine economy had accumulated three and a half years of recession, with a real 12% fall in GDP and 16% in per capita terms. Industrial production was reduced by 21%, construction fell by 36% and investment diminished by 43%. 2.2 In 2001, the fiscal gap of the Nation was over US$13 billion (despite the declared zero deficit policy) and almost US$18 billion if the deficit of the provinces is included. Thus, the important fall in the collection levels, far from reducing the fiscal gap, widened it. 2.3 One of the clearest symptoms of the cumulative imbalances was the excessive indebtedness in foreign currency of the public and private sectors. Furthermore, the sharp fall in economic activity generated a significant surplus in the trade balance, however, due to the payment of real services-mainly tourism-interest and profit remittances abroad, the current account continued to be deficient. This, together with a significant capital outflow, unbalanced negatively the internationalbalance of payments and was reflected in a sharp fall in international reserves. 2.4 The excessive use of financing with the local financial system-by the national and provincial governments-aimed at covering the fiscal gap, intensified the crisis damaging the portfolio quality of the banks. Indeed, during 2001, the financial system confronted an exit of deposits amounting to US$17.5 billion, Le. a 20% reduction in total deposits, and a decline in their liquid reserves of U$S11 billion, representing 45% of the stock of the same (which, if net out from the contributions made by the IMF to replenish them, reach US$16 billion). Facing this situation, the previous Government applied a partial freezing of deposits through the implementation of the so-called "corralito" and an exchange control system. This led to a dramatic fall in economic transactions and gave a devastating blow to institutional credibility. 2.5 Thus, the provisional government assumed its functions at the beginning of 2002 in the midst of an unprecedented economic and social rupture, immersed in the very serious political crisis derived from the resignations of the President elected at the end of 1999 and of his successor who held the post for only seven days. I t was crucial to recreate the bare minimum conditions for governance, due to the critical situation: drastic decline in production and employment, suspension of payments of domestic and international obligations, and a collapsed financial system. Argentina was unable to deal on its own with its financial commitments, requiring the support of the international community to reestablish financial relations that are sustainable and compatible with internal economic growth and social equity. 2.6 During the convertibility regime, a growing instability in employment levels took shape, even during the expansive phase (1991-1995) of the economy. In May 2002, this situation recorded 3 million unemployed (21.5% of the working population) and 2.2 million underemployed. Such increases have been the determining factors in the growth of the population living in poverty and indigence. The population with labor problems reached 40% of the working population. 2.7 In 2002 the incidence of poverty reached alarming levels: 20 million poor-55.6% of the population-of which 9.6 million are indigent. This situation is not territorially homogeneously: while in provinces such as NeuquBn 47.5% of the population is poor, this situation affects more than 69% of the population in the farthest periphery of the Buenos Aires MetropolitanArea. 2.8 A strong heterogeneity was also shown with regard to the incidence of poverty by age groups: 41.6% of the population aged 50 to 64 years i s poor, and the part of the population up to 5 years old and between 6 to 12 years old considered poor reached more than 70 and 74% of the total, respectively. 2.9 11.6% of the homes in the country showed unmet basic needs (687 thousand homes) and 17.3% of the people, with agglomerates exceeding 30% (Jujuy, Formosa). 40 2.10 Income inequality increased considerably in the last decade: 10% of the wealthiest homes receive 30.1% of the income, while the poorer 10% receives only 1.8%. The income gap is 39 times among such strata. 111. THE STRATEGY OF THE ARGENTINE GOVERNMENT TO CONFRONTTHE ECONOMICAND SOCIALCRISIS 3.1 This inherited context generated the unavoidable responsibility of taking emergency measures, correcting the economy and making postponed decisions that would allow unlocking the production, marketing, and distribution process. The Economic Program was developed in stages: the first stage sought to stop the crisis, the second phase the effort was focused on the rehabilitation of the basic operation of the institutions of the economy, and the third stage was aimed at reactivation, improvement of social indices and the sustained growth of the economy. 3.2 Today we are in the midst of the third stage. The Action Plan has made it possible to reorganize the economy gradually. The government has made major efforts to rebuildthe institutions, guarantee social and political peace, reorganize the macroeconomics, and reestablish external economic relations. 3.3 Rebuildingthe Institutions a. Priority was given to the restoration of institutional operations, creating stable and credible "rules of the game." Public Emergency Law 25,561and the new organic chart of the Central Bank (Law 25,562) are the two fundamental laws of the new economic policy. In tandem, the Economic Subversion Law was repealed and the Bidding and Bankruptcy Law was comprehensively reviewed, adjusting it to international standards. b. In response to the social problems the government designed a Social Emergency Plan whose central points are: (i)financial support to unemployed Heads of Household; (ii) emergency food assistance; (iii) provisionofgoodsandbasichealthservices,schoolassistanceactions,andimprovementofhabitat the inthe poorest settlements. C. With regard to the limitations derived from the operation of the "corralito," the government issued measures that converted from dollars to pesos the assets and liabilities of the banks. This measure was asymmetrically applied so as not to fully affect those clients of the financial system whose income had not evolved with the depreciation of the currency. All the assets and liabilities that were converted to pesos were adjusted by the reference updating coefficient (CER, index based on the evolution of the CPI). In addition, maximum rates were set for those loans originally denominated in foreign currency. Bank deposits whose value were higher than US$5,000 or $7,000 were reprogrammed, giving depositors the choice of opting to own a public bond in national currency or in dollars, or to keep their reprogrammed deposits. Furthermore, measures were gradually introduced toward greater flexibility of the "corralito" and a free system was created for new deposits. New legal frameworks were given to financial instruments to restore confidence in the Argentine banking system. Today, 80% of the deposits are totally free. d. To respond to the social demand for rehabilitation and reduction of the expenditures policy, the Federal Government and the Provinces signed the Federal Agreement for the Reform of the Argentine Political System, setting the guidelines for the reduction of expenditures. 3.4 Macroeconomic Realignment 3.4.1 The policy outline mentioned in the previous paragraphs, allowed an adequate macroeconomic realignment-given the special circumstances already outlined. 3.4.l.a In a first stage, during the second and third quarters of 2002, the recovery of the GDP was explained by the external components of the aggregate demand, particularly due to the sharp fall of imports and mild recovery of exports, while consumption remained almost stagnant and investment continued to 41 fall. Subsequently, in the last quarter of last year, not only was a more general and rapid recovery of the GDP confirmed, but seasonally adjusted both consumption (mostly private) and investment (both construction and machinery and national and imported durable equipment) grew, becoming the genuine revitalizing propellers of the economic recovery process. Thus, an increase of 5.5% of the GDP i s projected for 2003. 3.4.1.b An essential factor to understand the aforementioned initial recovery of the economic activity, when the financial and monetary variables were not yet stabilized and against the forecasts of most analysts, is the careful treatment given to the new set of relative prices established by the economic agents. Based on the depreciation of the nominal exchange rate and due to the reduced transfer of the depreciation to domestic prices, the prices of the productive sectors of internationally tradable goods improved substantially, however, although they dragged domestic consumption prices, this was only at halfway its growth. Consequently a relative change in the prices of the services of the productive factors also took place, favoring the use of labor over the use of capital. 3.4.1.c This new relative pricing structure was possible because of economic policies that determined that the exchange rate would not tend to infinite as many feared. Finally, the transfer to prices was very moderate with respect to the magnitude of the nominal depreciation. Although exchange rate uncertainty was initially extended for several months, the notion of the value of prices, costs, and the dynamism reflected by the markets as the determining factors of economic behavior was never lost. The opposite is characteristic in highly inflationary environments as those suffered by the country in the 1980s. This behavior implied credibility and was essential in making the different sectors react to the new signs produced by the changes in relative prices. 3.4.1.d There are three factors that contributed to the low initial transfer of the monetary depreciation and the stabilization of inflation. A correct appraisal of the enlarged gap existing between the potential product and the product observed to correctly guide the policy. This gap was an immediate result of the severity of the crisis. Furthermore, the prudent management of the monetary policy, sterilizing the monetary-based overhang through the sale of international reserves by the Central Bank when real activity in the first quarter of 2002 continuedto compress, should be taken into account. Finally, and having complied with the foregoing, the low transfer to prices can also be explained by the widespread perception of the economic agents of the magnitude of the real exchange rate lag in the economy at the time it was decided to formally drop the convertibility system that set the exchange rate. 3.4.1.e From the standpoint of financing, it should be noted that the magnitude of the expected GDP growth includes the fact of continuing "capital outflows,"' but at a markedly slower rate than in 2002. In other words, the projected recovery of the economic activity, at least in the short term, does not require additional financing, and the projected growth for this year will be financed through a slower accumulation of foreign assets with respect to last year. In other words, even though the gap between the purchase and sale of foreign currency made by residents continues to be positive thus far this year, the accrual rate of these assets i s decreasing, thus constituting a financing source o f economic growth in the short term. 3.4.1.f The signs of recovery, confirmed thus far this year 2003, allowed compliance with the callable monetary and fiscal goals stipulated in the agreement with the IMF, which resulted in growing stability in the foreign exchange market, strengthened the decline in the inflation rate and the sustainability of the economic activity. 3.4.1.g The monetary policy gained an important dose of flexibility and adjusted to the needs of the real economy. Inthis regard the operations of the BCRA in the foreign exchange market, and the issue of Bills of Exchange by the Central Bank (LEBAC) have been crucial. On the one hand, the exchange operations of the BCRA met the double objective of reducing substantially the volatility of the exchange rate, and of 1Together with the violent fall of the GDP in the years 2001-2002, an impressive "capital outflow" took place that was basically reflected in the accumulation of foreign currency assets by residents (in the balance of payments registry the purchase of dollars by residents is the only operation that even if it involves residents, it i s still considered a capital outflow). 42 providing to the economy the necessary means of payment in the current context of economic recovery. The issue fully backed with reserves, was not aimed as in the past to financing the needs of agents such as the government or the financial sector and, as a result, was the most reasonable form of meeting the current demand for money. On the other hand, the issue of LEBAC was done in accordance with the strategy of reducing interest rates, a necessary requirement, although not sufficient, for the return of credit and the strengthening of the economic recovery. 3.4.1.h The redemption of quasi-money was a significant improvement toward normalization of the conditions in which the financial system operates, as it implies the return to the existence o f a single national currency controlled by the monetary authority. 3.4.1.i The stabilization of the macroeconomic environment led to a sustained improvement in the fiscal accounts because of greater collections and the most austere behavior of nominal primary expenditures. In real terms, considering the evolution of the CPI, tax collection increased by 14% in the first semester of 2003 with respect to the first semester of 2002, and primary expenditures declined by 6%. Thus, the primary fiscal result went from a deficit of $659 million in the first semester of 2002 to a surplus of $4,927 million in the first semester of 2003. 3.4.1.j One of the few categories of recurrent expenditure that increased during the period, corresponded to the plans of heads of household. The implementation o f the same made it possible to attenuate the effects that the exchange depreciation and the subsequent price increases (basically of the food that make up the family shopping basket) hadproduced in the most unprotected sectors of society. 3.4.1.k Inthis regard it should be pointed out that the social indicators have begun to improve gradually: first, the reduction of inflation; then, the recent recovery of real wages that went along with greater productivity and the increase in employment. O f these, the proportion of the population that is below the poverty line and destitute should be specifically mentioned, as well as an improvement in the aggregate consumption, which is apparent on the other hand inthe factors that explain the economic growth. 3.4.1.1 The panorama is completed with a less unfavorable international scenario. The decline in international interest rates, promoted by the expansive monetary policies of certain developed countries, encourage the return of capital to the region and the country. Although the magnitude of that net income is very small compared to those in the previous decade. 3.4.1.m The combination of the above-mentioned factors, primarily positive, make it possible to outline a favorable scenario for the coming years. Actually the current prospects would allow the development of even more optimistic macroeconomic scenarios with regard to the possibilities for growth for the remaining of this year and for the next periods. We prefer to stay with this moderate scenario for practical reasons, even more so when dealing with projections for the National Budget. 3.4.2 Macroeconomic Projections 3.4.2.a Within the framework of the outlined macroeconomic realignment and given the prospects of international variables, in preparing the national budget for 2004, the projections that have been considered are: a 4% growth of the real GDP to 416,865 current 2004 million pesos; a variation rate of the implicit prices in the GDP of 9.0% and a variation between ends of the CPI of 10.5% (December 2004/2003). The projections are basedon the following policy assumptions. 3.4.2.b Public services rates: The National Government i s working toward the implementation of a program to renegotiate contracts, basically credible, facilitating an introduction of temporary rate adjustments by mid-December 2003 and, at the same time, a program that protects low-income homes from the price increases. The government presented draft legislation to Congress through which: 1) the renegotiation period of the contracts for service concessions will be extended until the end of 2004, 2) the power to renegotiate concessions through a rapid proceeding will be returned to the Executive Branch, 3) 43 the Executive Branch may grant temporary rate increases on account of what emerges from the definitive renegotiation approved by Congress. 3.4.2.c Withholdings on exports: several conditions determine that there not be a reduction in withholdings on exports in 2004. However, in 2005, 20% of the withholdings that will be paid will be on account of the Tax on Profits, and in the year 2006 an additional 20% will be incorporated. 3.4.2.d Wages of the Public Sector: Remunerations are expected to remain constant. 3.4.2.e Primary Expenditure Policy: In the "Social Spending" category, it i s implied that the amounts of Heads of Household plans, will be kept at 2003 rates; in the Capital Expenditures category: an increase is projected, even in terms of the nominal GDP, and other primary expenditures will be modified according to the evolution o f the prices of non-tradable goods. 3.4.2.f Monetary and Exchange Policy: During 2003-2004, within the framework of a floating rate, the Monetary Base will continue to be the nominal anchor, as a transition toward a regime of inflation goals. The program aims at an expansion of the monetary base consistent with the results of the projected inflation. Within this framework, exchange interventions will be aimed at moderating the fluctuations in the nominal exchange rate, and the excesses in demand over the supply of monetary base will be satisfied with exchange interventions combined with a policy of moderate absorption of the monetary base through LEBACs. 3.4.2.g International prices, international interest rates, rates of exchange and growth o f the rest of the economies: the projections of the IMFare used. 3.4.2.h Private Salaries: It is assumed that the salaries of the formal and informal private sector will evolve together with the productivity o f the economy. A partial formalization of employment process i s assumedin such a way as to gradually recover the ratios between formal and informal employment. 3.4.2.i The expected results for the year 2003 of other macroeconomic variables, expressed as annual variation rate are: Consumption4.5%; Investment--10.7%; Exports-5.3%, and Imports--15.7%. 3.4.2.j In particular, for the medium and long term, a growth path is assumed in which the real GDP converges with the estimations of the potential product. 3.5 Reestablishment of External Relations a. Although the country has had to postpone a substantial part of public debt payments, this does not mean that it has rejected its obligations, but rather that this is due to the national inability to pay in the terms and conditions originally agreed upon with the creditors. As basic prerequisite to negotiations with the foreign creditors, a specific strategy of negotiation and agreement with the IMF has been followed. In that way, and in the midst of the crisis in 2002, supported in the performance of the critical exit from the recession and the social deficit, the country paid U$S4,500 million to the multilateral and bilateral financial organizations. b. The government is determined to encourage exports to allow both the upturn of the regional economies and the industrial apparatus of the country in a competitive manner. As repeatedly indicated and demonstrated in the continuing relations with the rest of the world, this Government has made the fundamental decision of promoting the economic and commercial, regional and global integration, to favor the insertion of our economy and take advantage of the opportunities of technology, innovations, and the usual marketing currents, provided in the framework of world trade. 3.6 As guarantee of the macroeconomic stability of its plan, the Government has placed the emphasis on the recovery of autonomous monetary and exchange policies, together with the strictest fiscal prudence, to ensure that the macroeconomic variables can favorably confront any technological, monetary, or other external changes. Returning to the path of sustained growth requires a process whose fruits will be 44 collected in the medium term and are constructed on an adequate combination of fiscal, monetary, and income policies. 3.7 This Administration fully acknowledges that the decontrol of the exchange rate is a necessary but not sufficient condition to guarantee a sustainable productive reactivation. A comprehensive coordination of policies and structural reforms are required. Furthermore, within a framework of social discontent, external isolation, and political weakness, it would not be practical to think about a mechanist policy scheme, thus we are betting on a general approach that allows the gradual use of tools, which will be supported on the credibility achievements that are being made. 3.8 During the first semester of 2002 the rhythm in the fall of GDP followed the trend of 2001, but three events have been confirmed and lay the groundwork for economic recovery: a) the exchange rate has been stabilized in real terms with extremely low nominal variability; b) the transfer of the devaluation to prices has been low-controlled inflation; c) the fall of the GDP reached its floor and the industrial reactivation in seasonally adjusted terms i s generally taking place in the framework of international competition. 3.9 Despite the improvements made, the Government is aware of its very limited capacity to encourage important expectations on an economic recovery that, in the short term, would impact strongly the employment and work income levels, without multilateral financial assistance. This imposes a difficult framework on the action of the social policy and to the possibility of complying with the assumed financial commitments. IV. THE STRATEGYFORTHE HEALTH SECTOR 4.1 A look at the Nineties During the last decade the different governments developed public policies that favored the provision of health services mainly through the insurance system of Obras Sociales (National Social Health Insurance Organizations), mainly centered on individuals that belonged to the formal sector of the economy. The economic conditions of the 1990s anticipated the growth and merger o f the social insurance system that warranted focusing on the policy efforts in this sector, in order to improve the conditions of a system that increasingly would include all Argentine workers. Both the national government and the provincial governments had counted in previous years with the support of the World Bank and other multilateral organizations to improve the operation and effectiveness of the National Health Insurances System (SNSS), as well as private projects for Obras Sociales at the provincial and national levels. The World Bank has also provided assistance to increase the level of available resources to provincial governments in order to increase the capacity of the public sector to provide health services to the population, targeting efforts on the maternal and child population. Unfortunately the vision of the 1990s of a growing coverage by the Obras Sociales system failed, among other reasons, because of the economic crises to which Argentina has been submerged and due to the intrinsic difficulties of the traditional social security systems of including workers in the informal sector. Although the government is committed to consolidating the improvements in regulation of the Obras Sociales system introduced in the last decade, it is also a priority to ensure that the majority of the population receive health care in the public systems under effective, efficient, and decent care conditions. We believe that the development of interventions specifically aimed at meeting the most important needs of the mothers and children not covered by social security (the great majority in Argentina) will make i t possible to generate institutional experience and capacity, as well as the active incorporation of civil society to the national objective of creating a new health model. 45 The efforts of the provincial public sector to increase the capacity of the supply of services to respond to the greater demand, resulting from the economic crisis, are not sufficient. This is due, on the one hand, to the public erosion of assets, especially in the health sector and, on the other, because the management model attempts to meet the growing demand without the creation of incentives to improve efficiency. Accordingly, those provinces with fewer resources are precisely the most affected and the gap with the rest of the population in other districts endures. 4.2 Renewal of the Nation-Province Dialogue on Health: Cornerstone of a Sound Health Policy inArgentina The challenge of ensuring the urgent access to health services to the most needy and to solving in the mediumand long terms the structural problems of the Argentine health system, come together in the need of placing the strengthening of the provincial health systems at the center of the health policy. It i s there where the mandate of ensuring the health of the people should be realized. The foregoing implies that the provinces should have a leading role in any strategy to improve the Argentine health system. A fruitful and continuous dialogue between the Nation and the provinces as well as among the provinces themselves i s an essential condition for the achievement of more efficient and equitable sectoral policies. Inthis context, the Government is engaged and sees as indispensable the renewal and strengthening of the Federal Health Council, COFESA, which i s an indispensable forum for the achievement of this policy dialogue. Inthis context, the National Government sees as an important event the SanNicolis agreement in which all the provinces, jointly with the Ministry of Health of the Nation, have agreed to strongly support the strengthening of COFESA in an urgent and effective manner. An immediate demonstration of the effectiveness of this strategy to revitalize COFESA are the specific agreements in the San Nicolis meeting with respect to the unanimous support for the implementation of a Maternal and Child insurance in the provinces with the support of the national government. The commitment of the Nation to strengthen COFESA has been clearly demonstrated by, among others measures, the self-imposed arrangement of the Ministry of Health of the Nation to use the assignment rates of "COFESA" resources to ensure transparency and equity in the allotments of milk, essential drugs, and other resources inthe recent past. The strengthening of COFESA i s an essential health priority of the National Government. 4.3 Strategic Framework Argentina faces two important challenges in health: in the immediate future, to overcome the sanitary emergency without losing the gains made in the last twenty years, guaranteeing the access of the entire population to essential services and drugs. In the long run, the objective is to close the gap behind the statistical averages, leaving on one side the wealthiest sectors and on the other those that have less. The inequalities generated by insufficient income in the living conditions lead to unjust differences. The unequal distribution of the poor population in regions with different degrees of economic development requires the implementation of separate policies on matters related to food, health, education and social security. The current management of the Ministry of Health, which has been in office for 20 months because President Kirchner ratified its appointment when he assumed power 90 days ago, has kept in mind these challenges, and has attempted to carry out its management function with its sight set on them. 46 At the beginning of 2002 it was clear that one of the major problems faced by most of the population was access to drugs, via high prices, supply of brand names, shortages in primary health care centers and low hospital stocks of difficult to restock drugs due to financing problems. The passing of the "Prescription by generic name of drugs" law on August 28, 2002 has yielded spectacular results. One year later, 57% of drug prescriptions are prepared in accordance with this standard and an additional 20% are made by the generic name and then, subsequently, the prescription by brand name as indicated by the regulations of the same. This has substantially modified the market, both in prices (cost reduction) and in deconcentration of units sold (increase in the variety of supply and purchases). Probably during 2003 we will return to the greater volumes of units sold during a year. At the same time, last October the Remediar Program was launched, which provides free drugs to poor households. In less than 10 months more than 50,000 emergency kits containing three hundred treatments each for the main prevalent ambulatory pathologies in the country, have been distributed and dispensed. This has already made possible 15 million treatments to 11 million people identified with complete identification data. Also, since the middle of last year the immunization, the fortified milk for mothers and children, and the HIV AIDS drug programs have been carried out through direct transfers to the provinces to cover one hundred per cent of their beneficiaries, at least from the side of the necessary inputs. An extraordinary transfer of resources and inputs was carried out in 2002 within the framework of the Sanitary Emergency to strengthen the operation of the provincial health networks: 7.4 million Kg. of fortified milk; 6.4 million drug units; 30,776 incubators for infants and children; 6.5 million contraceptive tablets; 0.48 million injectable contraceptives; 76,73 1IUDsand 4 million condoms. The passing of the "Sexual and Reproductive Health" Law launched an important dissemination program, training, and provision of contraception methods for the families that so desire it. The health of the population and the search for equity are our strategic mottos. Our immediate objectives are reaching reduction goals in morbidity and mortality, specifically those prevalent and avoidable. To this end, together with all the Argentine provinces nucleated within COFESA, we are preparing a Federal Health Plan 2003-2007 that seeks to improve the nation-provinces union, integrate the various subsectors, modify the current health care model, provide even more access to health services and drugs, and progressively increase the quality of the same. Our vision includes a public health with private and state agents conjugated in the well being of the entire population. 4.4 Generation and Development of a New Initiative: The Maternal and ChildInsurance We are convinced that it is necessary and possible to respond simultaneously to the urgent needs of the poor, particularly mothers and children, and at the same time lay the groundwork o f profound systemic changes in health. We believe that the central axis of that achievement i s the strengthening of the provincial health systems around maternal and child health care in the short term, and provincial health insurances in the medium and long terms, as highlighted inthe shared vision of the SanNicolBs Agreement. Inorder to achieve this objective we planto launch a new initiative aimed at supporting the provinces inthe provision of a Maternal and Child Health Insurance (MCH) that includes a package o f basic services (BSP) including health prevention and basic care interventions. The implementation of the insurance would allow to simultaneously address the need to urgently ensure access to basic services to the mother and child, in such a way as to lead to profound changes in the framework of incentives of the clinical, administration, and financial management of public and private providers in the provincial health systems. The M C H is a national initiative, through the Ministry of Health of the Nation, that will support and finance the implementation of a package of Basic Services for all boys and girls under age 6, all pregnant women and all women in puerperium up to 45 days after delivery who do not have social security coverage 47 (National Obras Sociales,PAM1or Provincial Obras Sociales). Subsequently they will be covered under the Sexual Health and Responsible Procreation Program. The Ministry of Health of the Nation (MHN)plans to offer to the provinces partial financing and technical support for the implementation of the MCH. A single package of benefits has been established (Basic Services Package-BSP) that will be paid by the Nation through a single per capita amount per beneficiary adjusted by the achievement of annually agreed upon sanitary goals between the Nation and each province that participates in the program. This modality of financial transfer that we wish to implement for the M C H lays the groundwork of a significant change of incentives and will allow us to incrementally change the focus from on a discussion essentially based on historical resources to one increasingly based on the achievement of health outcomes. The long-term objective of the National Government is that the M C H be implemented in all the provinces of the country. However, on the basis of equity and availability of resources as well as of health priorities we have decided, with the support and understanding of the members of COFESA, to begin a first stage with the implementation in the Argentine provinces of the Northwest and the Northeast (NW and NE),that are those which show the worst child health indicators as well as the worst indicators of social security coverage and of poverty. These regions consist of the provinces o f Jujuy, Salta, TucumBn, Catamarca and Santiago del Estero (NW) and the provinces of Chaco, Misiones, Formosa and Corrientes (NE). The government of Argentina, in the spirit of the vision expressed by the whole Nation and the jurisdictions in the San NicolBs Agreement, hopes that the implementation of the M C H at the provincial level, acts as the "seed" for the implementation of provincial insurance or "buyers" of health services, both to public and private providers, in the area of the ministries of health of the respective provinces, in order to improve the incentives and instruments to improve the effectiveness of public spending in health and to target it on the families that most need it. For the pilot of the M C H beginning in 2004, the Government plans to allocate at least $20 million in the budget of that year. Thus, making real our desire to respond to the urgency of today but with a vision of the future to make the necessary systemic changes. We firmly believe in the large structural and health impact that the M C H can achieve since most of the maternal and child morbidity and mortality can be avoided with adequate coverage of basic health services with an adequatequality level. Although at present the rates of institutional childbirth are high, the majority of maternal and infant deaths could be avoided through a system that permits adequate control o f the pregnancy that at present is very limited, particularly in the provinces of the NW and NE regions. In addition the growing adolescent pregnancy is linkedto neonatal problems such as low birthweight and high infant and maternal mortality rates. If we could reduce 50% of the "avoidable" deaths in Argentina, the infant mortality rate could be diminishedto levels consistent with that of countries with a similar degree of development and achieve poverty reduction and stability goals compatible with the Development Goals of the Millennium(DGM) for the health sector. 4.4.1 Protection of our Priority Health Programs: An Immediate Task The protection of our priority health programs is the center of the Government's public health policy. The negative impact on health of the economic crisis at the end of 2001 and beginning of 2002 was due to a great extent to the suddenvulnerability of these programs that include, among others: (a) the immunization program; (b) the epidemiological investigation program; (c) the prevention and treatment of HIV/AIDS program; (d) the prevention and treatment of tuberculosis program; (e) the nutritional supplementprogram; (0the sexual and reproductive health program; and (g) others. These programs are essential to maintainthe basic health of the population and particularly of the poorer, mothers and children. In order to protect these programs, the national government plans to allocate more than $500 million in 2004. But the essential health programs are not only financial resources, they are human faces. The priority programs make it possible for us to annually assist: (a) 1.3 million children under 2 with a milk supplement; (b) vaccinate more than 4.7 million children under 6; (c) deliver essential drug coverage to 48 more than 7 million uninsured people; (d) treat more than 23,000 AIDS patients; and (e) provide many other essential health actions. The above are the fundamental pillars of the Health Policy of the Government of Argentina. In order to sustain and implement this priority policy, we have requested the World Bank, entity with which we have shared a long and profound community of objectives in the protection of the poor and needy, a lending program that includes a Sectoral Adjustment loan, that would make it possible for us to launch this set of policies and structural changes in the health sector and also an investment project as soon as possible, that will make it possible for us to consolidate these reforms and expand them throughout the country. The central elements of the reform program for which we request the support of the World Bank are the following: 4.4.2 Reforms and Strengthening: A Worthy Collaboration between Argentina and the World Bank Our reform proposal includes two parts. The first one is aimed at improving the management and regulatory capacity and the second will be an investments program that will progressively extend the maternal and child health insurance to other provinces. (a) Reformof the Management and Regulation Framework and Launchingof the M C HPilot The Ministry of Health of the Nation defined five types of actions to improve and consolidate the institutional capability required to develop the future Federal Health Plan. a.1 Improve the coordination capacity between the nation and the provinces through the strengthening of the Federal Health Council (COFESA). The objective i s to increase the capacity to generate consensus for national coverage programs such as the maternal and child insurance and that make it possible to improve the management of the subsidies policies and other important programs developed jointly both by the Ministry of Health of the Nation and by the Ministries of Health of the Provinces. a.2 Protect, during the periods of fiscal austerity, the essential health programs that are of particular importance to public health, such as vaccination, VIH-AIDS, and others. a.3 Initiate the design and pilot of a Maternal and Child Insurance program that will be expanded through downstream investments with the support of the Bank. This insurance will have a benefit package aimed at resolving the leading causes of maternal and child morbidity and mortality in Argentina. a.4 The basisfor the allocation of resourcesfrom the Nationto the provinces will be a policy of partial subsidies, with the objective of permitting the financial sustainability of the M C H at the provincial level. I t will be based on a capitation approach whose base will be the updated number of uninsured mothers and children enrolled voluntarily in the insurance, modified by the results of certain parameters that will be monitored at the provincial and national levels. We have already begun to prepare an operating manual that will specify the management model of the system in general and how the financial resources will be administered at the national and provincial levels, within an appropriate framework of incentives that makes it possible to achieve the goals of the program. a.5 Improve the situation of those providers of public health services who care for the uninsured population, through the crossing of information from the database of the register of National Social Associations, to enhance the invoicing for services provided to beneficiaries covered by other insurance, and reduce the cross subsidy to the detriment of the less protected populations. These actions would be carried out in twelve (12) months and in three successive stages. The details of the specific measures we plan to develop and of the indicators that will allow the monitoring of the achievement of these public policy objectives are included in the draft Loan Agreement to be signed between the Argentine Government and the World Bank. 49 The policy reforms previously stated would be supported through the Loan Agreement to be signed and a Sectoral Investment Program also with the support of the World Bank, taking into account that the National Government has already prioritized this operation, which i s in an advanced stage of preparation. (b) The InvestmentProgram Once the actions detailed in the Sectoral Reform Program supported by the SECAL have been initiated and to a great extent executed, we plan to continue and to consolidate the reforms mentioned in the previous points with an investments program whose general objective is to reduce the maternal and child mortality rates, at the same time laying the groundwork for structural changes in the provincial health systems to levels consistent with the Development Goals of the Millennium, to make it possible to reduce the gaps currently existing among different regions and provinces in the country. We have began to prepare this investment program which consists of three components: b.1 Transfer of subsidies, based on capitations per eligible population and achievement of goals, from the Ministry of Health of the Nation to the provinces to the extent that these have met the eligibility and involvement conditions of the program, to finance a package of services within the framework of a Maternal and Child Health Insurance program. b.2 Delivery of resources to the provinces to made the necessary improvements of equipment, renovation of infrastructure, and training of human resources to expand their capacity to provide the necessary health services to comply with the M C H package of benefits and to achieve the objectives of reducing maternal and childmorbidity and mortality rates. b.3 Delivery of resources to develop and improve the institutional capacity of the provinces and the nation to manage, evaluate, and monitor the MCH, particularly for the technical assistance that would make it possible for them to create and strengthen the provincial health insurance units or "procurement" within the public health system. This investment program would be carried out with the participation of the provincial governments that must create procurement units, in charge of contracting the delivery of services with public and private agents. This investment program will establish a priority scale that makes it possible to begin, in a first stage, with those provinces with greater needs to reduce the high infant mortality indicators and the poverty levels of their populations. To achieve these objectives and goals the coordinated effort of the nation and the provinces will be needed for a number of years. It is expected that during project execution the provinces will adopt and adapt the MCH, structurally internalizing the processes of the necessary reforms and based on their specific realities, but in such a way that the general objectives of the insurance are achieved. To this end we requested a World Bank loan to finance the program by means of an Adaptable Loans Program (Adaptable Program Lending APL) to meet the needs described during an estimated ten-year period, in three stages. Intandem with the preparation of the details of the design of the package of benefits and interventions, of the M C H operating manual, we are also preparing a series of studies for the purpose of detailing the execution timetable to achieve the stated goals, the financial and economic evaluations of the program, the basic design of contractual instruments that could be recommended for use at the provincial level, as well as a communication and social "marketing" strategy that could contribute to the actions that the provinces will carry out to develop the MCH. 4.5. Developmentof the Reform The Ministry of Health, the Ministry of Economy and Production, and the Office of Ministers are closely coordinating the proposed reforms. 50 The Minister o f Health defined and designated those that will be in charge of carrying out the Maternal and Child Insurance. The latter will be framed under a "Coordination Unit," led by a professional designated by the Minister of Health who with the support of a team of professionals and experts, will supervise and monitor the development of the M C H program. This unit will produce periodic reports concerning on the progress of the program and the achievement of its objectives, as well as regarding the possible adjustments that may be neededto improve their subsequent development. 4.6 ExpectedResultsinthe ShortandLong Terms Through this program it is expected to meet the Millennium Development Goals with regard to maternal and child health for the year 2015. In the first provinces in which the investment program will be implemented, a relatively rapid fall during the first phases of program implementation i s expected, in comparison with the rest of the provinces of the country. After this relatively rapid fall of maternal and child morbidity and mortality indicators, the achievements will surely be less rapid but sustained. We are highly committed to the achievement of the objectives of this program, as well as the Provincial Ministers of Health, as they so expressed it with the signing of the Federal Health Agreement of San Nicolhs, where it is established that the Maternal and Child Insurance i s part of the State Health Policies for Argentina. Taking into account the high level of autonomy of the provinces in terms of setting public health policies, and the fact that the program will be initially implemented in precisely those provinces that historically have had less capacity for management of programs and expansion of health services, we plan to incorporate actions aimed at improving the coordination and the dialogue between the Ministry of health of the Nation and the provinces through COFESA. In addition, we are planning the development of a program to improve the institutional capacity of the Ministries of Health of the Provinces that guarantee the execution of the M C H and its services. It is for this reason, that we express our commitment to continue to deal decidedly with the challenges of exclusion in the health sector, prioritizing those segments o f the population that have been historically excluded among the excluded, the poor mothers and children without insurance coverage. We take the opportunity to invite the World Bank to a worthy collaboration so that together we may improve the health conditions of those who need it the most in Argentina. We our kind regards, sincerely yours. (Signature) (Signature) DR. GINES GONZALEZ GARCIA LIC. ROBERTOLAVAGNA 51 ANNEX 2. LETTEROF DEVELOPMENTPOLICY (official version) SuenosAims, 5 de Septiembrede2003 Seiior JamesD.WOLFENSOHplr PRES" DELBANCOrm"AL Wa9hinetonD.C. Ref: PmyectodeAjusteEstmcturnt Sector Ssiud - Estimado Sr. WOLFENSOHN: Desde principios de 2002, el Gobiemo de Ia Rephblica Argentina ha aftofiudo el enome des& de reconstmi la paz socialy la coafianzaen susinstituciones. Sucompmmisoprimario ha sido y cs rediseaar un m m macmcon6micc sustmtable ufppz en 01 mediano plmo, de conducir a la ecmomia tiacia el crecimientosostenid& p t i z a n d ounaeansicibnordenadaydandcprioridada lecohesi6nsocial. Creemosque nueStFopaisesd solucionandoen distintasdimensionesla crhis, cup verdildemraizes socialy 5 ello, es fa que la distinguey diferencia de otras crisis rccimtcsen la historia econbmimargmtrna y en el escenario internacional. E$ quicbre Econbmico, politico y social ocurrido en nuestm pais, junto al incumpbiento de los wntratmderivadosdel modeloBnterior, continha poniendoa psucba la capac;dad de reaccih y raspuestade las institucionesdemccriiticas. El Gobiemoka realizado gmdes Esfuem para paliar la c&s. Mediante la poiitica eccinhica intermi, IJ --+ impIementaci6ndel Plande EmergenciaSocii y ia puestaen merctrsde programs de proteccikn ftrnte d desempleo ya ha logrado 10s primem nsuivldos que him rewrtido la tenrkmc;a del incremento de la pobreza,el desempleo y la desigualdad en la dislribuci6n del inpeso. Entre mayo 2003 y maw 2002 sc cream I.223.000 nuemspuestosde trabajo*de 10s cuates 608.000 se originaronen el pr0grafi.s de !era y Jefas dehogary 615,000 surgieron delpropiomercado labonrl. Atenro al aumentoque se dio en fa poblacibn econdmicamcnteactiva: (4463.000 peaonas), el descmplw disminuyf en 763.W personas(35,7%). 9 SW, que la caida del desemplw fue del 213 % al 156 YO,produci6nds.e asimismc ua moderadoaumento red promafiadesalarbs dot 1,9 %y 2,O %anel ter y 2do trimesttedel ai30 2003, respecto al tnmestrep ~ v ien o cada cmo. Eli0da cucntano 5610 de laprioridad absoluta, sin0 tambiin de la efimcmy la eficienciapara la construccib deunaredbbica de contenci6nmid, Adicionalmente, et Oobiemo obsewacon creoientepiwcupacidn el hecho que, a pesar de que en la pawda ddcadahalltvado a mbo iwcrsioncsimp0rt;ultesen el sistemade provisi6nde scrvicios ded i d , fa reciente crisis econfmicay social ha impactado, entreo m , sobre tas nivelcs de morbbmortalidad matemo-infantil, 10s cuales todavia se encumtranpor encimade 10s niveles cspeados pm paisescon dwmolfo economico similar. Asimismo, apewde que Argentinahadisminuidosubstancialmentelas erasde mortafidsdmatma e infamiltn !OS pasados vehe &os, esta tendenciaa la mejora de la rihtacidnde l a saiud de lapablacibnno sdlo p ~ e c ehabersc detenido sino que inclusive indicadom ides como la tas8 de momlidad matcmahan cdmenzado a grew nuwamcnte en las provincias m h necesitndas de n u e m pais y en cnnsecuenciaa 52 m~strarclarossintamasde empeoramientode 10s niveiesdesaludde importantes=totes de lapobIaci6nen 10s pasadosdas &os. Si em tendencia persiste, la situacibn de salud de nu- poblacidnpodria L f e p a convetthe en unfranc0 obstkula para rmstablecw ef crecimiento econcimico y para l o p 10s objetivas de emdigacibn de !a pabrea ad C O ~ Qtambih para el mtenimiento de I3 estabiIidad poltticz y social necesarios pan impternentarmodelosde desamlhccm6rnicosostenido. ElGobiernocree que la presentesituacibnr"ee problem de carktarestruct" y que requjere un pL-0 importanteen cf modelo de slud del pais, en particular en 15 que time que ver WII la pbl6cih metmo- infanZilde 10s ~em~rnuispobres, Persistittrabajandoexctusivamentedentro delosp a r s " s de etenci6n e s actuaies, no solamente no IS sustentatrle, sino que no dcanza para enmar !os probiiemar de incquidsd existentesen el scclor aahd. Latccientecrisisixont5micay socialde iaArgentinahacambiadoalpaisy canellasprioridadesy bafios en el sertor salud. AI desdo Ctico, politico y t&nico de ta nuwa pofiticade salud se sumo lo urgacia de asegurar amso a serviciosdignosy de cafidada 10s scctowsmaspobresy excluidosde lanacibn. A! mkmo tiempo, sia embargo, ia urgmciadebe ir acompaiiada Eonaccionesestrat6gicasque pemitan resolver en el mcdiano y largo plazo los problemas de equidad y eficiencia en el sidema do sdud argentha, pwticutarmenteenel sistemap & b l iquetienc la respdnsabilidadde mgurar ~ BCCCSQ a lagmn mayoriade h poblaci6nm& necesihda. Ante esto el Gobiemo esta empefiado en disminuir las brechm e inequidades existrtntes de fos nivrles de morbi1,ilidady mamiidadmatemae infanti1entrediferentmprovinciase inclusivedwtrodecadaprclvhwiaen 10s sectores & @res de lapoblacidny el resto de la sociedad. En est$ mmo, of Gobiemo soh$& e1 itpoyo fmancieto del Banco Mundial para ham freste a la cTisjs, buscando c~nsolidarios togms alcatuados y profundizar las llnezls de politicaque @ian PI, axi6n y que tienden a afiviar a los hogares m& wlnerables de fas dramficas circunstanciss de vida en las que 15s sumergidestacrisis. 53 de inversions mpltalintensivas .expulsorasde manode ohm- introdujom enonne wsgo en el sender0de wedmiento, explicandael amento de tamade desempleoatin en 10s @os inichles de fuerte crecimianto de Is actividad econ6mica. El dto endeudmlentopiiblico utilitado pars financiar el sumento del gasto wdente terminisdc encenduunacombinacib exxptosivaquetarde o temprano estabocondenadaa estallar. 1.4 Argentina tuvo que afrontar m a salida del madclo con costos cconirmicos y miales susbncialmente mayores8 10s que hubierasopartadode habertomado la decish a ticmpo. Elcalapsode la Cotwenibifidad &e et resuitado inevitablede las limitacioncspropiasde tal rbgimen; situation que el Gobiernode EMnsicih eacontr6aIasumir, enmediodeunagrave&is politico-iinstitucioal. D[. ELIMPACT0 DELA GRlSIS ENLA l?XL'RWcTuRAECON6MICA Y SUSACTORESS O W S 2.IA diciembrede 2001, la Econrmiaargentiniacumulabatrcs 9 0 s y mediode recesidn, CORuna dda del PBIdel 12%heaf y del 16%ent6nninos per &pita. ta pmduccidn industrialestaba reducidaen un 21%, la conszrucci6ncay4en36%y laiavenidndisminuy6enel 33%. 2 2 El dCfrcit fiscat de la Nacicinen el 2001superb IcsS 13 mil millones (a pes= de la anunciadapoliiica de dcfka cero) y wiS 18 mil millonessj se incluyeel dCfkit de las provincias, Asl, !a imporkwte d d a en 10s &eiademudacidnhimqueIabrecbfiscal, lejosdereducirse,seamptiara. 2.3 Una de las manifestadones m&s cfuas de 10s desequilibriosacumulndosfire el sobre endeudmiento monedaextranjemde !os sectorespdbticoy privado, himismo, por labrusca csida del nivelde actividad, a gener6llltbporknte supivit en fabalsnzacomercial, pro, sinembargo, debidoalpagode serviciosrcalcs -principalmenre por "o-, intereses y remesas be utllidades al exterior, 13 cuenb coniente continu6 siendo deficitaria. Estoscombinado con una importante d i d a de eapitrrics, descqriilibr6nrgativamenteh tWlonzrr de paps intemacicnalesy se reflejben unabrusca caidade 1% mervas mtrmacicndes. n. 2.4 El us0excesivo def finan&niento con el simema financiero Imal-por el gobiemo de laNacijny de las provincias-, orieasado a cubrir ia bre&a fis~ai,potenci6 la crisis daAmdo la catidid de la oartera de 10s bmcos, En efecto, duranteel aiio 2001, el sistema fmanciero afrontb una aIida dc dephitos por US$ 17.5 mil millanes, o sea, unadisminucibnenel 20% deltotal de imposiciones,y wobajaen susr e e ~ ~liquid% f ~ a ~ prU$S11milmillones, loquesignifica el 45% delstockde 9esmismar(yque,si se netemdo lo5aportes del FMI para recornpmerlas, alcanzrtna US$16 mil millcnes). Frente a esta situacibn, el Gobiemo antmior aplicb un congelamiento parcialde 10s depbsitosmediantela implementacilinde3 denominad3 " c d i t o " y un siatemade controldo cambios. Esto !lev6 unadnmitica caidade la5 transaccionsseconbmicas y a dar 3. un golpedemoledoraia credibilidod institutional. 2.5 A& ta adninistracibnprovisional tam6 stis funciones B principios de 2002 en me& de una fractura ecandmica y social sin precedentes, inmersa en Ia gravisima crisis politica derivada dr: las renuncias del PFesidente elcgido a Rncs de 1999 y de quiea lo sucedio en e1 cargo por ~ S C ~ ~ S O S siere dias. Result6 impresclndiblerecrear condicionesminimas de gobemabilidad, ya que se panib de una situacibn limite: dtirstica descenso de la producci6n y el empleo, suspenstcifi de pagos de las ot.!igaciones domisticas e inRmacionales y un sistema financier0 colapsrtdo. Argentina sc vi0 imposibilitzdade haw frente par si mismna sus compromises financieros,requidendodef apoyo de 13comunidndinternational par3restableox daC!Wes financieras sustenublesy compatibles conEIcrecimientoccon6mico internoy Iaquidad sMciaf, 54 2.6 h c h en~ laelfase expansiva (1992.1995) de la econoda. Esta situacibn en mayo de 2002 ]lev6 a que se &&men de convertibilidad, commui una c r e c h e prpcaridaden 10s niveIes de empko, regist" 3 miIIonesde desocupados@I,%poblacibnsctiva) y 2,2 millonesde subowpados. Tales incrsmentoshimsido los factomdeterminantesdedelcracimienta de k pobiaci6nen condicionesde pobma e lip indigencia. LapoblacidnconproblemasIaborales!leg6 Bser del 4WQde lapoblaci6nactiva, 2.7 Durante el aiio 2002. la incidtnciade la pobreza alcanvS nivekr almantes: 20 millones de pobrm - 55,6% de Ia pobtaciirn-, de 10s cudes 9,5 millones son indigenits. Em situaciirn no es hmog6ner territorialmeate:mienbasque ea provinciascomo Neuqukn la pobreza representsel 4734, em situaci6n alcax7.a a m k del 69%de lapobkibndelirltimo cordbnde1Gran BuenosAires. 2.8 Tambihse presenti, una fuerte hetcrogeneidadrcspccto 3 la kidencia de la pobrezaporgmpos&ea: e141,636de fa poblacidnde 50 a 54 aiiosts pobru?,y la@e de la pobiacik ha@ 5 &os y entre 6 a I 2 aiiios consideradpobrealcanzrja m& del 70y 74% deltotal, rcspectivamente. 2.9 El 11.6% de 10s bogares del psisp~sentabannecesidades basicas insotisfeehis (687 mil hogms) y el I7,3Yo de laspersonas,consglomeradosdon& supemha el 30% {Jujuy, Formosa). 2.10Ladesigwldaddel ingresoaumcntciconsiderablementeen la Olrimad h d g el 10% de 10s bogares mis ricos mibe el 30,1'% del ingreso, mienmi que el 10% & pobre obtiene $610 el 1,8%. La brecha de ingresosalcanza39 vccesentsetalesestratas. 3.1 Esze" t o hadadogen& laineludiblemponsabilidaddetomw medidnsdcemergencia, sincerando la cconomia y tomando decisions posterga&is que permitiesen destrabar el pracesa de produccion, .a- comrrciahacibn y distribucib, ElPropma EconBmicosc d e m o & en stapas: cn la primera se procurdla detencibn de la crisis, en la fase 2 el esfuem, se pus0en ta rebbilitacidndel funcionamiento brisicode las institucionesde la economia y en la etapa 3 apuntando a la rmctivacidn, mejora de 10s indices sociales y crtcimiento gostenid0 de laeconomia. 4 55 c, Con relaci6n a las limitaciones derivadas del funcianmiento del carratto, se dictaron medidas que pesifica~m10s activos y pasivos dcnominados en &sIares de ios bsncos. Estamdida $eeplicb de mmera asim6tricq a fin de no afcctar de llano a 10s clietltes del sisterna financiero cuyos ingrcsos no hnbinn evolucionndo con la depreciwibnde la moneda. Todos Sos activoS y pasivos que heron pesificados se 3just;uoa por el coeficiente de achlaIizaoiSnde refemcia (CER indicebasado en la evducih del PC).Se fijaron, ademh, tasas m$xhtaas paraaquellos prhxuos dmiodnados otiginatmente en moneda extranjera. Sc reprogramaron los depijsitos cuyos valom fim superiores it US$ 5.000 o S 7.000, otorgmdo a !os depositmtes la posibilidsd de optar por tener en su propiedad un tihlla pliblico en mon& naciond, en d i i l m o c m m r su dep6sito reprogramado,Ademk, SB fueron tomando g " e n t e hacia una mayor flexibiliracicin de1 corraiito y se ere6 un sistana libre para nuwos depositas. Se d i e m nums rnarcos legalesa 10s instrumentasfinancieros paratecanstituuLa confrarm en el sistemabancarioargentino. Hoy el SO % de ios dqdsitos son totalmmte librcs. d. Para responder 3 la demanda social de sargeamiento y reduccibn del gasto dc la pclitic~,el Gobkmo Federal y las ProvincIaS f m m n el Acuerdo Fedend para la Reformade[ Shema Politico de Argentina, fijkndaselas pautas$amla teducciirn de1gas@:. I3.4 Reordenadentomacmcon6mEco 3.4.1 Los lheamientosde polkja tal c~moban sido nencionadosen las pkdos anteriores, permitieran UD adecuado reordenmientomaerwconomico-dadas lascircunstanciastspecialos ya resefiadas-. 3.4.l.a En una primeraetapa, segundo y tercer trimestn de 2002, la recupwacido del PIB mtuvo expli~ada ... por 10s componentesextcmosde lad m d a agegada, particularmente,via fumecaidade !as importaciones y levc ncuperaciBnde lasexportaciones, al tiempo que el consutmpennaneciacasi estancadoy la invcrri6n continunba cayendo. Postp;cionneut+, en e1 6ltimo trimestre de1 aiio pasado, no $610 se vetificlj una recuperacidnm&sgeneral y aceleradade PBB,sino que c~ecierondesestaciondiadmentetanto el consumo (fundammtaimente privado) como ia inversih (tanto coastrucciones como maquinaria y equipo dctabk nacional e impomdos), conviaihdose en 10s dimmiradorcs genuinos del procest, de recupraeih cconomica.Dee ~ t amanera,sc proyectaunaummtudelPIBde 5,5% el 2003. 3.4,I.b Un elemento csencia! para comprcnder el meneionado inicia de la recuperacih de Is actwidad economic& cumdo lasvariables financiers y monetariastodavia no emban esubilizadasy en contra de 105 pronostkosde la mayorfade !os amlistas, es el cuidadosotrammientodado ai nuevo set de precios relctivor que cstabfecicmn10s agentisecondmicos.A partirde !a depreciaci6ndet t i p de cambio nominaly dcbido reducido traslado de !a depreciacih a 10s preciosdom&icos, mejorarw sustancialmente10s precim dc 105 sectores produetows de bienes &ansables intemacionahente, pro, no obstante, s i bien amtstraron a iW precios de consumo domdststico,cllo fue dfo e~ la mitad de sucrccimiento. Consecuentemente tambiin sc pradujo un cslmbia relativo en 10s precios de tos sen+& de 10s factores productivos, fworeciendo la utiliacibndel tnbaja en relaci6nitlus0 del capital. 5 56 3.4I.c Esta nueva eStMcNra de precios relativos fw posible gracias a politicas econ6mici~que detmninaranque el tipde cambiono tendienahfdtocomo muchostemian. Finahenlc, el &adado a IQS precios result6 5umgmente modemdo ert rclacibn a fa magnitud de la depreciacibn nomina#.Si bien la incenidmbre cambiaria se extend% inicid"e pw varios mew, nunca lleg6 a perderse la nocih del valor de lo5 p"ecias, costos y dinamism que mflejaban lcs rnercados eomo dctcminantes de la conducta ccondmicaLo contmrio, es caractdstieoen 10s ambientcsaltarnente inflacionarioscomo ios que ~frieraei pais en 10s a&os ochenta. M e comprtamiento implic6credibitidady fue fundaments1p m que 10s didintos sectonsremionen ante lasnuew sefialesemitidas por 10s cambiosen10s preciosmlativos. 3.4.l.d Sc pueden sintetizar en tres 10s factores que contribuyeron a explicar el bajo traslado inicial de ta depreoiaci6nmonetariay la estabiliidn de la inftacibn. Utaa correcta aprecinci6nde la abultada k c t u existenteentre el produaopotencidy el product0obsmedo paradirtccionarcorrectamentehpolitica E& bnxha eraconsccuenciainmediatade la severidad de la chis. For otra parte, se debe computar el manejo prudentede Lapfiticamoneta& esterilizandoel exce50de ofertadebasemonetariav h la venta de reservas internacionalpspor parto el Banco Central cuando la actividad real en el @mer tri'mestre del aiio 2002 todavia sepia camprimiendo. Finalmente, y habiindose cumptido lo anterior, el bojo fmslado a precios tmbitn se pede cxplicar por la generalizada pew,@% que tuviwon 10s agentes econ6micor de la magnitud del atraso cambiariomalquc tenla la econ~miaal mmento do decidirseel abandcna formal de la convertibilidadque ataba el tipdecambio. 3.4.1,e Desdeel pun6de vistadelfmanciamieato,cakemencionarquela mapihiddelcrecimientoesperado del PIB contempla el hecho de que Ia "hga de capitalcs"' cantiah, proa unr h o que sc ha deucelemdo notablemente respecto a 2002. 0 sea que la recupracion pmyecradade la actividad al menos en el CORO *plm, no requiemfinmciamlenioadicional, y el crecimientoproywtndo paraestc aflose financih mcldiante . una acomulaci6nde activm ext-5 menos accimda respectoa1irltimodo. En otrss palabra;, pewde que la brtcha entre fa compray vena de monedaexttanjera hecha por residcntes aodada cs positha en lo que Mde este a&, la tasado acumulacidnde estos activos~5 decteciente, constituyendo asi una hente de Ftnanciacicindel crecimientoenelcortoplazo. ..-* 3.4.l.f Lar seaales de recuperacibn, que 5e co&rmaron en io que va dcl af9 2003, pemitieron cl cumplimiento de las metas monewimy fisales crigiblesen el acuerdocsn ei FW,10 cud e d " en una crecienteestabilidadtn el mercadocambiario,refondla bajaen fa tasa do infhcibny el som"iento de la actividadeconbmica. 3.4.1.8 La politica monetaria h e ganando una dosis importam de flexxibilidd y pudo aconcdarsc d tis neeesidadesde laeconomiateal.Crucialesencstc sentido hansido lasoperaciones del RCRA enel memdo de cambios,y ta tmisidndo LetrasdeiBancoCentral (LEBAC). Por unlado, lasoperacianes cmbiariasdel 3CRA cumplieron el doble objetivo de teducir sustancishente la volatilidad del tip? de cambio, y de proveer a la economia de 10s medios de pago necewios en un context0 de recuperxcidc como e l actual. La emisi6n mpaldada plenamenre con resemm, no estwo dirigida como en el ptlsado a flnanciar fas necesidades de agentes como eI gobierno o et sector financiero, y, por lo tanto, codstituyb la forma m i s razonablede atenderlademndade dinemactual. Pot el om,Laemisih de LEBAC! march6de acuerdo E la 6 57 esstratcgiade reducir ias tasas de inteds, un requisito necwario,aunqur?no suficienfc, para el retornodel crbditay laconsolidacicinde larecupentcibnocondmica. 3.4.l.h Elrescate de cuasimonedasfue unavmce tignificativa haciala riormaiizaci6nde 1% condicfonesen que se demmelve el si@" financieto, en euanto impiica el repso a la cxistencia de una moneda ~ i o hdi c a controhdapotlaautoridadmonetatja 3.4.l.i La estabilizaciiinde1 ambiente macroson6mico condujo a una mmida mejura de IScwntas fiscslespor fa mayorrecaudacibn y GIcomportamientod s austerodel gasto prkn&io nominal.Endrminos resles, considemdo la evolucittn del PC, la tecaudacibn tributaria subib 14% en el primer semestre del 2003 coo respao d primer0 del 2002 y el gasto primariodescendi6 un 6%. Dc tal manera, el nsuftado fiscaf pFimariopasbde unddftcit de S 659 millonesenel primersemestn:de 2002 a unsupe&vit de S; 4.927 milionsscnet primersemcstrede 2003, 3,4.1 .jUna de 10s pocosrubmde gasto comcnteque se incremenrbene1pen'odo, correspondit5a [os planes dejefes yjefas de hop. Laimplementacidnde asmimas permiti6atenuax 10s efwtos que la depreciacih cmbida y 10s consecuenres aumentos $e precios (fundamentalmente de los alimentosque componen Ia canasta Mica} babianproducidoen 10s zectoresmAs desproregidosde la sociaid. 2.4,l.k Ental sentidocabe destacw que han conemdo a mejorar paulathamcnte10s indicadoresswiales: primera lamducciirn'de la innacibn;tuega, larecienterecup"i6n de 10s salariasd e s que acompaitmna lamayor productividady el amento en el empleo. Dedlos ea& mencionar mpecificamentea kipropofci6n . wnsmoagegadq loquese manifiestaen cambiomi10s factoresquecxpficanelcrecimiento. de La poblacilmque se encuentn pot debajo de. la lima de p o b m e indigencia, ai como a una mejora del 3.4.1.IEf panama $econpletacon unescenario intemaciondmenosdesfavonble.hbajasen tss usasde in&& htemacb."les, impulssdgs por las politicits monetaritui expansivasde fgUnOS pd%s d@sarrohdOS, incentivmef retoma de capitales hacia la regi6n y el pais, Aunque la mapitud de ems hgresus nctos es muypcqueiia en refacibna 10s queexistieronen la dkada anterior. ..- 3.4.1.m La conjuncidn de 10s factores mencionados, mayormente positives, permitendelineat uu escenerio favomble para 10s prbximos atlas. En realidad las perspectivas actuales permitirim la elaboracibn de esecnariosmacroecon6micos a h m k optimistasrespecto a las posibiljdadesdecrecimitntopara lo que testa de ate aiio y para fos prbximos periodos.Pnferimos mantenernosen ese esctnatio mocleradopor motivos prudenciales, masakamtindosede:proyeccioaespar;lel PresupuestoNational. 3.4.2 Lasproywiones maeroecoebmicas 3.4.2,a hnke del marc0 de reordenmiento macroeconbmico reseiiado y dadas 1% prspectiva~de IS variables intemacionales, la efatroracihdel psesupuestonacionaldei aiio 2004 iaspreyeecimes que SC? hancwrsiderado son: crecjmientodel PIS real del 4%. a 416.865 millones de pesos corrientes de 2004; una madevariacidnde10s preciosimpliritasmelPBIdol9,O %y unavariacibnenmpuntasdelXpC 15.5% (diciembfe 290U2003). tasproyeccionesse basanen10ssiguitntcssupuenrxrdepolitica. ~~ 7 58 3AZ.b Tarifas de 10s serviciospirbtica: ElGobiernoNacional mbajacon mirasa irnp1emmWtm progrma de renegocidbn de 10s coritr&x, fuodamcntalmenre creibile, propkiando una imduccion de ajustes tempolarios en tarifas paramediados de diciembre del 2003 y, shulhmente, un prop" que protejaa fos h o p s de menons ingems de 10s amentos tarifarios.Esra Adminishaciba prwntd an%el Con- pmyems de Iegislacidnpor lo cusks: 1) 5e txtitnde a1 pen'odo de renegocbibn de 10s contratos de ias concesionesde smicbs Ilastafmes de 2004,2) se dewclwc a9 fader Ejccutivo la facultadde rew concesionesporvia rhpida, 3) SE permits:alPoderEjecutivootorgatmentos temporaricrsdc hn'fasB cuenta de lo que suja de larenegwiacidndefinitiva queapruebeel Congreso. 3.4.2.c Reteacionesa kisexportaciones:w i a s condicionesdetminan queRO hapreduccidnde retenciones a las eqmrtacionesen ei d o 2004, Sin embargo, para el ail02005 el 20% de las memioritsque se paganin serh a cwntadel hpuesto11lasGanancias,y en$1a302006 SP incorporartiun20% adiciand. 3.4.2,d Salntiosde! Sector Pitblico: Se supne que las remuneraciones$emantendrjncammntes. 3.4.2,~Pditicade Gastohimario: Para10s "Gutos sociales" se suponeen 10s planesJefesy Jefas de Mopr, que se mantienen 10s montos del siio 2003; en 10s Gastos de capitad; so prayectrt amentarlo, incluso en tCrminos del PIF) nominal, y otros gastos primarim se modificarl segh la wduci6n de 10s precios de 10s biencsno trandlas. 3A2.f PotiticaModwia y cambiaria: Duranteel 2003-2004, en eI marc0 de untip0 de cabio flotante, la Basemonetdasepidsiendocl melarmminal. comotrmnsici6nhaciaunrCgimendememdz inflacidn. El programapuntaa unaocpansi6nde labasemonetariaconsheritecon 10s resuitadosde !as proyeccioncsen * materiade inflaci4n. En e& Isintervenciontscambiariassedestinardnamodmlafluctuaciones en el t i p de wnbio nominal, y losexce505 de demandasobreoferts de base monetariaserh satisfechm con inkrvenciofles cambiarias combinadas con una politica de modentda absorcih de base monetarh via LEBACs. 3.4.2.g Precios intrrnacionales, dc inter& internacionaies, t i p s de cambio y crecimicn!o del P.SfO de- laseconomias: se toman las proyeccionesdel FM. 3.42.h Salarios privadas: Se supone qrte 10s saldos del sector privado, formal e infomst, evoluciotladn junto con Ir productividad de fa economia. Sc B S U ~ un proceso de formafizacibn prsial &Iempleo de f5ma tal derecupempaufatirlamente19sproporcionesentre empleo formsl e informal. 3.4.2.: Losresuftadosesperadasparael aRa 2003 de omsvariables macroecon6micas, expresadasw n o tam mudde variacibnson: Consume:4.5%; Inversibn 10,7%; Exportnciones5,3% e Xmpol-rmciones Is,?%. 3.4.2.j Enparticuk, paraet medianoy largoplazo se suponeunmdemde cncimientoencl que el PIE! rcal converge B Con[ascJth"ones del product0 potencial. 3 5 Restablecimiantode lureladonesextemns a. Si bien el pais ha dcbido diferir una parte sustmcial de 10s pagos de deuda ptblicit, aiio no signslifrca repudiarsus obligaciones,sin0 que esta accicin obcdece al agohmiento de la c3pacidd ili:pgo c=isnal en 8 59 negociacibncon lor meedoresextemos, se ha seguida una estrategiaespecifica de negociacibny acuerdo con el FMI. DeesE modo, y en media de la crisisea2002, apoydo en e1desempilode hcriticasalidade la r4.500%millones. m ny la dmda soeid, $epagmn a los organismos de fmiamicnto multilatertlfes y bilatdes US5 b. El gobiemo esti decidido a incentivarta exportacilln permitiendotanto Ia recupmcidn de las emnomiss regionales coma del aparato industrial del pats en forma competitiva. Tal cam0 se ha txlicado reitepabrmcnte y se muestra ea 1sconstantes relacionescon el mundo, es decisidn fundamental da este Gobjemo promover la intepci6neconomics y comercial, regionaly global, pya favower la insercidn de nuestraeconoday aprovecharlasoporfttnidsdes&Iatecnola& ksinnovaciunes,y lascorrientesustiales de comercialiracih quese danmel marc0delcommio "iial. 3.6 Como garantia de la &itidad macroeconcimica de su plan, el Gobierno ha pnesto 6nfuis en la muperacionde politicas monerariuiasy cambiariasautdaomar,jumconlamdsesuiaa. pmdenciafiscal, para ascgunr que las vaxiables macmecondmicas puedan afrontar favambiemcnre cambios emmos ya sea tecnolbgicos, rnoaetarios, u otras. Retomar ia senda del crecimienro sostenido es un proceso cuyos f r u t ~se~ r ~ c o g enhel mediano p t m y se constnryen sobrc una adect3ad3 combinacidn de les politicas fiscdes, ~ munetariasy de ingrcsos. 3.7 Esta AdministraEidn reconoce plenmnte que ta liberacih del tip de cambio es condicilln neccsda per0 no suficisnte para garantizar la wctivacion productiva sustentable. Se requiere una ~rdinacidn integral de las politicasy refonnns estructutafcs. AdemL, en un mam dc descontento social, aislamicnto extanoy debilidad puiitica, no seria viable pens8en unesquema de politica medanicista,apostiindose poor tantoa un enfoque general y que permitsel us0gradual dehmientas, Ias cualcsestxin sostenidasen $os rows decredibilidadque se van dcanzando, 3.8 Ourante el primer semestrede 2002 el ntmo de caida del PBI siguid la tendcncia de 2001, per0 t r e ~ fendmenos se hm vehficado y sientan k+sbasesp;mt In recupc?rac%neconirmia: a) eI tip0 de cambio sc ha e- estabilizadoen tkninos d e scon hjislma vsriabilidnd nominal;b) hasido baja fa traslacibna pre~iosde la devaluaci6n -hflacillncontrotads-; c) Lacafdadel FBIavo su piso y la reactivach Indus(rfalen t&nnhos desatacionalizadosse da gneralizadmenteen e l marc0de lacompctenciainternacional. 3.9 A pesar de las mejoras m&&g, e1 Gobiemo entiende que e$ muy limitada su capxidad de atentar importantesexpectativassobre unarecuperscidnecon6micatal que enel cortoplaza impactctefiettementc en 10s nivelm de cmpleo y de inpeso laboral, sin la asistencia fimciera muttiiatenl. Est0 impone un dificil marcO a la a C C h de 1s polltica social y a la posibilidad de cumplir con 10s comprumisos financieros asumidos. 60 Desafoltunadamente la visib decrisis90Econdmicasoa bIasmque los de una c crecienre por pMe del sistcma de Obms Sacides fdl6, entreotras ratones, por se havisto inmersala Argentina y debido B las dificultades intrhxcas de 10s sistemas de seguridad social tmdicionalas pant incluir a 10s Majadores infmales. Aunque et gobiem escn decidido a caosclidar las mejoras de regulacion del siskma de obras miales introdwidas durante la dCcadnp d a , es mbkn unaprioridadei reasegurarque la mayoriade la poblacibn reciba litcncidnde d u d en 10s sistmmas publiros y lo haga en condicionesde ntenci6n efectiva, edcientey digna. Cramos quc el desanolb de intervenciones orientadas especificamente 8 cubrir la^ necesidades m h importantesde las tnadres y nifies no cubiertas por la seguridadsociai {la gmn mayoriaen to Argntina) p m i t i d generar cxpcriencia y capacidad instimcional, asi a" tambikn Is activa incorponcidn de la sociedadcivil a! objetivo nacionaldecrew UD nuew modeiode dud. Los e~fiLertbsdol sector pfitrlico provincial por incrementaT la capacidad ds ob& de sepicios pan responder a !a mayor demenda, conseaenciade la crisis econrimica, no sonmficicntes. Pot una partepor el desfinanciamientopiibficoy en especialdel 5ectoc dud, y por otra, prque et modelo de gestiirn intenta ..- cubrir la creciente dmanda sin la creacidn de incentivos para mejorar la eficiencia En-eonsecuencia, pre~ismenteaquetlas provinciasconmenoresn c t t r son las ~ ~ afectadas y la brechaC el~ resto de !a Q poblscidndeotros distritospcrsiste. 61 En est0 wntexto, el Gobiemoesta empeiiadoy ve como indispensable latevitalitacidn y fortafccimientodel Consejo Federalde Satud, COFESA,instanciaindispcnsabfeparaE] l o pdeeste dihlogode polilica. En este contolw, el CobiemoNacionalve c a m unmontechientotrascendentalel acuerdode SanNicolhs en et que todas las provby&q en conjunto con el Mhisterio de Salud de fa Nacidn, h a acardado su campromisodecididode fortalecara1COFESAen formaurgentey efectiva. Expraidn krnediata de la efectividad de esta estrategia de revik4izacih del COFBA son [as acuerdos especificosen el enclientro de Sarr Nicolbreferidosa1unrinimeapyo para k! implementac3nde ua seguro Matem0Infant2enlasprovinciasconelapyodenacidn. Muestra c h del campromiso de Nacibn con el protagonismb de COFESA ha sido tambikn, entre op&r medidas, la auto impcsicibndelMmisterio de Satuddt: ta Nacih de la urikcirln de iasWas de asignaciirn de -0s "C0FESA"q'que hanesfado dendo utilisadascanel fur de %segurarla aaasTJarenciaJ.' equidaden lasasifpadones de leche, mdicamcntos indispensablesy omscecursosenelpasadareciente. ElfomlecimienfodeCOFESAesunaprioridadesenciafdelCdbiernoN ~ i ~ ncnssaltid. l 45 Elmarmesfratigico Argmtha&mu dos tueroeS desafiosen salud: en lo inmediato supemla emergenciasanitaria sin perder el ternno ganado en iot;httimos veinte &os, garantimido el acceso .de toda idphlgcibn a sen*icios y medicamentosesenciales.A largoplazo, et objetivo ottnsiste encertar la br~chaqueexonden 10s promedios estadiscicosy que dejadeunladoa 10s sectores m k rlcosy del otroa tosque meaostienen. h s dcsipaldades que !os ingnsos jnsufrcientcs generan en fas condiciones de vida rian lug= Bdifetencias injustss. La desigual &ibwih de la poblacib pobre en regiones con distinto @ado de desarrotlo ecan6mico exige la imptementeci6nbe politicas diferenciales en materia elimlmtarh, sanitaria, edccativa y e de laseguridsds6cial. LaactualconduccidndelMinistcriodeSalud, que lieva20 meses de gestlckiporhaber sIdo ratificadapor el Presidcnte Kirchner cuando asumibel poder hace noventa diu, ha mantenidopresente ems d d o s y ha intentadodmollar su gesti6ncon Inmirapuwtacn ellos. A 10s m&"w del 2002 estabaclam que uno de lasprincipales problemas para ppartedo la potlaciljn era la accesibilidrid a fos mcdicmentos, via precios &os, ofeita de marcas, desabasteoimiectoen centros de alencibnprimariay bajosstock hospitalariosdedificvltosarepicibnpor problemasde financiamienro. Losaricidnde la k y de *PrescripciBn por el nombregenkrico de 10s medicament& ai28 de agosto ds 2002 ha tenido cs~pectacularesresultados. Un afio despds, el 57% de fas recetas de medicamentos cstan C0nfeccionad;rsde aoudo a ~ s tmmay un 20% adicimlcsttin hechasporel nombregengriw y luego, a a continuacibn, laprescdpeibnp rmarcacomo lo indicalareglamentacidnde lamisms.Est0hamodificado SI mercado susantivsmentc,rantoen pncias (abaratamienra) corm en de.soncenkici6n de vnidadesvendidas ( e m " valares deen la variedad de ofmta y conpras). Probablcmenre durante et 2003 vatvamas a 10s mayoms unidadesvendi& d m t e UD do. 11 62 Simuftaneammte en o~nrbfepasado so laluo cl Program Remcdiar. de medicamentosgrahlitos para 10s hogares de mmores fecursos, En menos de I O meses K han distribuido y dispensado m b de 50.000 botiquioesde Wientos tratamientos cada uno, pars las principlesparologiasambutatorias prevalentes en el pais. Est0 pof-&llitb ya quince milfontsde rratamienros a 11 millones de personasidentificadasmndams filiatorioscompletes. Tambien desde mediadm del aiTo pasado et pmgrama de inmuniraciones,et de lwhe fortificadz pata la madrey el posibilita una closb " medicamentospara HW S H l a se demHan con transferendm a laprovEncLque le3 o del cicnto por ciento de sus beneficiaries, p r lo menos desde el ladc de ios ins"necdos. Unatransferencia claraardhiviade rccursose i n m o s ha sido realiradadurante el 200;2en el marc0de 1% EmergenciaSanitaria para fortatear el funcionamiento de Isd e s pcovincida de lud: 7,4 millones de Kgrs.de leche fdficzda; 6,4 miflonesde unidndesdo mcdlmmtos; 30.776 seraaimamparr Iactantes y niilos; 6,s millonesde comprimidas anticonceptivos;0,48 millanesde anticonceptivosinyectables; 76.73 Ide DXUy 4 milfooesdecondones. La sanci6nde la leyde "Salud Sexualy Repmductiva" pusoenmarchaunimportantep r o p " dr:difitsibn, capacitacibny prcwisibndemdtodosde anticoncepciirnpara!as familissquemilo deseen. LaSUMlapobt&iiiny la bsputraade la quidadson nuestmfaroestratigico.Me.tsde reduccih de la rEe morbi-inorblidad espccificamtnb de aquelk prevalentesy evitables, nuems objetivos inmediatos. Para =to, junto B toda las pibvinciasargentinasnuclcadasen el COFESAastamoselahrando unPlan Federalde * Mud 2003 -2007 que mejorela Eoqjunci6n nacih-provincias, integre 10s diversossub~ctorcs,modifique el modeto de atencilbn vigente, de a h miCs accesibilidad a 10s srmicios y medicamentas y aumente de mlutera proefesiva la calidad de 10s mimas, Nuestra visibn cantempla una rohdpljblica con &3ores privadasy estafolescmjzqdooj enel bimmrar detodolapobiwidn. 4.4 Lageaeracih y desarroilode unanuevaiaiciativa: ElSeguroMlttemoXnfactil Estamospersuadidosque e5 necesarioy pasibie enfrencarsimultdnementela necesidadusgentr de wpondar a Iosmis nmsitados,pairicularmentea las madresy niiios,y al mismo tiempo sentar fas bases de cambios sistkmicos profundosen mlud,Cremos que el eje centralde ese 1agmes el fartalecimicnto de 10s sistemas provincialesde salud en t o m a la atencibn de la madre y el niRoen el colto ptmy a seguros provincides ded u denel medimoy hgop h , tal coma lo&ala fa visibncompartidadelAcuorda de SanNicolb. pParai slogarde un Sepro de Salud Mateno infantil (SM) que integra un conjunto de prestaciones &ica cste objetivo planeamos lanzar una jniciariva n u m orientah B apoya 8 !as provincias en la (CPB)kincltrycndo intervcnciones de pwvencidn y arencih bbica de satud. La implerrrarlacirjn del seguro v h pennite, simultheamenk enfrentv la neccsidbldde ascyrar urgentemente el acceeo a swicios bbicos a la madn y el nifis de una forma que detmine carnbios profundos en el marc0 de incentives de la gestibn clinic% administrativay finitnciera de la prestadores phblicos y privados en 10s sistema de salud provinoiales. El SMI es una iniciativade Nacibn, a mv6s del Ministeriode Salud de la Nscih, que apowy finariciad la implemenwibnde UR anjunto de Pmciones EIBsicas para todos $05 nifim y niaas " o r e s de seis 12 63 aiios, todas las mujeres embarmdas y todas las inujeres en puerperia hasta45 dias pastenores a1partoque no cuenten Eon e o h m de seguridad social ( O h Socialcs Nacionala, P A M u Obras Sociales Provincials)Posteriomentcingrmarh al Progamade SaludSexual y bwaacibri Rerqonsable. Et Minisbriode Sald de (a Nacih(MSN) plmea ofrecer a las provincias fiw"ismiento pkiat y apoyo tdcnico pata la implememcidn del SM. Se establece un paquete h i c o de premcionts (Conjunto de Prestaciones B4dcwCPB) que sei4 pagado por la Nacibn a @as& de un monto per cqitn h k o par bmeficiario ajutado por el cmplimiento de metas witarias aconfadas anuahenrr:en* la Naciciny cada provincia que puticipe en e? programs, Esta moddidad de transfaencia finmeien que deseruncs implementar para el SMI sienta las bases de un cambia significativo de inceativos y nos pennitirk hcrementalmentecambiarel foco desdc undiscuJi6nbasahfundamentalmeateen ncu- hist6ric-sa una crecientementebadaenlogoderesultadosensatud, El objetivo de lago plat0 del OobiemoNacional er que el ShzI se implementeen toda [a provinciasdel pais. Sin embargo, por m e s de equidady de disponibilidadesde rmmos asi G O ~ O prioridad de sanitaria hemosdccidido, conel apoyoy entendmientode 10s miembros deCOFESA,comenmenunaprimeraetapa la implemeaacibnea las provincias del Noroeste y Koreste Argentino (KOA y NEA)$que son las que muestran 10s peores indicadores de salud iofantil asi cdmo 10s peores indicadores de cobertura de la CaUmrca f Santiago del &tem (BOA) y ;as provinciasdeChaw, Misianes, Formosay Cordentes&?%I. seguridadsocial y de pobreza.Esmregion= estkn compuestas por lsprpvinciasde Jujuy, Salk Tucumh, El gobierno de Arg"enth, en el tspiritu do-la viside expresada por el conjunto de k Nacidn y [as jWiSdkCiQnCSCII el acuerdode SanNicolh, espera que Xa implemwtaci6ndel S M a nivel provhcial, actbe C O ~ O"semilfa" para la hpiementacidnde seguros o "yradom" pmvinci33Epsde scrvicior;de sdud, * tanto a prestadores ptibljcosWQ a privdm, en el rimbito de 10s ministerias de ssludde Ias provinciss respectivas, COR el finde mejorarlix incentives e insmmentos para mejmr la efectividaddel @to piibibtico ensaludy focalizarloen lasfamiliasquemizslanecesiran. Para el initio plfotodel SMI en el 2004, el Gobiemo planeadestinarai menos $20miHone dol presupuesto de dicho aiio. At, hacemos efectivo nuestro anhelo de responder a la urgeuch de hoy pro con visitin de ..- futuro hacet~OS~ b i osistimicosneoesarios. s Creemos fmemente enei gym impact0 estnrctunl y de salud que el SAWpucde logarpque la myor parte de la marbilidsd y martalidad matema e infantil puede ser esiuda COR adecuitda cobertEra de SCW~C~OS bbsicosdc: d u d can ua nivelde cafidadadecuado. Aunquc a! momento las ~ssasde parto instiacional son eievadas, la mayoriade muertesinfantiiesy matemaspodrim ser evitadssr @av& de Ms i s t " qlre permita el Control del e m h de "midecuadda lo c u d actuhente e5 bastante lb.iCado, pt.ticuben* on \as provincias de iasregimesNoAy W A . k&&"ente el fmiente cmbarazo ddo!escente ests.vinculado 11 probiemas neonaf&cs tales cam0 bajo peso al naxr y altas taw de mortalidad hfmtif y mxerna. Si en Argentina pudikamosreducir el 50% de 1% nuertes "evitnbles", la tasa de mortalidad infixti1 podria scr disminuida a niveles consistentes con la de paises wn un grada de demollo similar y iograr metas de 64 Laproteccibnde n u e mprogramasprlaritariosensdudestaenelccntro de lapoliticsphblblicasanitaria dtl gobiemo. El hq" negrdvode lacrisismsalud de fmm del 200f y principiasdel 2002 se debicimg m medida a la desproteccidn slibita de estos programas que incluycn entre otros: (a) E1 pm-a de inmunizaciones; (b) el programs de pesqulsa ~pPidemiol&gica;(c) el pmgrama de ptwttnci6ny mmiento del WNfSIDA; (df et propma de prcvenci6n y tratarnicnlo de fa tubErmlosis; (c) el pmgramrt de suplmento nutricional; (0 el programs de salud sexual y rrprodmctiva; y (g) otros. Estos programas son esemkles paramanttnerlasaludb&ica de la poblocibny particulannerttede fos m8snectsitados,madresy nifios. Conel fa de p g e r cstos programas, el gobierno nacional pfmradestinar mris de $500 milfcnwpara el p aiio2004.pPer0105pwgramasesmcialesde satudno&la sonmwsfinancieros, sonrostroshumanos.I& m prioritatiosnos permite0 anuslmente sender. (a) i$millanes de n h s menores de 2 silos con ~ supkmto de Isehe; (b)Vacunw a inas de 4,7 millonesde &os menow de 6 ar2os: (c) en- cobertura de medicamentosesencialesa mas de 7 millonesde no mguradas; (d) tratat a m k de 23.000 enfesmcs de $ID&y(e) ottasauchasaccianessanhias indispensables, Losantefionsson 10s pilam fundmentales de laPoliticadelGobiemode taArgentinaen Szlud. Conel fin de poder Mstener e implementar em politica priolilaria, hemossolicjtado al Banco Mundial, entidad con la que nosasiste una fwga y profundacamunidadde objetivosen laproteccicinde 10s m b pobresy necesitabas, un program&de financiamiento que incluye un pr&amo de Ajuste Sectorial, quIu"nos permite lanzar este cmjunto dc p02itiwi y cgmbios estmctaales a el sector satud y tpmbih, un proycctode invenih a la brevedadpsible, quenospermitiriconsoiidarestas refmasy expandirtasa todo el pais. . Los elmentos cmtmles del p r o p " de r e f o m para el cud solicitamos el apoyo Cel Bmco Mlrndial son 10s siguintes: 4.4.2. Refomasy Fortalecimleatos:Unaeolakmci6n virtaosaeatre$8Argeariaay elBancoMundial I N w @ apropuestade refomaseomprendedos partes. Leprimeradestinadaitmejorar lacapacidadde geitidn y de regufaci6n y la se;egunda serb un pmgrama de invcrsiones que progresivamentc extended el S E ~ mamo infanti1B otras provincias, (a) Reformade! msrmde gestiln y deregufrcibny lanzemh?stopibto del S M ElMinisterio de Sdudde IaNncibndefinib chca tipos de accionw para mejomry consokhr ia cspacidad hstinicionalrcquwidap mdesarrollarel futuro PlanFederalde Snlud, a.1 Mejonr la capacidad dc coardinacibnen:ntre la nacibn y (as provincias a tmvCs de la wvitalizacidn del Consejo Federal de Salud (CCQFESA). El objetivo es incrementar la capacidad de gwem c~liscltso programasde alcmce nacimaltafes M ~ Oel seguromatmo infantily que permiranmt$orarfa @%ticinde fas ~ >pollticasdede ntbsidiosy Obos programas importantesdesanotlados conjuntameatetanto por eS Ministeriode Salud r IaNacl6ncomo por Ics Ministerios de Saladde Ias Provincias. 14 65 a.3 Zniciar el disefioy pilotajede un propma de S e w MaternoMandl que K I expandido E travQ de ~ inversiones pbsletbn~con el a w o del M e seguro lendri un paquete prestaci~nalorientado a resolver Iasprinciplescawasde morbi-mortalidadmatemae infantit en Argentina, a.4Labaseparalaaipcihde tccursos denacihaprovinciaszeduna politicade subijidiosparciales,ccln el objetivo de permitir la sustcntaMidaii Fmanciera del SMI a nivel de provincias. W basado en un slstema de capitacicin que ten& como base el ndmcro actualirado de d e s y niaos no iw&wado$ inkptos &x&hnmte on el seguro, modificado pot 10s resuftadosde ciertos phetros quc sedn manitorcadma niWdproviacialy wcional, Hensgederal " comcmdo ya a pnpar;uun manualde OIperaciones que especiflcarft el &lo de gdbndel y cbmo 10sr c c m s finmchros scdnadministrados a nivel naciod y provincial, dentrode uilmaso agropiadode imentivW que p e dlognu las metas del P" LS Mejorarla situaciSnde qudlos pmve&rcs de smicios de sdud pirbiicosque sirven a hpoblacidnno cubicrta por scgum, mediantoet mcede [a infonnliciirade! la base de datos dcf padrtinde O h Sociatea Naciondu, para perfeccionar la facruracibn por servicios prestadm a beaeficiarios cubiertm por otros stgoros, y reducirel subsidiocruzadoen desmedmde laspobfacionesmenosprategidas. Estasaccionesse tomarianen el t"de doce{12) massy entxes etapassucesivas. h s defsetallesde la medidasts&hcas queplmeamosdcsmllary de fosindieadaresque ptnnitirsnel monltoreodeltogro de estosobjetivosdc pofltieaplttilicaKencumma elmodelodelConveniode fr&tamo B scr ellscriptoentre el GobiernoArgentiw y el BancoMundial. . Prbtam~a Las refomtas def refomas de politicas ptwimtmte enunciadas seriln apoyab a travks del Convenio de SET m d o y un Propma de Inversih SkctoriaI tmbikn apoyado con el Banco hfundial, considerando que el GobiernoNaciod ya ha priorizadoesta Utima operptcihy se encwntra en UM &pa avmnzadade pmp"acibn. (b) Elbgmmadelaueniria. A medida de que ias acciones detalladas en e! Propama Sectoriat de Refomas Apoyada por el SECX hayan sido inicisdas y en p medida cumplida, planmmos continuar y c o m L i k fcs reforma mencionadaJ en 10s punrm anteriores con UIIpgrama de inversiones que ticne el objetivo general de nduck !as Msa~de mortalidad, sentando simultheamente Iss bases para cmbios e s en 10s ~ ~ ~ sistemasde d u d de [as provinoiaq mat" e inhtil a niveleswnsistentes con las Metpsde Desarroll~del Milenioy que pennitand u c k las brecftasactualmenteexistentesenm difecentcs regionesy pmvhciasdel pais. Esteprogramde inversionesquehemoscomenzado a prepararoonstade tres componentes: b.1 Transferencia L subsidies, en base a capitaciones p r poblaci6n clegible afiliada y campihiento de m mpor parrsdelMinisteriode $dudde laNaoiijualasprovinciascn lamedidaque estas byancumplido con las condiciones de elegibilidad y participacidn &I p ~ g " ,pan la financiacidn de un paquete de smicios enelmmo de unpmgramade Sfsgura Ma!emo Infantil, 15 66 b.2 Provisidnde recursosa lasprovinciasp mhaw las mjoras necesariasde equipammiento,renovaciirnde infraestructura y capacitacibn de fecursos trumanos con el fin de mpandir [a capacidad de proveer 10s serviciosde saludncceslvjofafu!de cumplir cone[ paquetede benefjciosdel SMI y l o p10s objetivm de reducciande morbilidady mortalidadmaeminfmtil. b.3 Pnnisi6n de r E c w paradesarrolliuy mejorar la capacidad instihrcionat de lasprovinciasy la naciSn degestFonw, evaluary monitorearet SM, pmicutannenteparalaasistenciatlcnicaque lespennitafundary fowlecer lasunidadesde segwode d u d provincint o dt "compra"a1 interiordel&stempubiicode dud. Este propama de inversionesmria desanolladocon la participacibn de la gobiernos provincialesquienes deb$& generar unidadesdc compras, tnoargadas de &ctuar Mntrataciones parala provisibude servicios con efectorespbblicos y privados, &e propamide inversionesestablecerir una escaalade prioridadcs que pennitacomenzar, en una primeta etapa,con aquelh provinciasconmayorcs nccesidadespanrcducir 10s altos indicadorwdemortalidadinfanti1y 10s nivelerde pobretrtde sus pobiaciones. Para Iograr el cumpiimiento de cstos objctivrx; y metas5-3rquerid de?esfuem coordinado de la nacibn y !as provinciasa lo largode algunm aiios. Sacspm que enel t;ranscurso del proyectoLas provincia adopten y adaptenel SMI, inkrnalizandoestrudmente 10s proeesosde reformasneesariasy de acuerda a sus realidadesespcificq pemde forma tal que K logreel cumplimitnto de 10s objetivosgenmfes delseguro. Para ello se wficitb'al Banco MundiaI un prestamo que pemita financiar el programapor mdio de un Prolyama de Fr&" . descriptadurante el p l mAdaptabtc de diez &os y en tres etapas. Paraielamentea la prepancibndt los aproximado(Adaptable Program Lending APL) para CUM necesidades las detallcs de! diseiio del paquete de beneficios e intentem;iones, del manual de opmciones para el SM, ' t5tamr)spreparando tambien una&e de atudias con el fin de detallaret erocfogremade bbajo plognrr @I cumphiento de mcw cvaluaciones financieras y econhicas del progrma, el disetio de inhumentos wnnachlalesbkicosquesep&drianrecomendarp"raus0;t nivelprovincial, aicomotambihnunacstnitegja de eomunicaciony "marketingsccial que pudierancontribuir a !as acciones que 1sprovincias Ilevardna cabo parademlfar el SM, I- 4.5. Desarroilode laRefarma 4.6 Resultadesesperablesenel wrto y Largop l m ~~ I6 67 A h v h de este programa 9c espera logtar cumpiir con {as Metasdc Demlio del Milenio en lo que msptcta a d u d matemo-infantif pam el aiio 2015. En las p h e w pvinGiaS en las que et programa de inversih wri aplicado se csgmque haya una caida refativamente mics rbplda en las pr"imeras fases de implemcntacibn del programa, en cpmpmGibn eon el rest0 de provinciesdel pis.Una vez super& &a edda reletivmenrc dpida de indicadores de morbilidad y mortalidad ma!emo-kfantil 10s l o p s segununenteSersnmenosdpidospuorosteaidos. Eskimos altamenle comprometidos con ei l o p de 10s objetiws de este programs, asi como tmbitn 10s Ninistros de SdudPmvhciales, talcomo loexpresaronconla firma del Acuwdo Sanirario Federalde Salud de Saa NicoIBs,donde se estabimque el SeguroMaternoInfant11forma parte de [as Politicasde Emdoen hSaludo s de fijacibn de politicasplsblicas ensalud, y el hechodequeel prog" c o m ea demllmuse para faArgentina. T o m d o en cuentael altonivclde autonomia conel que cucnten las pvilcias en i n precisamentten quellasprovhcias que hist6ricamentehantendidoa pnsentatmenw capacidadde gesXi6n de p r o p a s y expansib de servicios de salud, contemplamosincorporaraccimesoriCnw&ts P mejow la capacldad de cbardinacidny dialago entre el Ministeriode Salud de fa N a c i h y laspmvinciasa hv&sdel COFESA.Adicionahmte,se plana desmlfar unpropma paramejorar lacapacidad indmcionalde 10s Ministenosde Saludde kshvinciasque garanticenlaejecuci6ndel SMIy sus servicios. exclusih en el SCCV$F dud, priorizandoaqucllos que han sido histkicamente 10s exduiios10sLctro de 10s Es por ello, quc cxpresamosnuestro compromixr de wntlnuar enfrentandodecidida"? dzsafios de excluidos, las madres y niiios pobressin c o t " de seguros. Nos pemitimosinvitv SIEmco Mundisl a una cofaboraciirn virtuma que nos pmnita juntos m c j m #as condiciows de d u d de quienes mds b necesitanen laArgentina Sinotra particular,saludmosaustedmuyatentamente. 17 68 I U m N: h v m h e j E-r E 2 'z E-r h m s h0 3 u i$ W E EM a Ei t h 6 2 P 3 + h h N ANNEX 4. POVERTYAND MORTALITY INTHE NORTHWESTAND NORTHEAST REGIONS IN ARGENTINA' This Annex compares poverty as well as infant and maternal mortality rates in the Northeast and Northwest Regions of Argentina with the national average. The provinces that are included in these two regions will comprise the first stage of the implementation of the Provincial Maternal-Child Health Insurancesupportedby the proposedloan. InfantMortality Argentina's highest infant mortality rates are in the Northwest (NOA) and the Northeast (NEA)regions. These regionsinclude the provinces of Jujuy, Salta, Tucumhn, Catamarca y Santiago del Estero (NOA), as well as the provinces of Chaco, Misiones, Formosa y Corrientes (NEA). Figure 4.1 compares infant mortality rates in these regions with other regions of Argentina. Infant mortality rates for NOA & NEA regions are higher than the national average. There seems also to be significant underreporting. Figure 4.1: InfantMortality Rates by Region inthe Year 2001. (Per 1,000 live births) NEA 23 2 1 NOA TOTAL PAIS 19116.3 CUYO GBA PAMPEANA PATAGONIA 13.5 U." 9.U I"." 19." 'U.U La." IMR Source: National Ministry of Health, 2001 I This section draws significantly from aproject preparation document developed by Dr. Pablo Duran, Dr. Nora Rebora, Dr. Mariela Rossen, Dr. Maria Laura Banal, and Dr.Marcela Jguregui, from the Direccidn Materno Infantil del Ministerio de Salud de la Nacio'n and with the collaboration of Dr. Fernando Lavadenz from the World Bank. Translated from original in Spanish by Fernando Montenegro. 75 Although statistics show a higher proportion of infant mortality deaths in the neonatal period in all regions in the country, the contribution of post neonatal mortality to infant mortality in the NOA & NEA regions tends to be higher than in the rest of regions and provinces (Figure 4.2). Figure 4.2: Infant Mortality Rates, by components, inNEA & NOA Provinces in2001 (Per 1,000 live births) 35.0 30.0 25.0{= - n 20 0 15 0 100 5 0 0 0 Although the frequency of children born with low weight i s not higher than the national average, the percentage of well-documented cases is also lower than the national average, a factor that affects the quality of these data as seen inthe next table. It is important to point out that from the analysis of neonatal and post-neonatal infant mortality rates one can infer that there i s a high proportion of infant deaths that could be avoided with appropriate primary care level services which would include providing higher rates of pregnant mothers with higher quality medical controls, and other low complexity level children's health preventive measures as we can see inFigure 4.3. 76 Table 4.1: Infant Mortality Ratesby Specific Causesof Death inNEA & NOA, 2001 SpecificIMR (Per 100,000livebirths) Residenceof the mother (by province) Diarrea ARI Average Argentina 23.8 61.0 Catamarca N/A 123.8 Chaco 51.4 107.4 Conientes 63.5 68.4 kormosa 1138.7 1130.0 I Jujuy 63.4 35.2 Misiones 77.1 125.8 Salta 49.4 87.3 Santiagodel Estero 25.9 123.0 Tucumh 10.9 21.8 Figure4.3: PostneonatalMortalityRate Accordingto ReducibleCauses Argentina 2001 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Reduc.por Reducibiespor Reduciblespor Otras reducibles Dificiimente Mal definidas Otras causas prevenc. y tratam. prevencion tratamiento reducibles I DTotalPais "EA ONOA 1 Source: Estimates by the National Ministry of Health, 2001 77 MaternalMortality Maternal mortality rates in NEA & NOA regions are higher than the national average of 4.3 (per 10,000 live births): 9.5 in NEA and 7.9 in NOA (per 10,000 live births). At the provincial level in these regions, there i s a broad range of variation due to the low number of reported cases (between 3 and 34 maternal deaths). Small changes in the absolute number of deaths can produce important changes inmaternal mortality rates. LivingStandards A comparative analysis of regions andprovinces usingpoverty level criteria yields results similar to the analysis using infant and maternal mortality rates with respect to the relative ranking of the N O A and NEA regions as beingthe most disadvantaged provinces in Argentina. Data from the Encuesta Permanente de Hogares (EPH), carried out in October 2002, shows that NEA & NOA regions have larger shares of households below the poverty and indigence lines than the rest of the regions. The EPH i s a household survey carried out in 31 urban centers across the country twice a year. Figure 4.4 and Table 4.2 show data on poverty from different regions of Argentina compared to the national average of all urban areas surveyed. Figure 4.4: Percentage of Households Classified as Poor or Indigent by Region DPOQREZAHOGARES mPOBREZAPERSONAS DINDIGENCIA HOGARES DINDIGENCIA PERSONAS NORESTE NOROESTE CUYO TOTALURBANO PAMPEANA GRANBUENOSAlRES PATAGONIA Source: EPHINDEC - OCTOBER2002 78 Table 4.2: Percentage of Households Classifiedas Poor or Indigent by Region, October 2002 POOR INDIGENT REGION HOUSEHOLDS INDIVIDUALS HOUSEHOLDS INDIVIDU LTOTAL URBAN 45.7 57.5 19.5 27.5 GRANBUENOS AIRES 42.3 54.3 16.9 24.7 CUYO 51.5 61.3 22.5 29.7 NORESTE 60.8 71.5 32.3 41.9 NOROESTE 59.3 69.4 27.1 35.1 PAMPEANA 45.1 56.7 19.4 27.2 PATAGONIA 37.0 45.6 16.1 21.0 By disaggregating the two regions further (Table 4.3), one finds that especially the urban areas of Corrientes, Posadas, S.S. de Jujuy (Palpala), Salta and Gran Tucuman (Tafi Viejo) were areas with particularly highpoverty and indigence levels. Table 4.3: Householdsand Individuals LivingBelow Poverty Levelsinthe SurveyedUrban Areas Locatedinthe Provincesthat Belongto NEA & NOA Regions REGIONS / URBANAREAS iource: World Bankestimatesbasedon EPH, INDEC. Turning from the whole population to the children and minors (less than 18 years), the analysis shows that the poverty rate among this group i s also higher in the NOA & NEA regions as compared to other regions in Argentina. More than 82% of individuals 79 younger than 18 years old belong to householdsclassified as poor in the Northeast (NEA) and 81% in the Northwest (NOA). The Patagonia region shows the lowest levels of childrenandminors living inpoor householdsof Argentina (58%). The percentageof minors that belong to householdsclassified as indigent i s 54.4% in the Northeast region (NEA) and 46.6% in the Northwest region (NOA). Again the lowest percentage of minors that belong to households classified as indigent is found in the Patagoniaregion (3 1%) 80 ANNEX 5. POTENTIAL IMPACT OF THE MATERNALAND CHILD INSURANCEPROGRAM Introduction Although the infant mortality rate in Argentina had fallen by 50% from 33.2 deaths per 1,000 live births in 1980 to 16.6. deaths in 2001, rates are still significantly above the average for countries with similar (or even lower) levels o f historical health expenditures such as Chile, Uruguay andCosta Rica. Figure 5.1 relates health expenditures and infant mortality rates for various Latin American Countries for 2001 and shows Argentina inthe upper right hand corner of the graph which signifies high expenditures coexisting with a high infant mortality rate. Recently, unconfirmed preliminary data suggest that there was an increase of infant mortality in Argentina (possibly of up to 2 percentage points), during2002 as aresult of the economic crisis. Figure 5.1 Argentina and other LatinAmerican Countries: Health ExpendituresandInfant Mortality Rates 60 llMD M;;] mMex I 30 20 10 0 0 100 200 300 400 500 600 700 Per capita healthexpenditures1998(PPP US$) InfantMortality Rate 1 MaternalMortalityRate Source: UNDP HumanDevelopment Report 2002 and PHOlWHOHealth Situation inthe Americas. Basic Indicators2001 81 Furthermore, there are growing disparities of infant and maternal mortality rates among different provinces. In 1990, only five provinces registered mortality rates more than double the lowest provincial mortality rate - ten years later, however, nine provinces registered such high rates. Currently, provinces such as Corrientes, Chaco, Formosa and Jujuy have maternal mortality rates that are three and even five times higher than those found inthe City of Buenos Aires or Neuquen. The Northwest and Northeast regions in Argentina show the worst indicators in infant mortality and, therefore, have been selected by the Government for the first stage of the implementation of the Maternal-Child Health Insurance Program (MCHIP). They are also the poorest provinces of Argentina. The northern regions (NEA and NOA) include the following provinces: Catamarca, Chaco, Corrientes, Formosa, Jujuy, Misiones, Salta, Santiago del Estero and Tucumh. In these provinces infectious diseases account for around 11%of the total Years of Life Lost (YLL) as shown inTable 5.1. Table 5.1: Years-of-LifeLost by Causes inArgentinain2000 1 (Per 10,000individuals) Fl: 1 Violent Infectious 1Cardiovascular neoplasm,s I and 1 1 Causes Other ITotal Argentina I Pnica I I 1 I 1 I 723 I 9% I 27% IAccidentalI 43% I 21% enion 622 7% 26% 25% 42% v i Centro Region 671 9% 31% 21% 39% Cuyo Region 709 8% 25% 23% 44% NOA Region 822 12% 18% 21% 49% INEARenion 1 982 1 10% --I 18% I 17% 1 55% I Source: PAHO Argentina. Basic Indicators Year 2000. 82 Province InfantMortality Rate Catamarca 15.47 Corrientes 23.50 Chaco 24.05 Formosa 28.95 La Rioja 23.49 Misiones 19.65 Salta 19.06 Santiago del Estero 14.76 TucumAn 24.46 Source: Direccidn de Estadisticas e Informaci6nen Salud, National Ministry of Health Although official data i s not yet published, all indications suggest that most likely infant mortality rates increased by at least 2 percentual points in Argentina in 2002. Figure 5.2 shows the evolution of Infant Mortality inthe country since 1980. Figure 5.2: Infant mortality rate inArgentina by years, 1980 2002 - 35 I i 30 25 20 I RI IMR 15 10 5 0 1980 1985 1990 1995 2000 2002 Years Source: National Ministry of Health for data from 1980until2000. Data for 2002 are Bank Staff estimations based on preliminary data from MSN 83 Unfortunately, in Argentina there i s no comprehensive burden-of-disease study available that could shed light on the specifics of the likely impact of the MCHIP on maternal and infant morbidity and mortality. However, preliminary analysis of available data suggests that infant mortality rates (in particular neo-natal and post-neo natal) could be significantly reduced by offering a basic package of services through a MCHIP. The national Ministry of Health (MOH) estimates that from a total of 7,650 neonatal deaths that occurred in the year 2000 (around two thirds of the total number of infant deaths at the national level), 60% could have been avoided through timely and appropriate preventive, diagnostic and therapeutic measures. Also, 57% o f the total 4,000 post-neo-natal deaths could have been avoided with similar measures. If Argentina could avoid half of these preventable deaths, infant mortality rates would decrease to less than 12per 1,000 live births. Data from 2001 also suggests that almost 29% of total maternal mortality rates can be attributed to abortions. Teenage pregnancy and deliveries without professional help (a problem more frequent in the N O A & NEA regions) contribute to the high level o f maternal mortality currently observed inArgentina. 84 Estimationof the potentialimpactof MCHIPonunder five and infantmortalityby specific groups This section examines the potential impact of MCHIP on Infant Mortality in the NOA & NEA regions and in the rest of the country. Figure 5.3 includes some important definitions. Figure5.3: Summary of Definitionsfor PerinatalMortalityandInfantMortality. Perinatal Mortalityaccording to the International DiseaseClassification 10th Revision(ICD-10-CM) PERINATAL Methodolom. The following methodological steps were followed for the estimation of potential impact on the three age intervals analyzed inthis annex. analysis of causes of infant death inthe nine provinces of N O A and NEA; analysis andestimation, based on hospital production statistics of MSN, o f the proportion of potentially avoidable death at four key moments of perinatal and child health care and prevention; estimation of potential effectiveness of the MCHIP package in avoiding preventable deaths, based on the interventions included in the MCHIP package and the intensity of such interventions anticipated in the package costing; based on the above, estimation of potential impact o f MCHIP on the Annual Average Reduction Rate of Infant Mortality and the time frame for improving it along the first 8 years of MCHIP implementation Estimation of impact of MCHIP implementation in the first 8 years of the program. 85 Analysis of the Causes of Infant Death in the Nine Provinces of the Northern Regions Table 5.3 shows the proportion of neonatal deaths (children younger than 28 days) by type of avoidable cause according to statistics from the National Ministry of Health in 2001: Table 5.3: NeonatalDeaths by Type of Cause in NOA & NEAProvinces in2001 Source: Direccih de Estadisticas e Informacihde Salud. 2001 86 Analysis and Estimation of theproportion of Potentially Avoidable Death atfour Key Moments of Perinatal and Child Health Care and Prevention Table 5.4 shows the proportion of post neonatal deaths, (children older than 28 days) by type of avoidable cause according to statistics from the National Ministry of Health. Table 5.4: Post Neonatal Deaths by Type of Cause inNOA & NEA Provinces in2001 Percentage Percentage Percentage Percentag Percentage Percentage of deaths of deaths of deaths e of of death of deaths that are that are due to other deaths due to due to avoidable avoidable causes that that are undefined other with with are also iifficult to causes causes preventive therapeutic avoidable avoid measures measures 17.2 18.6 20.4 2.8 1.s 22.4 26.7 13.3 8.9 6.; 20.0 5.5 7.5 16.5 27.2 2.5 19.0 3.5 4.: 21.0 25.0 1l.L 26.; 19.5 13.4 6.f 33.; 19.21 19.8 17.4 8.61 6; Source: Direccidn de Estadis 87 Estimation of Expected Enrollment Rates and Potential EfSectiveness of the MCHIP Package in Avoiding Preventable Deaths Tables 5.5. and 5.6. summarize the findings regarding conservative estimation of coverage of the MCHIP during the first eight years of implementation and its potential impact on preventable maternal and infant mortality. The resulting numbers emerge from a detailed review of National Ministry of Health statistics and estimates on incidence of disease episodes among uninsured population and the number of potentially avoidable infant mortality. The estimates for avoidable mortality are based on percentages of enrollment of vulnerable population, this is, of the population that actually presents the disease episode covered under the package of services of the MCHIP. Only a fraction of the eligible population actually will present an episode of preventable disease. Table5.5: EstimatedMCHIP CoverageandImpacton Avoidable InfantDeaths MCHIPcoverage of vulnerable Avoided deaths as percentage of all avoidable population deaths inthe Vulnerable Population 1 14 5 2 44 10 1 3 15 25 4 15 35 5 80 45 6 80 50 8 80 70 Table 5.6: ExpectedNew MCHIPEnrollmentNumbersTo ReachCoverageTargets of Vulnerablepopulationby year inthe NOA andNEA Regions Source for tables 5.5 and 5.6 : National Ministry of Health estimation.. 88 Estimation of potential impact of MCHIP on avoiding preventable death in the NOA and NEA provinces during thefirst six years or theprogram Table 5.7 shows the estimates of preventable death, estimated from the enrollment and preventable death data discussed in the previous section as well as the percentage of prevented death out of all avoidable death and percentage of prevented death out of all infant death in the N O A and NEA regions. It basically shows that at the 6th year of M C M P implementation, at the enrollment rates shown in Tables 5.5 and 5.6, the Annual Average ReductionRate (AARR)'of IMR would at least reach 6.3%. The average AARR for Argentina in the 1990's was 3.5% which compars unfavorably with the corresponding AARR for Chile and Costa Rica of arround 4.2%, even through those countries are at a "hard level" of IMR (less than 10 o/oo) which i s much dificult andexpensive to reducethan higher levels. In2001-2002the AARR for Argentina was 4.2% (an increase). Table 5.7: Number of InfantDeaths(1year oldor younger) that CouldbeReducedwith the Implementationof MCHIPinEachof the NOA andNEA ProvincesbyYear of ProgramImplementation. I I I 1CumulativeI Average avoidable IAverage total death I Total deaths reducedinyear reducedinyear 6 Province Santiagodel Estero 1 30 43 142 13.3 6.7 Tucuman 2 55 79 261 11.8 5.9 Total ineach year 9 328 471 12.7 6.3 Total in all years 1555 Source: National Ministry of Health estimation. 'UNICEFMethodology. 89 The number of prevented deaths shown in Table 5.7 corresponds to a conservative estimation o f the MCHIP impact. Such a conservative approach reflects the complexity andsignificant effort that will be required to first stop the increasing IMR (in2002), then return to historical AARR for IMR, and finally, to accelerate the rate of reduction of IMR to at least levels comparable to best cases of other similar developing countries in the region. Table 5.8 summarizes the findings of the potential impact of the MCHIP in the first 8 years of HSRP implementation. It first shows the most likely significant increase in IMR inArgentina in 2002, but particularly in the NOA and NEA regions. Significant efforts are necessary to revert this trend, specially in the N O A and NEA. This i s reflected in the conservative estimation of AARR for the first years o f implementation in the N O A and NEA regions. First,the MCHIPwill aimto stop the increase inIMR. Second, it aims to regain positive AARR and take it to historical levels in Argentina (3.5%). Last, the efforts will be focused on increasing AARR to the highest level possible (6.3% as shown in Table 5.7), ideally to comparable best cases in LAC under similar epidemiological context than N O A and NEA (7%). The complexity of reverting the IMR increase i s also reflected the table for the other provinces in the country where the MCHIP will be implemented after the N O A and NEA regions. This explains the slow increase in AARR l= for those regions. tt Table 5.8: EstimatedIMRResultingfromthe MCHIPImplementationImpactonAARR by Year inArgentina (Doesnot IncludeImpactof Other HSRPActions) Year Year 0' Year 1Year 2 Year 0 8 Re ion 2001"" EstimatedAARR, all Regions except NOA & NEA 3.5% 4.2 IMR all Regions except NOA and NEA 14.8** 15.9* 15.9 15.6 12.2 EstimatedAARR for NOA and NEA (withMCHIP) 3.5 -9.1% 2% 3.5% 7.O 1MRNOA and NEA 21.9** 23.9* 23.4 22.6 15.4 IMR Argentina, whole country** 16.6"" 18.0* 17.8 17.4 13.0 *Preliminary data. Official data still under confirmation for 2002. Data not available for 2003. ** Source: National Ministry of Health 90 Several assumptions underlie these estimations, specifically: (i) mortality for 2003 infant (unknown at this moment) i s the same as the estimate for 2002; (ii) number of births the remains stable; (iii) coverage expands gradually and progressively, following the MCHIP trend shown inTable 5.6; (iv) at least 80%of the target population of MCHIP coverage i s reached b y year six; (v) the probability of death by avoidable causes remains the same among children with and without insurance coverage; and (vi) the MCHIP implementation at provincial level will set the incentives for basic health care providers to focus on the causes of avoidable deaths. Table 5.9: Summary of EstimatedImpactinArgentina, of the PMCHSALand MCHIP, After 10Years INFANT INFANT IMR MORT. Positiveimpactof the MORT. 2002 RATE MCHIP(10 years): % RATE YEAR of reductionof the REGION 2001 8 IMR * Country 16.6 18 13.0 29% 3ther RegionsinArgentina 14.8 15.9 12.2 bOA Y NEA 21.9 23.9 154 35% 91 ANNEX 6. INDIGENOUSPEOPLES,POVERTYAND HEALTHINARGENTINA: TARGETINGTHE POORESTOF THE POOR This annex addresses poverty and health status of the indigenous peoples in Argentina. Additionally, it confirms the importance of the Government's Health Sector Reform Program (HSRP) for the indigenous populationdue to the fact that most of the indigenous population live in the NOE and NEA regions which the proposed Maternal-Child Health Insurance would concentrate on inthe initial implementationphase. Despite the absence of disaggregated data, several sources indicate that there might be about one million indigenous peoples in Argentina, representing about three percent of the total population.2 However, the last population census (year 2001), implemented by the National Institute of Statistics (INDEC), records only 448,000 indigenous inhabitants, utilizing the "self-identification" meth~dology.~They represent between 15% to 25% o f the rural population in Argentina. Indications suggest that the poverty rate of the indigenous population i s significantly higher that the national average and that the indigenous populations are concentrated in the northern provinces of Argentina (NOE and NEA). Indigenous peoples' own conceptualization of poverty go far beyond an understanding of poverty as lack of income. Rather, their rights and identities as distinct peoples are at the center o f a self-conceptualization of well-being, quality of life and health. In this sense, the indigenous population i s at the core of the pro-poor and inclusion objectives of the Maternal and Child Health Insurance Program in Argentina. Background The UnitedNations (UN) estimates that there are over 350 million indigenous people in the world, of whom over 40 million live in Latin America (8%)4. N o universal definition of indigenous peoples exists and, because power and the legitimacy o f political representation have often been monopolized by states, indigenous peoples generally reject external attempts at defining them. From an indigenous perspective, the right to self-identification i s a fundamental right, which i s the basis for a broader recognition, to include culture, language, and religion. To identify, rather than define, indigenous identities, the working definitions provided by the International Labor Organization (LO) Convention 1695 i s the most commonly used. Such definitions underline the following aspects of indigenous identities: a) historical continuity with pre-colonial 1 Preparedby FernandoLavadenz (consultant,World Bank) with the collaborationof Sandra Cesilini * (Senior Civil Society Specialist, World Bank). Argentina, IndigenousCommunityDevelopment (LIL) Project.ProjectAppraisalDocument(2000), ReportNo. 20929, World Bank. INDEC, 2002, Comunidades Aborigenes de la RepliblicaArgentina. INCUP, Institutode Cultura Popular. 4 World Bank, Indigenous PeopleinLatinAmerica, HRD DiscriminationNotes,HumanResources ' Development and Operations Policy, no. 8, 1993. UNDoc. No.E/CN.4/Sub.2/1986/87 92 societies; b) strong link to territories; c) distinct social, economic or political systems; d) distinct language, culture and beliefs; e) lacking inclusion in dominant sectors of society; and f) self-identification as different from national society. Identifying and defining indigenous peoples in Latin America i s highly contested. Some governments may wish to underestimate the percentage of the population who are indigenous in order to minimize indigenous peoples' political role or deny them access to land. Other governments reject the use of the term `peoples' as it has consequences for the definition of collective rights. Some may choose to reject an indigenous identity due to the stigmatization associated with being indigenous. Adequate country-specific data about indigenous peoples i s a prerequisite for any study of indigenous peoples, poverty and access to quality health care. However, the reliability of data can often be questioned, as the criteria for identifying and defining indigenous peoples are political tools in the struggle for identity and rights. ILO Convention 169 emphasizes that self-identification as indigenous shall be regarded as a fundamental criterion. These characteristics give indigenous peoples a special position - they are their own guardians of cultural diversity. This, however, implies a certain vulnerability in the development process. Due to pressure from indigenous organizations, many Latin American states have to some extent recognized the existence of indigenous peoples and the need to reflect specific indigenous peoples' rights in constitutions and national legislation. Implementation, however, i s generally unsatisfactory. For some indigenous peoples, institutionalized discrimination has resulted in low self- esteem and a rejection of indigenous identity, language, and names. The level of recognition of the existence of indigenous peoples i s closely linked to the political pressure exercised by indigenous organizations and i s therefore a reflection of indigenous peoples organizational processes. It i s the struggle for a recognition as a `people' with collective rights that distinguishes indigenous peoples from other disadvantaged or vulnerable groups. In the health sector, the lack of respect of traditional health traditions creates a cultural barrier that limits access to health services. Therefore, there i s a need to address poverty among the indigenous peoples through rights-based approaches, centered around collective rights and the right to cultural integrity. Health care has to respect such cultural values and rights. Such "dignity"in health care i s generally recognized as an indispensable right inthe planning and provision of health services.. Poverty reduction has been recognized internationally as one of the main development goal as it forms part of the Millennium Development Goals.6 The importance o f poverty reduction was reaffirmed in September 2000 when 191 nations adopted the UN Millennium Declaration. The Declaration's target regarding poverty i s to reduce by half the proportion of people living on less than a dollar a day, by 2015. At the country level, poverty i s normally based on income level. A person i s considered poor if their income falls below the minimumnecessary to meet basic needs. 6 UNWorld SocialSummitinCopenhagen (1995) 93 Argentina The National Institute of Statistics (INDEC) distinguishes 17 indigenous peoples, distributed all over the country. As mentioned before, the number of indigenous inhabitants in Argentina has not been clearly determined due to problems o f identification and the complexities of ascertaining ethnic backgrounds. The recent population census (2001) included, for the first time, the important question about self-identification of the indigenous population (Box 6.1). Box 6.1. Self -identificationfor the indigenouspopulationinArgentina ILOConvention 169emphasizesthe importance of self-identification for the definition of indigenous peoples. The Convention has been ratified by Argentina, but official statistics were mainly based on external criteria for defining indigenous peoples. Only recently, the 2001 national census included, for the first time, a specific question on self-identification of indigenous peoples. Preliminary figures indicate that 3.5 % of Argentine households reports at least one member identified as indigenous descendant. In numeric terms, the most important indigenous peoples in the country, are the Kolla, Mapuche, Toba, Wichi Mataco and Tupi Guarani. 94 , Table 6.1: Distribution, Main Characteristics and Location of the Self-identified Indigenous PeoplesinArgentina Name of the Main Geographical Linguistic Location Estimated indigenous Characteristic groups population No* IPeodes 1.- Kollas rural, concentrated Quechuas 1Salta 170.000 Avmaras 2.- Mapuches rural, dispersed Mapuches 90.000 BuenosAires Rio Negro Chubut Wichi-Mataco rural, concentrated Mataco- 80.000 Mataguayo Formosa 4.- ITobas 1urban,dispersedand Guaycurii 60,000 Chaco Salta SantaF6 Rosario BuenosAires 5.- Chiriguanos Amazonia, 21.ooo dispersedand rural, dispersed; "golondrina" 6.- Mocovies rural, concentrated Guaycurh SantaFe 7.300 Tobas and Chaco Piloyi 7.- Diaguitas rural, dispersedand Calchaqui Tucumfin 6.000 "golondrina" Catamarca 8.- Pilaya rural, dispersed Guaycurii Chaco 5.OOO Formosa 9.- Mbaya- rural, dispersed Guaranies Misiones 3.000 Guaranies 10.- Tehuelches rural, dispersed Adnikan SantaCruz 1SO0 11.- Chanes rural, dispersed, Guaranies Jujuy 1.400 "golondrina" (arawuak) 12.- Chulupis rural, dispersed Asowaj Misiones 1.200 13.- Chorotes rural, dispersed Guaranies Misiones 900 14.- Tehuelches rural, dispersed GununaFune Chubut 700 Septentrionales (lost the idiom) 15.- Tapietes nodata rota1 15 mostly rural 448.000 dispersed - RephblicaArgentina, INCUP,Institutode Cultura Popular. 95 Based on an evaluation of the self-identification data collected by the population census, Table A6.1 shows the estimated population and location of the most important 15 indigenous peoples inArgentina. Almost 75% of all indigenous peoples (332,500) live in the N O A and NEA provinces (especially in the provinces of Salta, Formosa, Misiones and Chaco); most of them live in rural areas, either dispersed or in more concentrated forms. The larger population of Kollas maintain traditional language and costums and they are strongly related with the Aymara and Kolla Nations of Bolivia, Peru, and Ecuador. The Guaranies peoples are part of the ancient nation that had been formed by Argentina, Paraguay and Bolivia. Box A6.2: Indigenous peoples, Program beneficiaries Considering that the main beneficiaries of the Government HSRP program (which i s supported by the proposed PMCHSAL,) are women in reproductive age and children under six, it is estimated that approximately, 99.750 of indigenous women and 63.000 of indigenous children are potential beneficiaries of the program. This number represents about half of the total indigenous populations living in the NOA and NEA provinces, representing 37% of the total indigenous peoples inArgentina. Argentina's Indig;enous Peoples' Policy. The National Law 23.302 (Indigenous Policy and Strengthening the Aborigines communities), published in the Official Bulletin of November 12/1985 and its correspondent Decree No155/89, inthe articles 18, 19, 20 and 21, explain the position of the national Government with respect to the provision of health services for the indigenous population in Argentina: i)creation of medical transport units to reach the dispersed indigenous population, ii)free distribution of medicines, iii)provision of essential public health services (sanitation, water, control of vector borne diseases), and iv) provision of maternal and child heath care of these population. The same decree refers to some other aspects of health care for the indigenous population, specifically the respect of traditional medicines and values, the education of aborigines as primary health care auxiliaries, doctors and nurses, and the planning and monitoring o f those actions inthe original territory. The constitutional reform o f 1994 recognized for the first time indigenous territorial rights, established in Article 75, which guarantees, among other things: respect for their cultural identity and their right to a bilingual and inter-cultural education, recognition o f the juridical personality of their communities, and the communal possession and ownership of traditionally-held lands. It also establishes the need to ensure their participation in the management of natural resources. Argentina, as many other Latin American countries, has ratified ILO Convention 169. 96 The Health Sector Reform Program and Indigenous Peoples. The Government's HSRP, supported by this proposed sector adjustment loan contains a number of specific actions aiming at integrating and reaching out to the indigenous populations: A participatory planning, monitoring and evaluation system is being developed that would be used to prepare the investment operation supporting the HSRP of Government. The planning, monitoring and evaluation system will reach out especially to the indigenous population; Study tours to Ecuador and Bolivia have allowed both indigenous peoples and national technicians from the preparation team, to learn from World Bank- financed projects and grants in other countries like the "Free Maternal Law, (Ecuador) and Universal Maternal Child Health Insurance (Bolivia). Contacts and a possible agreement for the Integration of an Aymara Corridor linkingChile, Boliviaand Peruinhealth. This program is being developed though a Norwegian Trust Fund. PMCHIP could finance this initiative in health, trough the Solidarity fund. Inclusion of indigenous peoples trough a consultation during the preparation of the PMCHIPin Salta and Formosa or Misiones. Previous health experiences of covering indigenous population will be analyzed, like PROMINand Vigia. Allocation of resources for "public goods", or national programs trough a "indice COFESA, will benefit directly to the indigenous peoples in the N O A and NEA. This is an initiative of the PMCHSAL. Disaggregated data should be collected in the NOA and NEA regions and provinces, based on indigenous peoples' indicators of health, and an specific report will be prepared after the PMCHSAL and as a base line for the PMCHIP. The NOA and NEA solidarity fund in health will accept and promote both: systematic training on indigenous peoples rights trough non-governmental organizations (NGOs), and training inprimary health and "cultural health care". A legal instrument for corporate accountability like the Minority Rights, could be expressed using some other experiences (Bolivia), particularly in the Kolla population, trough the "chart of rights incultural safe maternity". 97 Y : j e, a I a a t Y I ANNEX 8. ARGENTINA FINANCIAL POSITIONINTHE IMF' As of August 31,2003 I.MembershipStatus:Joined:September20,1956; Article VI11 11.General ResourcesAccount: SDR Million %Quota Ouota 2,117.10 100.00 Fundholdings of currency 13,057.81 616.78 ReservePosition 0.05 0.00 Holdings Exchange Rate III.SDRDepartment: SDR Million %Allocation Net cumulative allocation 318.37 100.00 Holdings 857.82 269.44 IV. Outstanding Purchases and Loans: SDR Million %Quota ExtendedArrangements 597.76 28.23 Stand-by Arrangements 10.342.99 488.54 V. Latest FinancialArrangements: Approval Expiration Amount Approved Amount Drawn Type Date Date (SDR Million) (SDR Million) Stand-by Jan 24,2003 Aug 31,2003 2,174.50 2,174.50 Stand-by Mar 10,2000 Jan 23,2003 16,936.80 9,756.31 of which SRF Jan 12,2001 Jan 11,2002 6,086.66 5,874.95 EFF Feb 04,1998 Mar 10,2000 2,080.00 0.00 VI. Projected Payments to Fund (Expectation Basis)' (SDR Million; basedon existinguseof resourcesand presentholdingsofSDRs): Forthcoming 2003 2004 2005 2006 2007 Principal 3,008.23 4,971.15 1,308.91 1,108.60 543.86 Chargeshterest 93.05 150.74 53.28 26.46 5.39 Total 3,101.28 5.121.89 1.362.19 1,135.06 549.26 'This schedule presentsall currently scheduledpaymentsto the IMF, including repayment expectations and repayment obligations. The IMFExecutiveBoard can extend repayment expectations (within predetermined limits) upon request by the debtor country ifits externalpayments positioni s not strong enough to meet the expectations without undue hardship or risk, repayment schedules and IMFlending for details). Projected Payments to Fund; (Obligation Basis)' (SDRMillion;basedonexistinguseof resourcesandpresentholdingsofSDRs): Forthcoming 2003 2004 2005 2006 2007 Principal 2,324.58 3,714.12 2,132.82 1,138.12 1,087.25 Chargeshterest 94.25 186.70 91.41 50.68 26.30 Total 2,418.83 3.900.81 2.224.23 1.188.79 1,113.55 'This schedule i s not the currently applicable schedule of payments to the IMF Rather, the schedulepresents . all paymentsto the IMFunder the illustrativeassumptionthat repaymentexpectations-except for SRF repayment expectations-wouldbe extendedto their respective obligation dates by the IMFExecutiveBoard upon request of the debtor country (see repayment schedules and for details). SRF repayments are shown on their current expectation dates, unless already convertedto an obligation date by the IMFExecutive Board. VII. Implementationof HIPCInitiative: Not Applicable Preparedby Finance Department 103 ANNEX 9. STATEMENT OF LOANS AND CREDITS IBRWIDA* TotalDsb& (Pctive) 2243.55 ofwhichhasteenrepaid 324.98 TotalD s b d(Closed) 14,412.73 ofwhichhasbeenrepaid 8,699.38 TotalDsb& (PEtive Closed) + 1 1 ~ 6 , n 9 , 6 z . m ofwhichhasbeenrepaid 9,024,355,677.48 TotalM s b d(&five) 1564.18 TotalUndisbursed(Closed) 0.00 TotalUndisbursed(&five +Closed) 1,564,183,735.38 Activehi& DitTemBetwen LastPsR F2QectdandActd Supervisionbting O&id AnmuntinVSS Milliors D i S W b d RojedID hjed"E Development Indemntation Obiectives F%calYear IBRD IDA GRANT CanceL Undish Chig. FrmRev'd m9584 ARB.AE43.TSP U U 1997 200 122.3844736 121.3844736 37.9927505 Po14447 AR catanrarcaRuvincialRefm S U 2001 70 44.3 45 45 Po68344 ARcorQbaPRL5 S S 201 303 75 75 Po55935 ARELNTNOEMERGEVCYFPROJECI S U 1998 42 14.35951603 14.35951603 11.07337918 PM6052 ARFLOODPRoTEcnON S U 1997 200 96.5178953 96.5178953 2241832541 pO36040 ARmmYlDv S S 19% 16 4.43720067 4.43720367 0.4 Po57473 A R I N D I ~ o u s c o M M L T M n ~ P w ~ S U 2031 5 4.65921855 3.55921855 EO713 ARMODEL". U U 1998 5 3.31625862 3.31625862 2.76094436 pO36060 A R M L N C E W I I S S I995 210 4.07811 28.24930921 32.32742221 7.17743529 mm ARN.FORESTIPRUK2 S U lW7 19.5 11.04806529 9.MIXS29 Po52590 A R N A T H R Y W S S 1998 450 123.33293% 123.33293% 19.Z880Kd PM6050 ARFCLLNllONMGT. S S 1998 18 12 3.85062918 15.85(362918 9.85062918 FQ70374 AR PROFAMIJL S S 2002 5 4.369029 2.485029 1.159329 m 1 0 AR PROVAGEWI U U 1997 125 99.82198272 96.46198272 76.10698272 m 1 8 AR PROVEWn S S 1995 225 19.70164965 19.70164965 19.70164%5 Po35980 AR PROVROADS S U 1W7 m 183.3014798 183.3014798 103.4462686 m37049 AR PUB.INV.SRE"G S U 19% 16 5.5 5.03393265 10.53390266 " 4 3 AR~.FMRC%RMICE S U 1999 30 27.78567664 23.98567664 0.55 pOc6041 AR S M A UFARMERDV. S U 1998 75 32.71117817 32.71117817 11.872552 HK9913 ARsantaFkRuvincialRefm S S 2002 330 126.7 126.7 m57449 AR statelvbdanizatim U U 1999 30.303 23.45964885 23.45664885 Pa)5046 ARWAT3SCIRRFRM U U 1999 30 25.45350317 25.45350317 6.87103809 m 1 4 AR- SemndSemndarjEducationRujm S S 2 0 1 56.99 44.89238521 -12.09756739 Po4318 AR-AIDS andSTDControl S U 1997 15 0.92874615 0.92874615 p o w 1 AR-HI* EdReform S S 19% 165 25.4 18.95044566 44.39041566 44.35044556 FQ73578 AR-Jefesde %gar Ro@am S S 2033 603 307.6882139 307.6882139 Po36059 AR-h.ktemal&mdHlt&Nutrition2 S S 1997 103 2 8 . 1 m 9 7 28.1m97 Po55482 AR-hb. Hlth.S a &Disease Control S u m 52.5 21.35207619 2135207619 po05057 AR-SECONDARYED.2 S S 19% 115.5 23.59036357 23.59036357 Po36058 AR-scdal m . 4 S S 1999 9075 38.748919% 38.748919% ~139787 GEFAR-BIODICZRSmCONSERVATION S S 1998 10.1 8.12590701 4.97893452 0.35 Po49012 GEFAR-~Mm.bU.Preventicm S U 2001 8.35 8.14986684 2.14&12 1.745 Po45048 G E F A R - R E W 3 " l E E I N R W M 4 R K I S S S 1999 I O 9.1330551 7.7885M1 0.46126189 Po35920 MPIAR-REDUCIIONOF OZONED S S 1997 25 10.95569976 -10.78017971 0.8 GYerallW t 3soo.543 53.45 46.9781 1 6 c o . m ~i ~ . 1 6 1 m423.3~752 104 ANNEX 10. STATEMENTOF IFC'S PORTFOLIOFORARGENTINA International FinanceCorporation Statementof IFC's Held and DisbursedPortfolio Amounts in US Dollar Millions Country: Argentina Approval Fy Text Institution Name Loan Equity Quasi All Loan Equity Quasi Ail IFC Held IFC HeldlFC HeldPart HeldIFC Disb IFC Disb IFC DisbPart Disb 2000 ASF 20.00 0 0 20.50 20.00 0 0 20.501 1998 AUTCL 5.22 0 0 0.00 5.22 0 0 0.00 1994/2002 Aceitera General 30.00 0 0 30.00 30.00 0 0 30.00 1960/1995/1997/1999 Acindar 71.94 16.43 10.00 11.00 71.94 16.43 10.00 11 .oo 1994/1995/1996 Aguas 46.62 6.95 0 75.63 46.62 6.95 0 75.63 1977/1984/1986/1988/1994/1996 Alpargatas 0.00 0.00 0 48.79 0.00 0.00 0 48.79 1999 American Plast 5.00 0 0 0.00 5.00 0 0 0.00 1993 Arg Equity Inv. 0 2.79 0 0.00 0 2.79 0 0.00 2000 Argentina SMMC 18.78 12.50 0 0.00 18.78 12.50 0 0.00 1994/1999 BGN 0 0 0.00 0.00 0 0 0.00 0.00 2001 BSFE 4.08 0 0 0.00 4.08 0 0 0.00 1996/1999 Banco Gaiicia 65.00 0 0 245.00 65.00 0 0 245.00 1996 Bansud 1.13 0 0 0.00 1.13 0 0 0.00 2000 Bco Hipotecario 25.00 0 0 102.50 25.00 0 0 102.50 1996 Brahma ARG - 2.14 0 8.50 0.00 2.14 0 8.50 0.00 1997 Bunge-Ceval 7.50 0 5.00 0.00 7.50 0 5.00 0.00 1996 CAPSA 5.45 0 5.00 15.00 5.45 0 5.00 15.00 1999 CCI 0 20.00 6.00 0.00 0 20.00 6.00 0.00 1995 CEPA 6.67 0 3.00 1.20 6.67 0 3.00 1.20 2000 Cefas 10.00 0 5.00 0.00 6.00 0 5.00 0.00 1999 Correo Argentino 52.18 6.82 5.18 0.00 52.18 6.82 5.18 0.00 1994 EDENOR 3.43 0 15.00 0.00 3.43 0 15.00 0.00 1998 F.V. S.A. 6.75 0 4.00 0.00 6.75 0 4.00 0.00 1998 FAlD 0 1.21 0 0.00 0 1.21 0 0.00 2000 FAPLAC 10.00 0 5.00 0.00 10.00 0 5.00 0.00 1997 FRIAR 10.00 0 2.50 7.00 10.00 0 2.50 7.00 1996 Grunbaum 6.00 0 2.00 3.33 6.00 0 2.00 3.33 1995/1997 HSBC Argentina 16.00 0 20.00 0.00 16.00 0 20.00 0.00 1998 Hospital Privado 9.06 0 0 0.00 9.06 0 0 0.00 1992 Huantraico 0 27.00 0 0.00 0 0.00 0 0.00 1995/1997 Kleppe/Caldero 10.21 0 0 0.00 10.21 0 0 0.00 1992/1993/1996 Malteria Pampa 2.50 0 1.00 0.00 2.50 0 1.oo 0.00 1997/2000 Milkaut 5.63 5.03 10.00 1.50 5.63 2.89 10.00 1.50 1978/1981/1986/1987/1991/1993/1E Minetti 18.01 0 12.35 45.60 18.01 0 12.35 45.60 1993/1994/2003 Molinos 30.00 5.55 0 30.00 30.00 5.55 0 30.00 1995 Nahuelsat 8.82 0 0 0.00 8.82 0 0 0.00 1996/1999 Neuquen Basin 0 31.40 0 0.00 0 8.84 0 0.00 1993 Nuevo Central 0 3.00 0 0.00 0 3.00 0 0.00 1998 Patagonia 2.06 0 1.00 0.00 2.06 0 1.oo 0.00 1998 Patagonia Fund 0 14.97 0 0.00 0 7.95 0 0.00 1996 Pecom 1.82 0 0 0.00 1.82 0 0 0.00 1994 Quilmes 4.00 0 0 0.00 4.00 0 0 0.00 1992 Riopiatense 5.33 1.00 0 1.67 5.33 1.oo 0 1.67 1999 S.A. San Miguel 7.47 0 0 0.00 7.47 0 0 0.00 1996 SIDECO 0 15.00 0 0.00 0 15.00 0 0.00 1995 SanCor 8.74 0 20.00 0.00 8.74 0 20.00 0.00 1995 Socma 6.26 0 0 15.00 6.26 0 0 15.00 1997/1998/1999/2003 Suquia 36.00 0 10.00 0.00 36.00 0 10.00 0.00 1997 T6i 6.67 0 5.00 15.00 6.67 0 5.00 15.00 1987/1989/1990/1996/1997 Terminal 6 8.64 0 0 6.50 8.64 0 0 6.50 1995 Terminales Port. 3.50 0 0 0.00 3.50 0 0 0.00 1995/2000 Tower Fund 0 19.83 0 0.00 0 18.72 0 0.00 1995 Tower Fund Mgr 0 0.05 0 0.00 0 0.05 0 0.00 1996/1997 Transconor 20.29 0 17.87 157.58 20.29 0 17.87 157.58 ?001 USAL 10.00 0 0 0.00 7.30 0 0 0.00 I997/2003 Vicentin 45.63 0 0 30.00 45.63 0 0 30.00 I993 Yacylec 3.00 5.04 0 0.00 3.00 5.04 0 0.00 I996 Zanon 17.67 0 0 0.00 17.67 0 0 0.ool rota1Portfolio: 700.20 194.57 173.40 862.80 693.50 134.74 173.40 862.80 105 ANNEX 11. PUBLICINFORMATION NOTICE (PINNO.03/88) FROM THE IMF On January 8, 2003, the Executive Board of the International Monetary Fund(IMF) concluded the Article IV consultation with Argentina.l Background Since the last Article IV consultation, which was concluded in September 2000, far-reaching developments inArgentina have transformed its economic situation and prospects. A complex set of factors resulted in the massive loss of domestic and foreign confidence that forced Argentina's sovereign default inlate 2001, and the abandonment of its decade-long currency board arrangement in early 2002. At the macroeconomic level, the currency board arrangement was not adequately supported by the rest of the policy framework. Inflexibilities in many sectors of the economy could not compensate for the real appreciation experienced during the 1990spartly reflecting the strong U.S. dollar and the depreciation of the Brazilian real after 1999. Inparticular, fiscal policy grew progressively inconsistent with the demands of the currency board regime and a sizable public debt was built up duringthe second half of the 1990s. On the external front, reduced appetite of foreign investors for emerging market debt caused a sharp slowdown of capital inflows to Argentina, leadingto a sudden and significant increase in the marginal cost of borrowing that weakened the prospects for economic growth and debt rollovers. Originsof the Crisis The role of fiscal policy was central to the crisis. Persistent cash deficits and "off-budget'' debt-creating expenditures added to a mainly dollar-denominated public debt. Even in the years of high growth following the reforms of the early 1990s,the fiscal effort was insufficient to produce adequate primary surpluses. These fiscal problems were the product of vested interests, and resistance to fiscal reforms in the provinces. The sustainability of the higher public debt ratio depended on maintaining healthy growth, strengthening the fiscal primary balance, and ensuring accessto international capital. Inthe event, none of these conditions came to apply. The prolongedrecession that preceded the crisis reflected both falling confidence and a lack of flexibility in the economy that was incompatible with the currency peg. The steady real appreciation of the peso could not be accommodated in an orderly fashion given structural rigidities in the labor market and fiscal policy. Eventually, the brunt of the adjustment fell on domestic prices and employment, placing the economy on a deflationary path and making it difficult to get the political support to re-orient economic policies. High dollarization of the economy meant that any exit from the convertibility plan was bound to be very costly and disruptive. As a consequence, successivegovernments have shown a high degree of reluctance to consider an orderly transition to another exchange rate regime. Not only was fiscal solvency tied to the currency peg, but also that of the financial system. Banks were heavily exposed to losses from a government default and to credit risk in the event of a devaluation, as a result of making U.S.dollar- denominated loans to clients whose earnings were denominated mainly inpesos. At a more general level, the dominance of the nontradable sector and narrow export base were fundamentally at odds with a liberalized capital account, and a high reliance on dollar-denominated borrowing. Developments in 2001-02 In2001, the economy entered the third consecutive year of negative growth. After a cumulative decline of 4% percent in 1999-2000, real GDP fell by 4% percent in 2001, and prices continued to decline. Inthe first nine months of 2002 real GDP is estimated to have fallen by 13 percent (reflecting large declines in consumption and investment), although economic activity appears to have stabilized since then. B y October 2002, the unemployment rate i s estimated to have risen to about 23 percent and there was a large increase inthe numberof people living inpoverty. The price deflation of earlier years was reversed in 2002 following the sharp depreciation of the peso. Monthly inflation peaked in April at 10%percent, and slowed sharply from mid-2002. The public finances deteriorated sharply in 2001, at both the federal and provincial level, with the overall cash deficit of the consolidated public sector increasing by 2% percent of GDP to 6% percent of GDP. The position improved in 2002, owing mainly to the implementation of a revised revenue-sharing agreement 106 with the provinces and tight control over spending. The cash fiscal position, however, conceals the extent of the underlying deterioration in the public finances, as there were large debt-creating expenditures, such as bond issuancein connection with the banking crisis, and the capitalization of interest payments. A comprehensive measure would bring the augmented primary and overall deficits of the consolidated public sector in 2002 to 11%percent and 25% percent of GDP, respectively. The public debt-to-GDP ratio is estimated to have risen to 119 percent by June 2002. Financing difficulties and the collapse of economic activity shifted the external current account from a deficit of about US$4.5 billion in 2001 to a surplus of about US$9 billion in 2002. The adjustment was driven by a sharp contraction in imports, while exports were flat. Private net capital outflows in 2001-02 are estimated at about US$38 billion, while gross internationalreserves fell by US$20 billion to about US$lO billion. In2002, external payments arrears reached about US$8.25 billion, including to multilateral and bilateral creditors. Executive BoardAssessment Executive Directors regretted that, since the last Article IV consultation in September 2000, Argentina has faced an acute economic and social crisis. Argentina's situation has been fundamentally transformed, with the economy contracting and the poverty and unemployment situation deteriorating. A complex set of economic, institutional, and political factors has led to a massive loss of confidence, default on the foreign debt, and abandonment of the decade-long currency board arrangement. Against this background, Directors expressed their conviction that Argentina will need to formulate and implement-with support of the international community-a strongly-owned program of stabilization and wide-ranging reforms to resolve deep-seatedinstitutional, macro-economic and financial problems, restore confidence, and rebuild economic growth and financial sustainability. They expressedthe hope that a transitional program, that could build a bridge to such a comprehensive program, could be agreed at an early date. Inparticular, Directors hoped that the transitional program will include credible commitments in the area of fiscal and monetary policies, actions to strengthen the banking system, and measures to strengthen Argentina's cooperation with the international community and dialogue with the private sector, in ways that will facilitate a workable transition to a comprehensive program. Directors had a wide-ranging discussion of the crisis that engulfed Argentina at the end of 2001. They were of the view that Argentina's currency board arrangement was ultimately undermined by its lack of support from the domestic policy framework and by unfavorable external circumstances. Inparticular, a deteriorating fiscal performance (including off-budget expenditures, persistent provincial deficits, and revenue mismatchin the pension reform) resulted inrising public debt, while structural rigidities, including in the labor market, prevented adjustment to an appreciating real exchange rate. Argentina's vulnerability to external shocks was further compounded by the small size and relatively undiversified structure of its export sector relative to the increasing opennessof its capital account and reliance on external financing. Some Directors also drew the conclusion that, while the currency board may initially have served Argentina well, it had not been an adequate exchange rate regime choice given the fiscal choices made in Argentina and unfavorable external developments. More broadly, Directors underscored the critical importance of addressing vulnerabilities before they become severe, and the important role that Fundsurveillance and conditionality have to play in focusing early and sufficiently on sustainability issues. They considered that timely action to correct vulnerabilities, which in the case of Argentina would likely have included an orderly exit from the currency board arrangement, might very well have prevented a crisis that-in the absence of strong domestic ownership of policies crucial for sustainability-became inevitable. Some Directors also noted that the Argentina crisis highlights the importance of properly integrating external factors, including regional dimensions, into Fund surveillance. The Executive Board will have further opportunities to come back to these issues in the broader context of the ongoing effort to strengthen surveillance and focus conditionality. Turning to the authorities' initial response to the crisis, Directors regretted the time it had taken to develop a consistent policy response that would have enabled Argentina to move toward a Fund-supportedprogram during 2002. Initial failure to build a strong political consensus toward resolving the crisis in an orderly and equitable way-admittedly a difficult task given the severity of the situation-had contributed to policy reversals that greatly added to the social cost of the crisis. Inparticular, Directors noted that early 107 government actions during 2002-such as the decisions to convert banks` foreign currency denominated assets and liabilities into pesos at asymmetric exchange rates, and amendments to the insolvency law that tilted the balance sharply against creditors-had exacerbatedthe economic situation and impeded recovery. Directors were nevertheless encouragedby signs of a return to economic stability in the second half o f 2002. Following a sharp decline in real GDP, economic activity has stabilized in recent months; inflation has slowed sharply from its April peak; the external position shows some signs of improvement; and the banking system as well as market indicators have been relatively stable. Directors welcomed the fiscal spending restraint that has contributed to achieving this stability, but cautioned that it also reflects controls on foreign exchange transactions and on utility prices. They were concerned that, with fiscal and banking solvency still to be assured, and indications of repressedinflation, stability i s still fragile, and needsto be put on a firm footing. Directors considered that, in buildingan enduring recovery, reversing rapidly rising poverty trends, and achieving external and fiscal sustainability, Argentina will need to address five major challenges in the context of a sustained medium-term restructuring effort. These are, first, giving reassurances about legal certainty and the political consensus for reforms; second, establishing a robust fiscal framework encompassing the provinces; third, continued progress inresolving the monetary overhang and restoring confidence in the banking system; fourth, undertaking structural reforms to further liberalize the economy and increase trade openness; and fifth, restructuring debt and reestablishing orderly relations with creditors. While a credible program of core measures, including strong fiscal and monetary performance, can facilitate the transition period to a new government, Directors stressed that only full implementation o f a comprehensive program, based on strong domestic ownership, can achieve lasting results. Inthis context, some Directors called for a broad-based public debate to forge the political, economic, and social consensus that will be needed to support the required reforms. Directors underscored the urgency o f restoring legal certainty in Argentina-as a precondition to reviving new credit flows, investment, and growth. They noted that, even after the reversal of earlier measures, creditors continue to face uncertainties about the enforcement of their contractual rights, and urged the authorities to work expeditiously toward improving the investment environment. Directors hoped that marketconcerns about the continuity of economic policies following the political transition could be quickly addressed, and looked forward to continued actions in the institutional sphere to improve governance and secure the respect for the rule of law. Directors viewed the restoration of fiscal solvency as a sine qua nono f a sustainable economic program, and noted that this task will require a fundamental break with the past involving several dimensions affecting both the federal government and the provinces. Inthe short run, both levels of government will inevitably need to rely on tight control over primary spending, and Directors saw expenditure restraint as key to achieving the targeted consolidated primary surplus of 2.5 percent of GDP in 2003 and closing the financing gap without monetization. At the same time, it will be important to ensure that social safety net programs are adequately funded and become fully operational. Going forward, Directors agreed that rebuilding tax administration and a culture of compliance will be essential to raising revenues and attaining the higher primary surpluses that will help sustain the public finances in the medium term. Inthis context, some Directors noted that Argentina's revenue effort i s below several other countries in the region. Directors urgedthe authorities to plan the needed tax reforms without further delay and build consensus for them, and welcomed recent legislation eliminating the ability of the executive to grant tax amnesties as a key step toward a comprehensive reform o f the tax system. They also called for continued efforts to eliminate remaining Competitiveness Plans, and looked forward to the re- instatement of the recently cut VAT rates to their previous levels at the end of the 60-day reduction period. Directors were strongly of the view that provincial governments need to be firmly anchored in the adjustment effort in order to achieve fiscal sustainability. Work should begin as soon as possible toward a comprehensive reform of intergovernmentalrelations that would draw upon the lessons from Argentina's poor fiscal performance in the 1990s,and that would be supported by an incentive structure that ensures fiscal discipline and responsibility at all levels of government. Inthe short run, Directors urged the authorities to seek early ratification by provincial legislatures of the bilateral agreements that would underpinthe 2003 fiscal targets for the provinces, and to make additional efforts to improve the 108 transparency, quality, and timeliness of the data reported on the provincial finances to ensure effective monitoring. They also saw as essential for monetary and fiscal discipline that provinces end the issuance of all new quasi monies. Turning to monetary control issues, Directors considered the consolidation of a credible monetary anchor as crucial to maintaining macroeconomic stability. They commended the central banks efforts in building its instruments o f monetary control, but a number o f Directors cautioned about the risks associated with potentially significant leakagesrelated to the amparos and the reprogrammed time deposits to be released in2003. Some other Directors, however, saw this riskas rather low, given the experience thus far and the relatively robust demand for money. Directors welcomed the recent stability and rise of bank deposits and expressedthe hope that a credible short-term economic program would reinforce this stabilizing trend. They noted, however, that the pendingruling by the Supreme Court on the constitutionality of the pesoization of bank deposits is adding to uncertainties, and underscored the importance of resolving this issue in a manner that does not undermine establishing a credible monetary anchor. Directors discussed several other steps that would more fully restore depositor confidence, limit the fiscal costs of the crisis, and rebuild a sound banking system-all of which are necessaryto promote domestic saving, investment, and growth. They urged the authorities to work in close cooperation with the Fundstaff on bank resolution issues and inimplementing an orderly strategy to identify and resolve weak banks according to consistent principles. Directors looked forward to early strong efforts to further strengthen confidence in the banking system, which will be key to ensuring lasting economic stability. They also encouraged the authorities to reaffirmtheir commitment to safeguarding and strengthening central bank independence, and looked forward to early approval of legislation that would protect public officials carrying out their duties in the bank resolution process. Directors welcomed the authorities' efforts to strengthen the central bank's system of internal controls, and encouraged them to stand ready to take further actions as needed in line with the Fund's safeguards assessment. On structural issues, Directors considered that the greater stability inthe economy provides the opportunity to liberalize the exchange controls that had been imposed in 2002 at the height of the crisis, and to initiate wide-ranging reforms necessaryto revive investment and growth. They welcomed, in this regard, the steps recently taken, including those announced immediately prior to the Boardmeeting, to remove most of the remaining Article VI11exchange restrictions and ease export surrender requirements. Directors looked forward to early further steps to liberalize the restrictive compulsory export surrender requirement which would help rebuildconfidence. Most Directors noted with concern that the situation regarding utility pricing could be putting a large burdenon price adjustments in2003, andregretted that the recently decreed tariff increasesfor gas and electricity companies, as well as the public hearings on tariff increases, have been halted by the courts. Directors underscored the urgency of an early joint IMFWorld Bank diagnostic mission to assess the financial situation o f the utility companies and develop an appropriate regulatory framework that will secure their financial and operational viability, while ensuring that the social impact of price adjustments is properly taken into account. Among other structural reforms, Directors saw a need for a renewed emphasis on trade liberalization and diversification, given Argentina's relatively low level o f trade integration. They encouraged the authorities to further lower trade barriers, and seek improved market access for Argentina's products in the context of regional and multilateral trade negotiations. Inthe short-term, efforts should focus on reducing administrative obstacles to exports, and, over time, phasing out export taxes. Directors underscored that, in order to strengthen Argentina's medium-term outlook, the authorities face the key challenge o f restructuringArgentina's public debt in a manner that will help normalize relations with private creditors and begin the process of attracting capital flows back into the country. They welcomed the authorities' recent steps to initiate contacts with private creditors, and their intention to intensify this dialogue with the assistanceof external debt restructuring advisors. Directors looked forward to continued progress, particularly with institutional investors, in this area, and urged the authorities to make all necessary efforts toward advancing a constructive dialogue with private creditors on a debt restructuring, consistent with the "good faith" criterion under the Fund'spolicy for lending into arrears. While noting that 109 significant net payments had been made by Argentina to the international financial institutions in 2002, Directors regretted Argentina's decision to fall into arrears with the World Bank and urged the authorities to eliminate them as soon as possible. This will clear the way for implementation o f the Bank's program of social support under the Heads of Household program. Directors urged the authorities to remain current on their obligations to the internationalfinancial institutions. Directors noted that, even with the maintenance o f a substantial fiscal adjustment effort, Argentina's medium-termdebt outlook appears very difficult. Debt ratios will remain very high and financing needs very large, while prospects for regaining market access will likely improve only gradually. They urged the authorities to work closely with the international community and to strengthen their efforts to reach a cooperative solution with private creditors to secure financing and achieve fiscal and external sustainability over the mediumterm. 110 Argentina: Selected Economic Indicators Est. 1998 1999 2000 2001 2002 (Annual percentagechanges; unless otherwise indicated) National incomeand prices Real per capita GDP 2.6 -4.6 -1.7 -5.6 -10.8 GDP at constant prices 3.8 -3.4 -0.8 -4.4 -11.0 Consumption 3.1 -2.6 0.2 -4.4 -13.6 Investment 6.5 -12.6 -6.8 -15.7 -39.0 Net exports (contribution to growth) 0.0 1.4 0.3 2.1 6.4 Industrial production (average) 1.6 -6.5 -0.3 -7.6 -12.0 Consumer prices (average) 0.9 -1.2 -0.9 -1.1 25.9 Consumer prices (end-of-period) 0.7 -1.8 -0.7 -1.5 41.9 External sector (interms of US.dollars) Exports, f.0.b. 1.o -12.6 13.2 0.9 0.2 Imports, c.i.f. 3.1 -18.7 -1.2 -19.5 -55.1 Export volume 11.6 -0.7 2.8 4.5 4.3 Import volume 8.7 -13.8 -1.2 -16.8 -55.8 Terms of trade (deterioration -) -5.5 -5.9 10.2 -0.6 -1.1 Real effective exchange rate, average (depreciation -) 3.5 12.4 -0.7 6.0 -57.3 Real effective exchange rate, year-end (depreciation -) 0.3 12.6 1.7 2.9 -54.7 Money and credit Banking system Net domestic assets 14.6 4.7 3.3 5.O ... Of which: credit to private sector 10.8 -2.1 -3.8 -17.6 -37.5 Money (M2) 24.7 -2.4 -2.5 10.7 -9.4 Velocity (GDP relative to M2) 8.0 7.6 7.8 8.1 7.8 Interest rate (30-day deposit rate, in percent) 1/ 7.6 8.0 8.3 16.2 41.8 (Inpercent of GDP) Public sector savings -0.5 -2.6 -2.2 -4.7 -2.0 Federal government cashprimary balance 0.9 0.4 0.9 0.1 0.5 Federal government cash overall balance -1.3 -2.5 -2.5 -4.4 -9.4 Consolidated public sector cash primary balance 0.6 -0.7 0.4 -1.4 0.0 Consolidated public sector cash overall balance -2.0 -4.1 -3.6 -6.8 -10.3 Gross domestic investment 19.9 18.0 16.2 14.2 10.7 Gross national savings 15.2 13.8 13.1 12.5 18.8 Current account deficit -4.8 -4.2 -3.1 -1.7 8.1 Public sector external debt (end-of-year) 27.8 29.9 29.7 32.8 83.6 111 (Inpercent of exports of goods and nonfactor services; unless otherwise indicated) Public sector debt service 38.0 49.6 54.8 65.7 47.4 Ofwhich: interest payments 17.5 22.4 21.7 21.0 22.4 Outstanding use of Fundresources (in percent of quota at end-of-period) 251.5 154.1 183.2 525.3 499.8 Gross foreign exchange reserves21 8.2 10.1 9.8 6.6 8.6 Sources: Ministry of Economy; and IMFstaff estimates. 1/ Average interest rate on 30- to 59-day time deposits innational currency. The rate i s weighted by deposit amounts. 21In months of imports of goods and nonfactor services. IUnder Article IV of the IMF'sArticles of Agreement, the IMFholds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views o f Executive Directors, and this summary i s transmitted to the country's authorities. 112 ANNEX 12. COUNTRY AT A GLANCE Argentina at a glance 9/4/03 1 Latin Upper- America middle- Argentina & Carib. income Development diamond' 2002 Population, mid-year (millions) 37 9 527 Life expectancy GNI per capita (Atlas method, US$) 4,080 3,280 5,040 GNI (Atlas method, US5 bilhons) 154.7 1,727 1,668 331 Average annual growth, 1996-02 I I I Population (%) 1.2 1.5 Labor force PA) 2.2 2.2 - , Most recent estimate (latest year available, 1996-02) capita \ I , ' enrollment Poverty (% of population below nationalpoverty line) 55 Urban population (% of total population) 88 76 75 Life expectancy at birth (years) 74 71 73 infant mortality (per 1,000 live births) 17 27 19 Child malnutntion (% of children under5) 5 9 Access to an improved water source ('A ofpopulation) 86 Illiteracy (% of population age 15+) 3 11 I Gross primary enrollment (% of school-age population) 120 130 -A rgentina Male 120 131 106 Upper-middle-income group Female 120 128 105 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US5 billions) 84.3 2288 268.7 1022 Gross domestic InvestmenffGDP 21 8 16.7 14.2 12.0 Exports of goods and ServiceslGDP 9.1 6.6 11.5 27.7 Trade Gross domestic savings/GDP 24.3 15.2 15 5 27 2 Gross national savings/GDP . 13.6 12.5 21.3 Current account balance/GDP -2.8 -2.5 -1.7 9 4 Domestic Interest paymentdGDP 6.7 2.1 4.5 9.8 ~ Total debtiGDP 51.8 29 9 52.2 131.4 savings Total debt service/exports 50.0 27.6 109.6 102.5 Presentvalue of debVGDP 54.7 Presentvalue of debtiexports .. 401.3 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 1.5 1.7 -4.4 -10.9 0 5 -Argentina GDP per capita 0.2 0 4 -5.6 -12.1 -0 7 Upper-middle-income group Exports of goods and services 4.1 8.1 2.7 3.2 3.7 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (% of GDP) I Agriculture industry 41.1 30.7 26.6 31.9 Manufacturing 31.4 21.9 17.0 21.3 o Services 49.3 63.3 68.6 57.4 -20 Private consumption .. 81.9 73.9 64.8 General government consumption 3.6 10.6 7.9 Imports of goods and services 6.5 8.1 10.2 12.5 1982-92 lgg2-02 2o01 2o02 (average annual growth) Growth of exports and imports ( O h ) I Agriculture 0.7 3.2 1.I -2.3 40T . I Industry 0.0 2.1 -6.5 -13.5 20 Manufacturing 0.1 1.I -7.4 -10.5 0 Services 1.1 3.3 -4.0 -9.2 -20 Private consumption General government consumption Gross domestic investment 0.6 0.8 -15.7 -36.1 -Exports *Imports Imports of goods and services Note: 2002 data are preliminafy estimates. *The diamonds show four key indicators in the country (in bold) compared with its income-groupaverage. If data are missing, the diamond will be incomplete. 113 Argentina PRICES and GOVERNMENTFINANCE 1982 1992 2001 2002 Domesticprices Inflation(%) ("A change) I s o T Consumer prices 164.8 24.9 -1.5 41.0 40 ImplicitGDP deflator 207.6 11.9 -1.1 30.8 30 20 Governmentfinance 10 (% of GDP, includes currentgrants) 0 Current revenue 18.7 17.1 19.0 17.8 - i o Currentbudget balance -2.4 2.1 -2.3 -0.8 I Overall sumlus/deficit -9.6 1.3 -3.3 -3.0 -GDP deflator +CPI I TRADE 1982 1992 2001 2002 (US$ millions) Export and importlevels(US$ mill.) Total exports(fob) 12,399 26,610 25,709 140,000 Food 1,548 2,355 2,275 Meat 767 946 914 30 ow Manufactures 2,823 15,770 15,733 Total imports(cif) 14,982 20,321 8,989 20 000 Food Fueland energy 510 841 480 10000 I Capital goods 6,479 4,182 1,319 0 Exportprice index (1995=100) 87 83 96 97 98 99 00 01 02 Importprice index (1995=100) 84 82 Exports Imports Terms of trade (1995=100) 104 1 BALANCEof PAYMENTS 1982 1992 2001 2002 (US$ millions) Currentaccount balanceto GDP (?h) Exportsof goods and services 9,185 15,382 30,940 28,643 Importsof goodsand services 6,514 19,335 27,456 13,010 l5 T Resourcebalance 2,671 -3,952 3,484 15,633 i o Net income -5,058 -2,473 -8,243 -6,457 5 Net currenttransfers 0 770 281 414 0 i Currentaccount balance -2,387 -5,655 -4,477 9,590 Financingitems (net) 1,718 8,992 -16,929 -13,377 5 Changesin net reserves 669 -3,337 21,406 3,787 1-10 1 Memo: Reservesincludinggold (US$millions) 16,516 14,546 10,492 Conversionrate (DEC, local/US$) 1.o 1.o 3.1 EXTERNALDEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$millions) 1 Compositionof 2002 debt (US$ mill.) Total debtoutstandingand disbursed 43,634 68,345 140,242 134,247 IBRD 504 2,505 9,440 8,513 IDA 0 0 0 0 Total debt sewice 4,876 4,882 24,012 5,826 IBRD 98 611 1,388 1,870 IDA 0 0 0 0 Compositionof net resourceflows Officialgrants 1 42 6 0 Officialcreditors 58 760 10,492 -1,851 Privatecreditors 2,755 38 -27,974 137 Foreign direct investment 678 1,836 3,380 1,741 Portfolioequity 0 13 -9 -27 84595.424 World Bank program 79 Commitments 0 1,004 436 250 A - IBRD E Bilateral Disbursements 120 460 1,329 424 B IDA - D Other multilateral ~ F Private Principalrepayments 46 351 676 1,353 C-IMF G Short-term .-- Net flows 74 109 653 -928 Interestpayments 36 216 668 512 Net transfers 38 -107 -15 -1,441 DeVelODment Economics 9/4/03 114 MAP SECTION